Is the International Monetary Fund (IMF), really hostile to cryptocurrency? Many people in the blockchain and cryptocurrency space believe so. requested El Salvador in January to withdraw Bitcoin ( BTC).
It reportedly pressured Argentina in May to stop crypto trading, and warned the Marshall Islands recently that elevating a digital currency from legal tender status could “raise risk to macroeconomic stability and financial integrity as well as financial stability.”
David Tawil (president and co-founder of ProChain Capital) stated that “I believe that the IMF [is] an inexorable foe for crypto.” Because Bitcoin and other cryptocurrencies can be ‘issued’ by non-state entities, and are not bound, “crypto could be everywhere, which could significantly reduce the need for IMF,” a financial institution of the United Nations.
Alex Gladstein, chief strategist officer at the Human Rights Foundation, stated that Bitcoin stands against all the IMF stands up for. Kraken’s Dan Held simply tweeted that the IMF was evil in response to its reported actions in Argentina.
Others believe that the multilateral lending institution, which serves around 190 countries and has been a lightning rod of criticism in developing countries, may have a more nuanced understanding of cryptocurrency.
What is your broad view on crypto-assets and other cryptocurrency-assets?
The September report “Regulating Crypto” stated that the IMF had no problem with non-governmental digital currencies being created or proliferated. It called for a “global regulatory structure” for cryptocurrency to “bring order to the market and allow for useful innovation to continue.”
John Kiff, managing director of the CBDC Think Tank, and, up to 2021, a senior financial industry expert at IMF, said that the IMF had taken a broad-minded approach to crypto-assets. This is especially true if one considers the more recent cases. He said:
“The Marshall Islands, El Salvador and El Salvador opinions concerned country governments adopting cryptocurrency as legal tender after their units of account currencies had been established.” These negative opinions were mainly focused on the macroeconomic consequences of cryptocurrencies being used as a fiscal vehicle.
According to Josh Lipsky, the senior director of the Atlantic Council’s GeoEconomics Center said that institutionally, “It is true that the IMF was skeptical of crypto, which it came down hard against El Salvador.” The fund was concerned about the nation’s economic vulnerability. If El Salvador defaults on international debt payments, the IMF will “have to bail them out”.
Lipsky said that Argentina has already done more than 20 lending programs in the past, so it cannot renegotiate [its loans] with the IMF while it is conducting crypto experiments.” Lipsky was previously an advisor to the IMF, and also a speechwriter to Christine Lagarde. According to , the mayor of Buenos Aires was a proponent of cryptocurrency and was reportedly working on plans that would allow residents to pay their municipal taxes using cryptocurrencies. Lipsky commented that “that raised some eyebrows at the fund.”
Tawil also agreed that the IMF had the right to force “certain policy choices”, such as austerity, taxation or the removal of subsidies. “The IMF will lend its financial support to countries that have “awful policies” that make them dependent on the fund’s assistance.
Money laundering risks
The Marshall Islands are trying to establish a sovereign digital currency (also known as SOV) as a second legal tender. The IMF’s Yong Sarah Zhou cited financial stability risks as well as “anti-money laundering” and “fighting the financing of terrorism [AML/CFT] risks.”
Simon Lelieveldt was a Dutch-based regulatory consultant for payment and blockchain. However, he wasn’t sure that this was the main objection of the fund. Although crypto can be used as an investment asset as well as a tool to money laundering, it is likely that crypto’s “ungoverned nature,” alarms the IMF, and other intergovernmental organisations, such as the Financial Action Task Force.
Sometimes, governments in the developing world feel “oppressed” by IMF rulings or neoliberal dogmas. They are tempted to “escape from the harness of IMF” using alternate legal tenders. These actions inevitably “leads to reactions from institutions who are afraid of losing power,” he said to Cointelegraph.
A misbegotten case?
El Salvador became the first country in the world to accept Bitcoin or any cryptocurrency as legal tender on September 20, 2021. Lipsky said that El Salvador was a “really bad use case” to Cointelegraph. “What Terra Luna did in crypto in the United States was what El Salvador did globally.
What went wrong? What went wrong?
Instead of trying an experimental approach, starting with small pilots, and independent risk assessments to assess the risks, the Bitcoin Law was quickly passed through El Salvador’s legislature. According to one critic, it was “reckless, rushed”
Lipsky believes that the IMF’s aversion to crypto as legal tender only grew after the El Salvador inept BTC Launch.
Institutions like the IMF or the World Bank may still have an “outsized impact” on small countries that want to control their currencies more. They can “apply pressure, from making aid conditional, to simply blocking aid unless countries comply with them,” Henri Arslanian, author of The Book of Crypto, wrote.
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Arslanian wrote that when El Salvador accepted Bitcoin as legal tender, the World Bank, an additional lending institution within the United Nations system, not just criticized the move, but also “refused to provide technical assistance, inciting environmental and transparency concerns.”
The mandate of non-governmental organizations such as the IMF or the World Bank, which is to support global financial stability, and spur economic growth, could lead to a natural tension with decentralized currencies. These are volatile and difficult-to-control financial instruments that have no return address and can be traced back to the individual responsible.
Tawil pointed out that the IMF is frequently called upon to help countries “plagued with corrupt and inept leadership, and illusory currency” and so it has no incentive to create another “issuer-less” currency.
“The IMF can’t ignore the reality that our future will be filled by cryptocurrencies,” said Mr.