The International Monetary Fund has recently opposed the use of cryptocurrencies such as Bitcoin and Ethereum as legal tender. The IMF has called cryptocurrencies a “step too far,” citing the many risks and costs that would arise if they become legal tender. Why IMF Opposes the Use of Cryptocurrencies As Legal Tender? In a blog article titled ‘Cryptoassets as National Currency? A Step Too Far.’ The IMF described cryptocurrencies as a ‘step too far,’ pointing out the various dangers and costs associated if they become legal tender. Tobias Adrian, the financial counselor and head of the IMF’s Monetary and Capital Markets Department, and Rhoda Weeks-Brown, General Counsel and Director of the IMF’s Legal Department, wrote the piece. “Bitcoin and its counterparts have mainly stayed on the outskirts of banking and payments, although several governments are actively exploring providing crypto assets legal tender status, and even making them a second (or perhaps sole) national currency,” according to the IMF. “Countries can go even farther by enacting legislation to encourage the use of crypto assets as a national currency, that is, as an official monetary unit (in which monetary obligations can be stated) and an obligatory method of payment for daily transactions. “Cryptoassets are unlikely to gain traction in nations with stable inflation and exchange rates, as well as trustworthy institutions.” “Even if it were granted legal tender or currency status, households and companies would have very little incentive to price or save in a rival digital asset such as Bitcoin. Their value is simply too unpredictable and disconnected from the actual economy. “Even in less stable nations, using an internationally recognized reserve currency like the dollar or euro would likely be more appealing than adopting a crypto asset.” The IMF Advises Caution When Dealing With Digital Assets According to the IMF, digital currencies have the potential to deliver cheaper and quicker payments, increase financial inclusion, improve resilience and competition among payment providers, and simplify cross-border transfers, but governments must move with care. The IMF warns that if governments rush to accept cryptocurrencies, they would risk macroeconomic instability, revenue losses, and poor monetary policy. “As a national currency, crypto assets including Bitcoin pose significant threats to macro-financial stability, financial integrity, consumer protection, and the environment,” according to the IMF. It stated that, while the benefits of its underlying technology, such as the possibility for cheaper and more accessible financial services, should not be disregarded, aiming to make crypto assets a national currency was a risky shortcut.
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