Jan 26 (Thomson Reuters Foundation) – The International Monetary Fund (IMF) has urged El Salvador to drop bitcoin as a legal tender, citing risks to the nation’s financial stability and consumer protection, joining a growing chorus of countries clamping down on private digital currencies.
The Central American nation became the first in the world to adopt bitcoin as legal tender in September alongside the U.S. dollar, with authorities saying it will help save residents remittance commissions, and expand financial inclusion.
But adoption has been rocky, with only a fraction of businesses taking bitcoin payments, and technical problems plaguing the government’s cryptocurrency app.
There are “large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities,” the IMF said in a statement on El Salvador on Tuesday.
It urged authorities to “narrow the scope of the bitcoin law by removing bitcoin’s legal tender status.”
Advocates of cryptocurrencies – particularly in developing nations – say they are an effective hedge against hyperinflation and uncertainty.
But the crypto market is increasingly dominated by big investors, and authorities fear that the highly volatile digital currencies could undermine their control of the financial and monetary systems, increase systemic risk, promote financial crime and hurt small investors.
Here is a look at countries that have recently regulated – or plan to regulate – cryptocurrencies.
Russia’s central bank last week proposed banning the use and mining of cryptocurrencies on Russian territory, citing threats to financial stability, citizens’ wellbeing and its monetary policy sovereignty, as well as high energy consumption.
Russia – the world’s third-largest player in bitcoin mining – has argued for years against cryptocurrencies, saying they can be used in money laundering or to finance terrorism. It gave them legal status in 2020, but banned their use as a means of payment.
Indonesia’s Financial Services Authority (OJK) this week said that financial firms are not allowed to offer and facilitate sales of crypto assets in the country where crypto currencies cannot legally be used for payment.
Last year, the Indonesian Ulema Council (MUI), a top body of clerics, likened trading of cryptocurrencies to gambling, and said that using them as a means of payment is unlawful in Islam, because they carry elements of uncertainty and harm.
The Indian government has said it was looking to bar most private cryptocurrencies in a new bill that would allow only certain cryptos in order to promote the underlying technology and its uses.
The central bank has also voiced “serious concerns” about cryptocurrencies, and is set to launch its digital currency.
Prime Minister Narendra Modi has said it is important for democratic nations to cooperate on regulating cryptocurrencies so they did not fall into “wrong hands” and corrupt the youth.
Pakistan’s central bank earlier this month recommended banning cryptocurrencies, arguing that allowing them to be traded would cause capital flight.
“After a careful risk-benefit analysis, it emerged that risks of cryptocurrency far outweigh its benefits for Pakistan,” it said in a report.
The Monetary Authority of Singapore last week banned all advertising of crypto assets, including ads through social media influencers. Companies can only market them on their own websites and social media platforms.
While the central bank “strongly encourages” the development of blockchain technology and innovative applications of crypto tokens, the trading of cryptocurrencies is “highly risky and not suitable for the general public”, the MAS said in a statement.
Service providers should not portray trading of cryptocurrencies in a manner that “trivialises the high risks” of trading in them, it said.
Also last week, Spain regulated advertising of crypto assets, including by social media influencers, and requires any advertising to include warnings about the risks involved.
Australia last month said it will create a licensing framework for cryptocurrency exchanges and consider launching a retail central bank digital currency.
The government will begin consultation this year on establishing a licensing framework for digital exchanges, allowing the purchase and sale of crypto assets by consumers in a regulated environment, authorities said.
Regulators in China intensified a crackdown on cryptocurrencies with a blanket ban on all crypto transactions and mining in September, after barring financial institutions and payment companies from providing services related to crypto transactions in May, as well as in 2013 and 2017.
China sees cryptocurrencies as a threat to its sovereign digital yuan, which is at an advanced pilot stage.
Before the ban, China accounted for more than half the world’s crypto supply, and miners have since moved elsewhere.
Turkey’s central bank last year banned the use of crypto assets in payments, saying they entailed significant risks due to volatile market values, irrevocable transactions and because they are used in illegal activities.
Nigeria’s central bank barred local banks from dealing in or facilitating transactions in cryptocurrencies last year, reinforcing restrictions that have been in place since 2017.
The ban has pushed the industry underground, with Nigerians trading between themselves using mobile messaging apps and platforms such as Binance and Paxful. This has opened them up to scams and the risk of arrest.
(Reporting by Rina Chandran in Bangkok @rinachandran; Editing by Zoe Tabary)