The chief strategy officer of the Human Rights Foundation, a pro-Bitcoin NGO, said that the reason why the IMF hates bitcoin is that it is an outside currency that’s beyond the control of alphabet soup organizations.
Enraged cryptocurrency investors swiftly fingered a culprit when Argentina’s central bank placed a de facto ban on trading digital assets: the South American nation had recently committed to crack down on cryptocurrencies as part of a bailout deal with the International Monetary Fund.
“The IMF is evil,” one Twitter user said in response to the move last month, adding an emoji of an extended middle finger.
Tensions about the future of money have risen in recent weeks on four continents. The custodians of the global financial system are increasingly pushing back as Western investors and developing world governments launch new measures to convince countries to embrace Bitcoin as an official currency — and the Central African Republic has joined El Salvador in doing so.
The question is whether the developed world’s central banks will control the issuance and movement of money, or whether regulations inscribed into a new type of software program invented 13 years ago will.
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Officials from the United States, the International Monetary Fund, the World Bank, and the Bank for International Settlements argue that countries could facilitate money laundering and undermine capital controls by adopting cryptocurrencies, while also exposing their citizens to severe price volatility.
The risk of a dramatic decline in the price of Bitcoin — which has lost more than half its value since November — makes it unsuitable as a national currency, according to Dong He, Deputy Director of the IMF’s Monetary and Capital Markets Department.
“What would happen to the tax revenue? What would happen to your obligations to spend on social services?” He said, declining to comment on Argentina’s letter to the fund’s anti-crypto rules. “This is a very risky proposition.”
Activists and investors who support such experiments argue that cryptocurrencies like Bitcoin provide an alternative to rapidly inflating currencies in places like Argentina and Nigeria, while also allowing poor countries to experiment with alternatives to a global financial framework designed to benefit rich countries.
They argue that the world’s monetary stewards’ reservations have less to do with protecting the well-being of developing-world residents and more to do with perpetuating a system in which rich-country central banks and governments dominate the global monetary system.
“Bitcoin stands against everything the IMF stands for,” said Alex Gladstein, chief strategy officer of the Human Rights Foundation, a pro-Bitcoin NGO. “It’s an outside money that’s beyond the control of these alphabet soup organizations.”
Even as a dramatic drop in Bitcoin’s price has underlined the risks of such experiments, the scope of the long-simmering debate has grown this spring.
In April, the Central African Republic passed legislation making it the world’s second country to recognize Bitcoin as a legal tender. The IMF and the World Bank, as well as the regional central bank that oversees the country’s present currency, the central African CFA franc, which is tied to the euro as part of a system governed by France, have expressed their objections to the shift.
The Bank of Central African African States has urged the Central African Republic to amend its Bitcoin law. It has also taken a stand against cryptocurrencies in general, issuing new rules that require financial institutions under its jurisdiction to break relations with digital currency payment platforms.
However, the small country has moved through with its intention to develop a “Crypto Island” to attract foreign investment.
Meanwhile, in El Salvador, the first government to accept Bitcoin as a currency, the project has exacerbated a wider breach with Western powers that has emerged under the leadership of Nayib Bukele, the country’s popular, autocratic president.
In November, the US chargé d’affaires in San Salvador, Jean Manes, said that the US had put its relations with El Salvador on “pause,” citing the Bukele regime’s anti-American rhetoric and a power grab that resulted in the firing of an attorney general and supreme court justices.
The Bitcoin project has become a symbol of Bukele’s disdain of international institutions as he has continued his authoritarian shift.
The State Department did not respond to a question concerning El Salvador directly in a statement issued by a spokeswoman, but cautioned countries considering bitcoin adoption.
“We share the concerns expressed publicly by the IMF, the World Bank, and others that adopting a cryptocurrency as a legal tender raises a host of potential complications,” the statement said, urging countries to follow anti-money laundering and counter-terrorism guidelines when experimenting with cryptocurrencies. The statement also acknowledged human rights activists’ use of cryptocurrencies to circumvent financial controls in repressive regimes, as well as their role in facilitating financial support to Ukraine.
A bipartisan group of senators has responded to El Salvador’s experiment with more force. In February, Senate international relations chair Bob Menendez (D-N.J.) and ranking member Jim Risch (R-Idaho) presented a bill that would require the State Department to compile a report on the impact of the country’s Bitcoin law on the U.S. financial system, citing worries about sanctions evasion.
