Following El Salvador’s making Bitcoin legal tender and ongoing speculation of further crypto adoption in Latin America, the International Monetary Fund has issued a thinly veiled warning to any country looking to follow suit.
Fast facts
- While acknowledging the appeal to countries adopting cryptocurrencies as legal tender — especially for those with less stable economies — a report by the multilateral concluded that the risks outweighed the rewards. It said any attempt to adopt crypto as legal tender would be an “inadvisable shortcut” to strengthen the economy, which would be better served by wisely integrating new digital financial technologies into the existing economic system.
- The report’s authors also said crypto adoption threatened to destabilize countries’ economies further, citing both cryptos’ price volatility and its creation of parallel, competing prices for goods. “If goods and services were priced in both a real currency and a crypto asset, households and businesses would spend significant time and resources choosing which money to hold as opposed to engaging in productive activities,” they said.
- Despite crypto often being touted as a solution to assist the unbanked, the report said a low internet penetration in some countries could further alienate some communities from the financial system. Adoption could also reduce a country’s financial sovereignty, as Bitcoin is not able to be regulated in the same way as a national fiat currency.
- Without mentioning the country by name, the report seemed aimed squarely at El Salvador, which became the first country in the world to make Bitcoin legal tender last month, although the bill behind the change has yet to come into effect. According to a recent survey, the move only has 20% support in the country, with demonstrators having marched on the country’s legislature last week in protest at the bill.
- Taking a similar stance to the IMF, the World Bank came out quickly after the bill was passed, saying it would not support the move by the developing country of 6.5 million people — designated in 2016 as the world’s most dangerous — to make Bitcoin legal tender.