IMF and World Bank Warming up to Crypto! What's next?
Juan Villaverde is an econometrician and mathematician devoted to the analysis of cryptocurrencies since 2012. He leads the Weiss Ratings team of analysts and computer programmers who created Weiss cryptocurrency ratings.
The International Monetary Fund (IMF), along with the World Bank, is experimenting with "blockchain" technology.
And this is big news with far-reaching implications.
No, their project is not an open, public distributed ledger. At least not yet. Instead, it's strictly a closed, permissioned ledger much like JPMorgan's Quorum, which JPM Coin is based on.
But there's a key difference: Unlike what we see happening at JPM, it seems this project is not the IMF's end game. Instead, it's a test project for their staff to get their feet wet using crypto assets and Distributed Ledger Technology.
That's very intriguing.
Could they be testing the waters for a future platform that banks and other financial institutions will use to settle transactions?
If so, projects like JPM Coin could face a premature death.
Heck, if banks around the world can use an asset issued by a trusted, neutral institution like the IMF, no banker in his right mind would ever want to use an asset issued by a competitor.
Even if the IMF does not move ahead, the concept of the JPM Coin is still very nearsighted. Competing megabanks like Citigroup or BofA Securities would simply launch their own crypto assets. And in the end, that would just create a race to the bottom — each bank trying to foist its own coin to its competitors.
End result: Poor adoption by any individual coin.
That's why we have zero confidence in bank-sponsored coins. And it's why we're eager to find out more about what the IMF has in mind.
Let's explore this scenario ...
A respected coalition of neutral third parties like the IMF and World Bank have the gravitational pull to bring the movers and shakers of the financial world to the same table, reach agreement and ultimately share a common ledger based on Distributed Ledger Technology (DLT).
They aim to make international transactions and settlements more secure, more efficient and a lot faster. They eliminate a series of intermediaries and steps. They empower smaller institutions to compete more effectively. They transform the world of global banking.
Sending money from bank A to bank B becomes infinitely easier than it is today. Instead of days or weeks, transactions settle in minutes or seconds.
Better yet, the legacy financial world and the crypto world become compatible and ultimately interoperable. Instead of existing in completely separate, parallel universes, they are integrated. Instead of cumbersome, oft-nightmarish steps to move your money from dollars or euros to Bitcoin or Ethereum, they become easily convertible.
Billions of people with bank accounts gain easier access to crypto. And billions with no bank accounts gain access to both. All they need is a mobile device with an internet connection.
Is this scenario really possible? What are the big obstacles or issues that emerge?
My quick answer: There are too many to address at this early, experimental stage in the evolution of digital assets. But here are a few of the main ones that come readily to mind ...
Issue #1. The scenario implies two kinds of competing cryptocurrencies:
- Free open public ledgers the likes of Bitcoin and Ethereum. Let's call these "open DLT" (akin to the internet).
- Regulated, curated ledgers controlled by supranational institutions. Let's call these "closed DLT" (like private intranets).
Is it reasonable to hope that these will merge? Would control-freak heavyweights like the IMF or World Bank consent to distributed ledger they cannot control directly? Not likely! Rather, it's far more reasonable to expect that they will continue to coexist in parallel.
Issue #2. Will each side find its own separate domain? For example, regulated digital assets used by large institutions; free and open digital assets used by the masses? Not entirely, but this is possible to some degree.
Issue #3. Will there be at least some interoperability between them? If so, how? While we lack the specifics, we are certain that if the traditional financial heavyweights create their own natively digital assets, these assets will be more easily exchanged for open cryptocurrencies than fiat money is today.
Issue #4. Will the adoption of closed DLT by the global banking system help to legitimize open DLT used by the public? We think so.
Issue #5. Which is superior? Legacy technology used by the global banking system today? Or Distributed Ledger Technology, which was pioneered by the leading cryptocurrencies?
Regarding this issue, we have no doubt whatsoever: It's hard to imagine a future world in which DLT is not the dominant banking and settlement technology.
We see no reason why it will not take over the financial industry someday, much in the same way the internet eventually took over telecommunications.
The fact is, JPMorgan Chase, the IMF and World Bank are already taking the first steps in that direction.
And never forget: They wouldn't be doing so if public open cryptocurrencies had not been created in the first place. They know it's the superior technology. And they know it's the superior technology that wins in the end.
Bitcoin and its cohorts are changing the world.