What is the connection between the IMF, central banks and Ripple? From analyzing different speeches by Christine Lagarde, the head of the International Monetary Fund (IMF), along with witnessing Ripple holding meetings and appearing on meetings for central banks, I have a strong suspicion that there are deep involvements between these three entities.
I am of the belief that Christine Lagarde has revealed information regarding how the IMF envisions what the future financial system will look like. I believe there will be some big changes coming. In short, the IMF envisions that they will hold a more central role in the future as well as a more central role for the world’s central banks.
The first conference of discussion in this article was the “Bretton Woods at 75,” celebrating the IMF and World Bank turning 75 years old. Here we gained some interesting information from the panel discussion by the name: “Rethinking International Cooperation.”
You can watch the panel discussion here.
The focus was on how the US dollar as the world’s reserve currency is something that is less than optimal for the global financial system. The second message (that was given throughout the panel discussion) was that there is a need for a more equal power structure between the major currencies: The USD, Euro and Renminbi, which effectively would mean a reduction in the global role for the USD. A multipolar relationship between the major currencies would be the preferred structure.
The panel hosted representatives from the EU and China, representing the Euro and the Renminbi. The odd one out at the panel discussion was a lady who discussed the need for financial inclusion in Mexico.
What sparked my interest was the mention of the Triffin plan and the Keynes plan. 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.”
If you look up the definition of the Keynes plan, as well as the Triffin plan, you’ll find something interesting. 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.”
That means that the bancor was part of the Keynes plan. The following is a definition of the bancor:
“The bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher[1] 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’).[2] 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.”
A Supra National currency was then part of the Keynes plan. Now, here is something additional that also caught my attention. XRP was labelled a Supra National currency in an official document discussing Digital Fiat Currencies (DFC). This is displayed in the document on the second page, where XRP is described as such:
What it also displays is Bitcoin being labelled as a cryptocurrency. Specific labels are of importance, especially in official documents.
What is then the Keynes Triffin plan?
“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 a radical solution for the central banks to hand over their foreign reserves to the IMF. Now, it is not certain that the IMF would envision the arrangement to this full extent but likely some altered version of it. From what was said later on in the conference it is clear that the IMF envision themselves as holding a lot more power in the future, as far as handling the payments between the world’s central banks. From the conference, the following was stated:
“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 clearinghouse for these bilateral swap lines and absorbing some of the counterparty risk OR by offering itself its own short-term swap facility.”
It is thus evident in how they envision the IMF as being a counterparty to the central banks. An argument was made that the IMF could essentially lower the sovereign risk between central banks, since if the IMF absorbed the risk instead of central banks they could lower the risk for central banks as a whole. It was put forward in the following way:
“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”
In the above picture taken from the panel discussion, you can observe how the IMF envisions the whole arrangement. Pay special attention to the “IMF at center” section and the visualization of the “new reserve deposit facility.” What you see is the IMF being at the center between the central banks. The reserve deposit would most likely be the SDR.
The SDR would then play a central role in the new financial system.
They carried on with the issue of the bilateral swap lines in the panel discussion. A comment was made by Ricardo Reis and an eye-opening response from Christine Lagarde followed:
Ricardo Reis:
“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”
Christine Lagarde:
“We will be the lasagne of the Spaghetti bowl”
The inefficient swap line relationship of today is displayed in the picture above. (As a note, by utilizing XRP as a settlement tool between central banks there would not be a need for these complex bilateral relationships with swap lines).
The panel discussion left us with a much clearer picture of how the IMF envision themselves as having a more expanded role. IMF would be positioned in the middle, absorbing the sovereign risk of payments between central banks.
I’ll leave you with a final quote from this panel discussion by Christine Lagarde that should capture your attention:
“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”
The next video of discussion was the opening keynote at the Singapore fintech festival by Christine Lagarde. It is a recommended watch:
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”
The really interesting part of her keynote was in how she envisions the increasing role for central banks in the future. She provided us with 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 supermarket's 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 Lagarde is conveying 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 provided us with was a domestic purchase of a pizza. All payments would thus be routed through the central banks, where the money is held, as she stated. She also mentioned how commercial banks may not provide the required safety, because of their profit-driven nature:
“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”
My take on this statement is that if you have instant payments in the future, safety becomes a matter of extreme importance since money could be transferred instantly, with a very short timespan to react. I would assume that the profit-driven nature of banks would lead to an underinvestment in safety in some commercial banks and to me, it is clear that this is well understood. Other unforeseen problems may also occur such as banks going out of business. Central banks, on the other hand, would not be profit-motivated in that sense, so large scale investments in safety within instant payment/settlement systems would be provided.
Lagarde also discusses how we are moving towards a cashless society and how to achieve the middle ground between cashless 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 would be the way they could keep the transactions “anonymous” in a cashless society. All transactions are recorded and kept private unless required by law.
Let’s move on to Ripple. It is no secret that the IMF and Ripple have been seen together on several occasions, such as at conferences and festivals, as well as at SWELL. Most notably in Singapore when Brad Garlinghouse and the former Deputy General Counsel from the IMF by the name of Ross Leckow were alone together on stage.
The most notable moment from that stage appearance was when Brad asked a question of whether the IMF would hold crypto assets in the future? If you haven’t seen the reaction, you should watch it here, at 29 minutes and 20 seconds. Trust me, it’s worth it:
I found it amusing how uncomfortable the question made him. It is clear from his reaction that it was a question he didn’t want to answer and a long silence followed before he provided an answer. This would most likely mean that something is being planned that we are not aware of relating to cryptocurrencies and the IMF. Connection to the SDR?
Following the connection to the IMF, it is my belief that the IMF are the ones that have been organizing meetings between Ripple and the central banks. I found it confounding that Ripple was able to organize a meeting in New York for a dozen central banks. How were they able to achieve this? Who do you call to gather a bunch of central banks when you are a private payments company like Ripple? I believe the IMF organized this meeting for Ripple with the intent of trying to push Ripple’s technology to the central banks. And what do we find? The first presentation of the meeting was by the IMF:
At the recent Swiss National Bank Conference, there were some very high-level financial representatives gathered. Many representatives were from central banks as well as the head of the Bank for International Settlements. And of course, the IMF. Christine Lagarde was present and Brad Garlinghouse was the only representative from the private sector sitting at the front table. Brad gave a presentation of Ripple’s technology to the whole room.
At the Bangkok Fintech Fair of 2018, Sagar Sarbhai from Ripple stated that Ripple are working closely with 40 to 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 a disruptor in the past as well. Why would she single out Ripple in this way?
Now, what is ultimately going on between Ripple, the IMF and all these central banks? It is my belief that the IMF has realized 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 that the IMF realizes that the role they see for the IMF could become a reality by utilizing the technology Ripple has to offer.
This only makes sense for me in the case of them using XRP in some way. Why would the IMF otherwise follow Ripple everywhere? Ripple is simply a payments company. A main role for the IMF is to achieve stable exchange rates between currencies.
They could tie the SDR to XRP for settlement. 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 central banks.
They are trying to create this relationship with the IMF in the center of all central banks where all payments are being routed through the central banks, likely for safety as well as for tracking transactions. I believe a new financial system is being implemented where the IMF, central banks and Ripple’s technology with XRP is at the center.
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