Why the IMF opposes the war on cryptocurrencies: inefficient fighting – better to lead the digital market

The IMF has clearly concluded that banning cryptocurrencies/cryptoassets is ineffective. It is better for central banks to create their own digital tools, and to compete with them.

The IMF analyzed the growing interest in crypto in Latin America and the Caribbean, and came to the right conclusion: instead of forbidding people, they need to offer new mechanisms and technologies, in this case, when it comes to digital payments. Society needs to be given a choice, after which it will choose the most convenient and profitable tool for itself.

It is worth noting that Latin America has been actively using cryptocurrencies for quite a few years, and in this respect, it is ahead of many regions:

• El Salvador, for example, two years ago became the first country in the world to officially adopt cryptocurrency. Bitcoin in this country has become an official means of payment on an equal footing with the dollar, and its use is regulated by law.

• Mexico introduced the first crypto unicorn in the region in 2021. It is the Bitso Exchange. Just a year later, $1 billion in payments from the United States went through it. The popularity of crypto in Mexico is growing rapidly, as confirmed by local research. The Finder survey revealed that up to 13% of Mexicans use bitcoin and other coins, and 66% called them ‘a good alternative for investment’. The authorities of the country are working to start regulating the cryptocurrency market and adopted bitcoin as a means of payment.

• In Colombia, a group of deputies announced a year ago the preparation of a bill that will regulate the operation of cryptocurrency exchanges. The president of this country was elected Gustavo Petro, who campaigned for the legalization and development of the crypto industry during his election campaign. Therefore, I am sure it will support the adoption of the necessary legislation. The largest Colombian bank Bancolombia has already opened to individuals the opportunity to buy different coins (Bitcoin, Ethereum, etc.) through crypto exchanges - most often Bybit is recommended because of low trading fees (from 0.1%), as well as because of the ability to quickly and for free open deposits.

• Chile has become a leader in Latin America in terms of activities of DeFi platforms for cryptocurrency operations. In the autumn of 2022, congressmen of this country legislated the market of digital assets. A law was passed, in which the rules for blockchain companies’ activities were written. It characterizes cryptocurrencies as a digital representation of monetary units, goods or services. Due to the fact that crypto in Chile is an ‘intangible asset’, it is not subject to VAT. However, everyone is required to pay taxes received from transactions with it, which is required by the local tax authority, the Internal Revenue Service (Servicio de Impuestos Internos, SII) at the rate of 40% for individuals and 17% for legal entities.

Of course, the list is not exhaustive, and I ran through the most vivid examples. In addition, there are Latin Americans who are still ready to legalize cryptocurrencies – like the same Argentina and the Dominican Republic, insisting that it is a high-risk asset. There is still work to be done, but overall progress in the region has been significant. This is both the attitude of the authorities and the perception of society that cannot but affect the perception of the world’s financial institutions, the IMF and leading countries.

For example, in the US, cryptocurrencies were legalized back in 2017, but the country still does not have a comprehensive legislative framework for cryptocurrencies and digital assets. However, there are different financial market regulators both at the central level (The Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC) and locally, as well as different approaches to asset valuation. Somewhere cryptocurrencies are securities, and somewhere they are goods or currencies, depending on the circumstances. All this does not help players and investors to develop, and complicates the tasks of regulators. Therefore, the U.S. Senate and House of Representatives are now working on a very important cryptocurrency bill, on which they place great hopes. The work is serious and thorough, and there is hope that the document will be adopted before the end of 2023, which is what we want to believe.

In parallel, there is another process that the IMF is talking about now – the creation of an alternative currency to crypto. It is seen in the national central banks’ digital currencies (CBDCs) in various countries. Western officials consider them more reliable in terms of investments, functionally convenient (in terms of remittances, etc.) and profitable investment. I think that in time, many will want to argue with these characteristics, but all the dots above the ‘i’ can be placed only by practice.

So far, it can be said that the development of new tools is good, especially when the authorities are not trying to ban/eliminate existing cryptocurrencies. We will see later how professionals and society will perceive these tools. What is somewhat disappointing is the delay in the development and implementation of CBDCs, even in Latin America itself. For example, the Bank of Mexico has shifted the launch date of its digital currency from 2024 to 2025. The Central Bank of the Republic of Chile postponed the launch of the digital peso last year and said it needed further analysis.

In the Old World, things are dragged out, too. The European Central Bank completed public hearings on this matter back in 2021, and promised the public to launch the digital euro within 4 years of political approval. But so far the idea is in pre-project preparation. Also studying the possibility of launching its digital currency and the US Federal Reserve System.

In smaller countries such as Nigeria, the Bahamas, and Jamaica, few CBDC projects have been implemented. China is still in the phase of trial launches. It is hoped that more projects will be launched, and the tools will be one more interesting than the other. By the way, the above-mentioned IMF is seeking this, and society and trade partners are gradually maturing for this purpose.