A blog post from the International Monetary Fund included warnings to countries who are looking to set cryptocurrencies as legal tender.
Without pointing fingers directly, the post indirectly refers to countries that have deemed cryptocurrencies, such as Bitcoin, as legal tender. The recent activity from the country El Salvador has definitely sparked a lot of flames in authorities, as the country has been fully supporting Bitcoin as legal tender. El Salvador is also looking to secure a Billion dollars in loan, so this new warning could make things difficult. Economist Ricardo Castaneda stated that if things don’t work out, the results concluded can be extremely severe.
As the Bitcoin Legal Tender law passed, the President of El Salvador, Mr Nayib Bukele, mentioned that the legal tender would initiate in September of this year and will help out the people of Salvador in making trading opportunities a lot easier and spread prosperity in the country. President Nayib also mentioned that this new step would hopefully help out nearly 70% of the total population of the country.
The blog post also highlighted many issues regarding the use of cryptocurrency as legal tender. The post clearly mentions the difference between legal tender and traditional currency, so for cryptocurrencies to achieve legal tender, the cryptocurrency would itself have to be worked on by creditors while also following the monetary regulations, which includes taxation. The chances of cryptocurrency becoming national currency are very slim, so cryptocurrency in the country could still become something being used as a mainstream payment method.
Nations with stable inflation and exchange rates, with very trustworthy institutions, would not need cryptocurrency to become a mainstream method because the stability will cause many businesses to have very minimal incentives to use crypto and save out and also mentioning that the issues of volatility compared to traditional payment methods is a serious problem.
Traditional currency taking a step further
The blog post also mentioned that traditional currencies such as the dollar and euro would continue to be something that is more attractive compared to cryptocurrency to many countries, which also include the ones with unstable economic systems. The blog post does, however mention that cryptocurrencies can be something useful for people who are not involved in banks, but the thing is that the cryptocurrencies must have to be immediately converted into traditional currency anyway.