IMF chief Christine Lagarde is urging central banks to issue their own cryptocurrencies. The IMF chair is noted for having moderate views on cryptocurrency. She previously described bitcoin as volatile and with scalability issues, but simultaneously said that these issues could be resolved in future, potentially causing serious disruptions to the existing financial infrastructure. This is exactly what has happened since she made these statements in October 2017.
Christine Lagarde on central bank crypto
Christine Lagarde highlights the benefits of cryptocurrencies, indicating that they can reduce the risk of financial instability by removing the motivation behind a bank run. Central bank issued cryptocurrencies (usually, but not always, the same as state-issued cryptocurrencies) would allow the centralized entities to issue cryptocurrency globally with vastly reduced cost, time, and security issues. In her recent speech, she declared that –
“[cryptocurrencies] could satisfy public policy goals, such as financial inclusion, and security and consumer protection; and to provide what the private sector cannot: privacy in payments.”
While Christine Lagarde has frequently cited the advantages of cryptocurrencies, the Bank of International Settlements have asserted that the technology is a disaster, even going as far as to claim that it could break the internet –
“But the issue goes well beyond storage capacity, and extends to processing capacity. The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.”
The dangers of central bank cryptocurrencies
Cryptocurrencies issued by a state or a central bank are potent instruments for the restriction of personal rights. As bad as fiat financing may be, cryptocurrencies issued by central banks are a far more effective tool for an invasion of privacy. Taxes automatically deducted, accounts frozen “on suspicion of terrorism/AML violation,” all transactions monitored, centralized inflation and control of the money supply via code. Central bank cryptocurrencies are a dream come true for any sort of totalitarian regime without a balance of power between the various arms of the state. The same crimes would be committed, except with more control and more accuracy by the perpetrators. It would facilitate the very issues that cryptocurrencies were designed to address.
If this sounds over the top, look to the Chinese surveillance state. They have already created a state-backed cryptocurrency and have plans to link identities to the blockchain, requiring DLT companies to acquire the identities of all users. Even more worrying is the proliferation of facial recognition technology on every street corner so that users can be constantly tracked and monitored, both offline and online. Most Chinese citizens view this as a positive benefit to wider society. Whether this is a cultural phenomenon or the result of decades of deliberate programming and information suppression remains to be seen. However, Chinese citizens are increasingly demanding privacy in a state not known for the promotion of individual liberties.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.