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Briefingcryptocurrency


THE IMF WARNS CRYPTOCURRENCY IS NOT SUITABLE AS LEGAL TENDER

By 
Marco Quiroz-Gutierrez

July 28, 2021 7:21 PM GMT

Bloomberg
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The International Monetary Fund published a blog post Monday warning that the
risks and costs that come with making cryptocurrencies legal tender outweigh the
benefits.



Elevating a cryptocurrency to the status of national currency could harm
macro-financial stability, financial integrity, consumer protection, and the
environment, the note said.

The authors, Tobias Adrian, the IMF’s financial counselor and director of the
monetary and capital markets department, and Rhoda Weeks-Brown, the IMF’s
general counsel, acknowledged that using cryptocurrency has upsides.

Digital currency could provide cheaper and faster payments, bring unbanked
people into the financial system, and improve cross-border transactions, the
authors wrote.




At the same time, virtual currency could cause problems due to price
fluctuations, difficulty setting fiscal policy, and negative environmental
impacts.



Apart from these problems, the authors said cryptoassets could also pose
security concerns.

“Cryptoassets can be used to launder ill-gotten money, fund terrorism, and evade
taxes. This could pose risks to a country’s financial system, fiscal balance,
and relationships with foreign countries and correspondent banks,” the blog post
said.

Legal issues could also come along with making cryptocurrency a national
currency, the note said.



“Legal tender status requires that a means of payment be widely accessible,”
wrote Adrian and Weeks-Brown. “However, internet access and technology needed to
transfer cryptoassets remains scarce in many countries, raising issues about
fairness and financial inclusion.”

Adoption of cryptocurrency as a national currency, Adrian and Weeks-Brown said,
is probably not appealing to countries with stable inflation and exchange rates
and credible institutions. For countries with less stable economies, a better
option could be to use an internationally recognized reserve currency such as
the dollar or euro.

The IMF said some countries may be tempted by the “shortcut” of making crypto
legal tender to foster cheaper and more inclusive financial services. The bottom
line is that governments need to be the ones to provide these services and take
advantage of new digital forms of money, the note explained.

In June, El Salvador became the first country to pass a law elevating Bitcoin to
a national currency starting in September. Following the move by El Salvador,
politicians in several other countries, especially in Latin America, have also
pushed their respective countries to be more open to Bitcoin and other
cryptocurrencies.


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