IMF warns of the consequences of Bitcoin legalization

Countries adopting digital assets as national currencies or legal tender risk macroeconomic stability. In a blog, the IMF wrote, Tobias Adrian, the organisation’s Marketing Director, and Chief Legal Counsel Roda Wicks-Brown.

The authors acknowledged that “new forms of money” could lower costs, speed up payments, broaden access to financial services and facilitate cross-border transfers. But their adoption is accompanied by “difficult policy choices” and significant investments, the experts noted.

“Some countries may be enticed by the shortcut of adopting crypto assets as national currencies. Many of them are indeed secure, accessible and cheap to transact. However, we believe that in most cases the risks and costs outweigh the potential benefits,” the authors say.

The IMF representatives noted Bitcoin’s volatility, calling it a “speculative asset.” In their view, countries that legalise the coin risk digital assets being used for illicit purposes and facing environmental problems.

“Mined cryptocurrencies, such as Bitcoin, require enormous amounts of electricity […]. The environmental consequences of adopting these assets as a national currency could be dire,” the authors noted.

The IMF concluded that choosing a recognised reserve currency such as the euro or the dollar—even in relatively less stable economies—would be more attractive than using crypto assets.

Earlier, the organisation flagged a number of risks and regulatory issues in the legalization of Bitcoin payments in El Salvador.

The bill to recognise the first cryptocurrency as legal tender was approved by the parliament in early June. The document will come into force on 7 September 2021.

The opposition called this decision unconstitutional. The initiative also failed to find traction among local money-transfer services — only a few have integrated Bitcoin support.

Earlier, JPMorgan analysts questioned the use of the first cryptocurrency as a means of payment in El Salvador. In their view, problems may arise because a large portion of the coins is illiquid.

Subscribe to ForkLog news on VK!