Cryptocurrencies like Bitcoin and Ethereum have taken off this year, attracting investment globally and achieving mainstream adoption, but the International Monetary Fund(IMF) feels the hype created around it is rather speculative.
Paul Mathieu, who serves as the regional advisor for Africa in the IMF’s Monetary and Capital Markets department said this at a joint press conference hosted by the Ministry of Finance and representatives of the International Monetary Fund(IMF) this week.
Block chain technology is attracting interest from many industries, with the surging price of Bitcoin and Ethereum’s first mainstream application CryptoKitties two recent standouts.
The Patriot asked IMF about its position on cryptocurrencies seeing that there is much talk about the effects of cryptocurrency and blockchain applications on traditional markets, with financial systems a prime target for disruption.
An increasing number of people are becoming involved in cryptocurrency, valuing the decentralised digital cash above traditional investments.
“We think there is a lot of speculation and hype, but there are some innovative aspects to it. The blockchain technology and its distributing ledger has interesting aspects that could be of good use, hence you will see that some industrial companies are adapting to it.
But they[cryptocurrencies] are not something central banks and financial systems should get involved in,” Mathieu advised.
Indirectly taking a swipe to the virtual currency system, he asserted that payments systems must be robust, reliable and cost effective.
“A lot of the technology is there already, [due to cryptocurrencies] several countries are already struggling with the loss of corresponding banking relations and it has become expensive and difficult to get remittances. Fortunately this is not the case in Namibia because anti-money laundering systems are in place. Like I said earlier, it is not something central banks should rush for because most of the money is already electronic,” Mathieu said.
In September while stating its position on cryptocurrencies, Bank of Namibia made it categorically clear that it does not support Bitcoin.
BoN said it does not recognize virtual currencies as legal tender in Namibia and therefore should not be considered to be equal to Namibia’s currency.
Mathieu said banking supervision in the country is sound and effective.
He also reiterated that it is pivotal for Namibia to have strong supervision to have a good view of the consolidated financial groups in the country and by working with partners in South Africa since most of the large banks in Namibia are part of South African groups.
“We stress tested the balance sheets of the banks and found them generally resistive to liquidity and other stresses. You have a very developed banking system for a country of your size and your degree of development. It is very integrated and it works very well but there are still a lot of development needs to get people in rural areas and small enterprises having access to banking services,” said Mathieu.
Namibia urged Namibia to be vigilant to cyber risks.
“It is an area where we are seeing more and more attacks…so you need to pay attention to that,” he said.
Although IMF has high hopes for Namibia’s economy to emerge from the doldrums going forward, but warned that risks will continue to persists.
IMF’s Mission Chief for Namibia, Geremia Palomba said government should adopt right policies to aid economic adjustment in order to maintain the country’s macroeconomic stability and it should fight inequality.
“Whatever policy one comes up with should not be to the detriment of fighting inequality. From this point of view, the Ministry of Finance and BoN have worked on it by pushing to reduce the deficit and the central bank has a strong hand on supporting financial stability to avert any financial risk,” he said.
He added: “Given the trend we have seen in the economy in both the fiscal and external side, it calls for attention and additional action. On the fiscal side, we see the SACU revenue will decline and will need budget adjustments.”
He lauded the country’s financial system saying “it remains sound”. “The country is going through a demographic transition, by 2050 more than 60% of the population will be in the working age group. This will require the country to start thinking ahead by coming up with policies to cater for the high influx of entrants into the working age group. The labor market needs to be increased,” he said. Palomba cautioned that if the right polices are not adopted it will breed high levels of unemployment.
“The labor market raises asymmetry between the skills required by the market and skills created by education system, this could create a blockage and not everyone will find a job even if the job is available. When we look at smaller businesses, there is need to provide a conducive environment.
Of course Namibia ranks well but it should aspire to perform better,” Palomba said.
Next year IMF will publish its report on its findings regarding the Namibian financial system.