Central Banks Need to Compete With Crypto. And in order to ward off any potential competition from cryptocurrencies, Central Banks need to offer “better” fiat currencies. This was an observation and suggestion made by the deputy director for the International Monetary Fund’s Monetary and Capital Markets Department.
The suggestions came in an article published Thursday, penned by deputy director Dong He. In that article – which boasts the tagline “Crypto assets may one day reduce demand for central bank money” – He argues that central banks may want to consider adopting some of the concepts in order to “forestall the competitive pressure crypto assets may exert on fiat currencies.”
Another IMF Official had once made this suggestion too back in March. Christine Lagarde said during an event that regulators should deploy some elements of the tech in order to ” fight fire with fire.”
This latest arguments by the deputy director is based on the possibility that, should cryptocurrencies and crypto-assets see wider adoption, there is a chance that central banks will lose their ability to influence the economy through tactics such as interest rate changes.
The deputy director suggested that tightening regulation could provide a boost for central banks.
“Second, government authorities should regulate the use of crypto assets to prevent regulatory arbitrage and any unfair competitive advantage crypto assets may derive from lighter regulation,” He wrote. “That means rigorously applying measures to prevent money laundering and the financing of terrorism, strengthening consumer protection, and effectively taxing crypto transactions.”
He also encouraged Central Bank to create their own digital currency that could be exchanged in a peer-to-peer fashion.
“For example, they could make central bank money user-friendly in the digital world by issuing digital tokens of their own to supplement physical cash and bank reserves. Such central bank digital currency could be exchanged, peer to peer in a decentralized manner, much as crypto assets are,”
Do you think this IMF Official suggestion can help Central bank against cryptocurrencies? Drop your comments below.