The International Monetary Fund (IMF) recently said that digital assets can be effective alternatives to the traditional financial system.
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In mid-May 2022, the International Monetary Fund (IMF) returned from the Bahamas and brought back recommendations on cryptocurrencies.
To foster financial inclusion?
In a May 09 statement, the IMF said its Executive Directors recognize “the potential of the (Bahamian) sand dollar to foster financial inclusion.”
The IMF further recommended that the Central Bank of the Bahamas “accelerate its education campaigns” on its digital currency. The Central Bank should also, according to the institution, “continue to strengthen the internal capacity and oversight” of the sand dollar.
The IMF also had some words for cryptocurrencies. It spoke of the importance of a “robust supervisory and regulatory framework” for digital assets. Indeed, the sector is growing rapidly in the Bahamas.
Kristalina Georgieva: Don’t give up on cryptocurrency! On the other hand we need regulations for stablecoins!
For her part, Kristalina Georgieva, the head of the International Monetary Fund (IMF), has a more nuanced view of the crypto-world.
At the annual meeting of the World Economic Forum in Davos. she took the opportunity to say:
I beg you not to withdraw” from the crypto world, Kristalina Georgieva said on Tuesday. It offers us all faster service, much lower costs and greater inclusion, but only if we separate the apples from the oranges and bananas, she added, saying that the role of regulators was to educate on the different aspects of this ecosystem.
In contrast, Georgieva takes a more critical view of the Terra blockchain’s stablecoin usd (UST) collapse.
When we look at stablecoins, this is where the big mess happened. If a stablecoin is backed by assets, one for one, it is stable. When it’s not backed by assets, but it’s promised a 20% return, it’s a pyramid” (implied Ponzi scheme), Kristalina Georgieva said. “What happens to pyramids (…) They end up falling apart”. For her, in view of this, it is necessary to regulate the stablecoin sector.
Will traditional financial institutions support cryptos or are they looking for an effective weapon against the growing adoption of cryptocurrencies? Perhaps we’ll get an answer in the next paragraph?
IMF: The future of cash is unknown
In an IMF article published on June 16, the IMF said cryptocurrencies could be a “more efficient” payment solution than credit and debit cards, especially when it comes to energy consumption.
The IMF, which was established on Dec. 27, 1945, strives to “achieve sustainable growth and prosperity for all of its 190 member countries by supporting economic policies that promote financial stability and monetary cooperation, which are essential for increasing productivity, job creation, and economic welfare.”
The current payment system, including the old central bank systems, is energy intensive. Therefore, a shift to renewable energy across the financial sector should be a priority, according to IMF analysts.
The IMF revealed that some central banks are considering making digital currencies available on physical cards, so there must be a solution to reduce energy consumption. The entity said that integrating cryptos and CBDCs with physical cards will help with mass adoption.
“Depending on the specifics of their configuration, CBDCs and some digital currencies can be more energy efficient than much of the current payments landscape, including credit and debit cards.”
The organization acknowledged that while the future of cash is still unknown, policymakers considering CBDC adoption and cryptocurrencies need to consider the energy factor holistically.
We rely on academic and industry estimates to compare digital currencies to each other and to existing payment systems.
Difference in energy consumption
This research is at the intersection of digital currencies and climate change, two hot topics for policy makers, and the results are particularly relevant for many central banks planning new digital currencies while taking into account their environmental impact.
Our research shows how technology design choices for digital currencies make a big difference in energy consumption.
According to the IMF, energy consumption will be critical to the future of currency, especially with payment systems adopting the blockchain.
Despite this, the IMF noted that cryptocurrencies using proof-of-work (PoW) algorithms such as. Bitcoin consume more energy than credit cards and recommended focusing on digital assets with a consensus mechanism or authorized systems.
The agency noted that “these developments place the energy consumption of crypto-currencies well below that of credit cards.”