IMF Chief Calls for Exploration of Digital Currencies

Christine Lagarde, managing director and chairwoman of the International Monetary Fund, has encouraged the "Exploration" of central bank digital currencies in the light of decreasing demand for cash and rising preference for digital money.

"I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy."

Various central banks around the world are "Seriously" considering the issuance of digital currency, including Canada, China, Sweden and Uruguay, she said.

At the same time, the IMF has also again criticized the view that public cryptocurrencies offer an alternative to CBDCs.

In a new report, titled "Casting Light on Central Bank Digital Currency" and revealed Wednesday alongside Lagarde's speech, the IMF said "Cryptocurrencies are different along many dimensions and struggle to fully satisfy the functions of money, in part because of erratic valuations."

When evaluating different forms of money in the report such as cash, cryptocurrencies, private e-money and commercial bank deposits, the IMF concluded that "Cryptocurrencies are the least attractive option."

The IMF says that research on digital currency should continue "Resolutely" given that the questions to be answered are "Deep and difficult and have far-reaching implications."

While there seems to be a move towards digital currency, it is not without its risks.

Lagarde said in her speech that digital currency offers "Great promise" in terms of financial inclusion and also provides privacy in payments, but at the same time it could also pose risks to financial integrity and stability.

There is a trade-off between privacy and financial integrity too, she said, adding that central banks might design a digital currency, but "Anti-money laundering and terrorist financing controls would nevertheless run in the background."