In a recently published blog post, two economists working for the International Monetary Fund identified ‘cryptoassets’ and central bank digital currencies (CBDCs) as possible concerns for the future of global financial systems.
According to the piece co-authored by Tobias Adrian and Rhoda Weeks-Brown, cryptoassets and digital currencies issued by central banks pose a threat to global economic stability, with national governments recently adopting crypto and blockchain technology to gain ground in the race to digital transformation.
The authors cite the native volatility of cryptocurrencies such as Bitcoin as possible hazards to the global economy. They also acknowledge the significant changes that crypto and digital currencies have brought to sectors that have long been underserved and ‘unbanked’ so to speak.
“Some countries may be tempted by a shortcut: adopting cryptoassets as national currencies. Many are indeed secure, easy to access, and cheap to transact. We believe, however, that in most cases risks and costs outweigh potential benefits.” the piece said.
Just over a month ago, El Salvador passed a Bitcoin law, ratifying Bitcoin as legal tender within its jurisdiction. Meanwhile, the implementation of central bank digital currencies (CBDCs) has been gaining ground and avid interest among countries such as China, Singapore, Japan, Hong Kong, the U.S., and the U.K., among others.
The IMF economists, however, remain unimpressed by these historic achievements from the crypto sector, saying:
“Cryptoassets are unlikely to catch on in countries with stable inflation and exchange rates, and credible institutions. Households and businesses would have very little incentive to price or save in a parallel cryptoasset such as Bitcoin, even if it were given legal tender or currency status. Their value is just too volatile and unrelated to the real economy.”
In general, the crypto industry is currently in a state of boom, even while major cryptocurrencies such as Bitcoin and Ethereum are just now slowly rebounding from massive crashes from all-time highs from mid-2021 caused by a number of factors.
For one, these “digital forms of money,” as the IMF economists describe and duly recognize, have “the potential to provide cheaper and faster payments, enhance financial inclusion, improve resilience and competition among payment providers, and facilitate cross-border transfers.”
Adrian and Weeks-Brown, however, caution that the development of these types of virtual currencies would need significant degrees of infrastructural development, both on the level of policy and in the case of adoption. The co-authors stressed the need for “clarifying the role of the public and private sectors in providing and regulating digital forms of money.”
“For some, it is an opportunity to transact anonymously—for good or bad. For others, it is a means to diversify portfolios and hold a speculative asset that can bring riches but also significant losses.” the economists said.
Formed in 1944, the International Monetary fund serves as an international financial institution, and is largely dependent on the World Bank for its resources. According to its vision, the IMF seeks to “foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”
The institution is not without criticism, though, as some of its programs had been the subject of scrutiny from think tanks that have leveled accusations that its policies have led to counter-developmental and further inequity; especially among less developed nations relying on top-level decisions from developed countries either for aid, bailouts, or for boosting economic infrastructures where necessary.
In this writer’s opinion, the IMF represents the traditional financial institutions of the old world, and that while it acknowledges the future possibilities of crypto and blockchain technology in unlocking human potential, it remains a gatekeeper of the old guard, hence the cautionary analyses from its economists.
From crypto subcultures to decentralized finance, to applications of blockchain-based technology that create social impact promote equitable futures, one could say: the crypto and blockchain space industry is still in its infancy, and the new age that it heralds has barely begun.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice. Opinions stated herein are solely of the author’s, and do not represent or reflect CryptoDaily’s position on the matter.
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