On November 14, 2018, the International Monetary Fund’s (IMF) Managing Director Christine Lagarde is of the opinion that governments and central banks should look into issuing state-backed digital currencies, witnessing the global shift to cashless economies. Although, IMF chief stated that such innovation could best be achieved by a public-private partnership.
Regaining Footing in Digital Money Ecosystem
Speaking at the Singapore Fintech Conference, IMF Chairwoman Lagarde backed the idea of a central bank issued digital currencies (CBDCs), citing the decline in used of cash and cash-based transactions.
“I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy,” said Lagarde.
Per Lagarde, governments and the central bank may have a crucial role of a trusted player in the digital money ecosystem. The rise of electronic payments poses a raising challenge for central banks and governments globally.
At present, the digital economy is entirely reliant on the private financial sector, giving the very few private payment providers abundance power. If more people switched to digital money than would significantly devalue the existing cash infrastructure. Therefore IMF head believes that introducing CBDCs is one way central banks can gain footing in the payments market.
In her speech, IMF head stated:
“The advantage is clear. Your payment would be immediate, safe, cheap and potentially semi-anonymous. And central banks would retain a sure footing in payments.”
Lagarde believes that transactions will become cost-effective and commonplace with the introduction of government-backed tokens. IMF Managing Director argues that being the liability of the state, the CBDCs would even be more secure as opposed to cryptocurrencies.
CBDCs to Ensure Financial Inclusion
Highlighting the benefits of CBDCs,