In the global financial market, no entity is quite as powerful and instrumental as the International Monetary Fund. They are responsible for the finances of countries all around the world and are sometimes vilified for it.
However, the global supranational organisation could embrace cryptocurrency. At the Bank of England forum last week, Christine Lagarde who is the head of the IMF claimed that the organisation could issue a currency similar to Bitcoin.
This will be used for their Special Drawing Rights or SDR which could replace traditional Fiat. This would no doubt be a really important step for cryptocurrencies as they progress to the point of mass adoption.
What is the SDR?
The Special Drawing Rights (SDR) was created in 1969 as a sort of reserve asset. The SDR is composed of a basket of currencies including the US dollar and the Euro.
The purpose of the SDR is that countries can borrow from the SDR against their official reserves. This is done for the purposes of meeting their balance of payments.
This has, however, been less significant ever since the collapse of the Bretton Woods agreement and as all the countries decided to move to a floating exchange rate. Moreover, there have been a great deal of other avenues for financing that has made the SDR quite obsolete.
Introduction of the IMF Coin
The hope of the IMF is that this IMFCoin could invigorate the SDR and make it appealing again. As more countries become aware of the fact that Fiat currencies such as the dollar are not inherently the most reliable. A cryptocurrency backed SDR could alter that.
In an article in the Wall street journal, it was claimed that the IMFCoin could also reduce volatility in currency markets that is driven by general currency imbalances. It could also prevent countries from hoarding physical currency in order to maintain these reserves.
Hoarding means that less cash is available to be spent. The IMFCoin will allow the IMF to adjust the circulation based on economic conditions. As this currency is spent in the country then Economic growth could indeed follow.
Some Resistance
Altough this is no doubt an interesting proposal that could indeed revive the SDR, some members are not fully on board with the idea. Given that the dollar is the most prominent reserve currency, the USA is not entirely comfortable with the idea of a digital asset replacing the dollar. They get numerous benefits from the IMF using the dollar as a reserve currency.
However, other IMF members such as China are on board with the idea. This is indeed surprising given that they have made moves against their citizens investing in crypto currencies.
Whatever the result, the fact that an institution such as the IMF is considering such an implementation is indeed a great boost of confidence in the whole cryptocurrency ecosystem.
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