IMF warns of risks in making existing cryptos as national currency

Karthik Subramanian

The International Monetary Fund(IMF) has put out a tweet as well as a guide to warns the various economies around the world of how the use of existing cryptos like bitcoin could lead to a massive destabilization of the macroeconomy.

IMF

This warning comes on the back of countries like El Salvador choosing to make bitcoin an acceptable form of payment for transactions within the country. Due to the volatile nature of such cryptos, the IMF says that it could lead to problems like inflation and other economic and financial issues as well. It has to be noted that this warning is only against the use of private cryptocurrencies like bitcoin and ethereum as they continue to rest in the hands of a few and hence are liable for substantial manipulation and speculation as well. Any acceptable form of payment within an economy cannot be volatile and speculative and this is the point of the IMF as well.

Over the last few months, we have had several reports of central banks of many countries looking to launch their own digital currencies. While this is happening, we are also seeing countries like El Salvador using private cryptos like bitcoin instead of launching their own as it helps to reduce costs, improves security and reliability. While the use of bank-controlled digital currencies may find favor with the international economic organizations, like the IMF, as it is stable and its use can be tracked and monitored, the use of private cryptos is generally frowned upon not just by the IMF but central banks and regulators all around the world as its flow and movement cannot be easily tracked or monitored and even if that can be done, this power would be vested within the hands of a few private individuals and this is the risk to the macroeconomy that the regulators and others are worried about.

Then there is the case of stablecoins which are also being actively pursued by many large fintech and payment companies and many of them have introduced these stablecoins as a payment mechanism with their systems with the approval of the regulators as well. This is the reason why all this crypto ecosystem is in a state of flux at the moment with the winners and losers still in doubt. It is highly unlikely that volatile cryptos would be used by any central bank as a currency in the long run and it is more likely that digital currencies issued by the banks themselves would be the favored path forward.

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