Digital Assets: Cryptoassets As A National Currency – “Inadvisable Shortcut,” Says IMF

July 28, 2021 | Digital Assets, News

Cryptoassets’ risks and costs outweigh potential benefits, the IMF said.

In a blog this week the IMF warned against the use of cryptoassets as a national currency, saying it was a “step too far.” Though cryptos had obvious advantages such as cheap and faster cross-border transfers, financial inclusion, and ease of access, the IMF warned that “in most cases, risks and costs outweigh potential benefits.” (IMFBlog)

Citing bitcoin’s volatility – its crash to nearly half of the all-time high of around $65,000 reached in April – and its potential for anonymous transactions, good or bad – the IMF said it was a speculative asset that “can bring riches but also significant losses.”

Weighing in on the use of cryptos as national tender the IMF pointed out several drawbacks and risks.

Cryptos as national currencies

According to the IMF, nations considering the use of cryptos as legal tender or a second national currency needed to watch out for the following.

  • Cryptos are unlikely to catch on in countries that enjoy stable prices and exchange rates
  • In less stable economies, people would prefer to use a global currency such as the dollar or euro
  • Unbanked people would use cryptos for payments but not to store value – they would immediately covert them into real currency
  • Cryptos such as bitcoin presented a risk to macroeconomic stability
  • Governments’ revenues could also face exchange rate risks if people actively used a cryptoasset as well as a local currency
  • Cryptoassets could weaken the impact of macroeconomic policy, and that could result in unstable domestic prices
  • There could be risks to financial integrity through the use of cryptos to launder ill-gotten money, funding terrorism, and evasion of  taxes
  • Cryptos present difficulties for the consistent enforcement of FATF standards due to their cross-border use and varying implementation of the standards by countries
  • Internet access and technology needed to transfer cryptoassets remains scarce in many countries, raising issues about fairness and financial inclusion
  • Households and businesses could lose wealth through large swings in value, fraud, or cyber-attacks
  • Banks and financial institutions could be exposed to losses on their holdings of volatile cryptoassets
  • Cryptoassets require large amounts of energy to mine. This has serious ecological repercussions.

Proceed with caution, said the IMF.

Related Story:    IMF Has Reservations On El Salvador’s Bitcoin Move

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