The International Monetary Fund (IMF) has warned that cryptocurrencies like Bitcoin and Litecoin are privately issued assets that are riddled with risks.
The global financial advisor failed to mention the relative systemic risks central banks have created time and again, and went on to say that making cryptocurrencies equal to national currency as an “inadvisable shortcut”.
In June, the IMF fears becoming irrelevant as El Salvador passed a historic law requiring businesses to accept Bitcoin in exchange for goods and services.
According to their latest blog, new forms of money have the potential to “provide cheaper and faster payments, enhance financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers”.
At the same time, the body warns that it is not straightforward (unless the institution is the turnkey provider), adding it requires significant investment as well as difficult policy choices such as clarifying the role of public and private sectors in providing and regulating digital cash.
“Some countries may be tempted by a shortcut of adopting crypto assets as national currencies,” it said.
“Many are indeed secure, easy to access, and cheap to transact. We believe, however, that in most cases risks and costs outweigh potential benefits.”
This isn’t the first time the IMF has feared for its future due to financial innovation. In June it warned against using cryptocurrencies as legal tender, just a month before El Salvador became the first nation in the world to configure Bitcoin as payment.
Bitcoin Blocks Keep Producing
The IMF pointed out that widespread use of crypto would threaten “macroeconomic stability” and could harm financial integrity. However, it is unclear which kind of integrity the institution is referring to with respect to traditional finance. Is the IMF talking about repurchase operations conducted by the Federal Reserve and European Central bank?
Still, the IMF has come to terms with crypto, stating that “Bitcoin lives on”.
“For some, it is an opportunity to transact anonymously – for good or bad,” the fund admitted.
“For others, it is a means to diversify portfolios and hold a speculative asset that can bring riches but also significant losses.”
According to the blog, the most direct cost of widespread adoption of cryptocurrencies is macroeconomic stability. The so-called stability the IMF is referring to is the exponentially increasing inflation figures that largely impact those at the lower end of the wealth distribution curve.
“Government revenues would be exposed to exchange rate risk if taxes were quoted in advance in crypto assets while expenditures remained mostly in the local currency, or vice versa,” the blog added.
“Also, monetary policy would lose bite.”
Regardless of what the IMF thinks, the bitcoin protocol continues to produce blocks and execute transactions. Bitcoin’s hash rate has recovered over 50% since China cracked-down on the mining industry.
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