International Monetary Fund (IMF) Managing Director Christine Lagarde released a blog post Tuesday, March 13, Addressing the Dark Side of the Crypto World. In it, she argues increasing fascination with cryptocurrencies has brought along grave costs: money laundering, terrorism, and economic instability.
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IMF Managing Director Christine Lagarde Warns of Crypto
Addressing the Dark Side of the Crypto World contains Ms. Lagarde’s most pointed remarks on cryptocurrencies since her first toe-dip back in Fall of last year. Since then, however, her opinion seems to be devolving, and her current blog post doesn’t mince words. “The same reason crypto-assets like Bitcoin are so appealing,” Ms. Lagarde wrote, “is also what makes them dangerous.”
Her missive comes in at least five languages: English, Arabic, Chinese, Japanese, and Portuguese. Clearly, the IMF wants this read widely. The IMF formed in the aftermath of World War II, based largely on the ideas of English economist John Maynard Keynes. In its modern context, the IMF is employed during financial crises to manage balance of payments through an established pool of funds known as special drawing rights (SDRs), which currently total a little over half a trillion dollars.
Recalling her earlier optimism, Ms. Lagarde continued, “The technology behind these assets—including blockchain—is an exciting advancement that could help revolutionize fields beyond finance. It could, for example, power financial inclusion by providing new, low-cost payment methods to those who lack bank accounts and in the process empower millions in low-income countries.”
However, when it comes to central bank digital currency proposals, her tone turns ominous and curious. “The possible benefits have even led some central banks to consider the idea of issuing central bank digital currencies,” Ms. Lagarde teases. It’s curious because the issue of central banks and crypto isn’t prefaced; it just suddenly appears as the post’s focus. It could very well be the IMF is attempting to buttress, backup, a recent 34-page Bank for International Settlements (BIS) warning about the issue. And timing could not be better, considering the Group of 20 (G20) meeting in Argentina right around the corner.
Fire and Brimstone
Both BIS and IMF betray understanding of basic cryptocurrency literacy. A cryptocurrency isn’t just a digital form of payment encrypted. To cause the sort of mischief it’s accused, a crypto must for sure use encryption, a necessary but not sufficient condition, and at least have something akin to a decentralized, distributed ledger of accounting. Central banks are, well, centralized and thus defy the basic definition. Still, where there is a fuss to be made, government agencies are hardly afraid to make it.
“Before we get [to central bank-backed crypto], however, we should take a step back and understand the peril that comes along with the promise,” Ms. Lagarde begins. And there can be pitfalls in using crypto, as many enthusiasts are
