Central banks are on the verge of losing some degree of control over their currencies and their payment system. According to the International Monetary Fund (IMF) central banks need to regulate cryptocurrencies. If they don’t, their monetary monopoly will lose power. Sources of news agency Bloomberg suggest that this will be the core message of the IMF for central bankers and finance minister at the World Bank annual meeting.
IMF believes that governments that are unable to ride this new wave of financial technology will end up being disrupted themselves. Therefore governments and central banks need to launch their own digital currency.
Of all the cryptocurrencies on the market, the stablecoins are the most dangerous for central banks. The reason for that is that stablecoins are basically digital versions of dollars or euros. This means that stablecoins takeover the role central bank issued fiat.
Another reason central banks need to change fast, is that online payments with cryptocurrencies are becoming much easier and faster. At the same time online payments with credit cards have high fees and take lots of time. Of course the Federal Reserve is building its own real-time payment system, but this is not build on blockchain technology. To make it even worse, it will take another three to five years before it’s ready to launch.
IMF nervously looking at stablecoins
Stablecoins are a serious threat to the traditional banking system, dollars, euros and other fiat money. That’s something the International Monetary Fund (IMF) has been warning for since July. IMF believes stablecoins are a threat to the traditional money system. This is the case because of their steady value and direct connection with cryptocurrencies.
The International Monetary Fund sees a role for central banks to regulate and institutionalize stablecoins. They also suggested that central banks could partner with fintech companies and create a digital version of cash. This would be a so-called central bank digital currency (CBDC).
Several countries already working on CBDC
A couple of countries is already working on a central bank digital currency. Switzerland is already far ahead, while China will launch one in the coming months. Smaller countries like The Marshall Islands also have their own digital currency. While Sweden’s cashless society is bound to make their move by introducing an e-krona.
Canada and the United States are among the latest countries that are talking about a digital currency. The U.S. Federal Reserve is already looking at its options, while The Bank of Canada sees the benefits of digital money as well.
Also published on Medium.