In a blog post on Monday, IMF has called on nations to consider using cryptocurrencies and blockchain tech to improve financial service. The IMF blog also warned that dabbling with private cryptocurrencies is vastly risky. The authors, Tobias Adrian and Rhoda Weeks-Brown cites that the native volatility of cryptocurrencies such as Bitcoin as possible hazards to the global economy.
The blog opens by stating that New digital forms of money have the potential to provide cheaper and faster payments. It also could enhance financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers.
The blog states that the risks and costs associated with building crypto-assets overweigh potential benefits. “Some countries may be tempted by a shortcut: adopting crypto assets as national currencies. Many are indeed secure, easy to access, and cheap to transact.”
Cryptocurrency volatility is the authors’ main worry. “Cryptoassets are unlikely to catch on in countries with stable inflation and exchange rates, and credible institutions,” the authors argue. “Households and businesses would have very little incentive to price or save in a parallel crypto-asset such as Bitcoin, even if it were given legal tender or currency status. Their value is just too volatile and unrelated to the real economy.”
The writers caution that the development of these types of virtual currencies would need significant degrees of infrastructural development, both on the level of policy and in the case of adoption. The co-authors stressed the need for “clarifying the role of the public and private sectors in providing and regulating digital forms of money.”
The most direct cost of widespread adoption of a crypto asset such as Bitcoin is macroeconomic stability, say the writers.
Also Read: IMF Urges Governments For Cryptocurrency Regulations
“If goods and services were priced in both a real currency and a crypto asset, 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 crypto assets while expenditures remained mostly in the local currency, or vice versa.”
The distributed nature of Bitcoin also worries the authors, as it means there’s nobody to hold to account for security incidents or big swings in value.
The post concludes that blockchain-powered currencies issued by central banks may deliver the “cheaper and more inclusive financial services” that private cryptocurrencies promise.
