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Cryptogambling / Crypto ban ‘may not be effective in the long run,’ says IMF report

Crypto ban ‘may not be effective in the long run,’ says IMF report

Publish Date: 23/06/2023
International Monetary Fund - Headquarters of the International Monetary Fund ( Washington, DC), tags: effective long imf - CC BY-SA

International Monetary Fund – Headquarters of the International Monetary Fund ( Washington, DC) – CC BY-SA

In a recent report on Latin America and the Caribbean, the International Monetary Fund (IMF) has emphasized the need for regulatory measures regarding cryptocurrencies.

The IMF acknowledges the varying approaches taken by governments in the region. However, it cautions against outright bans, saying that it may not yield the desired long-term results.

While recognizing the risks associated with cryptocurrencies, the IMF believes that completely banning them may not be an effective long-term solution.

“While some countries have completely banned cryptocurrencies due to their risks, this approach may not be effective in the long run,” says the report.

Instead, the focus should be on addressing the underlying drivers of crypto demand. Those include unmet digital payment needs, as well as improving transparency through the inclusion of crypto asset transactions in national statistics.

Regulatory gap

When it comes to regulations, the report provides an overview of the status of cryptocurrency frameworks in different countries.

In the June 22 report, IMF highlights the progress made by several countries in the adoption of digital assets to address financial inclusion, facilitate faster and cheaper payments, and other benefits.

Brazil, Argentina, Colombia, and Ecuador are among the countries making strides in crypto regulation. The Bahamas introduced its own central bank digital currency (CBDC), the Sand Dollar, in October 2020.

The IMF notes that these nations have high cryptocurrency adoption rates and highlights their efforts to explore or adopt CBDCs.

Yet, while some countries have established legal frameworks, Chile is still in the process of developing theirs. Ecuador and Costa Rica have yet to define their legal stance, while countries such as Argentina and Venezuela have no data available.

The IMF report also examines the situation in individual countries. Brazil, for example, has made significant progress in developing its CBDC. The country has moved to the ‘proof of concept’ stage, prioritizing tokenization of assets for easier transfers and increased liquidity.

El Salvador has embraced Bitcoin since September 2021. However, the report reveals that according to a 2022 national survey, Bitcoin is still not widely adopted in El Salvador. This outcome persisted despite the cryptocurrency’s legal status within the country’s laws and government incentives.

The IMF’s stance on cryptocurrencies has been known to oppose their adoption as legal tender.

Yet, the IMF sees potential in well-designed CBDCs. A robust system can enhance payment system usability, resilience, efficiency, and financial inclusion in the region.

“CBDCs—if well designed—could lower remittances’ costs and improve financial inclusion. But for crypto assets to safely remain part of the payment system, they need to be regulated,” the report says.

The prominent institution believes that if implemented correctly, CBDCs can contribute to financial inclusion in Latin American and Caribbean countries.

IMF’s director of the monetary and capital markets department Tobias Adrian recently proposed a payment system that employs a single ledger for recording CBDC transactions. However, this idea has faced criticism from within the crypto space.

“The IMF is once again back to their old game. With nations exploring CBDCs, they see this as their next opportunity to amass more power and control,” said one Reddit user.

However, the IMF acknowledges the real challenges and risks associated with cryptocurrencies. Countries with a history of macroeconomic instability and corruption, which eventually causes low institutional credibility, are especially vulnerable to these risks. Some other indicators are extensive informal sectors and significant capital flows.

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