IMF advises against banning cryptocurrencies

According to the IMF’s paper on central bank digital currency (CBDC) adoption in Latin America and the Caribbean, banning cryptocurrencies may not be the best way to mitigate the associated risks, as this approach may not be effective in the long term. Instead, the region should focus on addressing the factors driving demand for cryptocurrencies, including unmet demand for digital payments among citizens and improving transparency by recording crypto asset transactions in national statistics.

If well designed, CBDCs could enhance the usability, resilience and efficiency of payments systems, while enhancing financial inclusion in Latin America and the Caribbean, the IMF said.

IMF says banning cryptocurrencies is not a long-term risk-fighting measure

The IMF paper highlights four Latin American countries, Brazil, Argentina, Colombia and Ecuador, as being among the top 20 countries for crypto asset adoption by 2022. Although Argentina banned payment platforms from offering cryptocurrencies to customers in May 2023 due to concerns about financial stability, tax fraud, corruption and money laundering, people in the country are still turning to cryptocurrencies to protect their assets against economic volatility. In addition, payments in cryptocurrencies are cheaper and faster.

According to CoinTelegraph , the IMF believes that clear regulations can address these issues. Of the 19 Latin American jurisdictions studied in the IMF report as of mid-2022, 12 already have specific legal regulations or are in the process of creating a legal framework for cryptocurrencies.

Meanwhile, the Bahamas became the first country in the world to issue a CBDC, the Sand Dollar, in October 2020. In 2022, El Salvador also became the first country in the world to legalize Bitcoin. However, the IMF said El Salvador's approach may not be the best. The IMF has warned El Salvador about the legal risks associated with cryptocurrencies that could make financial markets more vulnerable.

The IMF has often made public statements against countries adopting cryptocurrencies as legal tender. On June 19, Tobias Adrian, director of the IMF’s monetary and capital markets department, proposed a payment system that uses a ledger to record CBDC transactions, but the idea has received harsh criticism from those in the cryptocurrency space.

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