In a report on cross-border flows with Bitcoin, the agency analyzes the use of digital currency to evade banking control.
IMF Says Bitcoin Eases Global Trade. Amid financial instability, Bitcoin (BTC) has become the way people are using to enter global commerce, according to the International Monetary Fund (IMF) in its most recent report. According to research titled “Introducing Bitcoin Cross-Border Flows: Measurement and Drivers,” the IMF found that transactions with digital currency provide an avenue for people to stabilize their savings, helping them conduct cross-border transactions “on terms that are not possible through their local currencies.”
In this way, they highlight the advantages of BTC over fiat money, as it is “the fundamental tool” that people use to save and move capital without the traditional banking system. In this sense, they mention countries with economic crises and high inflation as those with the highest level of adoption of cryptocurrencies. Hence, they cite Argentina and Venezuela as among those with the highest flow of capital with BTC, mainly from 2019 to 2021.
Bitcoin and Financial Regulations
According to the IMF, residents of countries with more restrictive financial regulations stand out among those who resort to Bitcoin to move capital across their borders with greater freedom. The IMF adds that, in these regions, Bitcoin has become a necessary financial tool to preserve wealth and access global markets “rather than simply a speculative investment.” Such a fact has been possible due to the increase in the use of cryptocurrency in the last decade worldwide. “The rapid growth of bitcoin since its launch in 2009 has increased its potential macroeconomic implications,” acknowledges the international body. They qualify the digital currency as the unit of account of a “large decentralized global digital ecosystem with public access.”
“Despite its price volatility and the fact that it is not backed by any real assets or government claims, Bitcoin’s price and the number of active users have increased significantly over the last decade.”
IMF report on cross-border flows.
In the face of booming adoption, the IMF explained its fear of cryptocurrency market developments stemming from the recent U.S. authorization of bitcoin spot exchange-traded funds or ETFs. “We conjecture that bitcoin cross-border flows have not yet replaced existing capital flows at this point,” the analysts comment. They insist that “financial risks” associated with using BTC remain potential. They would address the issue in further studies.
At this point, the IMF reiterated its ideas related to the alleged dangers of cryptocurrencies. As such, it again warned about the “negative consequences” associated with the growing widespread use of Bitcoin for cross-border flows. He mentioned lacking oversight and the pseudo-anonymity provided by cryptocurrencies. Something that, in his opinion, can complicate regulators’ efforts to monitor and control international financial transactions and prevent illicit activities such as money laundering.
Bitcoin has unique characteristics
As explained in the report, the IMF analysts reviewed transaction data, both on- and off-chain. In doing so, they explored the trends behind Bitcoin’s use in cross-border transactions. They determined that BTC transactions are substantial in volume and possess unique characteristics compared to traditional capital flows.
In that sense, they conclude that movements with traditional assets are more sensitive to economic indicators, such as currency strength. Bitcoin has a higher correlation with market volatility and user sentiment indices (fear or greed).