In its recently published blog entitled “The Rise of Digital Money,” the IMF said stablecoins — digital currencies pegged to a physical asset or fiat currency and designed to minimize price volatility — could bring significant benefits to customers and society but are not without risks.
The benefits, risks and regulatory issues
The IMF said banks could lose their role as intermediaries, as the public would switch to stablecoin providers. However, it predicted banks would not disappear because they will likely try to compete by developing their own innovations.
The blog further states that new monopolies represented by tech giants could evolve. As such, tech companies could use their networks to sidestep rivals and monetize data.
Among other implications, the IMF said policymakers need to reinforce consumer protection and financial stability and the confront the risk of losing “seigniorage.” In countries subject to inflationary changes, stablecoins in foreign currency could replace local currencies, the blog noted, which could subsequently undermine monetary policy and financial development.
“But the strongest attraction comes from the networks that promise to make transacting as easy as using social media. […] Stablecoins offer the potential for better integration into our digital lives and are designed by firms that thrive on user-centric design.”
The IMF’s plans regarding digital money
In July, the IMF argued that network effects could spark the blaze for the mass adoption of new digital money. The IMF then revealed that it aims to create a conceptual framework for categorizing new digital money such as Facebook’s Libra and stablecoins and to think through implications for central bank policy.