Support CBDC To Fight Crypto, IMF: Cryptocurrency Ban Is Not A Practical Approach

JAKARTA - In a recent statement, the International Monetary Fund (IMF) acknowledged that banning cryptocurrencies may not be a practical approach in the long term.

The IMF, as a global financial institution, is actually pushing its focus on meeting digital payment needs and increasing transparency in the use of digital assets.

Latin American and Caribbean countries (LAC) lead in global adoption of digital money. This shift towards digital financial instruments varies across the region.

One example is El Salvador which has officially accepted Bitcoin as a legal currency, while other countries in the region are experimenting with the Central Bank Digital Currency (CBDC). The use of CBDC is believed to increase financial inclusion, strengthen payment system resilience, and reduce cross-border remittance costs.

Digital assets such as cryptocurrencies offer potential solutions to various challenges, such as protecting unpredictable domestic economic conditions and increasing financial inclusion for people without bank accounts. However, the adoption of crypto assets also faces non-negligible obstacles.

Factors that make digital assets attractive to some people also pose significant risks, especially for LAC countries that are vulnerable to the problem of macroeconomic instability, low institutional credibility, and widespread corruption.

The IMF highlights the risk of crypto asset adoption. El Salvador's experience is an overview of the dangers of adopting crypto assets that are not strongly supported, where the value of these assets depends on supply and demand, as well as is prone to severe price fluctuations.

Although Bitcoin has been recognized as a legal tender and supported by the government, in reality, this cryptocurrency is still not fully integrated into the country's financial system. The introduction of stablecoins, namely crypto assets designed to maintain prices that are stable against certain assets, also presents its own challenges.

An example is the Meta project which aims to facilitate free payments domestic and cross-border through the Novi digital wallet. However, concerns about the potential for domestic currency replacement in Guatemala led to the project being abandoned.

A number of central banks in the LAC region are studying the feasibility of using the Central Bank Digital Currency (CBDC), some of which have even launched their own CBDCs. The IMF states that the well-structured use of CBDCs can increase the resilience, efficacy, and reach of payment systems, as well as support wider financial inclusion.

Even so, there are still obstacles in the absorption and access experienced by countries that have issued CBDCs, so the IMF emphasizes the importance of public awareness and investment in strong infrastructure to encourage wider adoption of digital assets.