This will be an article discussing what I believe is going on between the IMF, central banks and Ripple. From listening to different speeches by Christine Lagarde, the head of the International Monetary Fund (IMF) and others, I have strong suspicions that there are deep involvements between the IMF and Ripple and the central banks.
I am of the opinion that Christine Lagarde has revealed crucial information in how the IMF envisions the new financial system and that there will be some big, big changes coming. In short, they envision that the IMF will have a much larger role to play in the future as well as a larger role for central banks. I will discuss a couple of conferences that were of high interest. Some of what I write here will be me repeating what I’ve written in tweets before but it all ties into other parts that I have added to get the full picture.
The first conference that I want to discuss was the “Bretton Woods at 75” conference, that celebrated the IMF and World bank turning 75. Here we gained some very interesting information from Lagarde as well as others in the panel discussion named “Rethinking International Cooperation.”
You can watch it here.
As a whole, there was a big focus on how the US dollar as a world currency is not something that is good for the financial system. The message was that there is a need for a more equal relationship between the major currencies. There was representation from the EU, representing the Euro as well as a representative from China, representing the Remnibi.
What I found interesting was how the Triffin plan and Keynes plan was mentioned. From the conference:
“we can imagine, a new, expanded role for the IMF, by adapting and modernizing some old ideas of what’s called the Keynes plan and the Triffin plan.”
Now this was a part that is easy to just skip over. But if you look up what the Keynes plan as well as Triffin plan is you’ll find something very interesting. Let’s start with the Keynes plan:
“An alternative set of proposals for international monetary institutions proposed by John Maynard Keynes (1883–1946) at the Bretton Woods negotiations on post-war monetary arrangements in 1944. The Keynes Plan would have involved the creation of an international monetary unit, the ‘bancor’. The plan was rejected and the International Monetary Fund was set up instead, on lines proposed by the United States.”
Keynes Plan - Oxford Reference
An alternative set of proposals for international monetary institutions proposed by John Maynard Keynes (1883-1946) at…
So, the bancor was part of the Keynes plan. Hmm, interesting. Now let’s look up the bancor:
“The bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher conceptualised in the years 1940–1942 and which the United Kingdom proposed to introduce after World War II. The name was inspired by the French banque or(‘bank gold’). This newly created supranational currency would then be used in international trade as a unit of account within a multilateral clearing system — the International Clearing Union — which would also have to be founded.”
Bancor - Wikipedia
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A supranational currency was then part of the Keynes plan. Very interesting I must say. Now here is something more that caught my attention. The World Bank, which is the sister institution of the IMF, both created from the Bretton Woods conference has actually labelled XRP as a supranational currency. Take a look in this document on the second page, you can clearly see that the World Bank labelled XRP — supranational currency.
What is also very interesting is that Bitcoin is labelled a cryptocurrency in the document. Specific labels mean a lot, so don’t just think this is by accident. There is a reason why Ripple refuses to call XRP a cryptocurrency but calls it a digital asset or crypto asset and a reason that the World Bank calls XRP a supranational currency.
Now, let’s continue to listen to what was said during this very interesting conference. What is then the Keynes Triffin plan? Let’s look it up:
“A radical solution is to create a new international organisation, an international central bank, to which would be handed over the foreign exchange reserves of all countries. This is the Keynes-Triffin Plan on International Liquidity. The major obstacle to its implementation would be the’ reluctance of countries to give up their sovereignty over reserves. But it can be considered as a proposal to set the ball rolling for future negotiations.”
This would indeed be very extreme, that the central banks would hand over their foreign reserves to the IMF. Now, this is not exactly certain that the IMF would envision it just that extreme but some version of it. But from what was said later on in the conference it is clear that the IMF envision themselves as having a lot more power in the future as in handling the payments between the World’s central banks. From the conference, the following was said:
“You could imagine the IMF could centralise reserve sharing agreements by administering a global reserve facility at the IMF perhaps by building on the existing drawing rights. The IMF could also try to multilateralise the decentralised parts and largely discretionary network of bilateral swap lines, either by acting as a central counterparty clearing house for these bilateral swap lines and absorbing some of the counterparty risk OR by offering itself its own short-term swap facility.”
