Nevertheless, it is recommended that governments consider using blockchain-controlled money
The International Monetary Fund (IMF) warns states in its blog about major risks in the course of using private cryptocurrencies as a currency. At the same time, the monetary authorities called for the use of blockchain technology to improve financial services to be considered. A month ago, El Salvador caused a stir because it was the first country in the world to allow Bitcoin as legal tender.
Faster payment transactions
The IMF blog post entitled “Cryptoassets as National Currency? A Step Too Far” https://bit.ly/3i8bRLW states: “New digital forms of money have the potential to enable cheaper, faster payments, financial inclusion improve, increase resilience and competition among payment providers and facilitate cross-border transfers. “
The post also addresses that some nations are considering taking advantage of these benefits with the abbreviation of accepting cryptoassets as either legal tender or even “second (or possibly only) national currency”. IMF experts Tobias Adrian, director of the money and capital markets department, and Rhoda Weeks-Brown, general counsel and director of the legal department, vehemently reject such plans.
Your biggest concern is the volatility of cryptocurrencies. “It is unlikely that cryptoassets will prevail in countries with stable inflation and exchange rates and credible institutions,” argue the IMF authors. “Households and businesses would have very little incentive to price or save in a parallel crypto asset like Bitcoin, even if it were given legal tender or currency status. Their value is simply too volatile and has nothing to do with the real economy. “
This volatility would complicate markets rather than improve them. “If goods and services were priced in both a real currency and a cryptoasset, households and businesses would spend a lot of time and resources deciding what money to hold instead of engaging in productive activities,” warned the IMF -Specialists. Similarly, government revenue would be exposed to exchange rate risk if taxes were quoted in advance in a cryptoasset while spending largely remained in local currency or vice versa. This potential imbalance is damaging macroeconomic stability.
Furthermore, cryptocurrencies would not solve the problems that lead nations to adopt foreign currencies as legal tender. According to the blog post, a country that imports a foreign currency as its own would “import” the credibility of foreign monetary policy and hope to bring its economy and interest rates in line with the international economic cycle. However, both are not possible in the case of widespread acceptance of crypto assets. In addition, it is uncertain who can be held responsible for security incidents or fluctuations in the value of Bitcoin.
“Not advisable abbreviation”
The IMF authors conclude that blockchain-backed currencies issued by central banks can provide cheaper and more comprehensive financial services than private cryptocurrencies. Governments should use new digital forms of money while maintaining stability, efficiency, equality and environmental sustainability. Trying to make existing crypto assets a national currency is an inadvisable shortcut.