What does IMF chief Christine Lagarde’s nomination for the head post at the European Central Bank (ECB) mean for cryptocurrencies and blockchain?
The 63-year-old former French Minister’s views have evolved in the short period of time that crypto has been in the spotlight. In May last year, as bitcoin price cratered, she called for a crackdown on the cryptocurrency in view of the numerous cases of fraud and price manipulation in its ecosystem. “We should fight fire with fire,” she said.
But she was cautioning against broad generalizations regarding cryptocurrencies some months later. “Taking risk is in not watching,” she said. “And, yes, there are frauds and there are speculations and there are Ponzi schemes. But I think we should just be aware of not categorizing anything that has to do with digital currencies in this speculation, Ponzi-like schemes.” She also referred to cryptocurrencies as “safe, cheap, and potentially semi-anonymous.”
A Place for Crypto
That quote hints at a nuanced view of the potential of cryptocurrencies and blockchain as opposed to the simple black-and-white narrative being peddled by investors and critics.
Indeed, Lagarde has been an enthusiastic supporter of the disruption being caused in the finance sector by cryptocurrencies and blockchain. She has pointed to the case of the European Central Bank’s TIPS system, which is racing ahead to roll out its instant payment transfer system by 2020.
And she is also aware of the potential of cryptocurrencies and blockchain to enable new audiences and payment methods for their services. “…the way in which new technologies are lowering the cost to make financial transactions more accessible even in very small numbers for people who do not earn much, who do not deposit much, and who do not borrow much,” she told an interviewer about the impact that cryptocurrencies and blockchain could have on the system.
Lagarde also sees a role for regulation in cryptocurrencies. In an interview with CNBC earlier this year, she said that central bank governors and regulators had a role to play in crypto evolution.
“But we have to be mindful of two things: trust and stability of the system…we don’t want innovation that would shake the system so much that we would lose the stability that is needed (for the system),” she said. “Data collectors…will have to be regulated. They will have to be held accountable so that they can be fully trusted,” she said.
The European agency released a report earlier this year that stated that cryptocurrencies were not “a threat” to the existing financial services ecosystem within Europe. This is mainly because cryptoassets do not amount to much relative to the overall valuation of financial systems and the linkages between the mainstream system and cryptocurrencies is limited. While it has not recommended the issuance of a central bank administered digital currency, the agency stated that a “user-friendly risk-free asset that meets the public’s demand for an economy that is both digitalised and safe” could be issued.