Bukele, on the other hand, and the Bitcoin investors who are supporting him seem unfazed by the opposition.
In April, Samson Mow, a Canadian entrepreneur involved in El Salvador’s experiment, announced that he had raised $21 million to launch JAN3, a new company named after the date of Bitcoin’s launch, with the goal of “hyperbitcoinization,” or the replacement of existing national currencies with Bitcoin. Requests for comment were not returned by Mow.
Even some of the most ardent Bitcoin supporters are concerned that the rush to make Bitcoin a national currency could backfire. After purchasing billions of dollars in Bitcoin for his publicly traded software company’s treasury, Microstrategy CEO Michael Saylor has become a face of the Bitcoin phenomena in recent years. In April, he met with Mauricio Macri, Argentina’s former president, to discuss cryptocurrency.
In an interview, Saylor argued that national leaders who wish to boost adoption should advertise it as a savings vehicle rather than a replacement for existing currencies.
“I wouldn’t try to change my medium of exchange. I would try to introduce Bitcoin as a store of value ,” he said, describing the latter tactic as “a better evolutionary strategy that’s less likely to ruffle feathers.”
Cryptocurrency adoption has been most appealing on a national level to countries who lack their own sovereign currencies or are experiencing uncontrolled inflation.
El Salvador abandoned its national currency, the colón, in 2000 and switched to the US dollar, giving up its authority to conduct autonomous monetary policy.
The Marshall Islands, a small equatorial Pacific nation that utilizes the US dollar, passed a law in February 2018 permitting the development of a new sovereign cryptocurrency, the SOV, with a fixed growth rate of 4%. The IMF has expressed reservations about the project on several occasions, citing volatility, financial integrity problems, and a lack of reliable infrastructure to sustain a digital currency. The SOV has yet to be released, and the IMF expressed its worries about the initiative last month.
In addition, the Central African Republic does not have direct control over monetary policy. Instead, it is a member of the Bank of Central African States’ regional monetary union, which is part of a broader currency system, the CFA franc, developed by France when its former African colonies gained independence. The system, which pegs the CFA franc to the euro and compels member countries to deposit a large portion of their foreign exchange assets with France, has offered monetary stability while also being denounced as a neocolonial arrangement.
Argentina’s populace have embraced cryptocurrencies as a result of the country’s high inflation rate, which is now approaching 60%. It also prompted President Alberto Fernández to openly consider making Bitcoin legal tender, prior to the government’s recent commitment to the IMF to crack down on money laundering.
The Bank for International Settlements, an international agency owned by the world’s central banks, launched its latest volley against cryptocurrencies on Tuesday with a new report (pdf given below) saying that “crypto cannot fulfil the social role of money” due to fragmentation in the cryptocurrency realm.
Instead, the study recommended that its members update the national and supranational currencies they supervise. “There is more promise in innovations that build on trust in sovereign currencies,” it says.
Meanwhile, the simmering confrontations over digital money between emerging countries and global financial heavyweights are exposing internal schisms within each.
In El Salvador, the rollout of Bitcoin last fall was met with street protests, while opposition leaders in the Central African Republic have slammed the country’s new law.
Within the world’s ruling financial powers, there is also debate regarding the appropriate place of cryptocurrency, if any, in the monetary system. While a robust discussion concerning the technology continues to play out in domestic politics, the United States’ global leadership on the matter remains unsure.
In March, former IMF chief economist Gita Gopinath warned the Financial Times that Western sanctions implemented in reaction to Russia’s invasion of Ukraine would likely lead to further use of cryptocurrency as actors throughout the world sought alternatives to the established financial system. However, European Central Bank President Christine Lagarde, a former IMF leader, stated last month that cryptocurrencies are “worth nothing.”
There is no single school of thought that prevails inside particular organisations like the IMF. According to John Kiff, who left his job as a financial sector expert at the IMF last year and now works as a managing director of the newly formed CBDC Think Tank, the pronouncements of “the big honchos at the top” do not always reflect the views of rank-and-file staffers, many of whom have wholeheartedly embraced cryptocurrency.
“In terms of what comes out in public under the IMF banner, it has to filter through the IMF management and not fly in the face of the board of directors, which is made up of the member countries,” he explained. “Even if the Fund were somewhat anti-crypto, there’s people in the bowels like myself who are buying and selling crypto.”
Read the report given below: