Home / Crypto News / News / IMF Issues Another Crypto Warning: Don’t Make Bitcoin Legal Tender
News
4 min read

IMF Issues Another Crypto Warning: Don’t Make Bitcoin Legal Tender

Last Updated December 18, 2023 2:42 PM
Josh Adams
Last Updated December 18, 2023 2:42 PM

 

Key Takeaways
  • IMF chief Kristalina Georgieva has issued another warning about crypto.
  • The 78-year old institution has increased its commentary on crypto in recent years.
  • It warned, once again, that countries should not adopt crypto as legal tender.

The managing director of the International Monetary Fund (IMF) has raises an alarm about the potential risks of cryptocurrencies. Kristalina Georgieva warned that widespread adoption of cryptocurrencies could undermine countries’ financial stability.

This is not the first time one of the world’s premier economic bodies has sounded the alarm.

One of her key recommendations included not designating cryptocurrencies as legal tender or official currencies backed by governments. 

Georgieva: High Crypto Adoption a Recipe for Instability

Speaking at a conference on digital money in Seoul on Thursday, Georgieva said that crypto assets like Bitcoin (BTC) and Ethereum (ETH) could weaken central banks’ ability to manage interest rates and control capital flows. This could jeopardize countries’ monetary policies. She also raised concerns about crypto adoption making tax collection more difficult, posing fiscal challenges.

Georgieva pointed out that crypto usage is already high globally, especially in some emerging economies. Citing data from blockchain analytics firm Chainalysis, she noted strong adoption in India, Nigeria, Vietnam, and beyond. The IMF chief said this poses near-term financial stability risks that policymakers need to address.

India has recently chosen a slower approach to crypto regulation, and may not publish a comprehensive set of crypto rules until 2025.

Georgieva explained: “The challenge is that high crypto asset adoption could undermine macrofinancial stability.”

She advocated that countries follow guidances released last year by the IMF and Financial Stability Board to mitigate risks.

Additionally, Georgieva argued global coordination on crypto policies is essential to prevent activity from shifting across borders to more lenient jurisdictions. She said:”Crypto asset providers can relocate at the click of a button.”

The IMF also urged clear laws and regulations around crypto to avoid money laundering and other criminal usage. Tax policies should be clarified so crypto-linked income can be appropriately taxed.

While striking a reasonably balanced tone, the IMF head reiterated her organization’s preference for guardrails and oversight around the crypto ecosystem. She said: “These rules are not meant to return us to a pre-crypto world or to squash innovation.”

India Central Bank Boss Calls for Crypto Ban

Georgieva’s remarks come shortly after India’s central bank governor Shaktikanta Das called for banning crypto outright. Das has repeatedly compared cryptocurrencies to speculative manias like 17th-century tulip fever. This year, he warned that the next financial crisis  would originate with their growing popularity and use.

However, the IMF’s more nuanced guidance appears to recognize potential benefits of crypto and blockchain technology when managed appropriately.

Nonetheless, this week’s blunt warnings from such influential global economic leaders underline growing unease around cryptocurrencies in the highest policymaking circles. As adoption spreads in India and elsewhere, crypto backers may face intensifying regulatory scrutiny. 

IMF Usually Chooses to Warn, Rather Than Encourage

Comments about digital assets from the IMF have become increasingly common in recent years. In most cases, the 78-year old organization chooses to warn rather than encourage.

This year alone, the body has issued several warnings about the concept of “cryptoization” – a phenomenon where digital currencies (usually Bitcoin or dollar-pegged stablecoins like Tether) are used in place of a national currency. This trend is particularly pronounced in countries where inflation is rampant.

In July, the IMF encouraged  countries around the world to adopt comprehensive policies around digital assets. As they have in recent remarks, they stressed the importance of not granting crypto assets official currency or legal tender status to safeguard national sovereignty and financial stability, especially in emerging markets. So far, only El Salvador and the Central African Republic have a cryptocurrency, Bitcoin, as legal tender.

In a sign of the direction of travel, the IMF also insisted that Anti-money Laundering and Know Your Customer (KYC) procedures should be in place to cover “all entities and activities related to the issuance, trading, custody, or transfer of crypto.”

Was this Article helpful? Yes No