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Wednesday, March 29, 2023

IMF revealed factors driving the adoption of cryptocurrencies

A new report from the International Monetary Fund (IMF) takes a look at the subject of financial stability. He is naturally suspicious of cryptocurrencies, but discusses the reasons why they are more particularly adopted in certain countries.

The IMF is wary of cryptocurrencies …

The IMF’s Global Financial Stability Report covers a lot of topics, but an entire chapter is devoted to cryptocurrencies. Unsurprisingly, it is the risks supposedly posed by these assets that are highlighted by the institution. We learn that the players in the cryptocurrency sector are too ”  young  ” to be able to promote financial stability, according to the IMF.

The report points out in particular a tendency to speculation considered excessive , operational risks, with platforms that are not stable enough, as well as governance risks. The IMF also explains that stablecoins should come under greater scrutiny in order to be better regulated. (More: Top 5 cryptocurrencies for profitable investments in October)

All of this is of course nothing new: these are the arguments often repeated against the cryptocurrency ecosystem, by institutions that view with a wary eye the emergence of parallel economies . Last July, the IMF had already warned of the dangers of the adoption of Bitcoin (BTC) by El Salvador, its positioning has therefore been established for a long time.

but recognizes that some countries are adopting them more and more

What is more exciting in this report is that it highlights some factors favoring the adoption of cryptomonnaies . As the IMF explains, these are indeed booming in some economies:

“  The adoption of cryptocurrencies in some emerging countries and developing economies is happening faster than in advanced economies.  “

The report recalls that the 5 countries that have adopted cryptocurrencies the most are all emerging markets, and that this is no coincidence. The “  cryptoisation  ” of certain countries is indeed based on necessities, according to the IMF.

Cryptocurrencies settle where they are needed

The institution first reports that unsustainable macroeconomic policies , coupled with inefficient payment systems, are the biggest drivers of adoption. The IMF notes that speculation surrounding cryptocurrencies has its part to play, of course, but that it isn’t necessarily the most important trend behind this growing adoption.

Among other factors contributing to the democratization of cryptocurrencies, the IMF notes that “ less credible  ” central banks  only speed things up. In the absence of a strong fiat currency, cryptocurrencies act as an alternative store of value, like the dollar (USD) in some countries. And the advantage of cryptos is that they are not subject to the same restrictions as the dollar, especially in terms of limitations on the flow of capital.

Another reason for the democratization of cryptocurrencies in emerging countries: inefficient payment systems and limited access to financial services. The IMF notes in particular the lack of interoperability between the different payment systems used, as well as their slowness. The flexibility of cryptocurrencies, and their ability to ignore borders, therefore represent another advantage.

Restrictions, not necessarily the solution?

It’s also not a surprise, the IMF report concludes by recommending more regulation for cryptocurrencies in general and stablecoins in particular. But the institution also recognizes that restrictive measures are not necessarily effective:

“  Restrictions on capital flows need to be reconsidered , in terms of efficiency, supervision, and enforcement.  “

So all of this shows that the value proposition of cryptocurrencies – independent assets that exist outside of central banks – has indeed found its target. In Latin America, Africa, and other regions where they find their audience, cryptomonnaies already show that they become unavoidable … No offense to institutions like the IMF. (More: Twitter to use NFTs as profile picture)

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