Crypto assets like Bitcoin (BTC) cannot be legal tender: IMF
Bitcoin’s path to becoming an official legal tender in regions has witnessed several setbacks. Bodies such as the International Monetary Fund (IMF) clarified their narrative in the latest report. ‘No’ to BTC as legal tender, ‘Yes’ to regulating the space.
Bitcoin as legal tender has seen several scenarios in both directions. One favored the matter, and the other censured it.
The laws and regulations of individual countries ultimately determine Bitcoin’s ability to be recognized as legal tender. Some countries, such as El Salvador, passed legislation recognizing Bitcoin as legal tender. But has since faced obstacles on its way from regulators.
Bitcoin adoption across regions
Legal tender refers to the currency law of a country that recognizes an asset to satisfy a debt. While Bitcoin is not currently accepted as legal tender, it can be used as a medium of exchange for goods and services in some countries.
For example, Bitcoin is considered property for tax purposes and not legal tender in the United States. However, it can be used to purchase goods and services. It is worth noting that legal tender laws are usually enacted by governments to provide a standard currency for transactions and to regulate the money supply.
Bitcoin operates outside traditional government and banking systems as a decentralized digital currency. In doing so, Bitcoin challenges the idea of legal tender. As the use and acceptance of Bitcoin and other cryptocurrencies continues to grow, countries are recognizing them as legal tender. El Salvador was an early adopter and one of the first to accept Bitcoin as legal tender. Likewise, the Central African Republic became the first African nation to make Bitcoin legal tender.
But adopting Bitcoin as legal tender raised several questions from various regulatory authorities, including the International Monetary Fund (IMF) last year.
Growing debate about Bitcoin’s use
Reiterating the same stance, on February 23 the IMF published a paper highlighting various reasons for not accepting cryptos like BTC as legal tender. The “Elements of Effective Policies for Crypto Assets” report developed a framework of nine policy principles that addressed macro-financial, legal and regulatory, and international coordination issues.
Later added:
“By adopting the framework, policymakers can better mitigate the risks posed by crypto-assets while harnessing the potential benefits of the technological innovation associated with it.”
Obvious reasons not to choose Bitcoin
In general, Bitcoin has some pitfalls in the race to become legal tender. First, the volatility of Bitcoin’s price can make it challenging to use as a reliable medium of exchange. The value can fluctuate wildly over a short period of time, creating considerable uncertainty for users and sellers.
Second, the lack of a central authority controlling Bitcoin’s issuance and circulation can make it vulnerable to abuse, such as money laundering, terrorist financing, and other illegal activities. This could undermine the integrity of the financial system and pose a risk to global financial stability.
Conversely, according to research firm Messari, fiat currency is used for money laundering 800 times more than cryptocurrency.
Third, the limited use of Bitcoin as legal tender means that it may not be widely accepted in transactions, leading to challenges in its use as a medium of exchange. Nonetheless, the crypto community sees eye-to-eye with the IMF’s crypto narratives. For example, one user tweeted:
Another fellow shared a point of view that sheds light on countries adopting BTC regardless of censorship.
Meanwhile, Twitter user and Bitcoiner Carl B Menger expressed happiness that countries are independent of the IMF and can “do their best for their citizens”.
Speaking to BeInCrypto, Dmitry Ivanov, CMO at crypto payment ecosystem CoinsPaid, took a relatively neutral approach to describe the situation.
Pros and cons to consider
In a conversation over email, Ivanov said the IMF recently recommended regulators impose a significant restriction on digital currencies to ensure monetary sovereignty. The IMF also advised countries to prevent giving crypto status as legal tender in what appears to be a growing trend today.
“This position is against the principles of economic freedom and negates the whole concept of decentralization that digital currencies like Bitcoin aim to institutionalize.”
The goal of the IMF is clear: to centralize crypto and control it like the US dollar. Doing so will help create a framework for taxation, legal risk elimination, supervision and monitoring of crypto market participants. “While this may raise the barrier to entry, it is beneficial overall, as it cleans the market of fraudsters and increases investor protection.”
“Although the volatility of Bitcoin remains the biggest drawback, we can agree that the cryptocurrency has matured to become mainstream,” he concluded.
Are cryptocurrencies off the table?
The simple answer is no, and IMF representatives are on the same page. But the sector needs work or regulatory measures to remove bad players. IMF Managing Director Kristalina Georgieva in an interview with Bloomberg preferred to regulate crypto.
However, after commenting, Georgieva made another statement indicating that while the IMF may be interested in digital assets, they may be strict with the rules. Georgieva noted: “If regulation is slow to come and crypto-assets become a higher risk for consumers and potential for financial stability, the possibility of banning it (cryptocurrencies) should not be taken off the table.”
Overall, regulatory bodies are actually taking steps to regulate the decentralized space. The Financial Stability Board (FSB), the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) will deliver papers and recommendations establishing standards for a global cryptoregulatory framework.
Only time will tell if these (regulatory) measures will help the crypto sector.
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