The International Monetary Fund (IMF) has warned against the widespread adoption of cryptocurrencies like Bitcoin because its “most direct cost is to macroeconomic stability”. IMF said attempts to make cryptoassets a national currency is an “inadvisable shortcut” and that they come with substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment. The comments were made by IMF in its late July blog post questioning the ability of cryptos to become legal tender. Importantly, IMF’s warning came just weeks after El Salvador announced the adoption of Bitcoin as its legal tender.
The Washington-based organisation that works towards fostering global monetary cooperation and secure financial stability explained that internet access and technology needed to transfer cryptoassets remains scarce in many countries. Hence, it would raise issues about fairness and financial inclusion. Moreover, the official monetary unit must be sufficiently stable in value to facilitate its use for medium- to long-term monetary obligations…In addition, banks and other financial institutions could be exposed to the massive fluctuations in cryptoasset prices, it added. It is not clear whether prudential regulation against exposures to foreign currency or risky assets in banks could be upheld if Bitcoin, for instance, were given legal tender status.
“In India, our approach towards cryptocurrency is slightly different. Crypto assets in India are seen as an asset class and not as legal tender. We remain optimistic that crypto as an asset class is a better model of coexistence for crypto-assets and national currencies of the world. Maybe a fiat pegged stable coin (similar to USDT) can be a hypothetical alternative to the existing fiat system. On the other hand, crypto-assets offer an excellent opportunity to transform payment systems across the globe with the entire record of transactions available on a public ledger over a blockchain network. Transactions over blockchain networks will bring in a lot of transparency and help in preventing financial fraud,” Shivam Thakral, CEO, BuyUcoin told Financial Express Online.
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According to a study published last month by the UK-based personal finance platform Finder based on a survey of 42 crypto experts globally, hyperbitcoinisation – the moment when Bitcoin overtakes global finance – will happen by 2050. Bitcoin has gained tremendous acceptance in the past few months among companies, investors, etc., such as JPMorgan, Goldman Sachs, PayPal, Visa, Tesla, Apple, Amazon MicroStrategy, and more.
However, back in May this year, Tesla’s Elon Musk — a long-time proponent of cryptocurrencies — had also cautioned investors looking to gain from the boom in the prices of Bitcoin, Ethereum, Dogecoin, and others. Elon Musk had said that while he believes that crypto could be the default future currency of the earth, nonetheless, people shouldn’t invest their life savings into cryptocurrency. “First of all, I think people should not invest their life savings in cryptocurrency. To be clear, I think that’s unwise,” Tesla’s CEO had warned in a video released by news portal TMZ.
IMF also noted that widespread cryptoasset use would undermine consumer protection and that households and businesses could lose wealth through large swings in value, fraud, or cyber-attacks. “While the technology underlying cryptoassets has proven extremely robust, technical glitches could occur. In the case of Bitcoin, recourse is difficult as there is no legal issuer,” it added. Nonetheless, IMF also took note of the advantages of underlying technologies of cryptos such as the potential for cheaper and more inclusive financial services. It also urged the governments to strike a balance while preserving stability, efficiency, equality, and environmental sustainability.
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