In this photo illustration, a visual representation of a digital cryptocurrency coin sits on display in front of a Facebook logo on June 17, 2019 in Paris, France.
Chesnot | Getty Images
Banks must evolve or risk being “left behind” as big tech companies shake up the financial system, according to new research from the International Monetary Fund (IMF).
In a paper published Monday titled “The Rise of Digital Money,” IMF authors Tobias Adrian and Tommaso Mancini-Griffoli said the two most common forms of money today, cash and bank deposits, will “face tough competition and could even be surpassed.”
But banks are “unlikely to disappear” as they face growing threats from big tech companies and fintech start-ups, the paper said.
“Some will be left behind no doubt,” the authors wrote. “Others will evolve, but must do so quickly.”
The research was published as central bankers and policymakers debate the role that tech companies and digital currencies will play in the banking and payments system.
Facebook’s announcement that it will launch a cryptocurrency called Libra has been met with skepticism from many officials around the world. In congressional testimony last week, Federal Reserve Chairman Jerome Powell said Libra raises “serious concerns” around privacy, money laundering, consumer protection and financial stability.
“Policymakers should be prepared for some disruption in the banking landscape,” the IMF paper said.
The IMF paper said traditional banks have certain advantages over tech competitors, such as the ability to raise interest rates on deposits. Libra, for example, has said it will not offer any interest to users. But the paper also said big tech firms and fintech start-ups are “experts at delivering convenient, attractive, low-cost and trusted services to a large network of customers.”
The IMF has been examining the role that central banks might play in issuing digital currencies. In a CNBC interview in April, then-IMF Managing Director Christine Lagarde said disruptors in the financial sector, including crypto assets, are “clearly have an impact” on incumbents like traditional banks.