IMF Warns That Banning Cryptocurrency Is Not Necessary

The IMF (International Monetary Fund) has reportedly urged financial regulators in various countries to stop banning cryptocurrency, as that is not the right approach towards taming the fast-rising blockchain industry. However, the agency urged them to adopt and create progressive regulations to control it.

According to the report, the IMF has actively advocated for the crypto industry’s growth in many countries. While admitting the financial risk that comes with the innovation, IMF dissuaded the government from banning the industry from operating. Instead, the agency urged authorities to cautiously and strategically set up a regulatory framework to control it.

A recent report revealed that the Caribbean as Latin American countries are actively adopting digital assets and CBDCs as means for improved, faster, and more secure transaction payment systems.

For instance, El Salvador registered the primary crypto asset, Bitcoin, as its legal tender in September 2021, making history as the first country to achieve the feat. Also, the Bahamas launched its central bank digital currency (CBDC), Sand Dollar, in 2020.

However, countries like Argentina, Ecuador, Brazil, and Colombia are still working on their crypto regulatory framework. IMF pointed out that these countries understand the benefits of crypto tech and are positioned to milk it fully.

In addition, the International Monetary Fund highlighted that if CBDCs are meticulously designed, they can enhance the resilience, usability, and efficiency of transaction payment systems while providing financial inclusion in the Caribbean and Latin American regions.

The agency added that countries could reduce the cost of transactions and improve access to financial services by leveraging the potential the CBDC and blockchain techno offer.

Alternative Way To Tame Crypto Without Banning

Placing an outright ban on crypto would not give that desired result in the long term, IMF said. Hence, it advised that the factors causing the massive demand for crypto should be studied, and the transparency of the technology should be improved.

By knowing people’s demands, the government would be able to provide more financial inclusion to them. Also, recording crypto transactions in national logs would facilitate transparency, according to the IMF.

However, many crypto experts criticized the creation of a crypto regulatory framework suggested by the IMF.

Furthermore, the director of the capital markets department at IMF, Tobias Adrian, proposed a single-ledger payment system that can be used to record crypto transactions. However, the introduction of the ledger has sparked mixed reactions from crypto enthusiasts.

Some speculators stated that the centralized single-ledger CBDC payment system that the IMF proposed negates the decentralized features of the crypto technology. They claimed that it traded the core values of resistance, security, and transparency upheld by blockchain for censorship by regulators.

Nonetheless, it is crucial to note that the IMF perspective that birthed the proposal was based on maintaining regulatory surveillance and financial stability. Also, centralized ledgers enable maximum control and censorship, supposedly preventing any party from exploiting the project or evading tax.

IMF Encourages Crypto Regulation

Meanwhile, while some countries are outrightly banning crypto, others are implementing regulatory frameworks that aim to encourage the growth of the industry and protect its citizens. According to reports, know your customer (KYC), anti-money laundering (AML), and tax regulations are often the cores of these frameworks.

According to the IMF’s spokesperson, the organization understands the potential of crypto and blockchain in enhancing innovations and driving financial services forward. Nonetheless, it also emphasizes the vital role of regulations in reducing risks and protecting investors.

However, the IMF states clearly that rather than banning impulsive innovation, countries should instead regulate it using a strategic and cautious method.

In addition, the agency encourages regulators to strike a balance between innovation and regulation to harness the full potential of crypto while protecting users and maintaining economic stability.

The IMF also pointed out that as the crypto industry continues to grow rapidly, it is essential for lawmakers, industry stakeholders, and regulators to have a roundtable discussion on how to best regulate the industry while keeping its core values intact and also protecting investors.

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