How do global lenders IMF and world bank see cryptocurrency
Indeed, cryptocurrency has gained der acceptance while offering many investment opportunities to investors. More businesses now use various digital coins as payment methods and investors have more digital coins to trade. But, despite all of these, many are still wary about the future of cryptocurrencies.
A lot of countries including their central banks are uncertain about making cryptocurrency a legal tender. They are worried about the disruption such will cause to their economies and livelihood. Nonetheless, the crypto market continues to grow rapidly with more investors joining the bandwagon.
Carefully following the trend, the World Bank and the International Monetary Fund (IMF) have also put forward lots of questions. They are worried about the credibility of this seemingly opaque market.
The IMF, in one of its latest Global Financial Stability Report, has called for strict regulations to impede the rapid growth of cryptocurrencies. The IMF claims digital coins have been recognized to enable fraudulent activities, terrorist funding, and financial instability. Both the World Bank and the International Monetary Fund (IMF) have a strong stance against crypto. However, while the IMF calls for strict regulation, the world bank is trying to key into the existing market while regulation continues.
Cryptocurrency through the lens of the International Monetary Fund (IMF)
The International Monetary Fund is highly worried about cryptocurrencies given the market is growing at a rapid pace. Not just that, the Fund is also concerned about how regulations put in place fail to follow suit.
One of the challenges the IMF has underlined is that lots of financial institutions and investors trading crypto-assets lack risk practices and solid financial governance. As a result, the IMF has indicated that investors are at risk also citing that there's an oversight and inadequate disclosure in the crypto market. Furthermore, the Fund also believes that cryptocurrencies create plenty of data gaps creating opportunities for terrorist funding and money laundering.
More institutions are also now calling for proper regulation to make the space safer for investment. No doubt cryptocurrency is a divisive topic, many continue to argue that they are the future of money. On the other hand, others show more skepticism towards crypto given the many risks they pose.
How the World Bank sees Cryptocurrency
The world bank, on its part, has made its preference known about the central bank digital currencies (CBDCs), rather than privately owned digital assets. The World Bank believes that CBDCs can enable cross-border transactions and greatly modify the International system of payments.
Considering the World Bank's preference for CBDCs it was no shock to see the international lender reject El Salvador's request for assistance. Following El Salvador's approval of bitcoin as legal tender, the nation requested help from the World Bank but was rejected. The reason for rejection? The World Bank cited “environmental and transparency shortcomings”.
The world bank has succeeded in convincing many countries to launch their own CBDCs as a safer alternative to privately owned cryptos. However, many questions remain unanswered about how this new infrastructure will coexist with the existing one. Questions on what role the private sector will play in the adoption of CBDCs and how it will affect monetary policy remain unanswered.
While there have been continuous calls for crypto regulation, an issue policymakers face is the heightened interest among young people to invest in cryptocurrencies. In fact, many of these young people invest in cryptocurrencies using credit cards and loans.
In June 2021, a report was published by the FCA showing that around 2.3 million people in the United Kingdom hold various digital assets. 14% used their credit to buy these digital assets. Furthermore, 12% of these individuals believe they will be protected by the FCA in the event of a market crash. However, the FCA has made it clear it does not offer them any protection.
Another poll of 1,000 adults in the U.K aged between 18 and 29 indicated that 27% of these adults used their credit cards to buy dogecoin from bitcoin-evolutionapp.com. That's not all, 17% claimed they use their student loan to invest in crypto and 12% mentioned they used other forms of loan.
This is evidently a dangerous game played by individuals in the crypto market. Investors using loans to fund their investment face two forms of risks. They risk losing their digital assets and then struggle to reimburse for the credit and loans.
It's evident that the crypto market needs some form of regulation to protect investors from themselves and the market. However, the rapid growth of the crypto market has made things more difficult for the IMF and World bank.
Hopefully, they find a way to safely regulate these digital assets soon without impeding the growth and opportunities present in the crypto market.