IMF Sees Bitcoin Gaining Dominance Over the Central Banks In The Future
After an unprecedented surge in the cryptocurrency markets last year, the world’s largest financial body - International Monetary Fund - has been quite a lot vocal about digital currencies. In the latest report from IMF titled “Monetary Policy in the Digital Age”, deputy director of the Monetary and Capital Markets Department - Dong He discusses on whether the monetary policy can survive the decentralization of the banking system.
The study talks about the growing popularity of cryptocurrencies across the globe and could possibly lower the demand of fiat currencies thereby shifting from “credit money to commodity money.”
The report is a part of the recently held discussion among several IMF leaders who state “We cannot rule out the possibility that some crypto assets will eventually be more widely adopted and fulfill more of the functions of money in some regions or private e-commerce networks.”
The study also notes that due to the ongoing financial instability in different parts of the world, there has been a renewed skepticism on traditional financial methods, and there is a huge possibility that digital assets can possibly affect the traditional global monetary policies. The report also talks regarding a possible “payments shift” in some parts of the world wherein cryptocurrencies will be replacing the fiat currencies.
The report notes: “Such a shift could also portend a change in the way money is created in the digital age: from credit money to commodity money, we may move full circle back to where we were in the Renaissance.”
It further adds that “Economists continue to debate the origins of money, and why monetary systems seem to have alternated between commodity and credit money throughout history. If crypto assets indeed lead to a more prominent role for commodity money in the digital age, the demand for central bank money is likely to decline.”
The IMF report also suggests what steps banks should take to counter the growing pressure and competition while solidifying fiat currencies as a “unit of account.” This is where cryptocurrencies have failed to establish as a standard unit of account because “valuation is largely based on beliefs that are not well anchored” which has caused them to remain largely volatile.
The IMF report mentions that central banks could counter this by having their own digital currencies in place. It mentions that even though banks might have several challenges win this digital age, it is imperative for them to regain the public trust in order to remain relevant.
The report concludes by saying: “They can remain relevant by providing more stable units of account than crypto assets and by making central bank money attractive as a medium of exchange in the digital economy.”