The International Monetary Fund (IMF) warns against using cryptocurrencies such as Bitcoin as legal tender. Noting the many risks and costs involved, the IMF does not believe that encrypted assets will become a national currency.
The International Monetary Fund warns of the risks of adopting cryptocurrencies as national currencies
The International Monetary Fund (IMF) published a blog post on Monday discussing the topic of cryptocurrency as legal tender. This article is entitled “Crypto Assets as National Currency? A Step Too Far” by Tobias Adrian, Financial Advisor and Director of the IMF Monetary and Capital Markets Department and General Counsel and Director of the IMF Legal Department Written by Rhoda Weeks-Brown.
The post did not mention El Salvador, this Central American country recently adoption Bitcoin and the U.S. dollar are used as legal tender. The author wrote:
As a national currency, encrypted assets including Bitcoin have brought huge risks to macro financial stability, financial integrity, consumer protection, and the environment.
While acknowledging the advantages of the underlying encryption technology, the IMF directors insisted that the government “needs to step up to provide these services…Trying to make encrypted assets the national currency is an undesirable shortcut.”
Nevertheless, the directors do not believe that crypto assets will become popular because people in economically stable countries have “almost no incentive to price or save crypto assets”, while less stable economies are more willing to adopt “globally recognized reserve currencies, such as U.S. dollars or euros.”
However, they believe that crypto assets may “become a payment tool for people without a bank account, rather than a tool for storing value”, and emphasized that “it will be converted into real currency as soon as it is received.” Two Directors of the International Monetary Fund Point out:
Again, real money may not always be available at all times, nor is it easy to transfer. In addition, in some countries/regions, the law prohibits or restricts payments in other forms of currency. These may shift the balance to the widespread use of crypto assets.
The author continues to warn about the “cost of widespread adoption of crypto assets such as Bitcoin”. Not only “households and businesses will spend a lot of time and resources to choose which funds to hold instead of engaging in production activities”, but government revenue will also “face exchange rate risk”, adding:
In addition, monetary policy will be useless. The central bank cannot set interest rates for foreign currencies.
They warned that domestic prices could become very volatile and financial integrity could also be affected.
In addition, they said: “Encrypted assets can be used for money laundering, financing of terrorism, and tax evasion. This may bring risks to a country’s financial system, fiscal balance, and relations with foreign and correspondent banks.”
There are also legal issues with using cryptocurrency as legal tender. “Legal bidding status requires a payment method to be widely used. However, in many countries, Internet access and technology required to transfer encrypted assets are still scarce, raising questions about fairness and financial inclusion,” they pointed out. In addition, “a country’s legal tender status and monetary unit changes usually require complex and extensive changes to the monetary law to avoid a disconnected legal system.”
The directors of the International Monetary Fund pointed out that banks and other financial institutions may also face large fluctuations in the price of encrypted assets, adding that mining cryptocurrencies such as Bitcoin requires “a lot of electricity to power computer networks.” They emphasized that “the ecological impact of adopting these crypto assets as national currencies can be terrible,” they added:
In addition, widespread use of encrypted assets can undermine consumer protection. Households and businesses may lose wealth due to large fluctuations in value, fraud or cyber attacks.
What do you think of the comments of the directors of the International Monetary Fund? Tell us in the comments section below.
Image Source: Shutterstock, Pixabay, Wikimedia Commons
Disclaimer: This article is for reference only. It is not a direct offer or invitation to buy or sell, nor is it a recommendation or endorsement of any product, service or company. Bitcoin Network Does not provide investment, tax, legal or accounting advice. The company or the author is not directly or indirectly responsible for any damage or loss caused or claimed to be caused by using or relying on any content, goods or services mentioned in this article.