Making Bitcoin A National Currency is An “Inadvisable Shortcut,” says IMF
The International Monetary Fund (IMF) took to Twitter to argue against adopting Bitcoin as a legal tender over the weekend. The Twitter post from IMF reads,
“Privately issued cryptoassets like Bitcoin come with substantial risks. Making them equivalent to a national currency is an inadvisable shortcut.”
The organization, which fosters global monetary cooperation and financial stability, also attached a report titled “Cryptoassets as National Currency? A Step Too Far,” authored by IMF’s Tobias Adrian and Rhoda Weeks-Brown.
This year, El Salvador became the first country to adopt Bitcoin as legal tender. This law will come into effect on 7 September, with President Nayib Bukele touting it as a way to reduce the cost of cross-border transactions.
Dante Mossi, the executive president of El Salvador’s development bank CABEI also said that countries like Guatemala and Honduras have the most to gain if Bitcoin helps lower the cost of sending remittances. He also said that Central American countries are eagerly watching to see if it goes well for El Salvador.
“If the cost of remittances drops substantially … other countries will probably seek that advantage and adopt it.”
Last week, the Central Bank of Cuba (BCC) also announced that it is drafting rules for the legal use of cryptocurrencies in commercial transactions and issuing licenses for crypto service providers.
Advantages Shouldn’t Be Overlooked
According to the IMF's report, new digital forms of money can provide cheaper and faster payments and enhance financial inclusion. Still, countries taking the shortcut and adopting crypto as national currencies is a risky affair.
“Bitcoin and its peers have mostly remained on the fringes of finance and payments, yet some countries are actively considering granting crypto-assets legal tender status, and even making these a second (or potentially only) national currency,” notes the report. If granted legal tender status, crypto would have to be accepted by creditors in payment of monetary obligations similar to currency issued by the central bank. The widespread adoption of Bitcoin would result in macroeconomic stability, it added.
Some risks include government revenues exposed to exchange rate risk, monetary policy losing bite as central banks cannot set interest rates on a foreign currency, and financial integrity could suffer without robust anti-money laundering and terrorism financing measures.
While having substantial risks as a national currency, the advantages of their underlying technologies should not be overlooked, said the report.
“Governments, however, need to step up to provide these services, and leverage new digital forms of money while preserving stability, efficiency, equality, and environmental sustainability. Attempting to make cryptoassets a national currency is an inadvisable shortcut.”