IMF warns crypto assets as national currency are a step too far

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NEW DELHI: The International Monetary Fund (IMF) has warned that the adoption of crypto assets such as Bitcoin as the national currency can impact a country’s macroeconomic stability.

The warning came before the Central American nation of El Salvador officially adopted the world’s most popular decentralized digital currency, Bitcoin, as legal tender starting September 7.

On June 9, El Salvador became the first country in the world to pass a law to adopt Bitcoin as legal tender.

Crypto-assets issued by the private sector like bitcoin carry substantial risks. Making them equivalent to a national currency is an inadvisable shortcut, “the IMF warned in a tweet on Sunday.

In a blog titled Crypto Assets as National Currency? To Step Too Far, which was shared with the tweet, the IMF said, Some countries may be tempted by a shortcut: adopting cryptoassets as national currencies. Many are indeed secure, easy to access and inexpensive to process. We believe, however, that in most cases the risks and costs outweigh the potential benefits. “

According to the IMF, households and businesses would have little incentive to price or save in a parallel crypto asset such as Bitcoin, even if it had legal tender or currency status. Their value is just too volatile and unrelated to the real economy. “

The IMF also believed that if goods and services were valued in both a real currency and a crypto asset, people would spend a lot of time and resources choosing which money to hold rather than engaging in activities. productive.

Likewise, government revenues would be exposed to currency risk if taxes were quoted in advance in a crypto asset while expenditures remained predominantly in the local currency, or vice versa, ”the IMF said in the post. blog.

Banks and other financial institutions could also be exposed to massive fluctuations in the price of cryptoassets.

However, according to the fund, new forms of digital money have the potential to provide cheaper and faster payments, improve financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers. But it’s not easy, ”the IMF said.

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