Acknowledging the rise and growing demand for cryptocurrencies, the International Monetary Fund (IMF) has surprised governments across the world that digital currencies could replace traditional money.
The IMF in its latest report, ‘The Rise of Digital Money’, says that traditional money is in for a tough competition with cryptocurrencies. It said that more people are turning to digital money because of its convenience. However, the IMF also questioned the stability of its value. “It is, after all, economically similar to a private investment fund guaranteeing redemptions at face value,” it said. The report says that banks will feel pressure from e-money, but should be able to respond by offering more ‘attractive services’ or similar products.
“Nevertheless, policymakers should be prepared for some disruption in the banking landscape. Today’s new entrants in the payment arena may one day become banks themselves and offer targeted credit based on the information they have acquired,” it said. Furthermore, the report highlights that central banks will play an important role in molding this future. “The rules they set will bear heavily on the adoption of new digital monies, and on the pressure these exert on commercial banks.” IMF discusses the solution of offering selected new e-money providers access to central bank reserves, though under strict conditions. “Central banks in some countries could partner with e-money providers to effectively provide central bank digital currency – a digital version of cash,” the report said.
Despite stable value being a concern, IMF explains that if e-money were to become its own unit of account through very widespread use, the risks could become less relevant. It says that cryptocurrency is very much attractive as a means of payment. The adoption of e-money will also grow due to convenience; ubiquity (cross-border transfers of money would be faster); complementarity (blockchain-based forms of e-money would allow seamless payment of automated transactions); and transaction costs (nearly cost-less and immediate) are minimal or zero compared to banks.
Nick Cowan, CEO of Gibraltar Stock Exchange (GSX) Group says the rise of cryptocurrencies is being driven in part by the failings of the legacy of banks and financial services. Cowan highlighted the growing dissatisfaction with the status quo of traditional finance and associated problems such as transaction delays and frustrating intermediary fees. “As long as these issues are prevalent, the allure of digital currency will be strong,” he said.
The CEO of Olymp Capital, Christophe De Courson said countries across the world are fighting inflation, expensive remittances and financial exclusion. Courson explained that digital currencies are being explored by private sector firms to solve these very issues. “Its becoming increasingly evident that they may succeed as big tech firms and fintech start-ups are experts at delivering convenient, attractive, low-cost and trusted services to a large network of customers,” he said.
Moreover, with the growing popularity of cryptocurrencies, governments and central banks around the world are coming up with their own digital money.