On Sunday (August 23), the International Monetary Fund (IMF) explained via a tutorial video what the problems are with existing centralized payment solutions, what cryptocurrencies are, what their pro and cons are, and how they could be the future of money.
The IMF, which was established on 27 December 1945, is “an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”
Its main purpose is “to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.”
In the video it released (as part of a tweet), the IMF says:
“When we buy or sell things, the payment is usually processed by bank or credit card company.
“Problem number one: the companys often take a cut of the transaction. Two, we have to trust these companies to protect their sensitive data from hackers. Three, most international payments take a long time and are expensive.
“To solve these problems, we could use a special currency that is secure and based on science of cryptography, which is a way of protecting information using mathematics.
“This special type of currency is called a cryptocurrency, and only exists in computer networks.
“When you send someone the special currency, the money goes directly to them, removing the middleman, and at the same time the transaction is broadcast to the entire network and recorded in a permanent way, which means it’s almost impossible to fool the system.
“Costs of making payments are lower, transactions are faster, especially across countries, and even those people around the globe who don’t have bank accounts can buy or sell goods and participate in the globally economy.
“However, there are some risks.
“The transactions in most cryptocurrencies are anonymous. Some cryptocurrencies can even be untraceable. This can make it easier for the bad guys to make payments without being noticed. If you lose your password, you could lose all your money. At the moment, cryptocurrencies are highly volatile; they can’t process large amounts of transactions quickly yet; and they’re not even widely accepted.
“If we can counter the risk, then this new technology, or some variation of it, can completely change the way we sell, buy, save, invest, and pay our bills.
“And who knows, this could be the next step in the evolution of money.”
In March 2018, the IMF published issue #2, Volume 55 of the IMF’s Finance & Development (F&D) magazine, where there was an article (by Antoine Bouveret and Vikram Haksar) titled “What Are Cryptocurrencies?”.
Back then, the IMF seemed much more concerned with the limitations and risks of cryptocurrencies:
“Despite the hype, cryptocurrencies still don’t fulfill the basic functions of money as a store of value, means of exchange, and unit of account.
“Because their value is highly volatile, they have little use so far as a unit of account or a store of value.
“Limited acceptance for payment restricts their use as a medium of exchange. Unlike with fiat money, the cost of producing many cryptocurrencies is high, reflecting the large amount of energy needed to power the computers that solve the cryptographic puzzles.
“Finally, decentralized issuance implies that there is no entity backing the asset, so acceptance is based entirely on users’ trust.”
Perhaps, the IMF is change its attitude toward cryptocurrencies.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.