The International Monetary Fund (IMF) believes that countries in Latin America and the Caribbean (LAC) see central bank digital currencies (CBDCs) as a better option to improve their payment systems compared to cryptocurrencies which are considered riskier assets.
Banning crypto is ineffective
A recent study by the IMF noted that LAC countries are leading the adoption of digital money, mentioning four countries in Latin America — Ecuador, Argentina, Brazil, and Colombia — being among the top 20 in the global adoption of crypto assets, according to a Chainalysis report.
While there has been a steady rise in the adoption of crypto in LAC countries, with the belief that cryptocurrency could offer benefits such as financial inclusion for the unbanked and faster and low-cost payments, the IMF believes that embracing crypto may not be all too advantageous for such a region and comes with 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 highlighted the challenges of adopting “unbacked crypto assets” such as bitcoin (BTC). According to the financial institution, even with El Salvador making bitcoin a legal tender and the various incentives offered by the government, the number one cryptocurrency is yet to see widespread use among the populace. Recall that the IMF was against El Salvador’s BTC move, asking the country to drop the crypto asset as a legal tender.
However, some countries in the region are wary of crypto due to the risks associated with the asset. Recently, Banco Central de la República Argentina (BCRA), or the Central Bank of Argentina, prohibited payment service providers from offering cryptocurrency transactions. At the same time, crypto is illegal in the Dominican Republic.
The IMF meanwhile stated that the decision by some countries in the region to ban crypto “may not be effective in the long run” and suggested that countries should address factors fuelling citizens’ demands for the asset class.
“The region should instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics.”
LAC central banks working on CBDC projects
Despite the region’s mixed attitude towards crypto, the IMF survey showed that more central banks in the LAC region are open to exploring CBDCs, with 50% of the respondents looking to introduce both retail and wholesale CBDCs.
Central banks in the Bahamas, the Easter Caribbean Currency Union (ECCU), and Jamaica have already launched their digital currencies. In January 2023, the Bank of Jamaica said its CBDC, called JAM-DEX, was used as a payment means for the Employment Generation (Christmas Work) Programme. Brazil’s apex bank also announced the selection of 14 participants, including credit card giants Visa and Mastercard, in its CBDC pilot program.
The IMF believes that “well-designed CBDCs can strengthen the usability, resilience, and efficiency of payment systems and increase financial inclusion in LAC.”
Earlier, an IMF executive revealed that the fund is developing a global CBDC platform to facilitate transactions between countries.
Source: https://crypto.news/lac-countries-cbdcs-ryptocurrency-imf/