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24 Feb, 2023 12:06

IMF advises against making crypto legal tender

The fund suggests outright bans are not the best option to limit crypto risks, but should not be ruled out
IMF advises against making crypto legal tender

The International Monetary Fund (IMF) believes that crypto assets should not be granted official currency or legal tender status, according to a statement from its executive board released on Thursday.

The statement summarized discussions on the fund’s nine-point action plan for how countries should treat crypto assets, dubbed ‘Elements of Effective Policies for Crypto Assets,’ held earlier this month. The paper provided “guidance to IMF member countries on key elements of an appropriate policy response to crypto assets.

According to the statement, the fund’s major recommendation is to “safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and not granting crypto assets official currency or legal tender status.” The board noted that the widespread adoption of crypto assets “could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks.” The IMF therefore urges countries to focus on adopting tax rules and laws regulating crypto assets, noting that failing to do so is now “untenable” given the recent implosions of several crypto exchanges.

Directors agreed that strict bans are not the first-best option, but that targeted restrictions could apply [to limit crypto risks]. A few Directors, however, thought that outright bans should not be ruled out… The growing adoption of crypto assets in some countries, the extra-territorial nature of crypto assets and its providers, as well as the increasing interlinkages with the financial system, motivate the need for a comprehensive, consistent, and coordinated response,” the statement read.

Last year, nearly $1.4 trillion was wiped off the crypto market amid bankruptcies in the sector. The crisis was led by the collapse of FTX, the world’s second-largest crypto exchange at the time of its insolvency.

Bitcoin, the world’s largest cryptocurrency by market capitalization, has been gradually regaining last year’s losses in recent weeks, but remains far below its all-time high of just over $69,000. Smaller crypto tokens traditionally follow Bitcoin’s lead in their market movements.

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