The International Monetary Fund (IMF) recently issued a warning against countries adopting cryptocurrencies as legal tender in a blog post.
Despite not mentioning it, the recommendation is likely in response to El Salvador’s recent legalization of Bitcoin as legal tender. The warning, however, could complicate plans because the Latin American country is in talks for a $1 billion loan.
Ricardo Castaneda, the senior economist at think tank Icefi, said, “I don’t think they thought through all the implications.” “It’s a test,” says the narrator. It’ll be interesting to see if it works or not, but the consequences if it doesn’t are dire.”
The problems with the IMF
The IMG listed some issues it discovered with the adoption of cryptocurrencies as legal tender in the blog post. It does, however, clarify the distinction between legal tender and national currency. Crypto, as legal tender, would have to be accepted by creditors as payment for monetary obligations, including taxes. However, it would not be a national currency and thus would not be a required means of payment for everyday purchases.
In the end, however, this is unlikely to catch on in countries with stable inflation and exchange rates, as well as trustworthy institutions. Households and businesses in such places would have little incentive to price or save in cryptocurrency because its value is too volatile and unrelated to the real economy.
The paper also concludes that, even in less stable economies, the dollar or euro would be more appealing than adopting a cryptoasset. Finally, the paper acknowledges that cryptoassets may be useful as a payment vehicle for unbanked people, but that they would be immediately exchanged for real currency upon receipt.
El Salvador’s parliament passed a law making Bitcoin legal tender on June 9. President Nayib Bukele has stated that the project will begin on September 7. Bukele claims that this will unlock prosperity and provide humanity with a “great leap forward.” He also claims that widespread adoption of cryptocurrency would benefit the 70% of the population who do not have access to traditional financial services.
However, not everyone in the country is enthusiastic about the adoption. According to a survey conducted by the El Salvador Chamber of Commerce and Industry, more than 90% of respondents did not want to be forced to accept bitcoin as payment. Another three-quarters stated that they would continue to use dollars. In conclusion, a poll conducted by the Universidad Francisco Gavidia found that 44 percent of those polled expected it to worsen the economy. A citizen group led by an opposition politician also filed a lawsuit against the country for legalizing bitcoin as legal tender.