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- The IMF believes that digital currency adoption will be difficult because it will necessitate a number of tough policy decisions, such as clarifying the roles of the public and private sectors.
- The piece used Bitcoin’s price drop in May to illustrate the volatile nature of cryptocurrency assets
- The article also makes a clear distinction between cryptocurrency assets and Central Bank Digital Currencies (CBDC)
In a blog article headlined Cryptoassets as National Currency?, the International Monetary Fund (IMF), a 190-country institution dedicated to fostering worldwide monetary cooperation, said: A Step Too Far believes that the risks and costs of adopting cryptocurrencies as national currency outweigh the potential benefits. New digital forms of money have the potential to enable cheaper and faster payments, boost financial inclusion, improve resilience and competition among payment providers, and allow cross-border transfers, according to the blog post.
According to IMF, the adoption of digital currencies will not be an easy one
The IMF, however, believes that the adoption of digital currencies will be difficult because it will necessitate a number of tough policy decisions, such as clarifying the role of the public and private sectors in creating and regulating digital forms of money, according to the post. Some governments may be inclined to see these crypto-assets as legal tender, which they refer to as a “shortcut” because of the benefits they give, according to the post.
Some countries may be enticed by a shortcut: adopting crypto assets as national currencies, they stated. Many are safe, simple to use, and inexpensive to transact with. However, they believe that in most circumstances, the dangers and costs outweigh the possible benefits.
The article discussed the volatile nature of digital assets, citing the price drop of Bitcoin in May as an example to support their claim. They indicated that their worth can be quite variable in this regard. Bitcoin, for example, peaked at $65,000 in April before plummeting to less than half that amount two months later.
Because of the volatile nature of crypto assets, the IMF believes that they are unlikely to catch on in countries with stable inflation and exchange rates, as well as credible institutions because households and businesses would have little incentive to price or save in parallel crypto assets, even if it were given legal tender or currency status. It claimed that even in less stable nations, using a globally recognized reserve currency like the dollar or euro would be more appealing than using a crypto asset. According to the report, a crypto asset might become popular as a way for unbanked people to make payments but not to store value. It would be converted into real money right away.
Potential Consequences of Crypto Asset Adoption, According to the IMF
According to the report, the adoption of cryptocurrency assets will most likely have an impact on macroeconomic stability. If products and services were priced in both a real currency and a crypto asset, it argued, households and businesses would spend substantial time and resources deciding which money to hold rather than engaged in productive activities. Similarly, if taxes were quoted in advance in a crypto asset and expenditures were primarily in the local currency, or vice versa, government revenues would be vulnerable to exchange rate risk.
The influence on financial integrity is the second argument that has been highlighted. Cryptoassets can be used to launder ill-gotten money, support terrorism, and escape taxes, according to the research, without strong anti-money laundering and counter-terrorist financing measures. The financial system, fiscal balance, and partnerships with foreign countries and correspondent banks might all be jeopardized as a result.
Although the IMF believes that making crypto-assets a national currency is a bad idea, it also recognizes that the benefits of their underlying technology, such as the potential for cheaper and more inclusive financial services, should not be underestimated. The IMF believes that governments around the globe must improve their ability to provide these services and use new digital forms of money while maintaining stability, efficiency, equality, and environmental sustainability.
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.
