The IMF chief, Ms. Christine Largarde, has stated that central banks should consider issuing digital currencies. While she has always been positive about digital currencies, this is the first time she has come out directly to urge central banks to embrace them. Speaking in Singapore, Ms. Largarde stated that,
“I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy. 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.”
The idea of a state-issued digital currency will have significant implications for the cryptocurrency markets. At the top of the list, it raises the question, why did cryptocurrencies come up in the first place? Bitcoin (BTC) came up due to the failures of the financial system. It was a way to give the people power over their money, outside of the existing system. Cryptocurrencies and bitcoin (BTC) in particular was an ideological change in the way people understand the concept of money. State-backed digital currencies are at a fundamental level in opposites with what bitcoin (BTC) stands for, and the market may not embrace them. There have been cases where countries have issued digital currencies and they have failed, case in point being Venezuela. Venezuela launched an oil-backed crypto but it never gained traction. If anything, it is cryptos that adhere to the ideals of decentralization, as envisioned by Satoshi in the bitcoin whitepaper, that have succeeded. For example, Digibyte (DGB), a coin very similar to Bitcoin (BTC) in ideology, but better as a currency; has risen in usage in Venezuela.
This could be a hint that state-backed digital assets may not as competitive as decentralized coins. The moment they hit the market, they could easily trigger competition at an ideological level, and people are likely to choose decentralization. It could trigger a move to BTC for what it stands for, and propel it to new heights. But state-backed digital currencies do pose a threat to cryptos that are designed to mirror fiat but are not decentralized. Chances are that users would choose a digital version of the U.S dollar, over some coin whose governance structure is centralized in the hands of some unknown people, who can exit at the market at any time.
Bottom-line is that the concept of money as people have known it all their lives is changing, and things may be very different in the next decade going forward. Crypto could indeed have disrupted the financial system and changed it for good.