IMF capitulates on Bitcoin bans, says they are not effective

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The International Monetary Fund (IMF) is changing its tone on cryptocurrency. After suggesting other countries consider banning crypto, the agency now thinks it might be a bad move.

On Thursday, IMF economists released a report examining the use of cryptocurrency in Latin America and the Caribbean. Acceptance has varied across the region, with some countries, such as El Salvador, being more open to adoption compared to others more wary of the perceived risks involved. In their report, the economists looked at a position closer to cryptocurrency adoption, but within a well-regulated framework.

“While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long term,” the economists said in the report’s conclusion.

This is a quick change from the IMF, which a few months earlier said in another report that countries should consider banning cryptocurrencies. This view was shared by a handful of directors on its board, but the consensus even then leaned towards better regulation rather than prohibition.

In yesterday’s report, IMF economists said that cryptocurrency offers a number of benefits to its adopters. They wrote that crypto provides protection against macroeconomic uncertainty, promotes financial inclusion and faster payments, among other benefits.

They also offered an analysis of recent efforts in Latin America to develop central bank digital currencies (CBDCs).

In a survey shared with officials in the region, the IMF found that half of respondents said they were considering both retail and institutional CBDC options. What they also saw in CBDCs was a way to promote resilience in communities vulnerable to natural disasters and create a way to boost financial inclusions in more remote ones.

Most Latin American countries are still in the research stage for CBDCs, the IMF wrote, but others have moved to the experimental stage. The largest is Brazil, the economic engine of the region. It has been considering a CBDC since 2020 and plans to launch one in 2024.

The IMF also highlighted the difficulties in integrating cryptocurrencies into their economies.

In Argentina, the central bank cracked down on crypto in May by banning payment platforms from offering it to customers in the country. Even in El Salvador, which granted bitcoin legal tender as a means of settling transactions, the IMF found that it struggled to be more widely used.

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