The opening sentence of the article states: “A June 2017 staff discussion notefrom the International Monetary Fund (IMF) suggests that banks should consider investing in cryptocurrencies more seriously than they have in the past.”
Let’s investigate the claim.
I searched the 49-page document for the word “invest” and all of its derivations. Here are the results:
- Fintech firms have attracted substantial investment in recent years, while public interest has grown significantly.
- Most firms have remained small––reflecting their knowledge-based business model––but investment in them has risen substantially.
- Total global investment in fintech companies reportedly increased from US$9 billion in 2010 to over US$25 billion in 2016.
- Venture capital investment has also risen steadily, from US$0.8 billion in 2010 to US$13.6 billion in 2016.
- The financial sector covers five broad functions. These are to (i) make and receive payments, including across borders; (ii) save to be able to consume or invest later; …
- In financial markets, investment opportunities are often indivisible (need to be funded in their entirety to pay off).
- Similarly, pooling allows savers to make more liquid and shorter-term investments than are available.
- Footnote 3: To the extent that the liquidity needs of individual savers are randomly distributed and independent of one another, intermediaries can keep only small reserves of liquid funds, and the interest rate risk of longer-term investments can be hedged across projects of different maturities.
- …monitoring and studying the implications of technological change for financial stability, market integrity, efficiency, and investor protection …
- Footnote 13: For example, the Australian Securities and InvestmentCommission has signed agreements with the U.K. Financial Conduct Authority (FCA), …
- Finally, as highlighted further below, the significant market power of correspondent banks and capturing firms allows them to extract revenue through direct fees, FX spreads, and delays while liquidity is invested (called “float”).
- vertical integration is a response to the potential hold-up problem whereby relationship-specific investments leads to ex-post haggling about monopoly or monopsony rents.
Pure Fake News
There is no indication the IMF is “urging” banks to do anything at all, let alone urging banks to “more seriously” invest in cryptocurrencies.
In fact, one might read the following paragraphs and conclude just the opposite as Central Banks may start their own cryptocurrencies.
Central banks could offer their own digital currencies. A central bank digital currency (CBDC) would not be a parallel currency, but merely a widely available DLT-based representation of fiat money. The idea is not to introduce a new unit of account, but a new means of payment and store of value. The CBDC would presumably be exchanged at par with the central bank’s other liabilities (cash and reserves).
Central banks might introduce CBDCs for various reasons, though the balance of benefits and costs need further study. A CBDC might resolve the coordination problem over new virtual currencies, and thus spur technological innovation. Alternatively, it might allow the central bank to retain control of monetary policy effectiveness, in case privately-issued virtual currencies started to gain significant ground (though this is unlikely as suggested in He and others 2016)29. A DLT-based [Digital Ledger Technology] CBDC could also be more secure and resilient than current settlement systems which are exposed to single point of failure risk. Finally, by facilitating small value payments, it could boost the adoption and efficiency of the new, decentralized, service economy. However, CBDCs raise multiple potential costs and risks, such as managing the platform and its integrity, resolving scalability, and dealing with issues of privacy.
Pure Fake News (PFN)
To ensure the author did not confuse “invest” with “study” I did a second search and there is no urge for banks to even study the concept.
The Investopedia headline is pure fake news. All one has to do is read the article to prove it.
Mike “Mish” Shedlock