IMF takes steps to control cryptocurrency policies

9 December 2021

The IMF, no stranger to criticism, is encountering new adversaries: cryptocurrency advocates. In its recent Global Financial Stability Report (GFSR), published in October, the IMF cited cryptocurrencies as one of the three major challenges to global financial stability (along with Covid-19 and climate change), proposing a host of policies to mitigate the threat. IMF blogs in October and July also emphasised the institution’s cryptocurrency concerns.

El Salvador made headlines earlier this year when it became the first country to adopt Bitcoin as national currency. In response, the IMF warned that “given Bitcoin’s high price volatility, its use as a legal tender entails significant risk to consumer protection, financial integrity, and financial stability.”

Cryptocurrency advocates, including the Human Rights Foundation, see the technology as a tool with the potential to decentralise power away from global financial centres and corrupt governments, and some have opposed the IMF’s calls for control. An article published by Nasdaq in October argued that, “The IMF hates Bitcoin because its decentralized protocol and programmatic monetary policy defies the control the fund wants to implement.”

Whether the Fund’s critics are right or wrong, cryptocurrencies will be a space of increasing IMF intervention in national economies over the coming years. Experts have argued, for example, that El Salvador’s approach to cryptocurrencies could affect its possibilities of securing an IMF loan. There are also concerns that IMF interventions in cryptocurrencies will be used to promote its traditional policies. In the GFSR, for example, the IMF warned that to avoid “cryptoization” of economies, countries must “strengthen monetary policy credibility, safeguard the independence of central banks, and maintain a sound fiscal position.”