The managing director of the International Monetary Fund (IMF), Christine Lagarde, has called for a crackdown on the misuse of cryptocurrencies like bitcoin by using the blockchain technology behind the digital currency to fight the criminals.
Lagarde said central bank authorities around the world could harness the potential of cryptocurrencies to help bring them under control, warning that failure to do so would allow the unfettered development of a “potentially major new vehicle for money laundering and the financing of terrorism”.
Writing in an IMF blogpost, Lagarde said the same innovations that powered cryptocurrencies could be used to help regulate them. “We can harness the potential of crypto-assets while ensuring that they never become a haven for illegal activity or a source of financial vulnerability.”
Distributed ledger technology, which enables the authentication of transactions without them needing to be administered or guaranteed by a central authority, could be used to speed up information sharing between regulators to improve their monitoring of the financial system.
She said the developments driving cryptocurrencies, including blockchain, were exciting advances, which could help revolutionise financial services by providing low-cost payment methods for those who did not have bank accounts. However, she said, there was “peril that comes along with the promise. It would not be wise to dismiss crypto-assets; we must welcome their potential but also recognise their risks,” Lagarde said.
Lagarde is the latest senior financial figure to issue a warning over the potential dangers of bitcoin, as well as to hail the potential of the technology behind it. Backers of bitcoin have said the technology has the potential to make everyday payments easier and cheaper. However, economists have said the digital currency represents a dangerous speculative bubble.
Lagarde said cryptocurrencies could cause new vulnerabilities to develop in the world’s financial system, illustrated by its rapid growth and volatile price swings. Bitcon, the best known of thousands of digital currencies developed in recent years, gained in value by more than 900 per cent last year to hit almost $20,000 (£14,400) a unit before Christmas, but has since crashed to less than half that.