IMF Says Managing Crypto Risks More Viable Than Outright Ban

The International Monetary Fund (IMF) observed that due to the widespread use of digital assets, nations are attempting to benefit from whatever advantages they may offer. However, IMF recognizes the importance of managing crypto risks without outlawing the asset class.

The global body emphasizes the need for well-thought-out legislative responses. Not only to mitigate risks effectively but to capitalize on the technological innovation they bring. 

How IMF Recommends Managing Crypto Risks

In a blog post published on Thursday, the IMF underlined that a few nations in the LAC region have decided to outright prohibit cryptocurrencies due to their associated risks. However, the IMF cautions that a ban could not be a viable long-term option. Instead, it notes that the focus should be on addressing the underlying drivers of crypto demand. It includes citizens’ unmet digital payment needs and improving transparency through recording transactions.

IMF published a policy recommendation in February that listed nine steps for a thorough approach to dealing with crypto assets. Among monitoring policies, these efforts include preserving monetary sovereignty and controlling the volatility of capital flows. It also calls for addressing fiscal risks and taxation and providing legal clarity.

El Salvador’s Story has Two Sides

The agency also compared crypto regulation across the Latin America and the Caribbean (LAC) region. And the decision by El Salvador to use Bitcoin as a legal tender has drawn criticism from the IMF. It once again notes that the region sheds light on the risks of adopting unbacked crypto assets.

IMF emphasized that a national survey performed in 2022 indicated that Bitcoin is not generally adopted as a medium of exchange. This comes despite significant government incentives and legal tender status. IMF highlights the difficulties presented by cryptocurrencies, which are totally dependent on supply and demand and experience high price fluctuation.

In the meantime, Forbes observed in its report that El Salvador has drawn a lot of attention as a result of the reforms carried out by President Nayib Bukele’s administration. The paper noted that despite a bear crypto market, the government’s attention on Bitcoin and surfing had generated hope in the local economy. This indicates that new businesses and Bitcoin firms are turning to the Central American nation.

CBDC Work Gain Steam Globally

The IMF has noticed difficulties in the stablecoin market today due to regulatory opposition to projects like that of Meta. It acknowledges that CBDCs can contribute significantly to improving payment systems, expanding financial inclusion, and maintaining monetary sovereignty.

While the IMF encourages countries to consider CBDCs as a means to enhance payment systems, the organization has been actively working on a system itself. A recent Reuters report states that the IMF is developing a global CBDC platform to enable cross-border transactions. 

IMF Managing Director, Kristalina Georgieva, emphasized the importance of interoperability and a common regulatory framework for CBDCs to ensure efficient and fair transactions between countries.

She noted that 114 central banks are exploring CBDCs, with approximately ten already reaching advanced stages.