The International Monetary Fund is warning that some of the consequences of a country adopting Bitcoin as its national currency “could be dire.”
According to IMF financial advisor and director of the IMF marketing department, Tobias Adrian, and general counsel and director of the legal department, Rhoda Weeks-Brown, a cryptocurrency like Bitcoin (BTC) can catch in countries without inflation and rates of stable exchange rates and provide unbanked people with the means to make payments. However, the cost to savings can be significant.
The two IMF employees claimed that countries that adopt cryptocurrencies as national currencies or “grant legal tender cryptocurrencies” run the risk of domestic prices becoming highly unstable, also emphasizing the assets being used against money laundering and combating the financing of terrorism, in addition to having problems involving macroeconomic stability and the environment.
Related: IMF warns of worst crisis in 90 years; Bitcoin could be at risk
“If the prices of goods and services were priced in both real and cryptoactive currencies, households and businesses would spend a lot of time and resources choosing what money to keep rather than engaging in productive activities,” said Adrian and Weeks-Brown. “Government revenues would be exposed to exchange rate risk if taxes were quoted in advance in a cryptoactive while expenditures remained mainly in the local currency, or vice versa.”
They also claimed that monetary policy, in general, “would lose weight”, implying that the widespread adoption of the cryptocurrency diminishes the credibility of any country that adopts an asset such as BTC or another token and points to “massive fluctuations in prices of cryptoactives”. Bitcoin’s price has already fluctuated between about $65,000 and $30,000 this year and hit more than $40,000 on Monday (26), before dropping to $37,000.
While the IMF blog didn’t specifically mention El Salvador, which is likely to start accepting Bitcoin as legal tender in September, Adrian and Weeks-Brown said turning any cryptocurrency into national currency “is an inadvisable shortcut” to more inclusive financial services . The pair included claims of environmental risks to cryptocurrency mining, though El Salvador’s President Nayib Bukele said he plans to harness the country’s abundant geothermal energy to generate Bitcoin blocks.
Related: JPMorgan: Adoption of Bitcoin in El Salvador Could Damage IMF Talks
Expressing seemingly negative opinions about countries that adopt cryptocurrency is nothing new for the IMF. Spokespersons have previously said that smaller nations such as the Marshall Islands, which recognize digital currency as legal tender, “increase the risks to macroeconomic and financial stability as well as financial integrity.” In this case, the IMF said that the islands’ local economy was harmed by the economic consequences of the pandemic and would likely not be corrected with the introduction of a digital currency.
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