kristalina georgieva

IMF Boss Says Europe Can Avoid Debt Trap, Difficult to Believe in Crypto as Money

Kristalina Georgieva, managing director of the International Monetary Fund, has recently said that it is difficult to believe in cryptocurrencies like Bitcoin as money.

Speaking at a virtual event hosted by Bocconi University in Italy, Ms Georgieva said that Central Bank Digital Currencies (CBDCs) are the most reliable form of digital money.

The IMF chief regards cryptocurrencies as “de-facto assets”. However, they are not backed by assets that hold their value stable and can rise and decline drastically. She stated that in the history of money, it is difficult to think of cryptocurrencies as money.

“It is very impressive how much the international community, the central banks, institutions like ours are now actively engaged to make sure that in this fast-moving world of digitalization, money is a source of confidence and helps the economy function rather than (being) a risk,” Ms Georgieva commented.

The head of the IMF gave the remarks in Europe whereby she said that medium-term fiscal consolidation and growth would put the continent in a proper condition to avoid another debt crisis (like that one witnessed between 2007 and 2008), despite the increasing debt levels caused by the Covid-19 pandemic.

Ms Georgieva stated that nations would need to carefully plan how to shift course to medium-term fiscal consolidation to prevent the increased pandemic-related debt burden.

Georgieva further revealed that 110 nations among the IMF membership are at some stage of exploring into CBDCs. A major challenge facing such projects is how to regulate the interoperability of digital currencies.

Ms Georgieva stated that the key consideration that policymakers should take is to examine whether CBDCs can be a trustable means of exchange that the public can rely on. Other comments she spoke about involve whether digital currencies can contribute to domestic economic stability and fit into international regulatory frameworks, like those developed by The Bank for International Settlements (BIS).

Crypto Boom Worries Regulators

The comments made by Ms Georgieva about cryptocurrencies come a few days after the IMF recently warned about the global risks coming from the boom associated with unregulated cryptocurrencies.

Earlier this month, IMF stated that stricter regulation is needed to prevent the rapid growth in crypto assets in the making financial instability, the funding of terrorism, and defrauding of consumers.

On October 1, the Washington-based institution stated that the 10-fold increase in the market value of cryptocurrencies to more than $2 trillion since early 2020 required more collaborative and active supervision by governments. The international body also mentioned that several of the new crypto-assets lack robust governance and risk practices.

IMF Chief Warns of Terra Crash, Calls it as Pyramid Scheme

While the heat with respect to the Terra protocol collapse is cooling off, global experts, including the International Monetary Fund (IMF) Managing Director Kristalina Georgieva waded in to express her feelings about the LUNA and UST crash, calling it a ‘Pyramid’ scheme.

The comments about LUNA were made at the World Economic Forum (WEF) ongoing in Davos.

Per a Bloomberg report quoting Kristalina, the global financial regulator said world leaders should not lose focus of the positivity that surrounds the crypto ecosystem even though there is an urgent need to bring functional regulations to the space.

“I would beg you not to pull out of the importance of this world. It offers us all faster service, much lower costs, and more inclusion, but only if we separate apples from oranges and bananas,” also noting with respect to stablecoins that “The less there is backing it, the more you should be prepared to take the risk of this thing blowing up in your face.”

UST, the algorithmic stablecoin of the Terra protocol, lost its peg a few weeks ago, dragging along the LUNA coin, which shed off more than 99.9% of its value overnight. With many investors reeling in losses, regulators worldwide are exploring a lot of options to protect investors against future occurrences.

Kristalina believes that it is the role of monetary watchdogs to teach the masses about which stablecoins are legitimate and which are not.

“When a [coin] is not backed with assets but promises to bring 20% returns, it’s a pyramid. What happens to pyramids? Eventually, they fall to pieces. Regulating stablecoins, ensuring the interoperability of CBDCs and recognizing that bitcoin may be called ‘coin,’ but it’s not money – all of this we need to work on,” she said at a panel organized by CNBC.

The push to regulate crypto and stablecoins is growing swiftly, and the UST crash may further fast track these pushes.

IMF Emphasizes Digitalization in Financial Inclusion Agenda

IMF Managing Director Kristalina Georgieva highlighted the role of digitalization in enhancing financial inclusion during a recent conference held in Marrakesh, Morocco. While advocating for comprehensive national strategies for financial inclusion, Georgieva also warned about the risks associated with digital financial services. This comes at a time when the IMF is actively involved in exploring cryptographic concepts and has recently presented a crypto-risk assessment matrix.

Speaking at the conference organized by the International Monetary Fund (IMF) focused on financial inclusion, Georgieva underscored the significance of digital tools in making financial services more accessible. “Digital is what moves help to people, investment, and the ability for the economy to accelerate,” she stated. She referred to digital currency transfers in Togo as an example, which were implemented during the COVID-19 pandemic to facilitate financial assistance.

While championing the role of digitalization, Georgieva also issued a word of caution. She stressed the need for regulatory frameworks to manage the risks associated with digital financial services, especially regarding financial stability. Her comments align with the IMF’s broader agenda, which includes rigorous scrutiny of cryptographic technologies that underpin digital assets.

The IMF is not a newcomer to the digital finance realm. On September 29th, the institution presented a crypto-risk assessment matrix, known as C-RAM, aimed at helping governments identify potential risks in digital asset operations. Moreover, in October, a “Synthesis paper” co-developed by the Bank for International Settlements (BIS) and the IMF received unanimous approval from the G20 Finance Ministers and Central Bank Governors, advocating for comprehensive regulation of cryptocurrencies rather than an outright ban.

As economies recover from the COVID-19 pandemic, the IMF is emphasizing the importance of digitalization, urging governments to focus on a future that is green, inclusive, and digitally advanced. The organization advocates for investments in green infrastructure, social assistance programs, and digitalization to foster equitable and sustainable recovery. The IMF is intensifying its policy advice on social protection and taxation, and has also launched a Climate Change Indicators Dashboard. On the digital front, it is exploring the macro-financial implications of digital currencies and the role of digitalization in financial inclusion. The IMF aims to help countries balance opportunities and risks in these key areas for a resilient recovery.