The International Monetary Fund (IMF) has recently published a short piece discussing the accelerated adoption of cryptocurrencies and CBDCs in Latin American and Caribbean countries compared to the rest of the world. Derived from Chainalysis data, the Economist’s main takeaways state that well-designed CBDCs could simplify remittances and include more citizens in the financial system. However, they also deemed crypto as a whole to be risky and in need of regulations.
The IMF highlighted specific challenges faced by Caribbean countries implementing CBDCs. Slow take-up and disruptions in access could be solved by “investing in public awareness and robust infrastructure” to promote adoption. Kenya’s central bank, however, has decided to wait and see how other nations fare in launching CBDC programs.
The issue of properly regulating crypto was an essential focus, as the IMF singled out Latin America and the Caribbean, regions with a history of “macroeconomic instability, low institutional credibility, substantial capital flows, corruption, and extensive informal sectors.”
One significant concern is elevating crypto to the status of legal tender, as El Salvador did with bitcoin (BTC) in June 2021. The IMF urged the country to remove bitcoin as a government-sanctioned currency, citing “large risks” associated with consumer protections. This concern resurfaced in a recent article, stating that the volatile nature of crypto could shake a country’s monetary system with significant price swings.
El Salvador’s experience with this issue led to considerable consequences, as its bitcoin holdings lost nearly 60% in value throughout 2022, though it was able to pay off an $800 million external bond in early 2023. The IMF has also pushed back on countries that restrict crypto, specifically Argentina and the Dominican Republic, as they believe it’s ineffective in the long run. Instead, the focus should be on addressing drivers of crypto demand and the unmet digital payment needs of citizens.
While the IMF’s stance on bitcoin parity with government-issued currency is well established, it should not be mistaken as support for crypto. The organization stated in February that “crypto assets have been more of a disappointment than a revolution for many users,” and has even argued that private blockchains are preferable to public ones like Ethereum.
Source: Blockworks
