IMF issues veiled warning against El Salvador’s Bitcoin law

The International Monetary Fund (IMF) warned that some of the consequences of a country adopting Bitcoin as a national currency “could be dire.”

IMF issues veiled warning against El Salvador’s Bitcoin law

According to the blogpost by IMF marketing department financial counsellor and director Tobias Adrian and legal department general counsel and director Rhoda Weeks-Brown, a cryptocurrency like Bitcoin may catch on in countries without stable inflation and exchange rates, and provide unbanked people with the means to make payments. However, the cost to the country’s economy could be significant.

The IMF officials claimed that countries adopting cryptocurrencies as national currencies or granting cryptoassets legal tender status risked domestic prices becoming highly unstable, and assets being used contrary to anti-money laundering and combating the financing of terrorism measures, in addition to having issues on macroeconomic stability and the environment.

“If goods and services were priced in both a real currency and a cryptoasset, households and businesses would spend significant time and resources choosing which money to hold as opposed to engaging in productive activities,” said IMF officials in the blog, “Government revenues would be exposed to exchange rate risk if taxes were quoted in advance in a cryptoasset while expenditures remained mostly in the local currency, or vice versa.”

They also claimed that monetary policy in general “would lose bite,” implying widespread crypto adoption lessens the credibility of any country adopting an asset like Bitcoin or another token, and pointed to the massive fluctuations in cryptoasset prices.

Though the blog specifically did not mention El Salvador, which is set to start accepting Bitcoin as legal tender starting in September. 

Adrian and Weeks-Brown said making any cryptocurrency a national currency “is an inadvisable shortcut” to more inclusive financial services. The pair included claims of environmental risks for mining cryptocurrencies. However, El Salvador President Nayib Bukele has said he plans to take advantage of the country’s abundant geothermal energy to generate Bitcoin blocks.

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