IMF: Regulation should maintain the advantages of digital currencies

The International Monetary Fund (IMF) has released a working paper examining the risks and uses of virtual currencies such as Bitcoin and proposing a balanced regulatory framework that does not hinder innovation.

IMF Managing Director Christine Lagarde mentioned the report during a panel discussion on “Financial Transformation” at the World Economic Forum in Davos.

After outlining the state of virtual currencies, the report goes on to explore the potential impact of the use of digital currencies (defined to include mobile coupons and airline travel points), as well as distributed ledgers and blockchain.

Notably, the paper concludes that distributed ledgers have the potential to transform finance by reducing costs and, in the long term, allowing for deeper financial inclusion.

Advantages for remittance

The report cites the technology’s potential to cut remittance costs, which can be high through “traditional” platforms, with transaction fees averaging around 7.7% globally.

Recognizing that the cost of sending funds over the Bitcoin network is around 1%, the report notes that “blockchain-based intermediaries” are already providing Bitcoin remittance services in countries such as Kenya and the Philippines.

In addition, the introduction of distributed ledgers can also reduce the time required by the stock exchange, which currently takes three days.

The report goes on to say:

“Not only is this time-consuming, but both parties to the transaction also face settlement and counterparty risks. Major financial institutions have been investing heavily in this area. For example, Goldman Sachs applied for a blockchain-based settlement system (SETLCoin) in 2015.”

The report goes on to say that the development of smart contracts will further promote the efficiency of trading and settlement in the securities industry.

Regulatory and policy challenges

The International Monetary Fund (IMF) further examined the regulatory and policy challenges faced by digital currencies in some risk areas, including consumer protection, money laundering and terrorism, taxation, exchange rates and capital controls, and monetary policy.

However, it also warned that global governments may face difficulties in reaching a clear and consistent definition.

In summary, while recognizing the challenges outlined above, the report recommends the creation of regulatory frameworks for virtual currencies at both the national and international levels while avoiding stifling innovation.

“Virtual currencies and their underlying technologies can provide faster and cheaper access to financial services, and in the developing world they can be a powerful tool for deepening financial inclusion,” Lagarde said.

She added:

“The challenge will be how to capture these benefits while preventing illicit uses such as money laundering, terrorist financing, fraud, and even circumvention of capital controls.”

The full report can be found at: http://8btc.com/doc-view-401.html

Original article: http://www.coindesk.com/imf-paper-preserve-digital-currency-benefits/
By Daniel Palmer
Compiled by: Satuoxi
Source (translation): Babbitt Information (http://www.8btc.com/imf-paper)