Managing Director and Chairwoman of the International Monetary Fund(IMF) Christine Lagarde has embraced the concept of Central Bank Digital Currencies (CBDC). According to Lagarde, the international community should consider endorsing CBDC which could certainly play a role in the digital economy.
Speaking at the Singapore FinTech Festival on November 14th, she said:
“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.”
Explaining the advantage of this type of a currency, Ms.Lagarde said:
“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.”
It is important to note that the currency will be issued by the state and not private entities, unlike Tether or USDC. Countries like Canada, China, Uruguay, and Sweden are all seriously considering digital currency proposals.
Ms.Lagarde also released a report on Wednesday titled “Casting Light on Central Bank Digital Currency”, which criticizes Cryptocurrencies like Bitcoin. The report suggests that Cryptocurrencies have erratic valuations and calls them the least attractive option.
It is not a question of ‘if’ but ‘when’ will countries start to issue their own Digital Currencies. Digital currencies are more transparent, trackable and fit into the digital economy. All these attributes make it favorable for governments as they will be able to track where the money is flowing.
Governments hate cash because of its untrackable nature, although there are governments where the privacy of individuals is respected the anonymous nature of cash makes it easier for individuals to evade taxes and store their wealth without the government’s permission.
However State-backed digital currencies are a double-edged sword because countries can isolate themselves from the global financial system by issuing their Digital currency, we probably will witness this from Iran which got excluded from the SWIFT banking system.
There is no doubt in my mind that countries like China and India will eventually launch their own Digital Currencies, just a matter of time.