Updated: Jul 13, 2021
As of the end of March 2021, there were about 70 million blockchain wallets for different cryptocurrencies. We are in that age where everything including our finance and monies is technologically controlled or operated. Various individuals, governments, organizations, and authorities, have aired their own opinions and concerns on where they stand about the use of cryptos and blockchain. Some have a positive outlook towards it and have even embraced it while some have expressed their lack of support towards it and are against it.
Most governments are wary of crypto and blockchain technology because it was built and developed in such a way that it cannot be controlled or regulated by any central system. Crypto and blockchain technology have in fact beaten the financial regulation systems put in place by different governments. Those who own and trade cryptos have not been asked to pay taxes because the government has no control over them. There has also been a ongoing argument on whether the pros of trading cryptos and the use of blockchain technology outweigh the cons.
In this article, we will be discussing the standpoint of the International Monetary Fund (IMF) and their view on the use of blockchain technology and cryptocurrencies.
The International Monetary Fund (IMF) and Its Relevance to Blockchain and Cryptos
Before going into what the IMF’s view is on crypto and blockchain, it is important to first talk about what is the IMF and how it relates to cryptos and blockchain. The IMF is a financial organization that has 190 countries as members. The common goal that every member of the organization wants is for their country to be financially stable, economically sound, and for a reduction in their level of poverty. The IMF was founded in 1944, and was established with 44 founding members after the Great Depression of the 1930s.
The IMF is also known as the center for all knowledge and policies on finance and economies. Because of its decades of experience in the world of finance and economies, and through its worldleading financial experts, the IMF has been able to train its member countries on different economic, fiscal, and financial policies that work for them. Over the years, the IMF has helped different governments with how to generate revenue, how to properly allocate and spend the revenue, and how to channel these revenues into providing basic amenities and services to their citizens. It is only logical for the IMF to be aware of the trends as regards economies and finances around the world. The IMF has a huge role to play in the acceptance of cryptos and blockchain all over the world, especially in its member countries. The fact remains that many of the financial institutions of the different member countries continue to take advice from the IMF on how to make different financial decisions that would in return affect the economy of their country positively.
General overview of the International Monetary Fund (IMF) on Cryptos and Blockchain
The IMF has had much to say about the trading of digital assets such as cryptos and the use of blockchain technology. As of 2018, the IMF already had published articles about cryptocurrencies; in these articles, various cryptocurrencies were mentioned, explained, and discussed. It detailed how cryptos cannot be controlled by a central system and how it operates with the use of an online ledger system thatis referred to as the blockchain. The IMF, in one of its publications, talks about the four characteristics of cryptocurrency. One of the characteristics mentioned is that they are not tangible; cryptos are digital assets that cannot be touched or seen physically. Another characteristic mentioned is that they are not limited to specific jurisdictions; anyone from any country around the world can have access to cryptos and even trade them. A third feature mentioned by the IMF about Crypto is that they are private, and are not publicly owned. The fourth and final characteristic mentioned is that cryptos are not centralized; they run on decentralized platforms.
The IMF recognizes the fact that because of the advent of blockchain technology, cryptos have been on the rise. According to the IMF, there are over 800 cryptocurrencies, among which 452 were created in 2018. The central banks and anti-money laundering agencies of different countries have, according to the IMF, tried as much as they could to regulate cryptos, without much success. Some countries have banned the use and trading of cryptocurrencies outrightly. According to the IMF, some of the countries that have banned cryptos as of 2019 are; China, Morocco, Nepal, Colombia, Algeria, Maldives, Bahrain, Qatar, Bangladesh, Kuwait, and so on.
El Salvador is the first country in the world to recognize Bitcoin as its official currency. However, the IMF just told El Salvador that; they aren’t going to help them with their move to BTC.
The International Monetary Fund (IMF) On the Pros and Cons of Using Digital Currencies and Blockchain Technology
In its different articles and write-ups on cryptos and blockchain technology, the IMF has highlighted and discussed the advantages and disadvantages of their use. Some of the advantages of the use of cryptos and blockchain technology as mentioned by the IMF are:
It would further increase the level of incorporation of financial policies; this simply means that since these digital currencies have a wider reach, there would be more effective fiscal or monetary policies.
In a way, because of its anonymous setup, it would help to reduce fraud and allow for privacy for its users. You may be wondering - how can a digital currency built to enhance anonymity, help to reduce and control fraud? The IMF stated that cryptos and blockchain technology could help in controlling fraud because, despite the use of cryptography that helps to ensure that every crypto transaction made is secure, it also has a way of making each transaction traceable to the trader of the currency. When opening a crypto account and wallet, the individual is most of the time asked to provide his data. The use of blockchain technology seals the deal when it comes to tracking how the cryptocurrency is used. For instance, recently China was able to track down and arrest about 1,100 people who were using cryptocurrencies to carry out criminal activities.
The central banks would be able to have access to a larger database of how these currencies are being traded and the impact it has on their economy.
The IMF did not just stop at discussing the advantages of using digital currencies; it also spoke of the disadvantages and negative effects they can have on the economy. Some of these disadvantages are as follows:
1. It can aid in the evasion of taxes. Because cryptos are not centrally controlled and regulated by the financial institutions of the different countries, there is no way or means by which citizens who trade cryptos can be forced to pay taxes.
2. According to the IMF, cryptos are not doing well when viewed in line with the three basic functions of money. The first function of money, according to the IMF, is that it serves as a store of value; the second function is its use as a mode of payment. There are few companies that accept payment in cryptos, and even these companies in question have selected transactions in which they accept cryptos as payment. Recently, there was a huge fall in one of the cryptocurrencies, Bitcoin in particular. One of the major causes of this fall was that the CEO of a popular motor company called Tesla, who had announced on social media that they would be collecting Bitcoins as payments for some of their products, reneged on his promise. This an example of the issues pointed out by the IMF.
3. Cryptos are generally not stable, they are very volatile. The fees that accrue when trading cryptos change from time to time.
4. There have been quite a few reports of criminal activities with the use of cryptos and blockchain technology.
In 2020, the IMF addressed cryptocurrencies in a short (very positive) video that it published. It referred to cryptos as special currencies. It is very interesting that the video went viral on social media platforms. The impact of the IMF in the financial sector cannot be overemphasized.
Inferring from everything that was addressed in this article, we cannot downplay the importance and role the International Monetary Fund (IMF) plays in the financial sector across the world. Having the IMF weigh-in and speaking up about the development of the digital financial market goes a long way in encouraging traders in the digital market. The IMF has said a lot about cryptos and the use of blockchain technology, as we have noted. We have discussed the view of the IMF on the pros and cons of trading cryptos, as well as examined their views on how the advancement in technology has gone a long way in aiding the expansion of the digital financial market.
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