Friends or Foes: International Financial institutions and Cryptocurrencies
The two main financial institutions that fall under the umbrella of the United Nations (UN) — The World Bank (WB) and The International Monetary Fund (IMF).
The World Bank is a multilateral development bank to all the nations. The World Bank’s first priority is to end poverty, it’s second is to promote shared prosperity and income equality. One of its key functions is to provide loans to countries, provide funding for development projects and lastly to provide investments, advice and asset management to governments.
The IMF has similar goals and priorities to WB. Its main functions are to oversee the state of the countries’ economies and growth, providing expertise to governments in formulating monetary and fiscal policies.
The two bodies recognise the rise of cryptocurrency and its ability to replace fiat money. It is no coincidence that Bitcoin was created in 2009 soon after the financial crisis of 2008. The masses hesitated to trust larger financial institutions that proved that its intent wasn’t the best for the common man, that eventually got them into this mess in the first place. And so they started to search and explore better alternatives. And BOOM, blockchain technology!
Bitcoin was the birth child of cryptocurrency. Cryptocurrencies are the finest and most developed application of blockchain technology. The main popularity behind cryptocurrency is the P2P i.e. peer to peer transactions and decentralization that completely eliminates the middleman and other third parties making the transaction as secure as it can be.
The two bodies have acknowledged the benefits of this technology by publishing their own research papers and reports to provide a credible source to create awareness to the public. However, as of now, there is no clear stand-alone policy in place for cryptocurrency. This also means the bodies have not closed their doors on cryptocurrency as well, and we can expect coherent policies and maybe even a separate panel or wing of the WB and IMF to oversee the cryptocurrency markets.
Putting the institutions to the Test
As you know from our last article, El Salvador became the first country to adopt Bitcoin as legal tender. Adopting bitcoin does not mean that it is abandoning the US dollar. The president has made this very clear to IMF, as it is currently in the middle of negotiations for a $1 billion loan to patch budget gaps through 2023. This new bill has not had any strain on the ongoing talks with the IMF, showing a positive sign of acceptance.
The World Bank on the other hand, had an adverse reaction initially. It cited its concerns over transparency and environmental issues and refused to provide support. However, in our previous article, we actually uncovered that bitcoin uses lesser energy and resources in mining compared to large banks and other financial institutions. Overtime, more environmentally-driven individuals, companies and institutions including the World Bank will uncover more research that mining cryptocurrency is not nearly as damaging as it is actually portrayed.
However, a few days after announcing its statement of not supporting El Salvador, the World bank is forced to accept the cryptocurrency. According to its Charter, under the 1944 Articles of Agreement, the World Bank pledges to accept payments from member states in their respective local currencies. Hence rendering their support and acceptance towards cryptocurrency under its very own mandate!
Even Paraguay announced its plans to implement cryptocurrency soon after El Salvador announced its bill. With international support, we are hopeful to see a domino effect of countries one after the other adopting cryptocurrency!
Stay tuned for more!