IMF chief says Bitcoin no challenge to status quo

THE head of the International Monetary Fund (IMF) has said cryptocurrencies like Bitcoin pose little risk to the “existing order”, but warned their use could give government-backed currencies and monetary policy a “run for their money” in future.

Christine Lagarde, pictured, said that potential users of virtual currency – which allow peer-to-peer transactions to take place without central bank or clearing house oversight – might ultimately be put off by the risks.

“For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks. Why? Because they are too volatile, too risky, too energy-intensive, and because the underlying technologies are not yet scalable.

“Many are too opaque for regulators, and some have been hacked,” she said in a keynote speech prepared for the Bank of England’s independence conference on Friday.

But the IMF head conceded these are “technological” problems that could eventually be solved, and that virtual currencies could be “easier and safer” to hold than paper bills in remote regions or countries with unstable national currencies or “weak institutions”.

“Issuance could be fully transparent, governed by a credible predefined rule, an algorithm that can be monitored... or even a ‘smart rule’ that might reflect changing macroeconomic circumstances,” she said. “So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money.

“The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands as economies evolve.”

Her encouragement runs in contrast to comments by JP Morgan boss Jamie Dimon, who took aim at Bitcoin earlier this month, calling it “a fraud” and saying he would fire employees found to be trading the digital currency for being “stupid”.

It knocked the virtual currency’s market price, compounding the impact of China’s recent ban on Initial Coin Offerings (ICOs) – a digital fundraising tool which sees investors exchange cryptocurrency for “tokens” representing a holding or voucher for a firm. South Korea has since followed suit.