A tweet from the Twitter account associated with the International Monetary Fund(IMF) on Saturday has taken a very strong cautionary stance towards Bitcoin. The organisation which is tasked with protecting the interests of countries worldwide and maintaining economic stability seems to believe that the adoption of cryptocurrencies and in particular, Bitcoin, is a very bad idea fraught with problems for any economy.
With the widespread attention cryptocurrency has gathered over the past year, its regulation has become a similarly hot topic. How to regulate cryptocurrency has become polarizing with many countries and financial agencies taking opposing stances on the matter. Countries like China and Nigeria have taken very strong anti-crypto stances with the former banning its use in the country and forcing a large number of crypto miners to seek haven elsewhere. Others are very welcoming of the newest development with El Salvador on track to adopt it as a legal tender.
Crypto Adoption Could Ruin Economies
The tweet from the account stated that “privately issued crypto-assets like Bitcoin come with substantial risks” and linked to an article on its blog written by Tobias Adrian and Rhoda Weeks-Brown. The article titled “Cryptoassets as National Currency? A Step Too Far” went on to list very comprehensively the problems that adopting such an unstable and untested form of payment as a legal tender could do to the economy of a country.
First on its list of reasons against the adoption of crypto as legal tender is the potential it has to ruin macroeconomic stability. This stands as a very valid point and is also a problem many have been trying to solve. It is one of the foremost reasons many countries have against its adoption and with good cause. Cryptocurrencies such as Bitcoin are prone to incredibly large swings in value over short periods. Case in point, Bitcoin reached a high point above $60,000 this year leading to short term elation among its holders before its price dropped by more than half its value in the following weeks. Adoption of such an asset as a legal tender could have significant ramifications on any economy.
Another point made in the blog post is the difficulty associated with accounting for and regulating crypto transactions. While anonymity is a large part of the allure that brings people to cryptocurrency, it is also one of the foremost problems plaguing it in its struggle for legitimacy. The anonymity provided by crypto transactions can undermine any financial system. Mass spread adoption could lead to a surge in fraud and cyber attacks. The availability and accessibility of Bitcoin could also pose a significant risk. Cryptocurrency by its nature would require widespread internet access in any country that hopes to adopt it and this just is not possible in some areas.
The blog post goes on to talk about a plethora of other risks associated with crypto adoption and defends each point comprehensively. Despite this, it ends with a call for balance, highlighting that there are benefits to cryptocurrency use but also stating that the government should step up to provide proper digital forms of money while maintaining economic stability.
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