Because in the most corrupt countries, cryptocurrencies are strong

Because in the most corrupt countries

Corrupt governments and weak currencies favor the adoption of cryptocurrencies. This is the alarm that emerges from a new report from the International Monetary Fund (IMF), entitled Crypto, Corruption, and Capital Controls: Cross-Country Correlations, which used the interviews of 110,000 people in over fifty-five countries - between two thousand and twelve thousand per country - on the use of cryptocurrencies. The study investigated the correlation between the adoption of Bitcoin and similar currencies and different variables, assuming that the developments that the blockchain and cryptography bring with them "will likely revolutionize the form of money and the way it is used," yet creating "opportunities as well as risks".

The report's authors cited a group of G20 experts according to which technological innovation, including cryptocurrencies, has "the potential to improve efficiency and inclusiveness of the financial system and of the economy in general ", but cryptocurrencies themselves" raise questions regarding the protection of consumers and investors, market integrity, tax evasion, money laundering and terrorist financing ". Accusations not new for cryptocurrencies, long associated with criminals and scammers, who would use them to finance themselves or launder the profits of their illicit trafficking, thanks to the anonymity g guaranteed by digital identities.

For these reasons, and with a global crypto market that has recently exceeded two billion dollars, cryptocurrencies are already in the crosshairs of institutions in many countries that would like to limit or control them more use. Most recently, US President Joe Biden issued an executive order to study and regulate the industry in the United States a month ago.

Now this report provides new assistance to the demand for regulation of digital assets. Based on data on the use of cryptocurrencies from Statista's Global Consumer Survey, the authors evaluated the adoption of cryptocurrencies based on seven variables, including remittances and GDP per capita, but determined that the control of corruption and controls on capitals are clearly the most significant factors in some countries, but without naming any.

The document goes beyond identifying this correlation to state that “that cryptocurrencies can be used to transfer the proceeds of corruption or evading capital controls ”in some countries with stringent restrictions on inflows or outflows. Based on this, the authors urge regulators to take action and "provide empirical evidence" whether cryptocurrencies "facilitate corruption" or not.

Inflation and other factors High inflation can also determine popularity of a cryptocurrency such as Bitcoin, if this is deemed more stable than the local currency. A weak currency and a history of lasting inflation may push many to use crypto as a safe haven, the IMF report underlines. Conversely, "residents of countries where the traditional financial sector is well developed may be less likely to feel the need for cryptocurrencies," the study authors write.

This explanation at first glance fits well with the 2021 Chainalysis cryptocurrency adoption index. In addition to Vietnam, India and Pakistan, the top ten include countries such as Kenya, Nigeria, Venezuela, Togo and Argentina where foreign currency circulation is more complicated and inflation rates higher. A separate case is that of El Salvador. The Central American nation, at the behest of its young president-influencer Nayib Bukele, was the first country in the world to adopt Bitcoin as legal tender last year, buying 150 bitcoins in September 2021.

The bet of El Salvador was considered a gamble by several observers and the country, after having had problems related to the decline in cryptocurrency at the beginning of the year, is struggling to encourage its use in everyday life. Also for this reason, the IMF stated in a report in January that the adoption of Bitcoin as legal currency entails various risks for the economy of El Salvador and urged the country to rethink its decision.

In his latest study, albeit critical, the IMF nonetheless highlights the need for better data on cryptocurrency adoption trends to better understand the phenomenon, citing the limitations of previous studies and the lack of sufficient high-quality information. However, regulators should not wait for "conclusive evidence", argue the scholars, but should consider "the urgency to act before it is too late". According to its speakers, the results of the report already provide good arguments for the request for regulation of the use of cryptocurrencies, starting, for example, with the request to intermediaries "to implement customer knowledge procedures".

The war in Ukraine In this regard, the United States and the European Union recently accused cryptocurrencies and their anonymity of allowing people sanctioned in Russia due to the invasion of Ukraine to circumvent the restrictions imposed by the west. However, this theory has been criticized by several experts, who consider it unlikely and functional that Russian oligarchs or billionaires could use their crypto accounts to save their capital.

The IMF report still leaves a window open for digital assets, if regulated, to be used precisely as an antidote to corruption. "These technologies could also be used to improve transparency and record keeping for contracts - the authors write - or other payments related to government projects, thus increasing accountability and reducing the extent of corruption."

The IMF specifically mentions the potential of central bank-regulated digital currencies (CBCDs), on which more than one country is already working. This type of digital currency, it reads, could "offer further resilience, security and availability at lower costs," concluding that "work should continue in using the technologies behind crypto assets to realize the potential benefits for financial inclusion. and the efficiency of governments. ”Emerging as a decentralized financial instrument, however, one wonders whether cryptocurrencies can survive future regulation.