IMF Head Says Central Banks Should Look At Issuing Digital Currency

IMF head Christine Lagarde called on central banks to seriously consider issuing digital currency to fill the gap left by the declining use of cash.

The Financial Times, citing comments the head of the IMF made in Singapore, reported Lagarde thinks there could be a role for central banks to aid financial inclusion and prevent instances where “too much power could fall into the hands of a small number of outsized private payment providers.” Lagarde said by embracing digital currencies central banks can supply money to the digital economy.

The IMF head did note that the central banks would have to figure out how to balance privacy with the need to prevent crime with digital tokens. According to the Financial Times, as it stands now, central banks are divided on how to respond to the increase in digital payments and digital tokens. In one camp is Sweden’s Riksbank, the Bank of Canada and the People’s Bank of China, which the Financial Times reported are already mulling issuing digital tokens to the public. “If banknotes and coins have had their day, then in the near future, the general public will no longer have access to a state-guaranteed means of payment,” Stefan Ingves, the Riksbank governor, wrote in June, asking, “In a cashless society, what would legal tender mean?” reported the Financial Times.

At the same time that the IMF called for central banks to consider digital currency, a published IMF paper Wednesday (November 14) argued it’s too early to determine if there would be benefits to central bank digital currency and that how it fared would vary from one country to the next. Lagarde isn’t so sure that regulation would suffice to build trust in new forms of currency. “In the old days, coins and paper notes may have checked the dominant positions of the large, global payment firms … by offering a low-cost and widely available alternative,” she said. She noted that a state-backed digital currency could boost competition and be an important backup if payment companies were hacked, went bankrupt or a company exited the local market. It may also be necessary to promote financial inclusion if the majority of people in a country switch to electronic forms of money and the infrastructure for cash suffers as a result.