The International Monetary Fund (IMF) has urged countries not to adopt cryptocurrencies as legal tender due to their higher risk of instability.
The global lender of last resort said its board had discussed new guidance for its member countries on how they should form policies around cryptocurrencies.
At the top of the IMF’s nine-step plan is a plea to “not grant crypto assets official currency or legal tender status” and improve financial stability by shoring up rules around digital currencies.
The IMF has previously criticised El Salvador’s move to become the world’s first country to adopt bitcoin as legal tender, a decision that has since been copied by Central African Republic.
The bank warned that the widespread adoption of crypto assets “could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks”.
The IMF’s board “generally agreed” that crypto assets should not be granted official currency or legal tender status, and though strict bans of assets are “not the first-best option,” a few directors thought they should not be ruled out.
Its other recommendations include guarding against “excessive” flows of money in and out of crypto, adopting tighter tax laws around crypto assets, and improving oversight requirements for all crypto market actors.
The IMF’s warning comes shortly after three US regulators – the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency — issued a statement warning banks that use funding from crypto firms to improve their safety protocols due to the risk involved.
The statement came as Rafael Bostic, president of Atlanta’s Federal Reserve, said he hopes crypto does not replace the proven components of the traditional payment and banking systems.
In conversation with former Kansas City Fed president Esther George at the Atlanta Fed, Mr Bostic said he agreed with Ms George’s comments that she does not see cryptocurrencies “supplanting some of these more tired and true rails at this point”.
“I hope that’s true, because there’s a lot of volatility. And that volatility — to the extent it gets into the asset base of institutions — I think it becomes really hard to manage, and we’ll just have to think about that and how we deal with that in the future,” he added.
The UK Government is currently considering how to regulate the cryptocurrency markets. In proposals published earlier this month and open for consultation from interested parties until the end of April, the Treasury says it will “robustly” regulate the sector, while still allowing it to grow to its full potential.
