Business

Fight fire with fire

IMF's Lagarde calls for Bitcoin regulation

BY KARENA BENNETT
Business reporter
bennettk@jamaicaobserver.com

Wednesday, March 14, 2018

Print this page Email A Friend!


International Monetary Fund (IMF) Managing Director Christine Lagarde yesterday called for global support in redeveloping the technology behind crypto-currency for use in locking down criminals using the digital system as a haven for illegal activities.

Lagarde, in an IMF blog titled 'Addressing the Dark Side of the Crypto World' said the IMF recognises that more need to be done to get a handle on the emerging threat posed by crypto-assets, including Bitcoin, to the financial system and will begin the process of “shutting down the illegals” by fighting fire with fire.

Bitcoin is the first decentralised digital currency. The system works without a central bank or single administrator and can be used to book hotels on Expedia, shop for furniture on Overstock or traded as investment. Bitcoin gained in value by more than 900 per cent last year to hit almost US$20,000 per unit before Christmas. It has since crashed to less than half that at roughly US$9,300 in early trading on Tuesday.

“We can begin by focusing on policies that ensure financial integrity and protect consumers in the crypto world just as we have for the traditional financial sector. Indeed, the same innovations that power crypto-assets can also help us regulate them…to put it another way, we can fight fire with fire,” Lagarde said.

Just last year, Lagarde warned central banks and financial service agents to pay close attention to the digital currencies, noting that cryptocurrencies could even play a role in updating the IMF's own internal currency, a reserve asset named the Special Drawing Right (SDR).

Currently, the technology behind crypto assets—including blockchain— is seen as an exciting advancement that could help revolutionise fields beyond finance; powering financial inclusion by providing new, low-cost payment methods to those who lack bank accounts while empowering millions in low-income countries.

Lagarde, in her blog yesterday, said the possible benefits of the digital currency have even led some central banks to consider the idea of issuing digital currencies, but warned that before Banks get there, it should take a step back and understand the peril that comes with the promise.

“The same reason crypto-assets are so appealing is also what makes them dangerous. These digital offerings are typically built in a decentralised way and without the need for a central bank. This gives crypto-asset transactions an element of anonymity, much like cash transactions. The result is a potentially major new vehicle for money laundering and the financing of terrorism,” she said.

Lagarde reasoned that advances in regulatory and supervisory technology, such as know-your-customer requirements, can help shut criminals out of the crypto world while allowing countries to harness the potential of crypto-assets.

She highlighted that the use of distributed ledger technology, which enables the authentication of transactions without administration or guarantee by a central authority, could be used to speed up information sharing between regulators to improve their monitoring of the financial system.

Biometrics, artificial intelligence, and cryptography were also seen as areas that could enhance digital security and identify suspicious transactions in close to real time.

“This would give law enforcement a leg up in acting fast to stop illegal transactions. This is one way to help us remove the pollution from the crypto-assets ecosystem,” she said, adding that better use of data by governments can also help free up resources for priority needs and reduce tax evasion, including evasion related to cross-border transactions.

“We also need to ensure that the same rules apply to protect consumers in both digital and non-digital transactions. The US Securities and Exchange Commission and other regulators around the world now apply the same laws to some initial coin offerings as they do to offerings of standard securities. This helps to increase transparency and alert buyers to potential risks. But no country can handle this challenge alone,” Lagarde said.

Meanwhile, a growing number of regulators are calling for international coordination on cryptocurrency regulation. On Tuesday, Japan became the latest country to announce that it will a G20 meeting next week to call for combined regulatory efforts to combat the use of cryptocurrencies in money laundering.

ADVERTISEMENT




POST A COMMENT

HOUSE RULES

1. We welcome reader comments on the top stories of the day. Some comments may be republished on the website or in the newspaper � email addresses will not be published.

2. Please understand that comments are moderated and it is not always possible to publish all that have been submitted. We will, however, try to publish comments that are representative of all received.

3. We ask that comments are civil and free of libellous or hateful material. Also please stick to the topic under discussion.

4. Please do not write in block capitals since this makes your comment hard to read.

5. Please don't use the comments to advertise. However, our advertising department can be more than accommodating if emailed: advertising@jamaicaobserver.com.

6. If readers wish to report offensive comments, suggest a correction or share a story then please email: community@jamaicaobserver.com.

7. Lastly, read our Terms and Conditions and Privacy Policy



comments powered by Disqus
ADVERTISEMENT

Poll

ADVERTISEMENT
ADVERTISEMENT

Today's Cartoon

Click image to view full size editorial cartoon
ADVERTISEMENT