The International Monetary Fund (IMF) managing director Christine Lagarde approached the topic of crypto assets for the second time within a few weeks. One month ago, she expressed the possible drawbacks of crypto currencies market, focusing on the potential use for money laundering and the financing of terrorism (link below). Today, the intention was to disclose the bright side of crypto assets market, disentangling all benefits that these brand new financial products might bring about.
First of all, the number of cryptocurrencies available is doomed to decrease, thus we must focus on the crypto-assets which will mostly fit customers’demand and thus survive this market’s “natural” selection process. Secondly, she suggests policy makers to “keep an open mind” and to address their efforts towards a regulatory framework ” that minimizes risks while allowing the creative process to bear fruit”.
Before crypto-assets can earn a relevant place among the big changes in financial activities of this last century, they must earn the confidence of the public, and this confidence comes along with the support of authorities and consumers themselves. In this sense, international cooperation is fundamental , as crypto-assets know no boundaries: the consensus among regulatory authorities becomes then mandatory.
Furtherly, although the need of brokers and intermediaries will remain, crypto assets can promote a more diversified financial structure, and a more balanced relationship between centralized and decentralized service providers. This could enhance the capability of the financial systems to resist large shocks. We must however not forget that crypto assets might magnify the risks in trading leveraged products. In case the crypto-market ingests mainstream financial products, this threat will manifest in a faster transmission of financial shocks to all market segments.
“There should be systemic risk assessment and timely policy responses, as well as measures to protect consumers, investors, and market integrity” she continues, although the regulatory agenda must not discourage innovation, but instead learn from it. This includes also the possibility of letting central banks develop their own crypto-currencies, and use Distributer Ledger Technolgy (DLT) to increase the efficiency of financial markets. This last proposal has already been made by the Australian Securities Exchange, to manage clearing and settlement of transactions.