World governments must do more to closely monitor cryptocurrencies and their underlying distributed ledger technologies to maintain the stability of the global banking system.
This call to concerted action on regulation was made by IMF Managing Director Christine Lagarde, who said disruptive financial technologies such as digital currencies are "shaking" the banking system and must be watched more closely.
"I think the role of the disruptors and anything that is using distributed ledger technology, whether you call it crypto, assets, currencies, or whatever ... that is clearly shaking the system," she said.
Lagarde warned these monumental financial industry changes must be accompanied by regulation to maintain stability and trust in the system.
"We don't want innovation that would shake the system so much that we would lose the stability that is needed," she said.
Lagarde said technology companies entering the banking space "forcefully" must be subject to regulation, an obvious reference to Apple, which did so last month. Apple now also plays the financial game and released its own virtual and physical credit card in partnership with Goldman Sachs.
"They will have to be held accountable so that they can be fully trusted," she said.
Analysts noted that tech firms are increasingly seeing the banking sector as a multitrillion-dollar market ready for technological disruption. Adding to concerns about Bitcoin and other cryptocurrencies is news Facebook is developing its own cryptocurrency.
Banks have responded with their own attempts to embrace cryptocurrencies. JPMorgan Chase is testing a digital token called "JPM Coin" that will instantly settle payments between clients. Goldman Sachs is expanding its digital retail bank called Marcus overseas.
Lagarde's comments are a continuation of a similar train of thought she made in Singapore in November 2018. Here, Lagarde made the case for a "central bank for digital currencies" so that digital currencies become a liability of the state and not of a private firm.
She said various central banks around the world are seriously considering these ideas. These include Canada, China, Sweden, and Uruguay.
"They are embracing change and new thinking -- as indeed is the IMF," she said.
The IMF later released a new paper on the pros and cons of central bank digital currency. The paper focuses on domestic, and not the cross-border, effects of digital currency.
She also said long as cryptocurrencies are transparent "and if you are tech savvy, you might trust their services."
"Still, I am not entirely convinced. Proper regulation of these entities will remain a pillar of trust," she said.
