This Tuesday kicks off the Fund's spring meeting where the economic prospects of 2018 will be announced.
Cryptocurrencies have the potential to transform the financial system. Therefore, IMF Managing Director Christine Lagarde asks regulators to have an open mind towards this new asset, in order to understand and limit their risks. The phenomenon of the digital currencies will be one of the subjects to debate in the semiannual meeting that celebrates the organism next to the World Bank, that starts this Tuesday in Washington with opposing forces.
The head of the International Monetary Fund (IMF) makes clear that this new asset does not represent a threat to the financial system, because its penetration is very limited. But that does not stop regulators from being vigilant and anticipates that traditional financial institutions will have to face changes in their business models. It will be a challenge even for the central banks, which could run into trouble in the future to act as lenders of last resort.
"It is inevitable that many will not survive the process of creative destruction," he says, citing the more than 1,600 cryptocurrencies in circulation. "The dizzying turns of cryptoactives such as bitcoin invite comparisons with the fever for tulips that swept Holland in the seventeenth century and the recent dotcom bubble," adds Lagarde.
However, the managing director of the IMF is a firm believer in the technology on which these new assets are based, so she believes that the authorities should work to create a regulatory framework that minimizes risks and distinguishes between threats. real and the fears that it provokes. "Our preliminary assessment is that given its small presence and its limited links with the rest of the financial sector, cryptographic assets do not pose an immediate danger," Lagarde said in the article published by the institution when referring to the implications of virtual currency for financial stability
The benefits of cryptocurrencies, he insists, are obvious. They will allow to speed up and lower the cost of the transactions, they will make the payment system more efficient and they will allow, at the same time, the technology that uses base can be used to protect the confidentiality of the data. But he also believes it is important that this transformation towards a more diffuse and decentralized system be done in a balanced way.
The technology that supports virtual currencies like bitcoin will be one of the big stars of a general debate in which the world economy will be analyzed. The general vision is one of optimism. The United States is growing at full employment, economic activity is gaining strength throughout Europe and the outlook for Asia is favorable. But there are many concerns, because of the protectionist escalation, geopolitical uncertainty, debt and social inequality.
While waiting for the IMF to update its forecasts on growth and inflation on Tuesday, the global economy is expected to maintain a growth rate very similar to that of 20107, which was close to 4%. But Lagarde's most immediate concern stems at this moment from the trade shock that the United States and China are waging. In the Monetary Fund, it is feared that this shock will trigger a protectionist reaction that spreads throughout the world.
Debt And Growth
In addition to the anxiety generated by the IMF, the economic nationalism of Donald Trump is compounded by other risk factors, such as the rise in interest rates or the increase in debt due to fiscal stimuli. The Fund's analysis reveals that global indebtedness reached 164 billion dollars, 40% more than in 2007. More than half of this increase comes from China. It was the strong leverage of the economy that triggered the latest crisis.
The IMF, in fact, considers that the recovery remains fragile and incomplete. Largely because economic activity relied on a generously lax monetary policy over the last decade. If financial conditions are suddenly restricted, the vulnerability will be greater so that companies and consumers can return what they owe. The second point of fragility is seen in the economic and social inequality that is dragged from the Great Recession.