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Big thanks to Kevin L. for sending through this article!
IMF Chief Sees Crypto As Asset Class, Not A US Dollar Competitor
International Monetary Fund (IMF) Chief Kristalina Georgieva classifies cryptocurrency as an asset rather than currency and refutes the idea that Bitcoin could replace the U.S. dollar as the world’s leading currency.
In a recent interview, Georgieva stressed the distinction between money and assets, highlighting that cryptocurrencies like Bitcoin fall into the latter category.
She explained that cryptocurrencies could range from secure, backed assets to risky investments, but they don’t qualify as actual money.
The conversation arises amidst a significant development in the crypto world, where the U.S. Securities and Exchange Commission (SEC) approved the first spot Bitcoin exchange-traded funds (ETFs), an event celebrated by many in the cryptocurrency sector.
Despite this advancement, Georgieva maintains that Bitcoin lacks the essential attributes to challenge the U.S. dollar’s global dominance, pointing to the vast size of the U.S. economy and the unparalleled depth of its capital markets as critical supporting factors for the dollar.
She confidently expressed her view that the possibility of Bitcoin overtaking the dollar is so distant that it’s not worth serious consideration.
In December, Georgieva advocated for the creation of comprehensive regulations and strong global infrastructure to address the potential risks posed by cryptocurrencies, emphasizing the importance of safeguarding macro-financial stability while harnessing the benefits of crypto technologies for a more efficient and inclusive financial system. Read more here.
What Are The IMF And The World Bank?
The International Monetary Fund (IMF) and the World Bank are two pivotal institutions within the global financial system, each serving separate but complementary roles aimed at fostering global economic stability and development.
International Monetary Fund (IMF)
Established: In 1944 during the Bretton Woods Conference.
Purpose: The IMF aims to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries to transact with each other.
Its primary purpose is to prevent and help manage economic crises by providing advice, financial assistance, and technical support to its member countries.
How It Works:
- Surveillance: The IMF monitors global economic trends and provides economic analysis and policy advice to its member countries.
- Financial Assistance: It provides loans to countries facing balance of payments problems, to prevent financial crises and restore economic stability.
- Capacity Development: The IMF offers technical assistance and training to help countries build better economic institutions and improve their capacity to implement sound economic policies.
Power and Influence: The IMF wields significant influence through its economic assessments, policy advice, and financial support.
Its decisions can affect national economic policies and have far-reaching implications for global financial markets.
World Bank
Established: In 1944 during the Bretton Woods Conference, it began operations in June 1946.
Purpose: The World Bank’s primary focus is on reducing poverty and supporting development by providing financial and technical assistance to developing countries for development programs (e.g., bridges, roads, schools, etc.) that are expected to improve the economic prospects and quality of life for people in those countries.
How It Works:
- Loans and Grants: The World Bank provides low-interest loans, interest-free credits, and grants to developing countries for a wide array of purposes that include investments in education, health, public administration, infrastructure, financial and private sector development, agriculture, and environmental and natural resource management.
- Research and Advice: It also offers expertise and policy advice to help developing countries implement their development projects effectively.
Power and Influence: The World Bank influences development policies and priorities through its funding decisions and the technical advice it provides to member countries.
Its projects and initiatives often set standards and practices for development efforts worldwide.
Collaboration Between IMF and World Bank
While the IMF focuses on macroeconomic issues and the stability of the international financial system, the World Bank’s primary concern is long-term economic development and poverty reduction.
They often collaborate on providing comprehensive support to countries in crisis or development need, with the IMF handling stabilization measures and the World Bank focusing on structural reforms and development projects.
Their combined efforts are crucial for addressing global financial challenges, promoting sustainable development, and facilitating international trade and development cooperation.
How Are Cryptos Bridging The Gap Between Assets And Currencies?
The International Monetary Fund (IMF) chief, Kristalina Georgieva’s recent comments on cryptocurrencies, distinguish them as an asset class rather than a form of money.
