IMF warns banning crypto may not be an effective long-term strategy

The International Monetary Fund (IMF) stated that banning crypto “may not be effective in the long run.”

The comment was made in a post promoting Central Bank Digital Currencies (CBDCs) in the Latin America and Caribbean (LAC) regions. It stated that LAC countries are “at the forefront of digital money adoption,” then delineating the term digital money into CBDCs and crypto assets.

On the latter, the post mentioned that Brazil, Argentina, Colombia, and Ecuador rank highly on the Chainalysis top 20 countries for global crypto asset adoption – stating that crypto investors in these countries “seek the benefits that digital assets claim to offer,” including:

“protection against uncertain domestic macroeconomic conditions, circumvention of capital controls, improved financial inclusion for unbanked populations, cheaper and faster payments, and stronger competition.”

At the same time, crypto adoption presents challenges and risks, especially for “vulnerable LAC countries,” due to a history of factors, including macroeconomic instability, low institutional credibility, and corruption, among others, said the IMF.

In contrast, according to an IMF survey of LAC government officials, most respondents saw CBDCs as “a means to enhance their payment systems and broaden their access” –  with financial inclusion and curbing currency substitution with stablecoins or crypto as benefits.

Crypto risks

To mitigate the risks yet continue to harness the potential benefits of crypto, the IMF provided appropriate policy response guidance. It covered advice on:

• safeguarding monetary policy
• managing capital flow
• incorporating unambitious crypto tax treatment
• establishing legal certain around digital assets
• enforcing prudent oversight
• establishing monitoring frameworks across agencies and authorities
• monitoring the impact on money systems
• strengthening global cooperation on the matter

Furthermore, the IMF stated that although some countries have banned crypto, this policy strategy may not work in the long run. It added that countries should instead address factors related to crypto demand.

“instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.”

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