Earlier, El Salvador’s 40-year-old president announced that he would be making the leading digital currency bitcoin legal tender in the South American country. The bold decision has faced a lot of criticism, including from the citizens who have taken to the streets to protest as well as from global bodies. The latest to weigh in is the International Monetary Fund (IMF), which described the move as “an inadvisable shortcut.”
Adopting a decentralized digital currency as legal tender should be avoided.
In a blog post, the Washington-based organization noted that there’s a need for digital payments across the globe. However, adopting a decentralized digital currency is a shortcut that any country must not be tempted to take, the IMF stated. “We believe, however, that in most cases, risks and costs outweigh potential benefits,” the blog post noted. IMF’s executives believe that digital currencies are unlikely to get any adoption as legal tender in countries with “stable inflation and exchange rates, and credible institutions.” In such countries, households would have very little incentive to use bitcoin relative to existing fiat payment systems, the IMF believes.
Bitcoin’s high volatility rules out the cryptocurrency as a legal tender.
Like many other global financial regulators, the IMF also pointed to volatility in cryptocurrencies like bitcoin as a key reason they can’t function as legal tender—but it doesn’t end here for the IMF. It further pointed to the significant erosion of central banks’ power, especially in monetary policy. With cryptocurrencies, central banks would lose their ability to shape the monetary system, IMF believes. “As a result, domestic prices could become highly unstable,” the international financial body pointed out. For the IMF, the use of a digital currency also threatens the integrity of the financial system.
