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Christine Lagarde, Managing Director of the International Monetary Fund, discussed virtual currencies at a conference in London and acknowledged that they should be taken seriously.

“I think it may not be wise to dismiss virtual currencies,”

she said in her talk, which revolved around a discussion of how fintech will change central banking over the next generation.

Lagarde started with virtual currencies, the first innovation that she believes will change the way central banks work in the future.

However, she went on to state that Bitcoin and other cryptocurrencies, in the current state, cannot challenge existing fiat currencies or the central banks. She cited market volatility, security flaws and technical challenges to back up her claim.

“For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks. Why? Because they are too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable. Many are too opaque for regulators; and some have been hacked.”

She did acknowledge that these hurdles can be overcome in time as the technology evolves, which is why virtual currencies should not be ignored. She also gave the example of modern technology like computers and tablets, which faced skepticism in the start but are now widely adopted.

According to Lagarde, virtual currencies may find support in countries which have weak institutional frameworks and unstable currencies, especially since they can be easier and safer to hold than traditional paper money.

Continuing her talk, she also added that the benefits of virtual currencies, such as transparency and credibility coupled with smart rules, will push central banks to improve their monetary policies and adopt innovative technology in order to adjust to the changing landscape.

“...in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”

Recently, Central Banks around the world have been looking into cryptocurrencies and blockchain technology, and acknowledge that blockchain-powered financial solutions are the way forward.