While some countries, most notably China, have banned crypto completely, the International Monetary Fund said that this “approach may not be effective in the long run.”
In a blog post about digital assets in Latin America published Thursday, representatives from the IMF said that instead of banning cryptocurrencies, which was on the table just a few months ago, nations should focus on the digital payment needs that have pushed citizens to adopt crypto.
The post noted how four Latin American countries—Brazil, Argentina, Colombia, and Ecuador—were among the top 20 nations for crypto asset adoption in 2022, although Argentina banned payment platforms from offering crypto to customers in May. People in these countries look to crypto for protection against macroeconomic conditions, cheaper and faster payments, and circumventing capital controls.
Out of 19 Latin American jurisdictions included in an IMF study last year, 12 already have instituted or are rolling out some sort of framework for cryptocurrencies. This includes Brazil, Latin America’s largest economy, which last week instituted sweeping crypto legislation.
Although El Salvador was one of the first Latin American countries to embrace crypto, specifically by making the most popular cryptocurrency, Bitcoin, legal tender, the IMF said its approach may not be the best.
“El Salvador’s experience with Bitcoin suggests there are risks to adopting unbacked crypto assets—those that rely on supply and demand rather than on any asset for value and that are subject to significant price volatility—even when explicitly supported by the government,” the post read.
Authored by two IMF economists and a division chief in the IMF’s Western Hemisphere department, Thursday’s post also endorsed central bank digital currencies, a.k.a. CBDCs, which have been adopted by some countries like the Bahamas and Jamaica.
These state-sponsored digital currencies could strengthen the usability, resilience, and efficiency of payment systems in Latin America if “well designed,” the post read. More unbanked individuals could also be integrated into the larger financial ecosystem.
While the post’s authors acknowledged that countries with CBDCs have faced some difficulties with adoption, that could change with more government support.
“A slow take-up and disruptions in access to CBDCs in these countries highlight the importance of investing in public awareness and robust infrastructure to promote the adoption,” the post read, concluding that Latin America would benefit from “addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.”
