Bitcoin as Legal Tender Threatens Financial Stability? The IMF Says So

Fredrick Awino
29.08.2022
1381 Views

Bitcoin’s entrance into the financial space as the fast ever successful project on purely virtual currency took the world by storm. Of course naysayers never expected this pioneer currency to go a long way into becoming a great investment and trading opportunity it is today. Those who have closely followed the progress that bitcoin made since 2009 have great confidence in it.  Despite the sometimes scary situations where it has tumbled to great lows, bitcoin always rises again and sticks out. 

WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.

It seems just like it was just yesterday when digital trading set off. But now the world seems to be in great sync with the significant change that cryptocurrencies have brought about. Actually, the talk about cryptocurrency has left the sole discussion by fin techies and now investors and traders who have nothing to do with bitcoin mining know so much about it. It is. In fact, so many people today attribute their fortunes to engagement with cryptocurrency through the many opportunities that it opens. 

The great pace and forays that bitcoin has set notwithstanding,  there is huge tension over what its grand uptake would mean for the existing fiat currency system.  While the Western and developing world investors are pursuing new initiatives to encourage countries to adopt Bitcoin, the IMF is taking it with a pinch of salt. In fact, this global financial agency with strong networks spares nothing to completely pour cold water on the possibilities that countries can successfully adopt bitcoin as a legal tender. Even daring cases in which the Central African Republic adopted bitcoin does not convince the IMF to stop the attack on the virtual currency.  For sure the stewards of the global financial system are persistently pushing this drive back.

You can also read more on: World Bank, IMF Opposed to Cryptocurrency Adoption

There is great anxiety as to whether the issuance and flow of money will still be under the control of the central banks. Or perhaps the issuance and flow of money will divert to the rules of a coded new software program that surfaced about 13 years ago. The IMF argues that adopting Bitcoin and other cryptos would facilitate money laundering, exposure to price volatility, and undermine capital controls.

What you need to know about Bitcoin 

13 years ago, BTC became the first cryptocurrency to be introduced and has since remained to be the most famous in the crypto market. From the look of things, BTC can be compared to gold. The network system that BTC operates on is also secure and exhibits a great degree of high performance. 

For you to be able to purchase BTC, you would obviously need a digital wallet. And with a growing exchange rate value, BTC has enormously risen through the years and is still growing. Aside from being considered as gold, BTC is a highly volatile crypto recording a high market value.

Created on an open-source code known as the blockchain technology, BTC allows everyone to trade easily, faster, and safely. However, you must have it in mind that the value of BTC fluctuates unusually unlike that of mutual funds or stocks. So, before getting into BTC trading, investigate on how to go about BTC trading and understand the digital market operations.

What you can use your Bitcoins for

Bitcoin has a high market value and this is what motivates more people to trade in it. There are numerous existing opportunities to trade in BTC. In some instances, there is a possibility that you can actually convert your BTC into money in the bank. It will be easier to use your BTC now to purchase a car or even pay for many other services. 

Business community and other corporations are now allowing their customers to use their BTC to pay for services. It has become easier with the introduction of digital trading which is easier setting up thus making payment transfers easier and secure. Using your BTC as a method of payment has become quite interesting and many are loving it.

One thing worth nothing is that BTC has grown both in value and popularity in the past few years. For this reason, many are buying and using BTC to make various digital payments. Happy to know that you can actually purchase a cup of coffee or clear your rent with BTC. However, there is no possibility that BTC could be converted to physical money. 

IMF: Cryptocurrency Has Penetrated Emerging Markets Threatening Financial Stability

According to a statement by the IMF, cryptocurrency assets’ market value surged 10-fold since the year 2020 surpassing $2 trillion. The IMF now issues a warning that an increase in the trading in cryptocurrency assets poses a risk which in turn could destabilise capital flow.

IMF believes that the rapid growth of currencies, particularly BTC in the emerging markets, may intensify “cryptozation” of the economies. This in turn would automatically turn around capital and exchange controls posing a threat to financial stability.

The major drivers of inappropriate macroeconomic policies and incapable payment systems are the key drivers of cryptocurrency adoption. There is a high degree of the lure to make quick gains and profits from BTC trading and investing. The  IMF issued a post to lament on some of the threats posed by BTC. 

What the IMF believes is that cryptocurrency entities lack the strong governance as well as the risk practices to cover for market stability disruptions. Other than the high-profile cases of security of the system, BTC exchanges have continuously faced key disruptions in the periods of market turbulence.

Well, it is important to note that such incidents have not posed any significant effect on financial stability yet. But the IMF worries about the increasing mainstream of cryptocurrencies, especially BTC. According to the agency, this growth may mean adverse  implications which may increase in the course of time.  

Solution to the Issue of Volatility of BTC

Each and every passing day is covered by the rapid growth of the cryptocurrency system which equally presents new opportunities. This technology and digitality has ushered in a new era that has made payments and numerous financial services cheaper. Besides, affordability, speed and accessibility has allowed BTC and other cryptos to flow swiftly across borders.

Bitcoin has promoted the possibility of faster, reliable, and cheaper cross-border payments. However, the biggest challenge to the stability of BTC is its nature of being volatile. This volatility is further complicated by  huge risks and market uncertainty. 

This however, should not be an issue any more as a new crypto has arrived in the market. Stablecoins is the new baby in town that many investors believe will sort the problem of volatility.

Stablecoins coins obtain their stability value from the backup of fiat currency stores like euros and dollars. Basically, stablecoins have a link to either the value of euro or dollar. With this, it is easier to effectively and efficiently make both domestic and international payments. Experts in the cryptocurrency believe this can be a solution to the volatility issue hence allaying the worry by IMF.

 

Author Fredrick Awino