IMF warns banks must evolve or be 'left behind' amid the rise of digital money

The International Monetary Fund (IMF) has warned that banks are at risk of being “left behind” as big tech companies shake up the financial system.

In the paper entitled “The Rise of Digital Money,” IMF authors Tobias Adrian and Tommaso Mancini Griffoli noted that cash and bank deposits, which are currently the most common forms of money, will “face tough competition.”

The paper also cautioned that big tech companies and fintech startups could even surpass them, although banks are “unlikely to disappear” amid the growing threats. It also pointed out the possible disruption that may happen within the banking industry as these new firms offering new payment methods may eventually shift to become banks and utilize their data advantage to provide targeted credit.

Thus, although banks still have some advantages over their tech rivals including the ability to increase deposit interest rates, they should start considering offering better services or similar electronic money products. Also, these new forms of value transfer may offer convenience to consumers, but the stability of their value is still in question.

“Some will be left behind no doubt. Others will evolve, but must do so quickly,” the authors wrote.

With regard to regulation, central banks will play an “important role” in shaping the future of e-money, as they have the power to set standards and a strong influence for their adoption.

“One solution is to offer selected new e-money providers access to central bank reserves, though under strict conditions. Doing so raises risks, but it also has various advantages. Not least, central banks in some countries could partner with e-money providers to effectively provide ‘central bank digital currency (CBDC)’, a digital version of cash.”

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Source: IMF warns banks must evolve or be ‘left behind’ amid the rise of digital money – TokenPost