IMF red flags Central Africa’s Bitcoin adoption; Says it raises policy challenges

Lavina Daryanani

Towards the end of last month, the Central African Republic [CAR] had passed a bill to make Bitcoin legal. Within no time, the country adopted the king-coin as its legal tender. While people from the crypto community were elated with CAR’s decision, opposition parties criticized the same because the decision was made without consulting the regional central bank. In fact, global regulators—like the IMF—also brought forward their concerns.

The head of the IMF’s African Department, Abebe Aemro Selassie, said that a “robust” payment system with financial transparency and a governance framework must be in place when adopting cryptocurrencies. He, in fact, also went on to state that Bitcoin was not a “panacea” for Africa’s economic woes.

Conflicting views on Bitcoin

More recently, the global financial body told Bloomberg via e-mail that the Central African Republic’s adoption of Bitcoin as legal tender presented a series of challenges for the country and the region.

“The adoption of Bitcoin as legal tender in C.A.R. raises major legal, transparency, and economic policy challenges. IMF staff are assisting the regional and Central African Republic’s authorities in addressing the concerns posed by the new law.”

However, CAR’s lawmakers think otherwise. Notably, the Central African Republic is one of the poorest countries in the world and is heavily reliant on mining for its commercial success. The region was ranked at the bottom of the United Nation’s Human Development Index for 2020, coming in at 188 of the 189 countries on the list.

Post passing the bill, the government expects its move of inculcating cryptos to help bolster the local economy and spur CAR’s economic recovery and growth. In fact, it is also betting that the adoption of Bitcoin as a legal tender will help to stabilize the country, which has been wracked by a decade-long civil war.

The IMF, on its part, has not been very receptive to cryptos. Back in January, it had urged El Salvador to strip Bitcoin of its legal status. The international financing institution wielded a similar reason at that time also and said,

“The adoption of a cryptocurrency as legal tender, however, entails large risks for financial and market integrity, financial stability, and consumer protection. It also can create contingent liabilities.”