Attempting to make cryptoassets a national currency is an inadvisable shortcut, an International Monetary Fund blog has said. It says that as the national currency, cryptoassets, including Bitcoin, pose substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment.
The blog, written by Tobias Adrian and Rhoda Weeks-Brown, explains how cryptoassets as a national currency may be a step too far, and that new digital forms of money or digital currencies require significant investment as well as difficult policy choices.
Tobias Adrian is the financial counsellor and director of the IMF's monetary and capital markets department, while Rhoda Weeks-Brown is general counsel and director of the IMF's legal department.
The blog says risks and costs associated with building cryptoassets overweigh potential benefits. "Some countries may be tempted by a shortcut: adopting cryptoassets as national currencies. Many are indeed secure, easy to access, and cheap to transact."
Cryptoassets are privately issued tokens, based on cryptographic techniques and denominated in their unit of account. But, the writers say, their value can be extremely volatile. "Bitcoin, for instance, reached a peak of $65,000 in April and crashed to less than half that value two months later."
For some people, the blog says, cryptos like Bitcoin are an opportunity to transact anonymously - for good or bad, while for others, it is a means to diversify portfolios and hold a speculative asset that can bring riches but also significant losses.
Bitcoin and its peers have mostly remained on the fringes of finance and payments, yet some countries are actively considering granting cryptoassets legal tender status.
"If a cryptoasset were granted legal tender status, it would have to be accepted by creditors in payment of monetary obligations, including taxes, similar to notes and coins (currency) issued by the central bank," they opine.
The most direct cost of widespread adoption of a cryptoasset such as Bitcoin is macroeconomic stability, say the writers. "If goods and services were priced in both a real currency and a cryptoasset, households and businesses would spend significant time and resources choosing which money to hold as opposed to engaging in productive activities. Similarly, government revenues would be exposed to exchange rate risk if taxes were quoted in advance in a cryptoasset while expenditures remained mostly in the local currency, or vice versa."
Also, monetary policy would lose bite. Central banks cannot set interest rates on a foreign currency, they add. This will lead to highly unstable domestic prices. In essence, governments need to step up to provide these services and leverage new digital forms of money, while preserving stability, efficiency, equality, and environmental sustainability.
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