The International Monetary Fund (IMF) has argued that network effects could spark the fire for mass adoption of the new digital currency.
In a new report released on July 15, the IMF aims to create a conceptual framework for categorizing new digital currency such as Libra and Facebook stablecoins, as well as reflecting on the implications of their emergence for central bank policy. .
In its analysis of electronic money, including, but not limited to, blockchain-based assets, the IMF identifies six factors that could drive their rapid growth for payments: convenience, ubiquity, complementarity, low transaction costs. , trust and network effects. The report states:
“The top five reasons may be the spark that ignites the fire of electronic money; the sixth is the wind which could spread the fire. The power of network effects to expand adoption of new services should not be underestimated.
To back up its claims, the IMF highlights the rapid shift from email to SMS and SMS to social messaging platforms such as Whatsapp, noting that the latter’s adoption has been exponentially faster than the initial shift to email – noting that its user base of 1.5 billion is attributable more to word of mouth than to formal marketing strategies.
The IMF is also creating a taxonomy indicating its vision of the flourishing digital currency sector, notably adopting the principle of decentralization of the blockchain industry as one of its main classification parameters:
“Money trees.” A taxonomy of the digital currency landscape. Source: IMF
Devoting part of its analysis to the issue of central bank digital currencies (CBDCs), the IMF proposes a hybrid approach that would be established by a public-private partnership – defining the proposed asset as a synthetic CBDC (sCBDC).
A central bank would have limited liability with respect to a potential CBDC, offering settlement services – including access to its reserves – to e-money providers, who, in turn, would be tightly regulated. This hybrid – not full-fledged – CBDC would benefit from the private sector’s comparative advantage to innovate and engage with consumers while relying on the central bank to ensure trust and efficiency, according to the report. The IMF concludes:
“Much of it is in the hands of central bankers, regulators and entrepreneurs […] but one thing is certain: innovation and change are likely to transform the banking and monetary landscape as we know it.
This spring, IMF Managing Director Christine Lagarde said blockchain innovators are shaking up the mainstream financial world and having a clear impact on historical players, having previously recognized that the organization could potentially unleash its own digital asset to the future.