The head of the International Monetary Fund (IMF) has said cryptocurrencies like Bitcoin pose little risk to the “existing order”, but warned their use could give government-backed currencies and monetary policy a “run for their money” in future.
Christine Lagarde said 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.
“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,” she said in a keynote speech prepared for the Bank of England’s independence conference on Friday.
But the IMF head conceded that these are “technological” problems that 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”.
“Issuance 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,” she 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.”
Her encouragement 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”.
JPMorgan Chase chief executive officer Jamie Dimon has taken aim at Bitcoin (PA)
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.
Ms Lagarde also used her speech to discuss the “transformative effect of artificial intelligence,” referencing recent predictions by the Bank of England chief that 15 million jobs could be automated across the UK.
Even the work of policymakers will be altered by machines, she said.
“Over the next generation, machines will almost certainly play a larger role – in assisting policy-makers, offering real-time forecasts, spotting bubbles, and uncovering complex macro-financial links.
“But let me reassure you, humans will still be needed,” she said, explaining that human judgement and diverse opinions that are essential to good policy cannot be replaced.
Humans will also be needed to effectively communicate policy decisions and take responsibility when mistakes are made, she said.
“Even with the best algorithms and machines, targets will be missed, crises will occur, mistakes will be made. But can machines really be held accountable — to the young couple unable to buy a house, to the working mother finding herself unemployed?
“Accountability is key,” she said.
“So no, I do not see machines taking over monetary policy.”