The IMF recently released a report warning about the risk of cryptoization in emerging markets where residents opt to use crypto assets instead of their local currency.

Kristalina Georgieva, a Bulgarian economist and chairwoman and managing director of IMF, recently said,

“Crypto assets are volatile and can hardly be deployed as money.”

Why is the IMF trying so hard to stop it if this is the case?

But before anything else, let’s take a look at recent crypto developments worldwide.

Strong signs of global adoption

While El Salvador was the first country to make bitcoin legal tender in 2021, crypto trading volumes have increased due to the lockdowns in 2020.

For instance, the largest USD stablecoin, Tether, has seen a notable rise in trading volumes against emerging market currencies.

The first example is Turkey, where the widespread use of crypto assets appears to have gained traction in 2020. One straightforward reason for this was the country's rampant 70% inflation and the desire of the Turkish people to save their assets.

This chart shows the trading volumes of Tether in Turkey compared to certain emerging market currencies.

This is a phenomenon manifested in many other countries as well.

For example, trading volumes spiked in Ukraine and Russia following sanctions against Russia and the start of the war in Ukraine.

And the most recent illustration of bitcoin adoption is from Africa. The Central African Republic became the second country to adopt bitcoin as legal tender in late April. And in case you missed it, just like in the case of El Salvador, the IMF was equally concerned over Africa’s decision.

Why are stablecoins a primary threat to IMF?

Undoubtedly, the IMF is worried about the rise of bitcoin, but at the same time, they know that bitcoin is more similar to gold in that it will not be able to replace day-to-day payments.

Stablecoins, however, are different.

The adoption of stablecoins is most relevant for emerging markets where inflation or hyperinflation is a problem.

What is happening in Turkey is a great example, but there is no shortage of other examples, from Argentina, Zimbabwe, Sri Lanka to Lebanon.

Many big-ticket items, from automobiles to real estate, are already purchased and sold in dollars, and stablecoins allow people to transact in dollars easily. In other words, storing, paying, investing, or remitting can be done without cash or banks.

How does IMF plan to restrain crypto?

To deal with the risks of cryptoization, the IMF presents three actions.

First, the IMF proposes that policymakers worldwide should adopt a unified crypto strategy. However, while this is a great idea, we all know that any global coordination takes decades, especially on such matters as money. Besides, the crypto advances significantly faster, so such an approach is likely to fail.

Second, the IMF stresses that the existing Financial Action Task Force (FATF) standards need to play an essential role in monitoring illicit crypto transactions. The reality is that today most crypto platforms are already compliant with the FATF requirements. So that’s not going to lead anywhere too.

Lastly, the IMF also recommends expanding regulations for foreign exchange to incorporate crypto assets. However, unlike the traditional banking system, anyone with crypto can send them to someone else globally without any intermediary. That is to say, it’s impossible to prevent individuals from making cross-border transfers using stablecoins.

Existential threat

IMF is fully aware of the risks, and cryptocurrencies are an existential threat to them. Occasionally they can resort to restrictions, just like in the case of Argentina’s IMF bailout deal which included a clause banning the country from using cryptocurrencies. But in reality, the only leverage IMF has is more regulations.

In short, the IMF should realize that the game is changing, and nations have embraced the new world. They can’t put the genie back in the bottle.