Christine Lagarde, Managing Director and Chairwoman of the International Monetary Fund, recently spoke about the involvement of big tech companies in the cryptocurrency space and how this will affect the banking system, in an interview with CNBC at the IMF Spring Meetings in Washington.
One of the main topics of the panel discussion was cryptocurrencies and how companies like Facebook are entering the cryptospace. When asked about the threat that this would pose to the traditional banking system, Lagarde said,
“I think it’s you have incumbents, the banks, commercial banks, and then you have the disruptors. Clearly, the disruptors are having an impact on the incumbents.”
According to her, the role of “disruptors” and anything using the distributed ledger technology, like cryptocurrencies, are “clearly” shaking the system. Giving examples, she said,
“We just heard a very large systemic bank here saying that they’re launching the digital coin, currently piloted in a way within the institutional clients. But to we scaled beyond that?”
Giving another example, she discussed the case of the European Central Bank launching “tips,” which enables users in the Eurozone to transfer money between themselves instantly, at virtually no cost.
At the meet, regulators and Central Bank Governors welcomed this innovation with open arms and were of the opinion that it is changing the business model of commercial banks.
With this, she said, it is necessary to consider two things – trust and stability of the system. She added that the IMF is concerned about stability and that they do not want “innovation that will shake the system” so much that the necessary stability is lost. However, Lagarde also said that the disruptors will be monitored for maintaining stability in the system.
Discussing the regulators’ role in maintaining this stability, and considering the competition from big tech companies, Lagarde said that the IMF is “mindful of wherever the competition is coming from.” Taking the example of the Governor of Kenya giving a banking license to a telecom company, Lagarde said,
“I think in the future, we have to look at what lots of data collectors and movers are going to do and whether they’re going to move into the banking space forcefully in which case they will have to be regulated, they will have to be held accountable so that they can be fully trusted.”