The IMF released its semi-annual Global Financial Stability Report and warns countries that are adopting crypto as a national currency comes with significant risks suggesting that countries should develop CBDCs instead.
IMF warns countries that are adopting Bitcoin
In its report on global financial stability, the global financial institution states that “cryptoization,” or the use of digital currencies by a country, poses significant risks and should not be a shortcut that countries use to boost their economies. The IMF report warns that countries that are adopting Bitcoin or other cryptocurrencies as legal tender could hinder their central banks’ efforts to set monetary policy create liquidity risks, and destabilize economies.
The report speaks primarily of “challenging transitions” for the global economy. This includes topics such as the pandemic COVID -19, climate change, and cryptocurrencies. In recent months, the IMF has expressed strong reservations about the impact of cryptocurrencies. Its blog stated that the (pseudo) anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors for money laundering and terrorist financing.
Countries should consider issuing CBDCs
According to the IMF, governments should consider digital central bank currencies (CBDCs) instead of adopting Bitcoin. They think this CBDCs will discourage people investing in cryptocurrencies by meeting domestic demand for improved payment technologies, or another suggestion they have in their report is that countries should adopt policies that could help curb the growing demand for cryptocurrencies, including strengthening monetary policy, ensuring central bank independence, and implementing “effective legal and regulatory measures that discourage the use of foreign currencies.”
The report also identified stablecoins such as Tether and USDC as a potential threat to the global financial system and suggested that disclosure standards for stablecoin issuers should be “significantly improved” to ensure stability in the stablecoin market, similar to commercial banks and money market funds. The report also pointed to the risk of a run on stablecoin issuers, citing the panic selling in June that sent Iron Finance’s Titan token to near zero.