[Note: The photo above is of IMF Director Christine Lagarde. It is used for illustrative purposes but it should be noted that she did not author the report. It was, as mentioned in the article below, written by the IMF “staff”]
The International Monetary Fund (IMF) released its first report on Virtual currencies today. While much of it is favorable, one thing is sure to stick in the craw of the Bitcoin faithful: The IMF does not believe Bitcoin reaches the legal definition of money.
The report was released this morning and is the first staff paper on digital money. The report technically includes all forms of virtual currencies (like Paypal and in-game currencies) but focuses almost entirely on cryptocurrencies like Bitcoin. It covers what the IMF sees as the advantages of cryptocurrencies, as well as potential downfalls and risks.
Most of it is the standard fare: Bitcoin can speed up transactions, increase financial inclusion, lower the cost of remittance, and increase the efficiency of buying securities. On the downside, it includes the typical regulator-speak on what is wrong with Bitcoin: it could help money-laundering and terrorism financing. There is also a subsection dedicated to Ponzi schemes and their use of cryptocurrencies.
What the IMF said about virtual currencies and their legal status, will interest most readers:
“VCs fall short of the legal concept of currency or money. While there is no generally accepted legal definition of currency or money, the following may be noted:
The legal concept of currency is associated with the power of the sovereign to establish a legal framework providing for central issuance of banknotes and coins. Currency refers to the unit of account and the medium of exchange denominated by reference to that unit of account, prescribed by law. In the strict sense, currency refers to the banknotes and coins that are issued by a central authority (for example, the central bank) that has the exclusive right to do so. Currencies are given the status of legal tender under the state’s legal framework,12 which generally entitles the debtor to discharge monetary obligations with the currency through its mandatory acceptance within the relevant jurisdiction. As such, the value and credibility of a sovereign currency are intrinsically linked with the ability of the state to support that currency.
The legal concept of money is also based on the power of the state to regulate the monetary system. As a legal matter, the concept of money is broader than the concept of currency, and includes not only banknotes and coins but also certain types of assets or instruments that are readily convertible into such banknotes and coins (for example, demand deposits). While money can be created by private parties (for example, banks) as well as central banks, it must generally be denominated in a currency issued by a sovereign authority, and must be intended to serve as a generally accepted medium of exchange within that state. “
There is also a chart that compares the features of Bitcoin to other forms of value, including fiat currencies, foreign fiat currencies, commodities, banknotes, greenbacks, coins and the gold standard. (Page 15)
As far as policy goes, the IMF recommends that nations co-operate to create more consistent regulation. It also acknowledges that regulation of cryptocurrencies themselves would be difficult. Therefore the IMF recommends that regulation focus on the “gatekeepers” of cryptocurrencies. Exchanges that enable the purchase of virtual currencies were cited as an example.
On the other side of that token, the IMF also urged caution, stating that too stringent of regulation could hamper innovation.
The IMF does not set monetary policy, so its opinion is not law. Rather, it was created to promote economic and monetary cooperation between the 188 nations that claim IMF membership. This report isn’t going to change any country’s policy overnight, but the IMF is something the global bitcoin community should pay attention to.
We will have more on Bitcoin regulation, international and otherwise, as it becomes available.
[Photo Credit: World Economic Forum]