The International Monetary Fund (IMF) has issued a stark warning about cryptocurrencies.
The Washington, D.C.-based IMF, which counts 200 countries as members, says that the risks and costs that come with making cryptocurrencies legal tender outweigh the benefits.
The IMF, whose mandate is to foster global monetary cooperation, says that elevating a cryptocurrency to the status of “national currency” could harm macro-financial stability, financial integrity, consumer protection and the environment.
While the overall tone of the IMF’s paper on cryptocurrencies is negative, the organization does acknowledge that digital currencies can provide cheaper and faster payments, bring more people into the financial system, and improve cross-border transactions.
However, the IMF concludes that the risks and negatives of cryptocurrencies outweigh the benefits, noting that digital coins could cause problems due to price fluctuations, difficulty setting fiscal policy, and negative environmental impacts.
The IMF also warned that crypto assets pose security threats.
“Crypto assets can be used to launder ill-gotten money, fund terrorism, and evade taxes. This could pose risks to a country’s financial system, fiscal balance, and relationships with foreign countries and correspondent banks,” the IMF wrote.
Adoption of cryptocurrency as a “national currency” is probably not appealing to countries with stable inflation and exchange rates, the IMF said. For countries with less stable economies, a better option would be to use an internationally recognized reserve currency such as the U.S. dollar or euro.
The IMF said some countries may be tempted to make cryptocurrencies legal tender to foster cheaper and more inclusive financial services. However, governments need to be the ones to provide these services and take advantage of new digital forms of money, the report explained.
In June, El Salvador became the first country to pass a law elevating Bitcoin to a national currency starting this September. Following the move by El Salvador, politicians in several other countries in Latin America have also pushed their respective countries to be more open to Bitcoin and other cryptocurrencies.
