Christine Lagarde said cryptocurrencies like Bitcoin could give government-backed cash and monetary policy a “run for their money” in the future.
She told CNBC: “I think that we are about to see massive disruptions.”
However, Ms Lagarde added that potential users of virtual currency – which allow peer-to-peer transactions to take place without central bank or clearing house oversight – might ultimately be put off by the risks.
The former French finance minister made her assessment during a keynote speech for the Bank of England’s independence conference on Friday.
She told the conference: “For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks.“Why? Because they are too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable.
“Many are too opaque for regulators; and some have been hacked.”
But the IMF head conceded these are “technological” problems which could eventually be solved, and that virtual currencies could be “easier and safer” to hold than paper bills in remote regions, or countries with unstable national currencies or “weak institutions”.
She said the process of distributing through these could be “fully transparent, governed by a credible, pre-defined rule, an algorithm that can be monitored… or even a ‘smart rule’ that might reflect changing macroeconomic circumstances”.
Ms Lagarde said: “So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money.
“The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”
Ms Lagarde did not rule out the IMF eventually developing its own cryptocurrency.
She highlighted the IMF’s Special Drawing Right (SDR), a currency the IMF created as an international reserve asset, that could use technology similar to cryptocurrencies.
She told CNBC: “What we will be looking into is how this currency, the special drawing right, can actually use the technology to be more efficient and less costly.”
Her positive outlook on Bitcoin runs in contrast to comments by JP Morgan boss Jamie Dimon, who took aim at Bitcoin earlier this month, calling it “a fraud” and saying he would fire employees found to be trading the digital currency for being “stupid”.
It knocked the virtual currency’s market price, compounding the impact of China’s recent ban of the use of Initial Coin Offerings (ICOs) – a digital fundraising tool which sees investors exchange cryptocurrency for ‘tokens’ representing a holding or voucher for a firm.
South Korea has since followed suit.
Source : EXPRESS