Despite always expressing his disapproval of cryptocurrencies, the International Monetary Fund (IMF) recently said that digital assets can be effective alternatives to the traditional financial system. In an IMF article published on June 16, the organization said that cryptocurrencies could be a “more effective” payment solution than credit and debit cards, especially in energy consumption. The IMF, which was created on December 27, 1945, works to “achieve sustainable growth and prosperity for all of its 190 member countries by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increasing productivity, job creation and economic well-being”. The current payment system, including legacy central bank systems, consumes a lot of energy. Therefore, the switch to renewable energy throughout the financial sector should be a priority, according to IMF analysts. The IMF revealed that some central banks are considering making digital currencies available on physical cards; therefore, there must be a solution to reduce energy consumption. The entity stated that the integration of cryptocurrencies and CBDC with physical cards will help with mass adoption.
“Depending on the specifics of how they are set up, CBDCs and some cryptocurrencies may be more energy efficient than much of the current payment landscape, including credit and debit cards.”
The organization acknowledged that while the future of the money is still unknown, lawmakers considering the CBDC adoption and cryptocurrencies should consider the energy factor in an integral way.
“We draw on academic and industry estimates to compare digital currencies with each other and with existing payment systems. This research sits at the intersection of digital currencies and climate change, two hot topics for policymakers, and the findings are especially pertinent to many central banks planning new digital currencies while also considering their environmental impact. Our research shows how technology design choices for digital currencies make a big difference to power consumption.”
According to the IMF, energy consumption will be key in determining the future of money, especially with payment systems that adopt blockchain. Despite this, the IMF noted that cryptocurrencies that use proof-of-work (PoW) algorithms such as Bitcoin they consume more energy than credit cards and recommended focusing on digital assets with a consensus mechanism or authorized systems. The agency noted that “these advances place the energy consumption of cryptocurrencies well below the consumption of credit cards.”