The International Monetary Fund (IMF) has taken a step back in its push for crypto ban. IMF economists on Thursday 22 June in a report said that encouraging countries to ban the use of cryptocurrencies is not the best way to deal with the industry which it claims is disrupting the financial system.
The report examines the use of cryptocurrencies across Latin America and the Caribbean. The report shows that crypto adoption in the region varies widely since some countries are skeptical about crypto, while some like El Salvador have embraced it completely.
In conclusion, the economists are rooting for crypto adoption in a regulated environment rather than outright bans. “While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long run,” the economists said in the report’s conclusion.
They further highlighted some benefits that cryptocurrencies offer their users, including protection against macroeconomic uncertainty, promoted financial inclusion, and faster payments among others.
The IMF had just few months ago called on countries to consider banning cryptocurrencies in their domains. However even at the time, most of its top directors agreed on a better regulatory framework, rather than a complete ban.
The Support for CBDCs
The IMF also found out in a survey that central bank digital currencies (CBDCs) have wider acceptance in the region. Half of respondents in the survey said they were considering both retail and institutional CBDCs. They also found out that CBDCs can be a way to promote resilience in communities prone to natural disasters, as well as enhance financial inclusion.
As a result, the IMF has called instead for countries to develop effective CBDCs which will be used alongside cryptocurrencies. Already, several countries have embraced the idea of CBDCs. While some are still at research level on their CBDCs, some have reached advanced stages in the process.
An example is Nigeria which launched its own CBDC in 2021, and China which is at the stage of testing its digital Yuan for institutional and cross-border use. The digital Yuan could be on its way to public launch this year if all goes well.
The Case Against CBDCs
CBDCs, unlike decentralized cryptocurrencies, are issued by central banks. While they’re also built on a blockchain, the blockchain isn’t decentralized, and the central bank can completely monitor the use of the digital currency.
Because it is programmable, the bank can also decide who can spend it and on what. Crypto enthusiasts and other concerned persons worldwide have cried out against this form of digital currencies, stating that it can be used as an instrument of control.
With a CBDC, the use of crypto cannot be the same as decentralized cryptocurrencies such as Bitcoin, and completely goes against everything that crypto represents.