“While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long run,” says the organization.
In a June 22 report on CBDCs and altcoins in Latin America and the Caribbean, the International Monetary Fund (IMF) illustrated various approaches of local governments towards the adoption of cryptocurrencies and central bank digital currencies, pointing to the fact that an outright ban is not the best approach in terms of financial inclusion.
“CBDCs — if well designed — could lower remittances’ costs and improve financial inclusion. But for crypto assets to safely remain part of the payment system, they need to be regulated,” said the IMF.
Describing the situation with crypto adoption in the region, the organization noted that Latin America and the Caribbean (LAC) can be an example to the whole world, being at the forefront of digital money adoption. In particular, valuable lessons can be learned from the experience of El Salvador, Bahamas, Jamaica, Brazil, and a number of countries belonging to the Eastern Caribbean Currency Union (ECCU).
Four Latin American countries, Brazil, Argentina, Colombia, and Ecuador, were included in the 2022 top 20 rating of the global adoption of crypto assets.
Despite the perceived benefits of crypto adoption such as protection against inflation and uncertain economic conditions, circumvention of capital controls, better access to banking services, cheaper and faster payments, etc, a poor-regulated local crypto market also presents a number of threats especially to “vulnerable LAC countries,” believes the IMF.
Most countries in the region have a history of macroeconomic instability, low institutional credibility, substantial capital flows, corruption, and extensive informal sectors. Therefore, proper legislation is what these nations need to address the risks to financial stability. Luckily, 12 out of 19 jurisdictions in the region surveyed by IMF in mid-2022 either have already developed a special regulatory framework for the crypto sector or were in the process of creating one.
At the same time, Argentina and the Dominican Republic have prohibited the use of crypto assets altogether instead of seeking regulation for the market. The main concerns voiced by local governments were about crypto impact on financial stability, currency and asset substitution, tax evasion, corruption, and money laundering.
IMF research found that most central banks in LAC are considering the potential introduction of CBDCs. Moreover, half of the respondents found both retail and wholesale CBDC options promising.
However, the cases of the central banks of the ECCU and the Bahamas that have already issued their own CBDCs clearly show that it is very important to invest in public awareness and robust infrastructure to promote the adoption of CBDCs.
Analyzing all the benefits and drawbacks of crypto strategies existing in the region, the IMF concluded that instead of banning crypto the countries “focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.”
