As the Central Bank of Nigeria prepares to launch its own digital currency, the International Monetary Fund (IMF) has warned against countries adopting cryptocurrency.
October has been chosen as the date of the launch, but the IMF said any country that adopts cryptoassets as national currency will have economic challenges.
Why is IMF against cryptocurrency?
The IMF stated that the decision will cut government-generated revenue and have an adverse effect on macroeconomic, while domestic prices could become unstable due to widespread adoption.
It also noted that massive fluctuations in cryptocurrency prices could negatively impact banks and other financial institutions. This was contained in a blog post on Monday.
IMF said the adoption of cryptocurrencies as national currency is an “inadvisable shortcut”, and could result in legal issues and a weak monetary policy.
In the post, IMF opined that the risks and costs outweigh potential benefits while admitting that some cryptocurrencies are indeed secure, easy to access, and cheap to transact.
Can cryptocurrency become store of value?
The international credit body explained that cryptocurrency will most likely only serve as vehicle for unbanked people to make payments, but struggle to be relevant as a store of value because investors will be quick to cash in.
IMF buttressed its point with the crash of bitcoin which was selling for about $65,000 in April before crashing in June to less than half of the value.
It stated that the crypto assets will struggle to penetrate countries with stable inflation and exchange rates, as well as credible institutions.
The IMF blog post on crypto assets also reads:
“Even in relatively less stable economies, the use of a globally recognized reserve currency such as the dollar or euro would likely be more alluring than adopting a cryptoasset.”
El-Salvador using cryptocurrency as official currency
The North American country adopted bitcoin as its official national currency, adding it to the US dollar which it had been using for over ten years.
El-Salvador said the cryptocurrency will help deepen financial inclusion and increase their remittance inflow. This makes the country the one nation to adopt bitcoin officially.
Businesses in El-Salvador now accept bitcoin for transactions, and the country’s central bank said it will be zero risks to businesses.