The International Monetary Fund (IMF) recommended that cryptocurrencies like Bitcoin should not be legal tender, and issued an action plan to member states.
On Feb. 8, the financial agency’s executive board provided guidance to IMF members through a document, “Elements of Effective Policies for Crypto Assets,” to provide an appropriate policy response to crypto assets.
The IMF believes that action must be taken immediately after the recent collapse of several crypto exchanges and other assets within the crypto ecosystem.
IMF Suggests Nine Ways to Suppress Private Cryptocurrency
The first of the nine recommendation on crypto was to “safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.”The second called for guarding against excessive capital flow volatility and maintain effectiveness of capital flow management measures.
The third said that nations must analyze and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets, while the fourth said that legal certainty of crypto assets and address legal risks be established.
The fifth recommended that countries should develop and enforce prudential, conduct, and oversight requirements to all crypto market actors, and the sixth said that a joint monitoring framework across different domestic agencies and authorities be established.
The seventh called for the creation of international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations, while the eighth called for the monitoring of the impact of crypto assets on the stability of the international monetary system.
The final recommendation urged countries to “strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.”
The IMF went after El Salvador in late 2021, when the country became the first nation to adopt Bitcoin currency as legal tender. The Central African Republic has also made cryptocurrency legal tender as well.
“Directors generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability,” said the report.
“Fiscal risks posed by crypto assets including contingent liabilities to the government should be fully disclosed as part of countries’ fiscal risk statement, and the applicability of tax regimes should be clarified.”
Despite its strong opposition to the validation of cryptocurrencies, the international lender admitted that the technology digital money can be used to improve international payments.
Report Calls for CBDCs to Enhance International Transactions
A report released by the agency on Feb. 22 said that the public sector could utilize the technology, like tokens and blockchain encryption, to upgrade international “payment infrastructure and ensure interoperability, safety, and efficiency in digital finance.”The international lender also has a positive view of stablecoins to the extent they comply with international financial regulations.
It endorsed trials conducted by the banking sector to test tokenized checking accounts that can be accessed via phone apps.
The IMF suggested further development of central bank digital currency technology (CBDC) as part of its plan to upgrade the cross border transfer system, by speeding up transactions and improving safety.
The authors noted a CBDC can act as both as a monetary instrument—a store of value and means of payment—but also as infrastructure essential to clear and settle transactions.”
The IMF said that a CBDC could improve interoperability among national currencies, enhance safety thanks to “escrowed central bank reserves, settlement finality, and automatic contract execution.”
Efficiency would be improved with lower transaction costs, more open participation, contract consistency, and improved transparency.
However, many skeptics are still wary of CBDCs due to privacy concern, the continuing usefulness of paper money, and fears that it would be used to implement a social credit score.
