mick silver
23rd January 2016, 09:51 AM
IMF’s Stance On Virtual Currency At Davos By Prableen Bajpai, CFA (ICFAI) (http://www.investopedia.com/contributors/53487/) | Updated January 22, 2016 http://i.investopedia.com/public/img/facebook-share.png
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It’s Davos time again! The stage is set for power packed three days at the 2016 World Economic Forum with the backdrop of beautiful snow-covered Alps and subzero temperatures. One of the most debated and controversial concept was touched upon on Day 1 at Davos. As Christine Lagarde, Managing Director, International Monetary Fund (IMF (http://www.investopedia.com/terms/i/imf.asp)) spoke during the discussion on “transformation of finance” she released a paper titled as Virtual Currencies and Beyond: Initial Considerations (PDF (http://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf) here). She called it “the beginning of a process”, adding further she said that “We know relatively little about the virtual currencies” but it is capable of causing deeper disruptions. This is despite the fact that statistically the current value of virtual currencies (http://www.investopedia.com/articles/investing/121014/5-most-important-virtual-currencies-other-bitcoin.asp) (VC) is very little (approximately $7 billion) as compared to the value of US currency in circulation which is $1.4 trillion (M2 is equal to $12 trillion). (See "Bitcoin is Dead? Not a Chance (http://www.investopedia.com/articles/investing/012016/bitcoin-dead-not-chance.asp).")
Just like the “tale of two cities” she said, virtual currencies have many benefits (best of times) and issues (worst of times). On one hand, they could be beneficial in reducing costs, providing better valued and reaching to people who are still unbanked. While on the other hand, it can an instrument of crime as it is outside central control and can thus be misused for illicit trading, terrorist financing and money laundering. It even has the potential to disrupt monetary policy although that isn’t a great risk as Christine Lagarde sees it. As she wrapped her little talk, it was evident that she sees a future for VCs but not totally outside the regulatory regime.
The paper released by Christine Lagarde at Davos is the IMF’s first attempt at describing and understanding the implications of virtual currencies. VCs are still evolving and of course a definitive landscape for them is difficult to predict but IMF endorses its potential benefits in the report. It says, “VCs offer many potential benefits, including rapidly increasing speed and efficiency in making payments and transfers, and deepening financial inclusion. The distributed ledger technology underlying some VC schemes offers benefits that go well beyond VCs themselves.” At the same time, the IMF report sees many risks emerging from these virtual currencies, some of which are “threat to financial integrity, consumer protection, tax evasion, exchange control enforcement, and effective financial regulation.”
The overall stance of IMF on virtual currencies is positive. It even lays out few principles which could act as a guide for authorities in different countries in further developing their regulatory response. According to the IMF report, “a great deal of work remains to be done to put in place effective frameworks to regulate VCs in a manner that guards against the risks while not stifling financial and technological innovation.”
Read more: IMF’s Stance On Virtual Currency At Davos | Investopedia (http://www.investopedia.com/articles/investing/012116/imfs-stance-virtual-currency-davos.asp#ixzz3y5iAa6bE) http://www.investopedia.com/articles/investing/012116/imfs-stance-virtual-currency-davos.asp#ixzz3y5iAa6bE
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It’s Davos time again! The stage is set for power packed three days at the 2016 World Economic Forum with the backdrop of beautiful snow-covered Alps and subzero temperatures. One of the most debated and controversial concept was touched upon on Day 1 at Davos. As Christine Lagarde, Managing Director, International Monetary Fund (IMF (http://www.investopedia.com/terms/i/imf.asp)) spoke during the discussion on “transformation of finance” she released a paper titled as Virtual Currencies and Beyond: Initial Considerations (PDF (http://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf) here). She called it “the beginning of a process”, adding further she said that “We know relatively little about the virtual currencies” but it is capable of causing deeper disruptions. This is despite the fact that statistically the current value of virtual currencies (http://www.investopedia.com/articles/investing/121014/5-most-important-virtual-currencies-other-bitcoin.asp) (VC) is very little (approximately $7 billion) as compared to the value of US currency in circulation which is $1.4 trillion (M2 is equal to $12 trillion). (See "Bitcoin is Dead? Not a Chance (http://www.investopedia.com/articles/investing/012016/bitcoin-dead-not-chance.asp).")
Just like the “tale of two cities” she said, virtual currencies have many benefits (best of times) and issues (worst of times). On one hand, they could be beneficial in reducing costs, providing better valued and reaching to people who are still unbanked. While on the other hand, it can an instrument of crime as it is outside central control and can thus be misused for illicit trading, terrorist financing and money laundering. It even has the potential to disrupt monetary policy although that isn’t a great risk as Christine Lagarde sees it. As she wrapped her little talk, it was evident that she sees a future for VCs but not totally outside the regulatory regime.
The paper released by Christine Lagarde at Davos is the IMF’s first attempt at describing and understanding the implications of virtual currencies. VCs are still evolving and of course a definitive landscape for them is difficult to predict but IMF endorses its potential benefits in the report. It says, “VCs offer many potential benefits, including rapidly increasing speed and efficiency in making payments and transfers, and deepening financial inclusion. The distributed ledger technology underlying some VC schemes offers benefits that go well beyond VCs themselves.” At the same time, the IMF report sees many risks emerging from these virtual currencies, some of which are “threat to financial integrity, consumer protection, tax evasion, exchange control enforcement, and effective financial regulation.”
The overall stance of IMF on virtual currencies is positive. It even lays out few principles which could act as a guide for authorities in different countries in further developing their regulatory response. According to the IMF report, “a great deal of work remains to be done to put in place effective frameworks to regulate VCs in a manner that guards against the risks while not stifling financial and technological innovation.”
Read more: IMF’s Stance On Virtual Currency At Davos | Investopedia (http://www.investopedia.com/articles/investing/012116/imfs-stance-virtual-currency-davos.asp#ixzz3y5iAa6bE) http://www.investopedia.com/articles/investing/012116/imfs-stance-virtual-currency-davos.asp#ixzz3y5iAa6bE
Follow us: Investopedia on Facebook (http://ec.tynt.com/b/rf?id=arwjQmCEqr4l6Cadbi-bnq&u=Investopedia)