The International Monetary Fund (IMF) criticized El Salvador’s decision to allow Bitcoin as legal tender, calling it an “inadvisable shortcut”.
The President of El Salvador had previously announced that it would establish the leading digital currency, Bitcoin as legal tender, in the South American countries. This courageous decision was criticized by many citizens, including those who took to the streets in protest and global institutions. The latest to criticize the move is the International Monetary Fund (IMF), which has called the move an unwise shortcut.
Countries Should Avoid Adopting Digital Currencies as Legal Tender
In a blog post, the Washington-based organization pointed out that digital payments are needed around the world. However, the IMF stated that adopting a decentralized digital currency was a shortcut that no country should take.
“We believe, however, that in most cases, risks and costs outweigh potential benefits,”the blog post noted.
IMF executives believe digital currencies are unlikely to become legal tender in countries with “stable inflation and exchange rates, and credible institutions.” The IMF believes that households in these countries have little incentive to use Bitcoin compared to existing legal payment systems.
Bitcoin’s High Volatility Makes it Invalid
Like many other global financial regulators, the IMF pointed out that the volatility of cryptocurrencies like Bitcoin is a key reason why they cannot function as legal tender – but that doesn’t stop there for the IMF.
The organization went on to point out that the power of the central bank, especially in monetary policy, has been significantly weakened. The IMF assumes that the central bank will lose the ability to shape the monetary system with cryptocurrency.
“As a result, domestic prices can become very volatile,”emphasized the international financial institution.
For the International Monetary Fund, the use of digital currencies also endangers the integrity of the financial system.