Christine Lagarde, head of the International Monetary Fund (IMF), warned central bankers that digital currencies are rising. Lagarde told them not to discount digital currencies, because they are gaining more adoption and traction.
Lagarde addressed this issue in a conference in London, saying digital currencies might give existing currencies “a run for their money.”
Global usage of the International Monetary Fund’s in-house currency, the special drawing right (SDR), could get a boost from the growth of digital currencies, “It is not a far-fetched hypothetical,” Lagarde told the conference hosted by the Bank of England when she raised the prospect of the SDR partly supplanting major international currencies such as the dollar and euro.
“If the two were to come together – the digital acceleration and facilitation, and the geopolitical situation – that would be propitious for relying on an alternative,” Lagarde said.
Since World War Two, the dollar has in practice formed the backbone of the global financial system. The IMF has previously said that digital currencies – the best known of which is Bitcoin – could play a greater role in future in cross-border transactions and in countries where the domestic currency is unstable.
US dollars are used officially or unofficially as a currency in many countries with a history of economic instability, and Lagarde said digital currencies could become a better alternative to paper banknotes.
However, she added that existing digital currencies had technical problems which would need to be solved. “For now, Lagarde said, digital currencies are unlikely to replace traditional ones, as they are ‘too volatile, too risky, too energy intensive and because the underlying technologies are not yet scalable.’”
Digital currencies are still too volatile. This is why many institutional investors are still waiting on the sidelines. However, the time will come when they decide to jump in. Just like the internet, digital currencies will scale and quickly slither their way into the mainstream consciousness. In other words, central bankers should not ignore the technology or underestimate it.
From the mainstream perspective, Lagarde represents a growing number of influential people who recognize the power of bitcoin and blockchain. However, there are still those who disagree or believe bitcoin is bound to break. People like Jamie Dimon and Jordan Belfort recently called bitcoin a fraud. Not to mention, China recently banned ICOs and acted to ban some bitcoin exchanges.