IMF’s economists suggest alternative approaches
The International Monetary Fund (IMF) has said that banning crypto assets may not be effective in mitigating the risks associated with digital assets.
This represents a change in the approach of the agency which has previously asked countries to mount regulatory pressure on digital assets.
IMF urges countries not to ban crypto
The IMF has published a report titled “Interest in Central Bank Digital Currencies Picks Up in Latin America and the Caribbean While Crypto Used Varies.” The article was authored by IMF senior economist Rina Bhattacharya, economist Dmitry Vasilyev, and Maurico Vilafuerte, a division chief in the IMF’s Western Hemisphere Department.
The report noted prominently that banning crypto have not been able to lessened the risk associated with digital assets.
“While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long run,” the international financial organization said in the report.
The report pointed out various approaches undertaken by countries in LATAM towards adopting cryptocurrencies and Central Bank Digital Currencies (CBDC). While the Bahamas is the first country to launch its CBDC, El Salvador has since September 2021 adopted Bitcoin as a legal tender.
Brazil, Colombia, Ecuador, and Argentina have also shown great progress towards crypto-positive regulations and are ranked among the top 20 for global adoption. These countries have progressed in their adoption of digital assets by ensuring that citizens send faster and cheaper payments, and banking the unbanked.
Most Central Banks in the region have also already adopted or are considering adopting cryptocurrencies. Brazil, the hub of the region’s economy, has been researching CBDCs since 2020. It intends to introduce one in 2024.
Interestingly, the report noted that crypto offered protection has an hedge against inflation and macronomic uncertainties. It also mentioned that it helps financial inclusion.
As a result, the economists recommended that “the region should focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.”
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Contrasting Positions?
The new position of the IMF is in contrast to statements that the organisation made in February. It had said in a meeting with executives earlier that month that a coordinated response was needed over fears that crypto could undermine global monetary systems.
In that meeting, the board endorsed a policy framework on digital assets that didn’t grant crypto the status of a legal tender.
The IMF was also at the forefront of opposing El Salvador’s adoption of Bitcoin as legal tender. The agency asked the country to reconsider.
Countries around the world have turned to crypto and CBDCs as digital representations of their fiat currencies. While the European Union and the UK will release its draft law on the digital euro later this month, Nigeria, China, and the Bahamas have released their CBDCs.
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