When Argentina’s central bank issued a de facto ban on trading digital assets, enraged cryptocurrency investors quickly fingered a culprit: As part of a bailout negotiation with the International Monetary Fund, the South American nation had recently promised to crack down on cryptocurrencies.
“The IMF is evil,” was one typical Twitter response to last month’s move, punctuated with an emoji of an extended middle finger.
Across four continents, tensions over the future of money have mounted in recent weeks. As Western investors and developing world leaders pursue new initiatives that encourage countries to adopt Bitcoin as an official currency — and the Central African Republic joins El Salvador in doing so — the stewards of the global financial system are increasingly pushing back.
At stake is whether the issuance and flow of money will be dominated by the central banks of the developed world or the rules coded into a new kind of software program invented 13 years ago.
Officials from the U.S., IMF, World Bank and the Bank for International Settlements argue that by adopting cryptocurrencies, nations could facilitate money laundering and undermine capital controls, while exposing their citizens to severe price volatility.
Dong He, Deputy Director of the IMF’s Monetary and Capital Markets Department, said the prospect of a sudden drop in the price of Bitcoin — which has lost more than half its value since November — made it unsuitable as a national currency.
“What would happen to the tax revenue? What would happen to your obligations to spend on social services?” said He, who declined to address the anti-crypto provisions in Argentina’s letter to the fund. “This is a very risky proposition.”
Activists and investors who support such experiments argue that cryptocurrencies like Bitcoin offer an escape from rapidly inflating currencies in places like Argentina and Nigeria, while allowing poor countries to explore alternatives to a global financial framework that was designed to benefit rich countries.
They contend that the reservations of the world’s monetary stewards have less to do with protecting the well-being of citizens of the developing world than with preserving a system in which the central banks and governments of rich countries dominate the global monetary system.
“Bitcoin stands against everything the IMF stands for,” said Alex Gladstein, chief strategy officer of the Human Rights Foundation, an NGO that supports Bitcoin adoption. “It’s an outside money that’s beyond the control of these alphabet soup organizations.”
This spring, the scope of the long-simmering conflict has broadened, even as a steep fall in Bitcoin’s price has highlighted the risks of such experiments.
In April, the Central African Republic passed a law making it the second country in the world to adopt Bitcoin as a legal currency. The move has drawn opposition from the IMF and the World Bank, as well as the regional central bank that oversees the country’s existing currency, the central African CFA franc, which is pegged to the euro as part of a system overseen by France.
That body, the Bank of Central African States, has called on the Central African Republic to undo its Bitcoin law. It has also cracked down on cryptocurrency generally, issuing new rules that force financial institutions within its remit to cut ties with payments platforms that use the digital currencies.
But the small country has plowed ahead with its initiative, announcing plans to build a “Crypto Island” to attract international investment.
Meanwhile, in the first country to adopt Bitcoin as a currency, El Salvador, the initiative continues to exacerbate a broader rift with Western powers that has opened under the leadership its popular, autocratic president, Nayib Bukele.
In November, the U.S. chargé d’affaires in San Salvador, Jean Manes, said that the U.S. had put its relations with El Salvador on “pause,” citing anti-American rhetoric from the Bukele regime and a power grab that saw the dismissal of an attorney general and supreme court justices.
As Bukele has continued his authoritarian turn, the Bitcoin project has become a symbol of his defiance of international institutions.
In a statement provided by a spokesman, the State Department did not address a query about El Salvador specifically but urged caution on countries pursuing cryptocurrency adoption.
“We share the concerns expressed publicly by the IMF, the World Bank, and others that adopting a cryptocurrency as a legal tender raises a host of potential complications,” said the statement, which called on countries to comply with anti-money laundering and counter-terrorism standards when experimenting with cryptocurrencies. The statement also acknowledged the use of cryptocurrencies by human rights activists to evade financial controls in repressive regimes and its role in facilitating financial assistance to Ukraine.
