Recent IMF report highlights the flaws of cryptocurrencies; rejects its sole use
The International Monetary Fund (IMF) recently published a paper titled “A Foundation of Trust“. The paper stated that central banks must harness technological innovations introduced by cryptocurrencies. Further, banks must do so while implementing CBDCs to build a rich and diverse monetary system.
The paper also highlighted the flaws of cryptocurrencies. The paper is jointly written by three Bank for International Settlements (BIS) members. These include Agustin Carstens, General Manager, Jon Frost, head of economics for the Americas, and Hyun Song Shin, economic adviser and head of research.
The paper noted that cryptocurrencies, with their technical capabilities, have gained a lot of popularity recently. These capabilities are the ability to program payments (programmability) and combine different operations into one transaction (composability). Cryptocurrencies can also create a digital representation of money and assets (tokenization).
A monetary system relies on safety, stability, accountability, efficiency, and inclusivity. Though cryptocurrencies aim to provide an alternative to the traditional financial system, its structural flaws put these into question.
Additionally, since validators need to be incentivized to confirm transactions, users frequently move to different crypto platforms due to DeFi congestion. This fragmentation of the DeFi landscape prevents the wide scale usage of cryptocurrencies.
Besides, it is highly decentralized and anonymous. This is why there is hardly any accountability in cases of frauds or scams, the paper adds.
Central banks issue sovereign currencies, execute payments to finality, facilitate smooth functioning of payment systems, and regulate private operations. These functions of the
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