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- Some of the implications of a country adopting Bitcoin as its official currency, according to the International Monetary Fund, may be severe
- Bitcoin’s price has fluctuated between $65,000 and $30,000 this year, reaching above $40,000 today before falling into the $37,000s
- Though El Salvador, which wants to adopt Bitcoin as legal tender in September, was not mentioned in the IMF blog, Adrian and Weeks-Brown cautioned that making any cryptocurrency a national currency is an unwise shortcut to more accessible financial services
Some of the implications of a country adopting Bitcoin as its official currency, according to the International Monetary Fund, may be severe. According to Tobias Adrian, financial counselor and director of the IMF’s marketing department, and Rhoda Weeks-Brown, general counsel and director of the IMF’s legal department, a cryptocurrency like Bitcoin (BTC) could catch on in countries with unstable inflation and exchange rates, allowing unbanked people to make payments.
However, the damage to a country’s economy might be substantial. According to the two IMF officials, countries that adopt cryptocurrencies as national currencies or grant crypto-assets legal tender status risk domestic prices becoming highly volatile, assets being used in contravention of anti-money laundering, and counter-terrorist financing measures, and issues with macroeconomic stability and the environment.
If products and services were priced in both real money and crypto assets, families and companies would spend substantial time and resources deciding which money to hold rather than participating in productive activities, Adrian and Weeks-Brown wrote. If taxes were listed in advance in a crypto asset but expenditures remained largely in the local currency, or vice versa, government revenues would be vulnerable to exchange rate risk.
They also stated that monetary policy, in general, would lose bite, suggesting that broad crypto adoption undermines any country’s credibility in adopting a crypto asset like BTC or another token, and cited massive price swings in crypto-assets. Bitcoin’s price has fluctuated between $65,000 and $30,000 this year, reaching above $40,000 today before falling into the $37,000s.
Though the IMF blog did not mention El Salvador, which plans to accept Bitcoin as legal money in September, Adrian and Weeks-Brown warned that making any cryptocurrency a national currency is an inadvisable shortcut to more accessible financial services. Although El Salvador President Nayib Bukele has stated that the country’s plentiful geothermal energy will be used to create Bitcoin blocks, the duo made allegations about environmental hazards associated with cryptocurrency mining.
The IMF has a history of expressing disapproval of nations that adopt cryptocurrency. Smaller countries, such as the Marshall Islands, recognizing a digital currency as legal tender, according to spokespeople, raise threats to macroeconomic and financial stability as well as financial integrity. In that scenario, the IMF stated the islands’ local economy had been stressed by the pandemic’s economic impact and that the introduction of a digital currency was unlikely to help.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
