Dong He, the International Monetary Fund’s (IMF) Deputy Director of the Monetary and Capital Markets Department (MCM), has published a report on the challenges faced by central banks since the emergence of cryptocurrencies.
He explained that central banks need to learn and adopt the various properties that make cryptocurrencies successful. Even though Bitcoin, Ethereum and other digital currencies are volatile and unstable, they could easily improve these features in the future. He added that stable coins are now entering the crypto world. Anonymity while using cryptocurrencies and quick cross-border transactions make these assets more attractive.
He raised the question of the importance of central banks in the future. If the majority of the people decide to use cryptocurrencies, then monetary policies would be of no use to the IMF. So, the only way to tackle this problem is to become better than these cryptocurrencies. He proposed three solutions for central banks:
First, they should continue to strive to make fiat currencies better and more stable units of account … Second, government authorities should regulate the use of crypto assets to prevent regulatory arbitrage and any unfair competitive advantage crypto assets may derive from lighter regulation … Third, central banks should continue to make their money attractive for use as a settlement vehicle.
He suggested that introducing a central bank digital currency may solve all the problems in this debate. These currencies would also include faster settlements and lower transaction costs. Once again, he stated that the only way to ensure that the public trusts the central bank is to become a part of the decentralized world.
The Central bank of Norway also published a report on May 21st regarding the creation of central bank digital currencies. Norges Bank detailed the consequences of adopting such currencies in the country. However, the bank doesn’t plan on putting an end to issuing cash.
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