Do not discount central bank digital currency yet – Lagarde

Central banks should not discount launching digital crypto-assets completely, the managing director of the International Monetary Fund has warned.

In her most recent blog post, Christine Lagarde writes that were privately issued crypto-assets to remain “risky and unstable”, there may be demand for central banks to provide digital forms of money.

Lagarde’s more open attitude toward crypto-assets contrasts with the new head of the Bank for International Settlements, Agustín Carstens, who has called for a regulatory clampdown on crypto-assets over concerns they could have a material effect on financial stability. The Committee on Payments and Market Infrastructures also warned against issuing a retail central bank digital currency, but said a wholesale version might be feasible.

“Given their still-small footprint and limited links to the rest of the financial system, crypto-assets do not pose an immediate danger,” Lagarde writes in the post, which was published on April 15.  

However, the IMF chief acknowledges the potential for crypto-assets to “magnify” the risks of highly leveraged trading, and to increase the transmission of economic shocks should they become more integrated with the financial system.

“Central banks might have more trouble acting as the lender of last resort in case of a crisis,” she says, urging regulators to “remain vigilant” in their approach.