International Monetary Fund’s Managing Director Christine Lagarde has suggested the regulators across the world to employ the blockchain technology to curb the "peril that comes along with the promise" of cryptocurrencies.
"The same innovations that power crypto-assets can also help us regulate them. To put it another way, we can fight fire with fire," Lagarde said in a blog post on Tuesday.
Remarking that technology behind crypto assets is an “exciting advancement that could help revolutionise fields beyond finance”, she highlighted that they are also a new vehicle for money laundering and the financing of terrorism.
“Money laundering and terrorist financing is only one dimension of the threat. Financial stability is another. The rapid growth of crypto-assets, the extreme volatility in their traded prices, and their ill-defined connections to the traditional financial world could easily create new vulnerabilities.”
She championed the use of distributed ledger technology—the backbone of blockchain technology—and said it can be used to speed up information-sharing between market participants and regulators.
“Those who have a shared interest in maintaining safe online transactions need to be able to communicate seamlessly. The technology that enables instant global transactions could be used to create registries of standard, verified, customer information along with digital signatures,” she added.
Lagarde said that the biometrics, artificial intelligence, and cryptography can enhance digital security and identify suspicious transactions in close to real time.
She also called for a greater international cooperation at the regulatory level since crypto assets know no borders. She added that the framework to regulate the cryptocurrencies must be global as well.
Talking about the future of cryptocurrencies, the former French finance minister said that it would not be wise to dismiss them. “We must welcome their potential but also recognise their risks,” she added.
“By working together, and leveraging technology for the public good, we can harness the potential of crypto-assets while ensuring that they never become a haven for illegal activity or a source of financial vulnerability.”