The price of Bitcoin hit $40,051.89 Thursday, up nearly 25% on cryptocurrency data aggregator Coingecko, as the International Monetary Fund warns against the adoption of cryptocurrencies as legal tender.
In a blog post titled "Cryptocurrency assets as national currency? A step too far," the International Monetary Fund said it did not see cryptocurrencies catching on as national currencies, and underscored the risks and costs involved if it happened, Fortune reported Thursday.
The authors acknowledged that using cryptocurrency could provide cheaper and faster payments, bring people with no access to banks into the financial system, and improve cross-border transactions.
At the same time, cryptocurrency could cause problems because of its high volatility, price fluctuations, difficulty setting fiscal policy, and negative environmental effects, the authors said.
The post was written by International fund monetary and capital markets department director Tobias Adrian and its legal department director, Rhoda Weeks-Brown.
While recognizing the advantages of cryptocurrencies' underlying technologies, the International Monetary Fund directors said governments must "step up to provide these services...attempting to make cryptocurrency assets a national currency is an inadvisable shortcut," according to Bitcoin.com.
The chief concern is that the value of cryptocurrencies like bitcoin can be "extremely volatile." For instance, Bitcoin peaked in April at $65,000 and then lost its value by less than half shortly after.
Apart from these problems, Adrian and Weeks-Brown said cryptocurrencies could also pose security concerns, ZDNet reported.
"Cryptocurrencies can be used to launder ill-gotten money, fund terrorism and evade taxes. This could pose risks to a country's financial system," ZDNet said.
Adoption of cryptocurrency as a legal tender, the fund's chiefs said, is probably not an attractive option to countries with stable inflation and exchange rates and credible institutions, according to Fortune.
For countries with less stable economies, a better alternative could be to use an internationally acknowledged reserve currency like the U.S. dollar or euro, the report said.