An influential economic thinker has urged Western governments to “stop dismissing the crypto revolution as some mix of illicit payments schemes and reckless financial speculation” – while a new paper from the IMF suggested that nations pick up the pace with their digital money development. The IMF also made mention of including the participation of “other stakeholders” – a possible reference to players from the world of crypto.
In a column for the Financial Times, the former head of the Global Development Council, Mohamed El-Erian, the President of Queens’ College at Cambridge University and the chief economic adviser at Allianz, wrote that governments “should be more open to embracing the innovations of crypto and channeling them in a better direction for finance, the economy and society at large.”
He also remarked that the crypto policy debate in Western economies “remains too narrow relative to the importance of the issues in play.” He wrote of an “excessively polarised,” status quo, with “participants speaking different languages” that has “intensified the underlying tug of war between accelerating private sector adoption and government/central bank discomfort.”
He warned that the West would be loath to ignore what China has attempted to do in response to the rise of crypto. El-Erian wrote that Beijing “understood the transformational power of the crypto revolution and wish to co-opt it in a holistic and highly directed manner.” This, he added, “confronts the West with a challenge that goes beyond China being quicker to develop better payments systems and a central bank digital currency.”
China’s digital yuan progress and crypto policy regulation, El-Erian opined “pose a new problem for the dollar’s reserve currency status” – but also grants China greater control over “sensitive big data and closing what remains of the technological gap.”
However, the thinker claimed that crypto players too needed to engage with regulators and governments in a more meaningful way.
El-Erian told “crypto supporters” to abandon their “zero-sum mindset where their gains can only come from the losses of the established financial system.”
He explained that the ball was “primarily” in the crypto world’s court, urging crypto players to learn from the mistakes of Big Tech players, namely “pursuing narrow business objectives without realizing that their desired success will make them systemically important.”
Should the crypto world and regulators in the West fail to collaborate, he concluded, Beijing would be handed the initiative with “both sides of the crypto world” set to “find their future being determined by what a faster-moving China is doing and intends to do.”
Meanwhile, the authors of the IMF’s new paper, entitled The Rise of Public and Private Digital Money, emphasized that digital forms of money “must be regulated, designed and provided” to allow countries to “maintain control over monetary policy, financial conditions, capital account openness and foreign exchange regimes.”
The authors also noted that the IMF “cannot only rely” on its “internal resources” to “help members tackle the policy challenges raised by digital money adoption.” Instead, they claimed, the body “must closely partner with other stakeholders while minimizing overlap and duplication of work.”
The authors eventually explained – to some extent – what it meant by the term “other stakeholders.” It outlined that this category comprised mainly other governments, central banks, and regulators, but also one other group: “Private sector entrepreneurs, academics, privacy advocacy groups, representatives of civil society, think tanks and others.”
They concluded that some of these groups “may have narrow, partisan agendas,” but are “nevertheless important partners” to “stay abreast of latest developments and their broader impact on societies, and, conversely […] to provide an objective and far-sighted perspective.”
The paper’s authors also called for the IMF to “rapidly ramp up its resources devoted” to digital finance.
Earlier this week, the IMF published a blog post where it warned nations like El Salvador that “attempting to make cryptoassets a national currency is an inadvisable shortcut.”
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