Christine Lagarde, the chairman of the International Monetary Fund (IMF) and presidential nominee for the European Central Bank (ECB), has urged regulators to remain “open” to the opportunities presented by distributed ledger technology when developing crypto regulations.
During a statement delivered to the Economic and Monetary Affairs Committee of the European Parliament, Lagarde emphasized the need for lawmakers and central banks to balance responding to both the risks and the opportunities that may arise as a consequence of new financial technologies.
Lagarde Favors Balanced Crypto Regulations
With regard to virtual currencies, Lagarde suggested that supervisory authorities must be alert to risks pertaining to “financial stability, privacy, or criminal activities,” while also “recognizing the social benefits from innovation” and “ensuring regulation is in place to steer technology towards the public good.”
The IMF head added that regulators should take a hands-off approach in engaging with firms that are innovating with digital currencies by “allowing them space to develop.”
Lagarde has been nominated to succeed the outgoing ECB president, Mario Draghi, and will assume office on Nov. 1. Lagarde’s tenure as IMF chairman will cease on Sep. 12.
ECB Criticizes Facebook’s Libra
At the start of September, ECB executive board member Yves Mersch took aim at Facebook’s proposed stablecoin, Libra.
Speaking to attendees of the European System of Central Banks’ recent conference, Mersch called Libra a “siren call” and described the venture’s proposed governance structure as “cartel-like,” with the Calibra’s founding members set to act as “quasi-sovereign issuers of currency.”
“With such a set-up, it is difficult to discern the foundational promises of decentralization and disintermediation normally associated with cryptocurrencies and other digital currencies.”
ECB Publishes Report Examining Stablecoins
Last month, the ECB published a 55-page report discussing stablecoins. The report asserted that stablecoins manifest a trade-off between the innovation in the stabilization mechanism underpinning the virtual currency and the stability of the value of the currency that it is backed by, stating:
“On the one hand, the least innovative stablecoin initiatives focus on the mere tokenisation of currency units: they rely on traditional systems for the safekeeping of funds, in the form of either electronic money or scriptural money, and use distributed ledger technology (DLT) to issue their mere representations in the form of claims on the entity in charge. On the other hand, most innovative initiatives currently do not keep to the promise of maintaining a stable value.”
At the start of August, the ECB announced that it plans to use both on-chain data and metadata corresponding to off-chain transactions to monitor the cryptocurrency markets.