IMF chief Christine Lagarde has said that cryptocurrencies are on course to give traditional money real competition. She said this at a recent conference in London where she told attendees that she thinks “it may not be wise to dismiss virtual currencies.”
In her speech, she gave possible scenarios in which a country – particularly the ones with ”weak institutions and unstable national currencies” might actually get to actively embrace it.
“Instead of adopting the currency of another country – such as the U.S. dollar – some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0,” she said.
She believes that a shift in consumer preference will be one of the driving factors behind this potential currency revolution. This is due to the fact that consumers are in consistent search for new currencies that are “easier and safer” to use. She states that the scenario could be quickened if cryptocurrencies “actually become more stable.”
She went on to say that:
“So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”
However in the earlier parts of her speech, she noted that such an outcome is a distant prospect. She said that cryptocurrencies are “too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable.”
The IMF has maintains the view that a balanced approach on cryptocurrency regulation is the best strategy. The institution made this position known in a January 2016 staff paper. Lagarde has voiced her support for financial applications of blockchain, and this is a topic that the IMF has explored on an organizational level already.