A few months back, El Salvador’s president announced that he would be making BTC legal tender in the South American country. This move has faced criticism, including from the citizens who have taken to the streets to protest as well as from global bodies. The latest to weigh in is the International Monetary Fund (IMF) which has described the move as “an inadvisable shortcut.”
In a blog post, the Washington-based organization noted that there’s a need for digital payments across the globe. However, adopting a decentralized digital currency is a shortcut that any country must not be tempted to take, the IMF stated.
“We believe, however, that in most cases risks and costs outweigh potential benefits,” the blog post, written by Tobias Adrian and Rhoda Weeks-Brown, stated. Adrian is IMF’s marketing director while Weeks-Brown heads the legal department as general counsel.
The two executives believe that digital currencies are unlikely to get any adoption as legal tender in countries with “stable inflation and exchange rates, and credible institutions.” In such countries, households would have very little incentive to use them, relative to existing fiat payment systems, the IMF believes.
And even in countries with less stable economies, “the use of a globally recognized reserve currency such as the dollar or euro would likely be more alluring than adopting a cryptoasset.”
The IMF, just like many other legacy institutions globally, pointed to volatility in digital currencies as a key reason they can’t function as legal tender—but it doesn’t end here for the IMF. It pointed to the significant erosion of central banks’ power, especially in monetary policy. With digital currencies, central banks would lose their ability to shape the monetary system, IMF believes. “As a result, domestic prices could become highly unstable,” it pointed out.
For the IMF, the use of a digital currency also threatens the integrity of the financial system. “Without robust anti-money laundering and combating the financing of terrorism measures, cryptoassets can be used to launder ill-gotten money, fund terrorism, and evade taxes. This could pose risks to a country’s financial system, fiscal balance, and relationships with foreign countries and correspondent banks.”
The organization, whose mandate revolves around global monetary cooperation and promoting financial stability, didn’t mention El Salvador in its blog post. However, it did little to conceal the target of its attack. “Attempting to make cryptoassets a national currency is an inadvisable shortcut,” it warned.
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