In early June, the International Monetary Fund (IMF) criticized the leadership of El Salvador for legalizing Bitcoin. Representative of the organization Jerry Wright noted that the Latin American country will face great technical and legal difficulties in the implementation of the cryptocurrency.
This week, other IMF officials issued a letter in which they also pointed out the risks of recognizing digital currency as legal tender. It sponsored by Tobias Adrian, head of the fund’s marketing department, and Rhoda Weeks-Brown, general counsel.
Experts recalled that Bitcoin and similar decentralized cryptocurrencies are volatile instruments.
If the state decides to legalize them, it will face turbulence in the consumer price market. The cost of goods and services will constantly jump, which will undermine financial stability.
In addition, the authors of the letter remind that digital currencies used by criminal structures and terrorist organizations. This will also create big problems for supervisors. There is also the environmental threat posed by mining, which cannot be ignored either.
The IMF article does not mention El Salvador, but the addressee is obvious. Given that this Central American country was the first in the world to accept Bitcoin as its official currency. In this regard, the IMF’s environmental claims are particularly bizarre. As Salvador’s President Nayib Bukele has said he will use volcanic energy to mine Bitcoin.
Negativism towards Bitcoin adoption from the IMF and other global political institutions
Expressing negativism about accepting Bitcoin as the official currency and legal tender is nothing new for the IMF, which has already threatened to deny El Salvador a loan on this matter. Other global political institutions also don’t share the love for cryptocurrency: the World Bank didn’t want to help El Salvador in the transition to Bitcoin, the US Department of State called on the country’s leadership to “approach responsibly” to the adoption of bitcoin, and the UN Commission expressed concern that the introduction of bitcoin in El Salvador would lead to money laundering.
The IMF can be understood: a bad example is contagious. The revolutionary act of El Salvador didn’t go unnoticed; Tanzania, Paraguay and other countries of South America have already expressed similar intentions. The choice between financial well-being and the danger of money laundering is clear to them.
At the same time, Tobias Adrian and Rhoda Weeks-Brown recognized that in countries with hyperinflation, bitcoin and other digital currencies can be an excellent alternative to local money.
The massive introduction of BTC will increase the availability of financial services for the population if the banking infrastructure underdeveloped in the country.
“New digital forms of money” can make payments cheaper and faster, increase access to financial services and facilitate cross-border transfers. But their integration is fraught with “difficult political decisions” and significant investments, experts said.
“Some countries tempted to take a shortcut: to accept cryptoassets as national currencies. Many of them are really safe, readily available and cheap to transact. However, we believe that in most cases the risks and costs outweigh the potential benefits”, the article says.
The fund concluded that choosing a recognized reserve currency like the euro or the dollar “even in relatively less stable economies” would be “more attractive than using crypto assets”.