There are many different opinions on whether or not Bitcoin and other cryptocurrencies have a bright future ahead. The International Monetary Fund seems confident there is no need to regulate this industry at this stage, even though other officials see things differently. Dong He of the IMF is convinced that cryptocurrencies may replace central bank money in the future, but now is not the time.
Dong He on Bitcoin and Cryptocurrency
It is always interesting to note how different financial experts perceive the future of cryptocurrency. Considering that this new form of money is still incredibly volatile, it is evident that there is a lot of work to be done moving forward. The IMF’s Dong He, for one, wrote that the cryptocurrency industry is far too volatile to pose any threat to the fiat currencies which people use today.
That doesn’t mean this situation will not change in the future. The way things stand right now, there is a growing interest in Bitcoin and other cryptocurrencies which may disrupt the financial sector sooner rather than later. At this stage, however, the main focus should be on stabilizing the Bitcoin price, but that will be difficult to achieve.
One thing holding global cryptocurrency adoption back is its technical deficiencies. While Bitcoin has a high value as of right now, it is rather evident that scaling solutions need to be implemented sooner rather than later. The Lightning Network may change a lot of things, although it remains to be seen how powerful this technology will really be when everything is said and done.
Central banks suffer from deficiencies as well, though. Competitive pressure brought to the table by crypto assets means central banks will need to step up their game. Conducting effective monetary policy, for example, will remain one of their top priorities. Additionally, it seems a lot of banks are preparing to offer exposure to various cryptocurrencies moving forward. In some cases, it is better to embrace competition than oppose inevitable change.
In Dong He’s words:
There are both challenges and opportunities for central banks in the digital age. Central banks must maintain the public’s trust in fiat currencies and stay in the game in a digital, sharing, and decentralized service economy. They can remain relevant by providing more stable units of account than crypto assets and by making central bank money attractive as a medium of exchange in the digital economy.
Depending on how things evolve, cryptocurrencies could fulfill “more of the functions of money in some regions”, according to Dong He. That is a rather interesting comment, although it doesn’t mean there will be any major shifts in this regard. For central banks, it is of the utmost importance to keep tabs on any developments in these innovative industries, and perhaps jump on the bandwagon when the time arises.