An International Monetary Fund’s official made a suggestion to the central banks to make fiat currencies more attractive to for the digital age. He said that such a move would be a good way to fend off potential competition from cryptocurrencies.
The Director of The Monetary and Capital Markets Department, through an article on Thursday pointed out several suggestions. He urged central banks to work towards making fiat currencies more stable as units of accounts. He went further and stated that since economies are evolving, central banks should respond to cryptos by implementing efficient monetary policies. Additionally, as the new demands arise, the banks should consider adopting new concepts, he noted.
He said that monetary policies can beneficially make use of technology by improving central banks’ projections via artificial intelligence or even machine learning.
There seems to be a danger in the increasing rate of cryptocurrency adoption which may negatively affect central banks. The banks will diminish their economy’s influence even with tactics such as interest rate changes.
Such fears may have influenced deputy director Dong’s call for the tightening of the cryptocurrency regulations. If heeded it would be a boost to the banks.
He called for the stringently applying of measures to prevent money laundering, finance of terrorism and the strengthening of consumer protection. He further suggested the effective taxing of crypto transactions. He was confident that such regulations would ward-off any unfair competitive advantage that the use of crypto assets enjoy.
Dong was not done yet, in order to lower transaction costs for consumers or even facilitate effective long-distance transactions, he suggested that the banks could issue a central bank digital currency (CBDC). This would make the banks’ money more attractive as a settlement medium.
He gave an example of the banks issuing their own digital tokens as an alternative to their physical cash including bank reserves. Typical of the cryptocurrency assets, the banks’ digital currency could be exchanged in a peer to peer method.
Cryptocurrencies have been on the receiving end of sharp criticisms from across the board including IMF officials. IMF has been at the forefront for cryptocurrencies to be regulated by the same laws that apply to the traditional market.
In spite of differing opinions, some central banks are said to be looking at the effectiveness of these proposals. A Hong Kong’s Monetary Authority’s official has just stated this week that, despite researching on the area they do not plan to launch a digital currency.