The Central Bank Digital Currency (CBDC) is a superior alternative to cryptocurrencies, which are viewed as riskier assets, according to the International Monetary Fund (IMF), which expects that nations in Latin America and the Caribbean (LAC) would use them to strengthen their payment systems.
CRYPTOCURRENCY PROHIBITION IS USELESS
Four nations in Latin America, Ecuador, Argentina, Brazil, and Colombia, were included in a recent IMF research as being among the top 20 countries in the world for the adoption of crypto assets. This is according to a Chainalysis report. LAC countries are leading the adoption of digital money.
Although there has been a steady rise in the adoption of cryptocurrency in LAC countries, with the hope that it will bring advantages like financial inclusion for the unbanked and faster, cheaper payments, the IMF thinks that doing so may not be the best move for the region and poses risks for “vulnerable LAC countries with a history of macroeconomic instability, low institutional credibility, substantial capital flows, corruption, and extensive informal sectors.”
The report also noted the difficulties adopting « unbacked crypto assets » like bitcoin (BTC). The leading cryptocurrency has not yet been adopted widely by the general public, the financial institution claims, even though El Salvador has made bitcoin legal cash and the state has provided several incentives. Remember how the IMF urged El Salvador to stop using Bitcoin as legal cash and opposed the country’s decision to use the cryptocurrency.
Nevertheless, because of the hazards involved with the asset, certain nations in the area are hesitant to use cryptocurrency. Recently, the Central Bank of Argentina (BCRA), also known as Banco Central de la Repblica Argentina (BCRA), forbade payment service providers from facilitating bitcoin trades. In the Dominican Republic, however, cryptocurrency is prohibited.
In the meanwhile, the IMF warned that the move by some nations in the area to outright outlaw cryptocurrencies « may not be effective in the long run » and recommended that nations address the issues that are driving people’s demand for the asset class.
Instead, the area has to concentrate on solving the factors that are driving demand for cryptocurrencies, such as the unmet demands of its residents in terms of digital payments, as well as increasing transparency by integrating data on crypto asset transactions in official statistics.
LAC CENTRAL BANKS ARE INVOLVED IN CBDC PROJECTS
Despite the area’s conflicted views on cryptocurrencies, the IMF study revealed that more central banks in the LAC region are willing to investigate CBDCs, with 50% of respondents hoping to implement both retail and wholesale CBDCs.
The Bahamas, Jamaica, and the Easter Caribbean Currency Union (ECCU) have already established their respective central banks’ digital currencies. The Employment Generation (Christmas Work) Programme was paid for using the Bank of Jamaica’s CBDC, JAM-DEX, according to a statement made in January 2023. The top bank of Brazil also revealed the names of the 14 people who will take part in its CBDC pilot program, which would include major credit card companies Visa and Mastercard.
It is the opinion of the IMF that « well-designed CBDCs can strengthen the usability, resilience, and efficiency of payment systems and increase financial inclusion in LAC. »
IMF is creating a worldwide CBDC infrastructure to enable trade between nations, an IMF executive previously said.
