Many emerging markets have “dollarized” throughout history; pegging local money to the US dollar or adopting it as official currency. Now, some are looking to adopt Bitcoin or “cryptoize” — and the International Monetary Fund (IMF) isn’t thrilled.
The Washington-based fund is able to lend approximately $1 trillion to its member countries.
Take El Salvador, for example. The Central American country — an IMF borrower — adopted Bitcoin as legal tender in September.
According to the IMF, several factors are driving the ‘cryptoization’ trend, including:
- Weak central bank credibility
- Vulnerable banking systems
- Inefficiencies in payment systems
- And limited access to financial services.
IMF rattles off warnings about Bitcoin and crypto
The IMF has been studying crypto for years. Recall how it launched Learning Coin, a sandboxed blockchain, with the World Bank in 2019.
Crypto companies generally have poor operational, governance, and risk practices, the IMF said in a recent preview of its Global Financial Stability report.
Crypto exchanges, in particular, have faced “significant disruptions” during market turbulence, with “several high-profile cases of hacking-related thefts of customer funds.”
In addition, digital assets weaken fiscal policy and facilitate tax evasion, the IMF warns.
The organization even flagged the disappearance of 5,000 cryptocurrencies to date. “Many of them have no volumes or the developers have walked away from the project,” it stated.
Some cryptocurrencies were issued “solely for speculation purposes or even outright fraud,” the IMF noted. And to supervise the crypto industry is “nearly impossible without international collaboration.”
As a result, increased demand for crypto assets could also facilitate capital outflows that impact the foreign exchange market.
The IMF has also taken a jab at stablecoins like Tether. The term ‘stablecoins’ “captures a very diverse group of crypto assets and can be misleading,” the organization says. It continued:
“Given the composition of their reserves, some stablecoins could be subject to runs, with knock-on effects to the financial system. The runs could be driven by investor concerns about the quality of their reserves or the speed at which reserves can be liquidated to meet potential redemptions.”
Lastly, the IMF advises the world to avoid cryptoization.
“Time is of the essence, and action needs to be decisive, swift and well-coordinated globally.”
Worldwide fiat lords also neg Bitcoin
Evidently, the IMF’s warnings reflect similar concerns by other international agencies.
The Bank of International Settlements (BIS) reckons crypto assets “are unsafe to rely on as a medium of exchange or store of value.” They’re not legal tender, and are not backed by any government or public authority, BIS added.
The European Central Bank says stablecoins “pose serious risks.” If widely adopted, they could “threaten financial stability and monetary sovereignty and potentially harm competition and consumer choice, and raise concerns over data privacy.”
The Financial Action Task Force claimed digital assets “risk becoming a virtual safe haven for the financial transactions of criminals and terrorists” and misuse is “serious and urgent,” (our emphasis).
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