Crypto inadvisable for use as legal tender, IMF warns

International Monetary Fund says it fears crypto assets have a value that is too volatile

The International Monetary Fund (IMF) has warned that cryptocurrencies such as Ether and Bitcoin are privately issued assets riddled with substantial risks.

The global finance adviser also said making cryptocurrencies equivalent to a national currency was an “inadvisable shortcut”.

According to the IMF’s latest blog, new digital forms of money have the potential to “provide cheaper and faster payments, enhance financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers”.

However, the body warns this is not straightforward, adding it requires significant investment as well as difficult policy choices such as clarifying the role of the public and private sectors in providing and regulating digital forms of money.

“Some countries may be tempted by a shortcut of adopting crypto assets as national currencies,” it said.

“Many are indeed secure, easy to access, and cheap to transact. We believe, however, that in most cases risks and costs outweigh potential benefits.”

This isn’t the first the IMF has waved a red flag over cryptocurrency use. It warned against countries using cryptocurrencies as legal tender just over a month before El Salvador became the first nation in the world to configure Bitcoin as payment.

Bitcoin lives on

The IMF also said that widespread use of cryptocurrencies would threaten “macroeconomic stability” and could harm financial integrity through crypto’s links with illicit activity.

However, IMF admits “Bitcoin lives on”.

“For some, it is an opportunity to transact anonymously – for good or bad,” the fund conceded.

“For others, it is a means to diversify portfolios and hold a speculative asset that can bring riches but also significant losses.”

According to its blog, the most direct cost of widespread adoption of cryptocurrencies is macroeconomic stability.

“Government revenues would be exposed to exchange rate risk if taxes were quoted in advance in crypto assets while expenditures remained mostly in the local currency, or vice versa,” the blog added.

“Also, monetary policy would lose bite.”

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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