That the RBI has not been very comfortable with the idea of virtual currency is an open secret. In April 2018, it clearly directed its regulated entities to restrain any interactions with entities dealing with cryptocurrencies that have apparently taken the world by storm. However, IMF’s Managing Director, Christine Lagarde in a speech has urged central banks all over the world to embrace the idea of digital currencies.
The Advent of Digital Currency
In a world that is becoming increasingly digital, even the monetary aspect of the world couldn’t be exempted from going digital. Bitcoin, Dash, Ripple are some of the examples of digital currencies. Bitcoin is currently the world’s most popular cryptocurrency. What is amazing about this form of digitization is that there is no centralizing authority while dealing in bitcoins. It is a P2P or Person to Person concept.
Every economy has different needs, challenges and requirements. Indian economy has accepted some bit of this technology but the opinion of the banking sector’s opinion is divided over internalizing this completely.
Lagarde’s Urge to Central Banks
IMF chief is one of the few figures in the banking hierarchy who has spoken out positively on this grey area of digital money concept. Lagarde said at a conference in Singapore, “I believe we should consider the possibility to issue digital currency.” She further added, “There may be a role for the state to supply money to the digital economy.”
The IMF head also highlighted that central banks of Canada, China, Sweden and Uruguay were seeing the possibility of the inclusion of the digital money. The advantages are clear she said, “A digital currency could offer advantages, as a backup means of payment. And it could boost competition by offering a low-cost and efficient alternative—as did its grandfather, the old reliable paper note.”
The world is changing and revolutionising beyond the comprehension of our minds. If every aspect of this world is changing then why not change the way our money is getting monetised? India is especially becoming a cashless economy. With several alternate payment options like digital payments, money wallets, it is not a big deal if bitcoin becomes inclusive as well. But it is hard to ignore the inconsistencies that ride when such things are rolled out. How much will the economy get uplifted is a question to consider.
The Balancing Act
Lagarde in her speech also highlighted the trade-off between financial security and privacy. She said that central banks might design digital currency so that users’ identities would be authenticated through customer due diligence procedures and transactions recorded, but identities would not be disclosed to third parties or governments unless required by law. “So when I purchase my pizza and beer, the supermarket, its bank, and marketers would not know who I am. The state might not either, at least by default.”
The world’s one of the most celebrated economic figures said that her goal is “exploration” at the end of the day. Lagarde’s statements reflect her inner resolution to explore the unventured territories of technology that can integrate the world to some extent.