Central banks need to come up with “better” fiat currency offer if they are to keep any challenge from cryptocurrencies at bay according to a high official at the International Monetary Fund’s Monetary and Capital Markets Department.
IMF deputy director Dong He wrote an article with a tagline “crypto assets may one day reduce demand for central bank money.” He warns the central banks that they may need to draw up measures to “forestall the competitive pressure crypto assets may exert on fiat currencies.”
Other IMF officials including director Christine Lagarde support He’s remarks. Back in March, Lagarde urged to “fight fire with fire” by adopting some aspects of the technology.
He explains that should crypto gains a large enough following, there is a chance that banks may lose their power to manipulate the financial market through established tactics like interest rate changes.
Stiffer regulations can help the banks’ predicament, the director implied.
“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.”
It will help to see central banks launching their own digitized assets traded peer-to-peer, the official hinted.
“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,” the article continued.