In a recent report by the International Monetary Fund on the use of digital payments such as CBDCs, Stablecoins, and cryptocurrencies in Latin America, the global financial institution warned that banning crypto is not the best option in dealing with the new-generation asset.
It said this in response to a few countries that have decided to completely ban the use of crypto while the market still shows demand for them. IMF noted that the long-term effect will not be beneficial and effective for regions that clampdown on the use of crypto assets.
On the contrary, it advised that they should give attention to “addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.”
Crypto, and stablecoins adoption
Furthermore, IMF said that Latin America and the Caribbean (LAC) is leading in digital money adoption, with countries like the Bahamas, ECCU, Jamaica, and Brazil introducing central bank digital currencies (CBDCs) to improve financial inclusion, reduce remittance costs, and enhance asset tokenization.
Brazil, Argentina, Colombia, and Ecuador are among the top 20 countries in global adoption of crypto assets in 2022. However, crypto asset adoption presents challenges and risks, especially for vulnerable LAC countries with a history of instability, low institutional credibility, and corruption.
It added that despite the adoption of bitcoin as a legal tender in El Salvador, reports show that it is not widely used by its citizens. “A 2022 national survey suggests that Bitcoin is still not a widely accepted medium of exchange in El Salvador, despite its legal tender status and substantial government incentives.”
And for stablecoins, IMF said that the outcome of the Novi project by Meta in bringing in stablecoins as payment method between US and Guatemala users shows that it also has huge risks.
CBDCs in Latin America
On the use of CBDCs, the IMF revealed that Central banks in Latin America and the Caribbean are considering the introduction of CBDCs, with some island nations already issuing their own. It stated that financial inclusion and monetary sovereignty are crucial factors that has driven the exploration and use of CBDCs in this region.
It also added that while Central banks like the ECCU and the Bahamas have issued CBDCs to boost financial inclusion and strengthen payments system resilience, slow adoption and disruptions in access reveals the need for public awareness and infrastructure investment.
Finally, the IMF said that it has given guidelines that nations can use when addressing these new digital payment systems in order to manage the risks involved.
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