- A new study by the International Monetary Fund (IMF) highlights the importance of Bitcoin (BTC) in cross-border transactions.
- The working paper found that BTC inflows have an inverse correlation with capital inflows.
- Does the latest report indicate a shift in the financial institution’s stance toward the digital asset?
IMF’s Concerns About Bitcoin and Cryptocurrencies
The International Monetary Fund has been known for its criticisms of Bitcoin over the years. Some of its concerns lay in the most commonly played tune by the opposition of the crypto community like its volatility, questionable valuation, tendency to cause financial instability, energy-intensive requirements, and illicit activities linked to it such as money laundering, among others. There’s also the fact that the institution has been pushing its agenda in favor of central bank digital currencies (CBDCs) despite their own set of shortcomings.
Nevertheless, the latest study by the IMF painted Bitcoin in a good light as it emphasized the potential of the cryptocurrency asset in international transactions.
Potential of Bitcoin in Cross-Border Trade and Remittances
Amid its apprehension about Bitcoin, a report by the United Nations (UN) financial agency found an inverse correlation between the movement of capital inflows and BTC inflows. This means that when a nation is experiencing large capital inflows, it tends to result in lower BTC inflows, and vice versa. Such a trend validates the crucial role of Bitcoin as a medium in cross-border transactions to level the playing field among countries, especially those with relatively smaller capital inflows.
The study used the behavior of three key factors to analyze global Bitcoin flows. These include its streams in centralized crypto exchanges and the web traffic of crypto exchanges to pinpoint the location of users. The last involves the movement of BTC paired with fiat currencies within the now-defunct peer-to-peer exchange LocalBitcoins. The insights gleaned were then compared with the data available from blockchain analysis firm Chainalysis for confirmation and further interpretation.
The information sourced from LocalBitcoins revealed that countries in the South American region led the quartile of global cross-border Bitcoin inflows. Among the notable hotspots in the area were Argentina, Peru, and Venezuela.
Parts of Africa, particularly Nigeria, South Africa, and Kenya also exhibited the same characteristics. Meanwhile, off-chain data revealed Bitcoin was often used to bypass capital controls, especially in nations like China that have strict rules about the matter and have an existing ban on cryptocurrencies in the mainland jurisdiction.
Conclusion and Recommendations
In relation to the findings of its research, the IMF seemed to have agreed that Bitcoin could be a legitimate platform for cross-border transactions. It likewise predicted that the adoption of the trend may increase in the future.
The IMF, however, noted that appropriate policies must be crafted to support its framework and address its flaws. The organization emphasized the high degree of anonymity of actors within the Bitcoin network as one of the primary focuses in its recommendation to curb the exploitation of the technology in money laundering and to ensure the system’s regulatory compliance in different markets.