People “may prefer” cryptocurrencies
Lagarde commented on the rise of cryptocurrencies during a conference at the Bank of England this week. Her viewpoint is fairly unusual in the industry as other banking leaders have vocally claimed Bitcoin, Ethereum and others have no place in the conventional banking system.
Lagarde doesn’t share the scepticism. Urging banks to invest in digital coins, she warned that new technologies cannot be swiped aside for offering something fundamentally different to current processes.
“Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays,” the Foundation for Economic Education reports Lagarde said. “I think it may not be wise to dismiss virtual currencies. Instead, citizens may one day prefer virtual currencies.”
Why all the hype?
Visionaries are giving cryptocurrencies so much attention because they possess characteristics that address some of the biggest issues with regular banking.
The most significant feature is the presence of the underlying blockchain tech, a publicly accessible chain of transaction references. It constitutes an open ledger of every coin exchange ever made in the cryptocurrency, which could help to reduce fraud and improve economic transparency.
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In the long term, cryptocurrencies could be safer to use than regular currencies. During her talk, Laagarde said cryptocurrencies “may one day be easier and safer” to obtain than forms of physical money. Particularly in remote regions or less developed nations, established cryptocurrencies could also afford access to a more stable economy. In this capacity, cryptocurrencies might improve global economic security.
What are the problems? It’s not all plain sailing though. In their current forms, cryptocurrencies are still notoriously volatile. They’re also relatively unknown, untested and viewed with suspicion from some quarters.
The risks involved in dealing with cryptocurrencies are too high a barrier for most financial institutions to get involved. Some regions are viewing digital coins more favourably than others. China’s recent suspension of cryptocurrency exchanges provided another reminder that cryptocurrencies cannot yet be relied upon as a global economy.
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There are more mundane challenges to solve too. Many people still view cryptocurrencies as an opaque technical concept with limited real world applications. So far, there has been no broad effort to educate wider audiences on blockchain tech or its possible positive impacts.
Looking to the future
This doesn’t necessarily spell the end for cryptocurrencies as a future economy. As Lagarde reminded in her speech, nobody foresaw the impact of computers before they were widely available. Initially, they were confined to a small set of knowledgeable individuals and industries.
This is the mark cryptocurrencies have currently reached. We know from experience that the impacts of new technologies are rarely appreciated or apparent until a few years after they’re widely available.
Although digital economies aren’t yet a truly viable proposition, the rising interest from banks should be taken as a sign of their potential. With even the IMF now taking cryptocurrencies seriously, it’s increasingly apparent that the future economy might be based on different models to those we know today.
