Monday, 27 March 2023

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Is the IMF shutting the door prematurely on Bitcoin as legal tender?

Is the IMF shutting the door prematurely on Bitcoin as legal tender?

There’s been little sunlight this crypto winter, so it may seem odd to present the “Bitcoin as legal tender” argument again. That is, will or should any country — other than El Salvador and the Central African Republic (CAR), which have already done so — declare Bitcoin (BTC) an official national currency?

The International Monetary Fund (IMF) raised the issue again last week in a paper putting forth nine crypto-focused policy actions that its 190 member countries should adopt. First on its list of “don’ts” was elevating crypto to “legal tender.” Or, as the multilateral lending institution’s executive board assessment stated:

“Directors generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability.”

Maybe it’s not fair to ask the question with crypto back on its heels, but was the IMF right to warn its member banks about cryptocurrencies? And if so, what exactly is lacking in the composition of private digital money that makes it unsuitable as an official national currency? Maybe it’s Bitcoin’s well-documented volatility, but if that’s the case, couldn’t the world’s oldest cryptocurrency still grow into a new role as an auxiliary scrip — perhaps in a few years when it has more users, is more liquid, and exhibits less price variance?

The IMF must tread carefully

“The IMF’s mandate is to promote global economic stability and growth. It is therefore reasonable that the IMF has recently advised countries to refrain from granting legal tender status to crypto-assets, which are, by design, often disruptive in nature,” Gavin Brown, associate professor in financial technology at the University of Liverpool, told Cointelegraph. “Such disruption does arguably present just as many opportunities as threats, but the IMF must tread a more prudent path when faced with such open-ended uncertainty.”

“There are very good economic reasons why most countries would not want to adopt cryptocurrencies like BTC as their local scrip,” James Angel, associate professor at Georgetown University’s McDonough School of Business, told Cointelegraph. “In short, they don’t want to lose the profits from printing their own money or the economic control over the economy that fiat currencies provide.”

While crypto maximalists may skewer governments for printing money non-stop to paper over deficits, “sometimes, the right thing to do is to…

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