IMF Warns Developing Countries Against Granting Legal Tender Status to Crypto Assets

The International Monetary Fund (IMF) has cautioned developing countries against granting legal tender status to cryptocurrencies. The move comes as El Salvador and the Central African Republic (CAR) have declared Bitcoin an official national currency. The IMF raised concerns in a paper highlighting nine crypto-focused policy actions that its member countries should adopt.

According to the IMF, granting legal tender status to crypto assets could undermine monetary sovereignty and stability. The executive board of the multilateral lending institution emphasized that they should not grant official currency or legal tender status to crypto assets. This is because the IMF’s primary objective is to promote global economic stability and growth, and cryptocurrencies are frequently disruptive.

According to Gavin Brown, associate professor in financial technology at the University of Liverpool, the IMF’s main objective is to promote global economic stability and growth. It is rational for the IMF to advise nations against granting legal tender status to crypto-assets, which are frequently designed to be disruptive.

These reasons include the high volatility of cryptocurrencies and the lack of government control over their issuance and regulation. Furthermore, most places do not yet widely accept cryptocurrencies as payment. Governments prefer to print their money to control the economy and retain profits, which is impossible with cryptocurrencies.

Additionally, the paper stated that cryptocurrencies lack the stability of traditional currencies and could hinder monetary policy implementation in a country’s economy. Despite the IMF’s warning, some experts believe cryptocurrencies could still play a role as additional scrip. However, this could only happen if Bitcoin’s volatility decreases and it gains more users and liquidity.

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The IMF’s concerns regarding cryptocurrencies center around monetary stability, foreign exchange rate risk, and social policy objectives. While some experts see the potential for cryptocurrencies as additional scrip, the IMF advises against granting them legal tender status.

The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing

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