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Home CryptoCurrency

IMF: Cryptocurrency Is Associated With Corruption And Helps In Circumventing Restrictions

by msz991
June 29, 2022
in CryptoCurrency
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According to a report from the International Monetary Fund, cryptocurrency use is increasing in countries that are seen as corrupt or have strong money restrictions.

In order to prevent fraud, money laundering, and the funding of terrorism, the paper explains why certain nations may demand that intermediaries like bitcoin exchanges have “know your customer” regulations and identity verification requirements in place.

According to Bloomberg, governments throughout the world are vying for control of the $2 trillion cryptocurrency sector, with the extent of regulation varying widely from nation to nation.

Without mentioning any particular countries, the International Monetary Fund noted that study findings showed that crypto assets “may be utilized to transfer illegal gains or bypass capital rules.”

The IMF claimed to have derived its baseline statistics on crypto usage from the study carried out by Statista. A total of 2,000–12,000 people from each of the 55 countries were surveyed regarding their ownership and use of digital assets in 2020.

In light of this, there are nations where the government takes all required precautions to regulate cryptocurrencies. One such nation has been Lithuania since 2020, which has clear and open regulations for digital currencies and wallet services. For businesses providing services in the crypto sector, the nation offers a welcoming and lawful Lithuania cryptocurrency regulation environment.

In addition to its primary objectives, the new system aims to stop corruption schemes in digital currency-based firms. For this reason, a Lithuania crypto license was developed, which the application firm can get. This license also includes a Lithuania crypto exchange license.

In this sense, Lithuania is one of the few EU member countries where legal financial transactions with cryptocurrencies are available thanks to their crypto license system, and the state has issued formal permission for operations and regulation of the crypto industry (FCIS).

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Table of Contents

  • Сryptocurrencies Help To Circumvent Restrictions
  • The Possibility Of Cryptocurrency Destabilizing Emerging Economies
  • The IMF Does Not Recognize Bitcoin As A Currency

Сryptocurrencies Help To Circumvent Restrictions

In another report, IMF experts say that capital limitations can be successfully avoided using cryptocurrencies. According to economists, nations with high inflation and fragile economies are those where cryptocurrencies and stablecoins are most popular.

Tracking payments and identifying counterparties are necessary for restrictions. Even with the involvement of intermediaries like crypto exchanges, the IMF claims that the usage of cryptocurrencies lessens the effectiveness of such supervision. The group underlined that trade in stablecoins tethered to the US dollar has significantly expanded since 2020.

A gray area frequently results from cryptocurrencies’ “semi-legal” status. At the same time, they may be exchanged without the aid of middlemen, and economists contend that the less centralized an economy is, the less opportunity there is for regulators to keep tabs on transactions.

The report’s authors advised regulators to define the legal position of cryptocurrencies, turn to international information sharing, and create models that would make it possible to trace dangerous transactions. The IMF also thinks that cryptocurrencies would carry increased risks of evading capital controls.

Russian officials may attempt to use cryptocurrency to evade sanctions, according to US Treasury Secretary Janet Yellen’s comments in April. The US wants to make sure that the limitations apply to cryptocurrencies as well, but does not anticipate widespread circumvention of the penalties.

The Possibility Of Cryptocurrency Destabilizing Emerging Economies

One IMF official also cautioned that significant changes in the value of cryptocurrencies threaten to disrupt developing-country economies. Previously, the group urged El Salvador to refuse to accept bitcoin as a form of payment, citing it as the biggest impediment to the government receiving a $1.3 billion loan.

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El Salvador became the first nation in the world to authorize the state-level use of bitcoin in June 2021. It was granted the status of a legal currency on parity with the US dollar. El Salvador is permitted by law to establish prices in bitcoins and accept cryptocurrencies as payment for taxes. Bitcoins will be exchanged at market value and will not be subject to capital gains tax when exchanged for dollars.

The economy of emerging nations may become unstable due to sudden changes in cryptocurrency prices. Tobias Adrian, a financial advisor and the head of the IMF’s department for financial and stock markets, made this claim in a conversation with the Financial Times.

“Cryptocurrencies are used to withdraw money from countries that are considered unstable [by outside investors]. This is a big problem for legislators in some countries,” concluded Adrian, recalling that lately, the value of the crypto markets has decreased by nearly $1 trillion in value after peaking in 2021.

The expert claims that certain developing nations that switch over to crypto-assets suffer “immediate and acute risks” as a consequence of doing so. He contends that when value is moved through new tools, distribution channels, and new providers which are not regulated companies, the application of conventional capital flow instruments may become more challenging.

The value of digital currencies is increasingly correlated with other financial resources in industrialized nations, including technology companies from the US, even crude oil and government bonds, which worry the IMF. “Now cryptocurrencies are closely connected with what is happening in the stock markets. We can’t just brush it off,” Adrian said

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The growing reliance of digital currencies on conventional macroeconomic data was previously covered by Goldman Sachs analysts. According to their data, the value of bitcoin is inversely connected with real interest rates and the US dollar and favorably linked with breakeven inflation rates, the price of oil, and technology stocks.

In January 2022, the Board of Directors of the IMF called on El Salvador to deprive bitcoin of the status of legal tender. The board noted the risks of bitcoin to financial stability, consumer protection, and financial obligations, and also called its legal status in the country the main obstacle to its obtaining a $1.3 billion loan, which was previously requested by El Salvador.

The IMF Does Not Recognize Bitcoin As A Currency

Recall that the official position of the IMF regarding bitcoin remains unshakable: the International Monetary Fund is not ready to call bitcoin money and considers it a risky investment.

The IMF believes that cryptocurrencies can become a popular payment method in countries with high inflation and unavailable banking services.

Countries, where cryptocurrencies will have the status of a national currency or legal tender, may have internal unstable prices. It will become more difficult to fight money laundering and terrorist financing there.

Representatives of the IMF also mentioned the environmental problems posed by the mining of digital assets.

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