Cryptocurrencies as Legal Tender is A Step Too Far: IMF

Divya  |  Jul 30, 2021

The International Monetary fund (IMF) has published a new blog discussing the pitfalls of using digital assets as national currencies. Citing issues with their volatility, the institution said that the adoption of cryptocurrencies as legal tender is  “inadvisable” at the moment. However, it asserts that the underlying technologies of virtual assets that power swift and cost-effective transactions should not be ignored. 

IMF Warns Cryptocurrencies Are Unsuitable to Replace National Currencies

The IMF acknowledged that there are many benefits to crypto-assets, but that they fell short in comparison with fiat currencies. Bitcoin, in particular, was mentioned several times by the institution and described as a highly volatile asset. Its steep decline from $65,000 in May was used by the IMF to explain the potential for huge profits as well as staggering losses. 

Some countries are considering the addition of one or more cryptocurrencies to their payments system. In June, El Salvador became the first country to adopt Bitcoin as legal tender. But the IMF is not too keen on this trend since it believes that crypto-assets are “unrelated to the economy.” Additionally, the organization indicated that Bitcoin and other altcoins would have a tough time gaining traction in places with “stable inflation and exchange rates, and credible institutions.”

Like other detractors of digital assets, the IMF highlighted the use of cryptos in money laundering, terrorism financing, and tax evasions. It also pointed to the carbon footprint of crypto mining activities and stated that the implications of making these assets legal would be dire for the world.

A Balanced Approach to Digital Assets

While the IMF maintains that virtual currencies are a risk to “macro-financial stability”, it agrees with their supporters on the benefits of the technology. 

“The advantages of their underlying technologies, including the potential for cheaper and more inclusive financial services, should not be overlooked."
Overall, the organization advises a balanced approach to the inclusion of virtual currencies, with governments playing a crucial role in preserving the “stability, efficiency, equality, and environmental sustainability” of the financial system. 

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