The International Monetary Fund (IMF) is known for its harsh stance against cryptocurrencies, with the institution being in the frontline in urging El Salvador to stay away from endorsing Bitcoin as legal tender. However, the global financial body seems to be changing its stand after advocating against a crypto ban.
The chief economist at the IMF, Gita Gopinath, recently urged developing countries to regulate cryptocurrencies and not ban this asset class.
IMF calls for crypto regulations
Gopinath gave these remarks at the Global Recovery and Policy Challenges in 2022 event organized by the National Council of Applied Economic Research (NCAER), urging that a global policy on the issue of crypto assets needed to be developed.
She stressed the need for regulations in the crypto market because of the challenges that this asset class posed to the emerging markets.
However, while there was a need to regulate the rapidly growing space, Gopinath noted that there were potential effects that could come from banning digital assets because they operate on decentralization.
“Regulating crypto assets and currencies is essential, especially for emerging and developing economies, as banning them may not work as crypto exchanges are located offshore, which makes it easier for an individual to trade in them despite the ban,” Gopinath noted.
Gopinath also noted that the issue regarding cryptocurrencies could not be solved by one country, but different jurisdictions needed to work together because of the use of these assets for cross-border transactions. As such, countries needed to understand that “there is a need for a global policy on it urgently.”
Crypto adoption poses a threat to emerging economies
She further warned that the growing adoption of cryptocurrencies posed a threat to developing economies. She noted that most developing economies had adopted regulations regarding overseas transactions, and crypto assets could be used to avoid these regulations.
“Cryptos pose problems as usually emerging developing economies have exchange rate controls, capital controls, and capital flow measures…, crypto assets and currencies can be used to evade those regulations,” she stated.
Despite her remarks, emerging economies have been leading in the use of cryptocurrencies. El Salvador implemented a law that accepted Bitcoin as legal tender in September. Myanmar’s shadow government recently endorsed Tether (USDT) as an official currency.
The recent remarks by Gopinath come when the global crypto regulatory framework is changing. The US is currently mulling over the different ways that cryptocurrencies can be regulated to protect investors and businesses operating in the sector.
Other countries are also looking into crypto regulations. India is currently waiting on the deliberation of a crypto bill that will bring regulatory clarity on crypto assets.
China banned cryptocurrencies earlier this year. The move led to a decline in the prices of Bitcoin and alternative currencies. While the market has recovered, the threat of a regulatory ban in other jurisdictions is also looming.
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