Here you can see how they envision the IMF being a central counterpart between central banks. I find this very fascinating. An argument made in the conference was that the IMF could lower the sovereign risk between central banks since if the IMF took the risk instead of central banks they could lower the risk for central banks as a whole. Following was said:
“The IMF could be, show up as an intermediary between the Federal Reserve, since we’re talking about dollars and the other Central Banks, and why I say it’s an intermediary is because many countries, say, India or Brazil would enjoy benefitting from the swap lines but do not because the Federal Reserve worries about sovereign risk, well the IMF could appear in the middle, take the sovereign risk back because swap line with its SDR, say, with the dollar and then give a swap line to the Indian rupee or Brazilian Real, therefore the IMF bearing the sovereign risk”
Here in this picture, you can see how the IMF envisions the whole arrangement.
The SDR would then play a central role in the new financial system. The SDR could be central between the central banks as well as the IMF. The issue with bilateral swap lines was discussed. An interesting comment was made by Ricardo Reis and an even more interesting response from Christine Lagarde:
“A difficulty with the swap lines as they are emerging is that they are bilateral and they are discretionary, not only they exist as a spaghetti bowl but also a spaghetti that could break easily, especially during a crisis”
“We will be the lasagne of the Spaghetti bowl”
The inefficient swap lines relationship today is shown in the picture above. With having XRP as settlement between all central banks there would not be a need for all these bilateral relationships with swap lines in the same way.
It doesn’t get clearer than that. IMF in the middle of all central banks, taking the sovereign risk. I’ll leave you with a final quote from Christine Lagarde that was interesting to say the least:
“So… what you are telling me is that we should go back to the drawing board because we did actually explore for a period of time, combination of a liquidity line financial product that we could put together and that addresses the issues of the emerging market economies that are in a way left out of the game and we will also, considering much to Central Banks…. Displeasure, put it that way… how we could do exactly that, which is to sort of act as the platform that would in a way… take up all of the portion of the sovereign risk, so to speak”
So, Christine is talking about some liquidity product? What could it be, that also could help emerging economies? What does it sound like? Could be…
Now let’s discuss a speech made at a fintech festival in Singapore by Lagarde that I found very interesting. Here is the video from the festival with her opening remarks:
First you had a great quote of how money is changing with this new technology:
“We are at a historic turning point. You. Young or not so young, doesn’t matter but bold entrepreneurs, gathered here today, you are not just inventing new services, you are reinventing the history of money. You are drawing a completely new future, actually, and we are all in the process of adapting”
But the really interesting part to me was how she envisioned the role for central banks in the future and their increasing role. She gave an example of buying a pizza:
“Let’s go back to our pizza, hopefully by then, it’s still warm.. when you buy it at the click of a button, your bank transfers funds to digital currency held at the central bank. In turn, the central bank immediately forwards it to the supermarket’s bank which would credit the supermarkets accounts. All of that in a split of a second, all nearly for free and anytime. Do you see what just happened? The central bank is now the trusted intermediary”
What she is actually saying here is that the central bank is the trusted intermediary, not your personal bank. This would then hold true for domestic as well as international payments since the example she made was a domestic purchase of a pizza. All payments would thus be routed through the central banks, where the money is held. This is very interesting. She also mentions how commercial banks may not provide the required safety in order to save money with this quote:
“Private firms may underinvest in security, to the extent that they do not measure the full cost to society of a payment failure. Resilience may also suffer, with only a few links in the payment chains, the system may stop working if any of the links actually is deteriorating, if there is a glitch, a bankruptcy, or a firm withdraws from the market”
This would be risky. My take on this is that if you have instant payments in the future, safety becomes extremely important since money could be transferred instantly. I personally feel that Lagarde and others do not trust the big banks to achieve the required safety since it would require large investments and they may not do it in order to increase their profits. Well, central banks would not be motivated by profits in the same way so big investments in safety in these new systems would not be of the same worry.
