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IMF study finds crypto use to be more prevalent in corrupt countries

IMF

TL;DR Breakdown 

  • An IMF study indicates high rates of crypto adoption in corrupt nations worldwide.
  • The study stresses crypto regulation and investors’ protection.

According to a new IMF study, cryptocurrencies are more prevalent in countries with unstable currencies and corrupt governments. According to the IMF’s findings, residents of nations where the traditional financial system is well developed may be less inclined to feel the need for cryptocurrency. 

IMF study points high rate of crypto adoption in corrupt nations

According to the International Monetary Fund, cryptocurrencies are more prevalent in nations regarded as corrupt or with tight capital controls, further supporting the case for increased regulation of the sector.

The IMF said that there’s a reason so many “invest in the token that will revolutionize the X industry” frauds emanate from countries with questionable governance systems.

With the worldwide cryptocurrency market projected to reach $4 trillion by 2026, many nations are swiftly moving to regulate it. With the rise of Bitcoin and ether creating a buzz among investors, new scams get created to push through all sorts of fraud and Ponzi schemes.

Because regulation varies from nation to nation, it may be a lot simpler to use and abuse cryptocurrencies in some areas of the world. Nations worldwide are fighting about how best to regulate the $2 trillion cryptocurrency market, with various degrees of monitoring available in each country.

The IMF’s findings provide a compelling explanation for why governments may wish to force intermediaries like digital currency exchanges to follow KYC standards. Government-required identification verification standards must also be developed to prevent fraud, money laundering, and terrorist financing.

The organization indicated that several countries, such as the United States, have implemented similar controls. The findings suggest that cryptocurrencies may be used to move corruption money or circumvent capital sanctions. However, the organization did not single out any nations.

According to the IMF, data for cryptocurrency usage basis on statistics acquired through Statista, a German database company. The survey included 55 nations with 2,000 to 12,000 respondents each. The researchers asked participants whether they possessed or used digital assets in 2020.

According to the financial organization, the results are worth paying attention to. Still, governments and investors should interpret them with caution owing to the small sample size and potential unreliability of the information.

The researchers behind the study also caution global investors and crypto critics not to use the findings as a condemnation of cryptocurrency. The study also stated that because evil actors exist worldwide, drawing judgments about a nation based on cryptocurrencies is also unrealistic.

Crypto market’s dire need for crypto regulations

The study proposed many reasons as to why cryptocurrency may be more prevalent in one country than another. Inflation may make a famous cryptocurrency like Bitcoin more stable than a national currency.

The study found that poorer nations have more stringent capital controls. Capital restrictions are put in place to prevent foreign money from entering and fleeing the country’s economy. As a result, criminals use cryptocurrencies to avoid taxes and constraints.

“A history of high inflation may make the domestic currency less attractive as a store of value,” the study’s authors write. “Past inflation is used as a proxy for the currency’s stability, which may affect the attractiveness of crypto assets as an alternative store of value.”

The research also suggests that countries embracing Bitcoin too quickly may encounter difficulty. Last year, El Salvador was the first country to legalize Bitcoin as currency, purchasing 150 bitcoins in September 2021.

After the nation declared Bitcoin a legal payment last year, its price increased by almost 8%. However, such broad acceptance may also represent significant risks to the country’s financial system. Bukele received considerable criticism from his government due to its financial stand.

According to Cryptopolitan, El Salvador’s President Bukele added more Bitcoin during the crypto winter. Following the bear market, the IMF advised El Salvador against legalizing cryptocurrency. However, President Bukele made no indication of backing out of his Bitcoin goal, which could disrupt El Salvador’s relationship with the IMF.

According to the study, the best approach forward is not to fight but rather to figure out how to regulate cryptocurrency better. In the United States, Senators Jim Risch, Bob Menendez, and Bill Cassidy recently introduced the Accountability for Cryptocurrency in El Salvador (ACES) Act, seeking improved regulation.

According to the IMF, countries require more stringent regulation to prevent the rapid expansion of cryptocurrencies from resulting in financial instability, consumer fraud, and terrorist financing.

Florence Muchai

Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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