Zucoin has long considered its native token a digital asset, for similar reasons as the IMF.
The comparison between assets and currencies gets murky with some cryptocurrencies.
Cryptocurrency is a broad term.
It might even be the wrong name for the industry, as most cryptos are not yet currencies.
Some technologies might be the bridge between an asset and a currency, or in some areas, be both.
The debate on whether cryptocurrencies are closer to assets or currencies is central to understanding their role in the current global economy.
Assets are valuable resources owned by individuals or corporations, whereas currencies serve as a medium of exchange, a store of value, and a unit of account.
For a cryptocurrency to transition from being perceived primarily as an investment asset to being widely used as a currency, it must address several fundamental aspects.
Firstly, stability is paramount.
Traditional currencies maintain relative stability in their value, making them reliable for everyday transactions.
Of course, the recent pandemic era proved currencies can quickly inflate out of control, with many countries experiencing once-in-a-generation rapid inflation, resulting in sinking currency purchasing power.
Stablecoins, which are pegged to goods like local (fiat) currencies or commodities, offer a glimpse into how cryptocurrencies can achieve the necessary stability to function effectively as a medium of exchange.
In this sense, stablecoins act as a middleman, providing a way in and out of the crypto world and back into local currencies.
As more areas of crypto become regulated, thus safer for big institutions to get on board, more of their value may become underpinned by tangible assets or long-term holders.
Assets are most valuable when most people don’t sell them, yet the purchase demand rises.
The other interesting side of crypto is the differences between the number of tokens available.
A country’s local currency tends to be issued at a controlled rate by a central bank.
They attempt to target 2-3% inflation, as an incentive to spend and not hold a currency, shifting it away from being considered a traditional asset.
Secondly, widespread acceptance and usability are critical.
A currency must be accepted by both merchants and consumers to be viable, at least in some communities.
This acceptance hinges on the ease of use, transaction speed, and integration with existing infrastructures.
Cryptocurrencies must be user-friendly, with straightforward mechanisms for conducting transactions and converting between fiat and digital currencies seamlessly.
For example, if a cryptocurrency still has to be converted into a local currency to purchase goods at a shop’s checkout counter, then it remains an asset, not a currency.
In this regard, the technological innovations and system design decisions of Zucoin and Splitchain stand out.
Splitchain, for example, by improving transaction efficiency, fast settlement times and scalability, makes it more feasible for cryptocurrencies to be used in high-volume, everyday transactions.
Finally, regulatory compliance and safety measures are must-haves.
For cryptocurrencies to gain legitimacy and function as currencies, they must adhere to regulatory standards and offer robust security measures to protect users’ assets.
The development of clear regulatory frameworks, as called for by financial authorities like the IMF, will be instrumental in this transition.
Currencies are the links between assets.
So it’s no surprise this is where governments and central banks aim much of their focus.
Currencies allow a trade to happen when a direct swap isn’t feasible.
Direct swaps are bartering.
The big question is, if a cryptocurrency can solve both ends, being a deflationary asset due to their fixed supply, as Bitcoin and Zucoin are, but can be stable, safe, and fast enough to be used as an everyday currency, then what happens?
Take this scenario.
We saw sparks of the following behavior happening over the past couple of years.
If (or when) there’s another round of central bank-triggered inflation (in effect, currency weakening), is it better to hold deflationary assets like fixed-supply cryptocurrencies, and then convert them to a rapidly-inflating local currency only when you need to purchase something?
As crypto technologies continue to evolve and integrate with traditional systems, the line between asset and currency may become increasingly blurred.
Tokenization capabilities only make it even harder to categorize the underpinning crypto technologies.
These are capable, flexible and dynamic systems.
When it comes to the IMF’s predictions, Nassim Nicholas Taleb, the author of “The Black Swan,” often discusses the unpredictability and impact of highly improbable events.
“The inability to predict outliers implies the inability to predict the course of history.”
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All the best,
—Rob
MyZucoins
Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.