Outright crypto ban not ‘first best option’ but should not be ruled out: IMF

An outright ban on cryptocurrency assets (BTC-USD) is not ideal, although such action should still be considered, the International Monetary Fund’s executive board said last week.

Increasing crypto adoption “could undermine the effectiveness of monetary policy, bypassing capital flow management measures and exacerbating fiscal risk,” the fund said in a statement.

That, in addition to “the extraterritorial nature of cryptoassets and its providers, as well as the increasing interconnection with the financial system, motivates the need” for a coordinated policy response among the organization’s member states. Other risks include the impact of crypto on tax collection, monetary policy and consumer protection.

Citing these “serious concerns,” the IMF’s 24 directors “generally agreed that crypto-assets should not be given the status of official currency or legal tender to ensure monetary sovereignty and stability,” according to the statement.

Contrary to the views of the IMF, in 2021 El Salvador became the first country in the world to make bitcoin (BTC-USD) legal tender by allowing the token to be accepted as a medium of exchange to settle various transactions. At the time, bitcoin, whose price is exceptionally volatile, was in the midst of an astonishing bull run when it hit an all-time high of $68.9K, only to drop around 65% to $23.1K as of Friday afternoon.

The IMF later urged the country’s government to remove bitcoin’s (BTC-USD) legal tender status, pointing to many of the same risks mentioned above. The move also prompted Fitch Ratings to downgrade El Salvador further into junk territory.

“We’re bound to see more countries follow” the same footsteps of El Salvador in making bitcoin (BTC-USD) legal tender, Dmitry Ivanov, head of marketing at crypto payment ecosystem CoinsPaid, told Seeking Alpha via email. “The IMF discounts the obvious benefits of adopting BTC as legal tender bordering on ease of use, lower barriers to entry and a somewhat code-backed immunity to inflation.”

The president of Brazil, the largest economy in Latin America, signed a bill late last year to recognize crypto as a payment method or as an investment in the country.

Despite the IMF’s tough stance on the new space, its directors noted that regulations should not limit innovation, and “the public sector can leverage some of the underlying technologies of cryptoassets for their public policy goals,” the statement said.

Earlier (February 20), Hong Kong planned to allow retail traders to trade certain digital currencies on listed exchanges in a bid to establish itself as a crypto hub.