IMF Head, Christine Lagarde: 'Banks Should Consider Launching Digital Currencies'

  • Christine Lagarde, the head of the International Monetary Fund (IMF), has said we should "consider the possibility of issuing digital currencies."
  • Lagarde noted that the case for digital currencies is not "universal", but we should "seriously" explore their potential use cases.

Christine Lagarde, a French lawyer and politician who is currently appointed as the managing director and chairwoman of the International Monetary Fund (IMF), has said “we should consider the possibility to issue digital currency.”

Lagarde’s comments regarding cryptocurrencies came as she delivered a speech at a conference in Singapore (on November 14th).

"Safe, Cheap, And Potentially Semi-Anonymous"

The former French minister of Economic Affairs noted that blockchain technology is “safe, cheap, and potentially semi-anonymous", and that central banks throughout the world should explore the use cases for their own cryptocurrencies.

Lagarde added that all countries can look into whether a state-issued digital currency would help in “supplying money to the digital economy.” She explained that digital money has the potential to promote economic and financial inclusion - as a large percentage of the world’s population still does not have access to modern banking services.

Lagarde also called on authorities worldwide to focus on developing infrastructure for a digital financial system, and create regulations to monitor cryptocurrency transactions.

Digital Currencies May Help Create A "More Level Playing Field"

She emphasized the importance of developing a regulatory framework for digital currencies as they will help ensure consumer protection and prevent them from being used to finance illicit activities.

Commenting on the benefits of using digital payments, Lagarde remarked:

The advantage is clear. Your payment would be immediate, safe, cheap, and potentially semi-anonymous. And central banks would retain a sure footing in payments. In addition, they would offer a more level playing field for competition, and a platform for innovation. Meanwhile, your bank or fellow entrepreneurs would have ensured a friendly user experience based on the latest technologies.

Christine Lagarde

Lagarde, who has been the chairwoman of the IMF since 2011, further noted that state-backed digital currencies would help prevent large payment technology firms from creating monopolies.

"Seriously, Carefully, Creatively" Exploring Digital Currencies

She also mentioned that "the more people you serve”, the more economical and practical it could become to use central bank digital currencies (CBDC). Moreover, she explained that we cannot fully rely on private firms when it comes to dealing with security issues related to conducting cross-border transactions.

According to Lagarde, private financial service providers “may under-invest in security to the extent they do not measure the full cost to society of a payment failure."

The IMF head also pointed out that the case for digital currencies “is not universal” and that their potential applications should be looked into “seriously, carefully, and creatively."

University of Michigan to Increase its Investment in Million Dollar Crypto Fund

Omar Faridi

The prestigious University of Michigan’s financial endowment fund has joined a growing number of institutional investors that have made substantial investments in the nascent digital asset market.

Similar to how many other new investors gain exposure to the cryptoasset market, the University of Michigan’s crypto-related endowment is backed by giant venture capital firm, Andreessen Horowitz. Although not as large as Yale’s $25.4 billion endowment (another top-ranked university fund that invested in Andreessen Horowitz’s $300 million crypto fund), University of Michigan’s $11.9 billion endowment consists of thousands of individual contributions.

Andreessen Horowitz Manages Crypto Separately From Other Investments

Proceeds earned from the multi-billion dollar endowment are used to pay for various university-related expenses such as grants and scholarships, professorships, and other educational initiatives. As mentioned in an “item for information” document posted on University of Michigan’s official website (on February 21st), the higher education institution’s endowment will increase its investment in a cryptocurrency venture fund.

In June 2018, the University of Michigan had invested $3 million in a crypto network fund called CNK Fund I, L.P.. This fund focuses on “technology companies across the spectrum of seed, venture, and growth stage opportunities.” Moreover, Andreessen Horowitz (or a16z) reportedly decided to allocate a significant portion of its investments to a cryptocurrency-focused fund because the VC firm believes digital assets have “become an important area of innovation and entrepreneurship that warrants focused attention.”

As explained in University of Michigan’s document: 

As opportunities related to cryptonetworks transition from being undefined to becoming more visible and sharply defined, the need for a separate thematic fund may recede.

US Pension Funds Participate In $40 Million Crypto Fund 

However, the announcement noted that the current regulatory framework for cryptocurrency-related projects is “potentially more cumbersome” than the more traditional types of IT investment funds. At present, the crypto space is categorized as a “distinct type of technology” by developers, funding sources, and businesses, the University of Michigan’s notice stated. This is why Andreessen Horowitz is managing its crypto-related investments through a separate fund (for now).

On February 12th, Morgan Creek Digital Assets announced that it had managed to secure $40 million for a new VC fund focused on crypto and blockchain-related initiatives. For the first time, several notable American public sector pensions participated in Morgan Creek’s Blockchain Opportunities Fund. They included funds invested by the FairFax County, Virginia Police Officer’s Retirement System, and the Employees’ Retirement System for government employees.