As the managing director of the International Monetary Fund (IMF), Christine Lagarde has to keep her eyes on the big picture of international finance. The task requires a historical depth of financial wisdom as well as an inspired economic vision of the future.
"A judicious look at crypto-assets," wrote Lagarde, "should lead us to neither crypto-condemnation nor crypto-euphoria." Though the IMF's preliminary assessment of cryptocurrencies concluded that their "still-small footprint and limited links" to conventional finance "do not pose an immediate danger" to fiat markets, Lagarde noted that if the overall market capitalization of cryptocurrency reaches a point of critical mass relative to fiat, "banks and other financial institutions will face challenges to their business models."
Lagarde's comments echo her statements from late last September: "IMF experience shows that there is a tipping point beyond which coordination around a new currency is exponential."
In her more recent post, Lagarde went on to say:
"Before crypto-assets can transform financial activity in a meaningful and lasting way, they must earn the confidence and support of consumers and authorities. An important initial step will be to reach a consensus within the global regulatory community on the role crypto-assets should play. Because crypto-assets know no boundaries, international cooperation will be essential."
Established in New Hampshire at the United Nations Bretton Woods Conference in July 1944, the International Monetary Fund was tasked with shepherding the global financial system away from the panicked currency devaluations of the Great Depression.
In keeping with its mandate to "ensure the stability of the international monetary system" the IMF has more recently been closely watching the emerging cryptospace and its growing influence on traditional fiat systems. Its managing director believes that cryptocurrency and distributed ledger technology (DLT) are poised to "help revolutionize fields beyond finance."
Moreover, the IMF has gone so far as to point to potential alignments between the IMF's international reserve asset, the Special Drawing Right (SDR), and cryptocurrency. Lagarde herself previously drew attention to this emerging relationship, stating, "The Special Drawing Right, invented a few decades ago, might have a future interesting life if we include a digital dimension and some new technologies with it."
"We must act quickly to close the knowledge gaps that inhibit the effective monitoring of crypto-assets," concluded Lagarde. "Understanding the risks that crypto-assets may pose to financial stability is vital if we are to distinguish between real threats and needless fears."