IMF Favors Central Bank Digital Currencies over Cryptos
In recent weeks, the International Monetary Fund (IMF) has been more vocal on cryptos. At the turn of the year, the IMF had raised concerns over “a growing interconnectedness between virtual assets and financial markets”.
IMF Concerned Over Crypto Market Risks
In December of last year, the Bank of England had highlighted concerns over cryptos and financial stability. The UK’s central bank appeared to have put the spotlight back on the crypto market, calling for a global crypto regulatory framework. Aligned with the Bank of England, the IMF also called for “a comprehensive, coordinated global regulatory framework” at the turn of the year.
It was of little surprise, therefore, when the IMF raised concerns and called for El Salvador to remove Bitcoin (BTC) as legal tender. In a late January press release, the IMF warned of large risks associated with “the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as fiscal contingent liabilities”.
At the time, Bitcoin had just slumped to sub-$33,000 levels. The sell-off would have impacted individuals and business that had adopted Bitcoin as their legal tender of choice. An IMF Executive Board review of El Salvador led to the press-release. The review was in response to the El Salvador government requesting a $1.3bn loan last year.
IMF Favors Central Bank Digital Currencies
Central bank digital currencies have also had plenty of airtime on the crypto news wires in recent months. Last month, the Federal Reserve released its highly anticipated CBDC review. A number of countries have gone live or are in pilot phases of CBDC projects.
According to CBDC Tracker, just two countries have fully developed and issued CBDCs, these being The Bahamas and Nigeria. A number, however, are in pilot phases, including China.
For the U.S, it’s still early days when it comes to CBDCs, with the U.S in the research stage. The lack of progress on the CBDC front has had some lawmakers critical of the FED’s progress.
This week, the IMF favored CBDCs over cryptos. This was in spite of ongoing concerns amongst a number of countries including the UK. Aligned with the position of other IMF members on cryptos, Kristalina Georgieva stated “If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability, and lower costs than private forms of digital money”. Georgieva followed on by saying “that is clearly the case when compared to unbacked crypto assets that are inherently volatile”. She also put the spotlight on stablecoins. Georgieva noted that stablecoins may not be a match to “a stable and well‑designed CBDC”.
The IMF Managing Director failed to mention, however, that CBDCs have evolved as a result of private sector innovation. Georgieva also made no references to the centralized aspects or security concerns related to CBDCs.