While governments must “step up” to provide the benefits offered by the technology underlying cryptoassets. As well as leverage new, digital forms of money, doing so through the adoption of crypto could be risky. According to two IMF directors, because they must maintain stability, efficiency, equality, and environmental sustainability. Crypto enthusiasts, on the other hand, argue that this is exactly what BTC brings.
Underlying technologies of cryptos should not be overlooked
Tobias Adrian, Financial Counsellor and Director of the IMF’s Monetary and Capital Markets Department, and Rhoda Weeks-Brown, General Counsel. And Director of the IMF’s Legal Department, argue in a blog post. That the benefits of cryptos’ underlying technologies should not be overlooked. Citing the potential for cheaper and faster payments, more inclusive financial services, and improved racial and gender equality.
They cautioned, however, that “attempting to turn cryptoassets into a national currency is an inadvisable shortcut”. “As a form of the national currency, cryptoassets. Such as Bitcoin, pose significant threats to macro-financial stability, financial integrity, consumer protection, and the environment.”
The authors went on to outline their arguments, saying that in most cases, the risks. And costs of making crypto a national currency outweigh the potential benefits.
“Macroeconomic stability is the most direct cost of widespread adoption of a cryptoasset like Bitcoin,” they wrote. Having goods and services priced in two currencies would require households. And businesses to spend time and resources deciding which currency to keep.
Giving a crypto legal tender status implies that creditors must accept it
Giving a cryptocurrency legal tender status means that it must be accepted by creditors. As payment for monetary obligations, including taxes. If taxes quoted in a cryptoasset in advance while expenditures were mostly in fiat or vice versa. Governments would be exposed to exchange rate risk.
Because central banks cannot set interest rates in foreign currencies, monetary policy “would lose bite”. It is impossible to “import” the credibility of another monetary policy into crypto.
As a result, domestic prices could become volatile, and even if all prices were quoted in BTC, the prices of imported goods and services would “fluctuate massively.”
The authors argue that financial integrity would be jeopardized. The use of cryptoassets for money laundering, tax evasion. Or terrorism funding has the potential to jeopardize a country’s financial system, fiscal balance, and relationships with foreign countries and correspondent banks.
Despite the fact that the Financial Action Task Force (FATF) has established a standard for regulating virtual assets in order to reduce these risks. The IMF claims that enforcement is inconsistent across countries.
Banks and other financial institutions may be exposed as a result of crypto volatility
Crypto volatility could expose banks and other financial institutions. Though it’s “not clear whether prudential regulation against exposures to foreign currency or risky assets in banks could be upheld if bitcoin. For example, given legal tender status.”
Because cryptos are volatile and “unrelated to the real economy,” households. And businesses would have little incentive to price/save in them in countries. With stable inflation and exchange rates, as well as credible institutions.
Using a globally recognized reserve currency, such as the US dollar or the euro, may also be more appealing in less stable economies, according to the authors.
The fact that legal tender status requires that a means of payment be widely accessible raises concerns about fairness and financial inclusion. However, internet access and the technology required to transfer crypto are not widely accessible, raising concerns about fairness and financial inclusion.
In response to the claim that crypto adoption would benefit the unbanked. The authors argue that it may become a popular means of making payments. But not for storing value because it “would be immediately exchanged into real currency.”
However, as stated in the post, there is a ‘but that may benefit crypto and its widespread use: “real currency” may not always be readily available; it may not be easily transferable, and other forms of money prohibited or restricted in some countries.
Consumer protection is jeopardized if cryptoassets used
According to Adrian and Weeks-Brown, however, widespread cryptoasset use would jeopardize consumer protection. As consumers could lose money due to market volatility, fraud, cyber-attacks, or technical flaws in the otherwise reliable underlying technology.
Finally, because BTC is mined, they concluded that “the ecological implications of adopting these cryptoassets as a national currency could be dire,” reiterating previous concerns that had been debunked multiple times.
The Cryptoverse retaliates
The Cryptoverse reacted quickly to the post, with some saying it “sums up every piece of FUD [fear, uncertainty, doubt] and disinformation available,” and that its content is “a surplus of normative & biased statements.”
According to the comments, the post was both wrong and right: wrong in its arguments and presumptions. That was discussed and debunked numerous times before. And right in that cryptocurrencies do not require the traditional system – quite the contrary. They’ve designed to avoid it. And this is where the article may be correct: crypto is a threat to traditional institutions because of its goal. As well as the goal of all the infrastructure that surrounds it, is to replace and/or offer an alternative to them.
“The fallacy of being able to control “monetary policy” is affecting the trade deficits of many countries,” according to economist Daniel Sanchez.
The goal of using cryptocurrency is to transact freely
According to him, the goal of using cryptocurrency is to transact freely, with information visible on the blockchain. And accessible to all, rather than having people’s money “siphoned away to fund your wars, invasions. And inflationary policy fallacies of growth.”
Furthermore, Sanchez stated that solutions to the arguments raised in the post have already developed or are in the process of development. For example, there are no-cost solutions and free tools available for retail banking services.
Many commenters have pointed out that devaluation, inflation, and people losing wealth due to scams happen every day with fiat. Money printing and costly monetary policies, they claim, are a threat to financial and economic stability.
Putting Bitcoin or any other privately issued cryptoasset on par with a national currency can have serious negative effects on financial & economic stability. Our latest #IMFBlog explains why: https://t.co/r1NwBuyAq8 pic.twitter.com/ixgmZuYzFv
— IMF (@IMFNews) July 26, 2021
The country used BTC “to solve the issue YOU, the IMF, were supposed to handle,” according to a commenter on the IMF’s piece.