See 2014's "Oh Dear God: The IMF's Christine Lagarde Will Belly-dance to Achieve Her Goals" for the full horror.*
HT up front to the FT for the headline and pointer to the goings-on at
From the International Monetary Fund:
Winds of Change: The Case for New Digital Currency
November 14, 2018
As prepared for delivery...MORE
Introduction
Distinguished guests, ladies and gentlemen—good morning and thank you for the opportunity to participate in this important event.
In Singapore, it is often windy. Winds here bring change, and opportunity. Historically, they blew ships to its port. These resupplied while waiting for the Monsoon to pass, for the seasons to change.
“Change is the only constant,” wrote the ancient Greek philosopher, Heraclitus of Ephesus.
Singapore knows this. You know this. It is the true spirit of the Fintech Festival—opening doors to new digital futures; hoisting sails to the winds of change.
And yet change can appear daunting, destabilizing, even threatening. This is especially true for technological change, which disrupts our habits, jobs, and social interactions.
The key is to harness the benefits while managing the risks.
When it comes to fintech, Singapore has shown exceptional vision—think of its regulatory sandbox where new ideas can be tested. Think of its Fintech Innovation Lab, and its collaboration with major central banks on cross-border payments.
In this context, I would like to do three things this morning:
1. The changing nature of money and the fintech revolution
- First, frame the issue in terms of the changing nature of money and the fintech revolution.
- Second, evaluate the role for central banks in this new financial landscape—especially in providing digital currency.
- Third, look at some downsides, and consider how they can be minimized.
Let me begin with the big issue on the table today—the changing nature of money.
When commerce was local, centered around the town square, money in the form of tokens—metal coins—was sufficient. And it was efficient.
The exchange of coins from one hand to another settled transactions. So long as the coins were valid—determined by glancing, scratching, or even biting into them—it did not matter which hands held them.
But as commerce moved to ships, like those that passed through Singapore, and covered increasingly greater distances, carrying coins became expensive, risky, and cumbersome.
Chinese paper money—introduced in the 9th century—helped, but not enough. Innovation produced bills of exchange—pieces of paper allowing merchants with a bank account in their home city to draw money from a bank at their destination.
The Arabs called these Sakks, the origin of our word “check” today. These checks, and the banks that went along with them, spread around the world, spearheaded by the Italian bankers and merchants of the Renaissance. Other examples are the Chinese Shansi and Indian Hundi bills.
Suddenly, it mattered whom you dealt with. Was this Persian merchant the rightful owner of that bill? Was the bill trustworthy? Was that Shanxi bank going to accept it? Trust became essential—and the state became the guarantor of that trust, by offering liquidity backstops, and supervision.
Why is this brief tour of history relevant? Because the fintech revolution questions the two forms of money we just discussed—coins and commercial bank deposits. And it questions the role of the state in providing money.
We are at a historic turning point. You—young and bold entrepreneurs gathered here today—are not just inventing services; you are potentially reinventing history. And we are all in the process of adapting.
A new wind is blowing, that of digitalization. In this new world, we meet anywhere, any time. The town square is back—virtually, on our smartphones. We exchange information, services, even emojis, instantly… peer to peer, person to person.
We float through a world of information, where data is the “new gold”—despite growing concerns over privacy, and cyber-security. A world in which millennials are reinventing how our economy works, phone in hand.
And this is key: money itself is changing. We expect it to become more convenient and user-friendly, perhaps even less serious-looking.
We expect it to be integrated with social media, readily available for online and person-to-person use, including micro-payments. And of course, we expect it to be cheap and safe, protected against criminals and prying eyes.
What role will remain for cash in this digital world? Already signs in store windows read “cash not accepted.” Not just in Scandinavia, the poster child of a cashless world. In various other countries too, demand for cash is decreasing—as shown in recent IMF work. And in ten, twenty, thirty years, who will still be exchanging pieces of paper?
Bank deposits too are feeling pressure from new forms of money.
Think of the new specialized payment providers that offer e-money—from AliPay and WeChat in China, to PayTM in India, to M-Pesa in Kenya. These forms of money are designed with the digital economy in mind. They respond to what people demand, and what the economy requires.
Even cryptocurrencies such as Bitcoin, Ethereum, and Ripple are vying for a spot in the cashless world, constantly reinventing themselves in the hope of offering more stable value, and quicker, cheaper settlement.
2. A case for Central Bank Digital Currencies
Let me now turn to my second issue: the role of the state—of central banks—in this new monetary landscape.
Some suggest the state should back down....
*For what it's worth, Mme Lagarde was a member of the French national synchronized swimming team and is probably in better shape than I.
But I don't go threatening to belly dance to achieve my dreams of world domination either.
If interested see also:
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Summary:Digitalization is reshaping economic activity, shrinking the role of cash, and spurring new digital forms of money. Central banks have been pondering wheter and how to adapt. One possibility is central bank digital currency (CBDC)-- a widely accessible digital form of fiat money that could be legal tender. This discussion note proposes a conceptual framework to assess the case for CBDC adoption from the perspective of users and central banks. It discusses possible CBDC designs, and explores potential benefits and costs, with a focus on the impact on monetary policy, financial stability, and integrity. This note also surveys research and pilot studies on CBDC by central banks around the world.
Staff Discussion Notes No. 18/08
