The International Monetary Fund (IMF) is advising all countries to avoid making bitcoin or any other form of crypto their national currencies.
The IMF Advises Making BTC Anything Other Than a Speculative Asset
In a blog post, the IMF advises against making any sort of digital asset the currency of a national people. While the post does not mention any specific region, many countries – such as China – have turned towards making digital versions of their national currencies as a means of taking their monetary systems in a whole new direction.
Arguably, the biggest example of this as of late has been El Salvador, which recently announced that bitcoin would be legal tender in the country’s borders. While not officially the currency of the nation – El Salvador is still rather dependent on USD – bitcoin can officially be used to purchase goods or services, and no business is allowed to turn down a person looking to pay for items with the digital currency.
Interestingly, El Salvador asked for help from organizations such as the World Bank and requested aid in making its bitcoin agenda a reality, though it looks like the group was quick to turn the nation’s regulators down, saying that bitcoin is too volatile to be taken seriously and that the country was asking for trouble if it moved forward. Nevertheless, this did not get in the way of El Salvador’s plans, and it looks like the country has gone ahead without the requested assistance.
In the blog post, the IMF discusses some of the difficulties associated with making bitcoin or any other form of crypto a national currency. It mentions that these assets are often too vulnerable to price swings and that policy implementation is likely to be very difficult to enforce. The blog says:
It requires significant investment as well as difficult policy choices, such as clarifying the role of the public and private sectors in providing and regulating digital forms of money. Some countries may be tempted by a shortcut – adopting crypto assets as national currencies. Many are indeed secure, easy to access, and cheap to transact. We believe, however, that in most cases, risks and costs outweigh potential benefits.
The blog goes on to say that while bitcoin has survived the heavy volatility it has endured over the past year, this is only because there are people willing to gamble on it. It states that using it as an official currency is a whole other ballgame, and this volatility is likely to make financial regulation exceedingly rough, especially for developing nations.
Going Into Detail
The post states:
Crypto assets are fundamentally different from other kinds of digital money. Crypto assets are unlikely to catch on in countries with stable inflation and exchange rates, and credible institutions. Households and businesses would have very little incentive to price or save in a parallel crypto asset such as bitcoin.