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IMF: Financial inclusion will boost the global economy

The International Monetary Fund warns that global growth is slowing to its lowest rate since the financial crisis. But while urging financial inclusion, do not expect the IMF to accept Bitcoin in the short term.

Lowest economic growth since the financial crisis

After making a downward revision, at the lowest level since the financial crisis, the International Monetary Fund (IMF) recently issued a grim warning:

Global growth softened to 3.6 percent in 2018 and is projected to decline further to 3.3 percent in 2019.

One of the cures proposed by the IMF is to promote financial inclusion

The IMF blames the significant weakening of the global expansion, the lowest in a decade, to several factors, mainly the trade war between China and the United States, the Argentine and Turkish macroeconomic difficulties and the problems of the German auto industry.

To exacerbate the problem, the president of the United States, Donald Trump, now threatens to impose tariffs on cars imported from the European Union, which could cause German manufacturers to lose billions of dollars.

Another culprit that the IMF challenges for the weakening of the economy is the “financial adjustment along with the normalization of monetary policy in the larger advanced economies.”

IMF: Economies must be more inclusive

According to the IMF, to reactivate world economic growth, among other things, it is imperative that the financial and government authorities make their economies more inclusive.

The IMF has been an important advocate of financial inclusion, at least on the surface, highlighting the benefits of digital currencies. In November 2018, a staff discussion note stated that a,

The digital currency of the Central Bank could strengthen the benefits and reduce some of the costs and risks for the payment system and could help foster financial inclusion.

In addition, at the Fintech Festival in Singapore in 2018, Christine Lagarde, CEO of the IMF, addressed the issue of financial inclusion and how digitization was changing economic activity.

In his speech, he commented on how innovative payment providers using electronic money were responding to people’s demands and the requirements of the economy. In this sense, she said,

Let me start with financial inclusion, where the digital currency offers great promise, through its ability to reach people and businesses in remote and marginalized regions. We know that banks do not rush precisely to serve the poor and rural populations.

And Lagarde added:

Even cryptocurrencies such as Bitcoin, Ethereum and Ripple are competing for a place in the world without cash, constantly reinventing themselves in the hope of offering a more stable value and a faster and cheaper solution.

The virtual currency offers great promise, but…

Conversely, in the same speech, the head of the IMF was concerned that “the continued rapid growth of encryption assets could create new vulnerabilities in the international financial system.”

At the same time, the head of the IMF favors the modernization of the identity control points (ie, shock points) in cryptocurrencies to maintain “financial stability”. In other words, cryptocurrencies like Bitcoin are excellent as long as governments and central banks maintain control.

She defended the imposition of KYC / AML regulations to ensure that user identities are properly recorded. However, this would undoubtedly add friction, undermining the whole idea of financial inclusion.

However, Lagarde cautioned central banks not to block technological progress, saying:

This brings me to my third area: the possible drawbacks of the digital currency. The obvious ones are the risks to financial integrity and financial stability. But I would also like to highlight the risks of stifling innovation, the last thing you want.

The fact that the IMF opposes the “stifling innovation” seems promising. However, it is doubtful that the IMF head will support Bitcoin as an open alternative to the global banking system.

Published inFintech
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