IMF lukewarm on crypto, notably receptive to CBDCs
IMF economists targeted Latin America and Caribbean regions on the topic of crypto for two reasons: high adoption and its history of “macroeconomic instability”
IMF Managing Director Kristalina Georgieva | Alexandros Michailidis/Shutterstock modified by Blockworks
The International Monetary Fund (IMF) published a short piece Thursday discussing how Latin American and Caribbean countries have adopted cryptocurrencies and CBDCs at a breakneck pace compared to the rest of the world, citing Chainalysis data.
The main takeaways from the IMF’s economists?
Well-designed CBDCs would simplify remittances and include more Latin American and Caribbean citizens in the financial system. But crypto as a whole is risky and needs to be regulated.
The IMF highlighted the fact that CBDCs in Caribbean countries have been plagued by “slow take-up and disruptions in access” which could be solved by “investing in public awareness and robust infrastructure” to promote adoption.
Kenya’s central bank also pointed to the challenges other nations have faced while attempting to launch a CBDC program in early June, opting to wait and see.
As for the topic of properly regulating crypto, the IMF singled out Latin America and the Caribbean because it says these regions have “a history of macroeconomic instability, low institutional credibility, substantial capital flows, corruption, and extensive informal sectors.”
Its number one concern appears to be countries elevating crypto to the status of legal tender, something El Salvador did with bitcoin in June 2021. Back in 2022, the IMF pressed the country to remove bitcoin as a government-sanctioned currency, citing “large risks” associated with consumer protections.
In its Thursday article, the IMF reiterated what it laid out in its February 2023 guidelines for regulating digital assets. It pointed to the fact that crypto is inherently volatile and could shake the foundations of a country’s monetary system if there are big price swings.
This is certainly something that El Salvador — which kept adding bitcoin to its coffers after it was made legal tender — confronted throughout 2022, when bitcoin (BTC) shed nearly 60% of its value. It’s important to note that El Salvador subsequently was still able to pay off an $800 million external bond in early 2023.
Even though the IMF’s view on bringing bitcoin up to parity with government-issued currency is quite well established at this point, it pushed back on countries that have opted to restrict crypto, namely Argentina and the Dominican Republic.
“This approach may not be effective in the long run. The region should instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs,” IMF staff wrote.
This shouldn’t be mistaken for the IMF supporting crypto. In fact, it said in February that “crypto assets have been more of a disappointment than a revolution for many users.” It also argued that private blockchains are preferable to public blockchains like Ethereum.
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