Lagarde also discusses how we are moving towards a cashless society and how to achieve the middle ground between cash-less payments and privacy.
“Let’s return to the trade-off between privacy and financial integrity. Can we find the middle ground? Central banks might design digital currencies so that users’ identities will be authenticated through customer due diligence procedures and transactions recorded. But the identities would not be disclosed to either third parties or governments unless it was so required by law.”
This seems to be the way they would keep the transactions anonymous. To conclude, it seems to me that the way the IMF envisions the future is that all payments will be routed through the central banks, domestic as well as international, where all transactions are recorded and kept private unless required by law. Between central banks, the IMF will be the central counterparty for all international payments and will take on the counterparty risk. If nations handed over their foreign reserves, the IMF would have no problem to pay if one country defaulted on their payments, since they would hold all foreign reserves.
Now, let’s go to Ripple. It is no secret that the IMF and Ripple have been seen together on many occasions. They have been present at Swell, they have been on stage together at conferences and festivals. Most notably in Singapore when Brad Garlinghouse and the Deputy General Counsel from the IMF by the name of Ross Leckow were on stage together for a half an hour.
The most notable moment from that stage appearance was when Brad asked a question he had been given if the IMF would hold crypto assets in the future? If you haven’t seen it you should watch it here, at 29 minutes and 20 seconds in:
It is clear from his reaction that this was a question he did not want. He was stunned to silence. Very interesting. This would most likely mean that this is something that is being planned. I wonder what crypto they are planning to hold? Connection to the SDR?
It is my belief that the IMF are the ones that has been setting Ripple up with all these central banks and all these meetings. I found it interesting that Ripple was able to hold a meeting in New York for a bunch of central banks. How were they able to set this up? Who do you call to gather a bunch of central banks when you are a private payments company like Ripple? I believe the IMF set up this meeting for Ripple trying to push their technology. And what do we find? The first presentation was by the IMF of course:
Ripple Hosts World's Central Banks to Explore Next Generation of Payments
Image: Shutterstock Ripple recently gathered over two dozen central banks from around the world to explore how new…
At the recent Swiss National Bank Conference, we found some very high-level bankers gathered. Many representatives from central banks as well as the head of the Bank for International Settlements were there. And of course. the IMF. We had Christine Lagarde present, with Brad Garlinghouse as the only representative from the private sector. Once again, I would assume the IMF invited Ripple to the meeting.
At the Bangkok Fintech Fair of 2018, Sagar Sarbhai from Ripple stated that Ripple works with 40–50 central banks. This was a very strong statement at the time since only a handful of central banks were known to have been working with Ripple.
Christine Lagarde has called Ripple as a disruptor in the past as well. It is very interesting that she would single out Ripple in this way.
Now, what’s the deal with Ripple, the IMF and all these central banks? It is my belief that the IMF has realised the potential for the technology that Ripple holds and that they are actively trying to make central banks and other financial institutions adopt the technology. I also believe the IMF realises that the role they see for the IMF could become a reality by using the technology Ripple has to offer.
This only makes sense for me in the case of them utilizing XRP in some way. Why would the IMF otherwise follow Ripple everywhere. At the end of the day, Ripple is simply a payments company. A main role for the IMF is to achieve stable exchange rates.
They could tie the SDR to XRP for settlement etc. XRP might be the bancor. I also find it fitting that the IMF sees the central banks as much more central in the future to the financial system. This is likely why Ripple keeps having all these meetings with the central banks. They are trying to create this relationship with the IMF in the center of all central banks and all payments being routed through the central banks, for safety as well as tracking reasons. I believe a new financial system is being implemented where the IMF, the central banks and Ripple’s technology with XRP is at the center of it all.
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