In its recently published blog entitled “The Rise of Digital Money,” the IMF set forth pros and cons of the wide adoption of stablecoins — digital currencies pegged to a physical asset or fiat currency and designed to minimize price volatility. While the agency said that stablecoins could bring significant benefits to customers and society, it pointed out a range of purported risks related to their usage.
The benefits, risks and regulatory issues
In the IMF’s analysis, banks could lose their role as intermediaries, as the public would switch to stablecoin providers. However, banks will purportedly not disappear because they will likely try to compete by developing their own innovations. The blog further states that new monopolies represented by tech giants could evolve. As such, tech companies could use their networks to sidestep rivals and monetize data.
Among other implications, the IMF named policymakers’ need to reinforce consumer protection and financial stability and the possibility of losing of “seigniorage.” In countries subject to inflationary changes, stablecoins in foreign currency could replace local currencies, the blog reads, which could subsequently undermine monetary policy and financial development.
According to the IMF, stablecoins could also boost illicit activities, including money laundering and terrorist financing. “New technologies offer opportunities to improve monitoring, however supervisors will need to adapt to the more fragmented and geographically diverse value chain of stablecoins,” the blog writes.
At the same time, the IMF suggested that stablecoins could enable seamless payments of blockchain-based assets, reduce transaction costs, and increase transaction speed, further adding:
“But the strongest attraction comes from the networks that promise to make transacting as easy as using social media. […] Stablecoins offer the potential for better integration into our digital lives and are designed by firms that thrive on user-centric design.”
The IMF’s plans regarding digital money
In July, the IMF argued that network effects could spark the blaze for the mass adoption of new digital money. The IMF revealed then that it aimed to create a conceptual framework for categorizing new digital money such as Facebook’s Libra and stablecoins and to think through implications for central bank policy.
Earlier in September, head of the IMF Christine Lagarde said central banks and financial bodies should protect consumers but be open to innovations such as cryptocurrencies.