IMF's Lagarde says digital currencies could boost its own SDR

FILE PHOTO - Managing Director of the International Monetary Fund, Christine Lagarde, speaks at the Bank of England conference 'Independence 20 Years On' at the Fishmonger's Hall in London, Britain September 29, 2017. REUTERS/Afolabi Sotunde

LONDON (Reuters) - Global usage of the International Monetary Fund’s in-house currency, the special drawing right (SDR), could get a boost from the growth of digital currencies, the Fund’s managing director, Christine Lagarde said on Friday.

“It is not a far-fetched hypothetical,” Lagarde told a conference hosted by the Bank of England when she raised the prospect of the SDR partly supplanting major international currencies such as the dollar and euro.

“If the two were to come together – the digital acceleration and facilitation, and the geopolitical situation - that would be propitious for relying on an alternative,” Lagarde said.

Since World War Two, the dollar has in practice formed the backbone of the global financial system.

The IMF has previously said that digital currencies - the best known of which is BitCoin - could play a greater role in future in cross-border transactions and in countries where the domestic currency is unstable.

U.S. dollars are used officially or unofficially as a currency in many countries with a history of economic instability, and Lagarde said digital currencies could become a better alternative to paper banknotes.

However, she added that existing digital currencies had technical problems which would need to be solved.

Interest in the SDR got a small boost last year from the addition of China’s yuan to the basket used to calculate it, Lagarde said. Digital currencies could potentially join it in future, Lagarde said.

The U.S. dollar, euro, yen, yuan and pound sterling currently make up the SDR basket.

Reporting by David Milliken and Marc Jones, editing by Andy Bruce