A bipartisan duo of senators has lodged a more pointed response to El Salvador’s experiment. In February, citing concerns over sanctions evasion, Senate foreign relations chair Bob Menendez (D-N.J.) and ranking member Jim Risch (R-Idaho) introduced a bill, which remains under consideration, that would require the State Department to complete a report on the impact of the county’s Bitcoin law on the U.S. financial system.
But Bukele and the Bitcoin investors urging him on remain undeterred by the pushback.
In April, Samson Mow, a Canadian entrepreneur involved in El Salvador’s experiment, announced that he had raised $21 million to fund a new company — called JAN3, in honor of the date of Bitcoin’s launch — with the goal of bringing about “hyperbitcoinization,” or the replacement of existing national currencies with Bitcoin. Mow did not respond to requests for comment.
A few weeks later, Bukele used a pre-scheduled gathering of the Alliance for Financial Inclusion — a group of dozens of central banks and other policymaking bodies from the non-Western world — in San Salvador to showcase the country’s Bitcoin experiment and urge other nations to follow suit.
The Alliance for Financial Inclusion did not respond to requests for comment, though a press release on its website hints at the sensitive nature of the subject. The release announces that during the May gathering, members of the group visited El Zonte, a coastal area south of the capital that has earned the nickname “Bitcoin Beach,” to learn about the uses of cryptocurrency. But the release also recites a long list of concerns, like money laundering, that echoes the warnings of Western powers, and states, “adoption is not a possibility in the majority of countries.”
Undeterred by the setbacks that have marred the early phases of his own experiment, Bukele cast the gathering in a more momentous light. On Twitter, he bragged that it had brought together 44 nations. That would be same number the U.S. convened to overhaul global financial system at the Bretton Woods Conference in 1944.
Bukele’s posture is especially audacious because of his country’s precarious financial situation. Since last year, it has been seeking a $1.3 billion loan from the IMF, which in turn has called on El Salvador to strip Bitcoin of its legal tender status. Last month, the ratings agency Moody’s downgraded the country’s sovereign debt as risk grew of a default. Such financial stress often forces countries to seek help from the IMF, but El Salvador’s experiment poses a potential obstacle.
“This is an incredible gamble with a nation’s money, and you can’t at the same time come to the IMF and say, ‘We need your support,’” said Josh Lipsky, director of the Geoeconomics Center at the Atlantic Council, a Washington-based think tank. “You can do one, but you can’t do both.”
Even some of the world’s most outspoken Bitcoin advocates worry that the rush to make Bitcoin serve as a national currency could backfire. In recent years, Microstrategy CEO Michael Saylor has become a face of the Bitcoin phenomenon after buying billions of dollars worth of it for the treasury of his publicly traded software company. In April, he met with Argentina’s former president Mauricio Macri, to talk about the cryptocurrency.
In an interview, Saylor said national leaders who wanted to encourage adoption would face less blowback if they promote it as a vehicle for savings, rather than as a substitute for existing currencies.
“I wouldn’t try to change my medium of exchange. I would try to introduce Bitcoin as a store of value,” he said, calling the latter approach “a better evolutionary strategy that’s less likely to ruffle feathers.”
At a national level, the adoption of cryptocurrency has been most attractive to countries that lack their own sovereign currencies or suffer from runaway inflation.
El Salvador gave up its sovereign currency, the colón, in 2000, and adopted the U.S. dollar, losing its ability to pursue independent monetary policy in the process.
In February 2018, the Marshall Islands, a tiny republic in the equatorial Pacific that uses the U.S. dollar, passed a law authorizing the creation of a new sovereign cryptocurrency, the SOV, with a fixed growth rate of 4 percent. The IMF has repeatedly raised concerns about the initiative, citing volatility, financial integrity issues and a lack of reliable infrastructure to support a digital currency. The SOV has yet to be issued, and last month, the IMF reiterated its concerns about the project.
The Central African Republic also lacks direct control over monetary policy. Instead, it participates in a regional monetary union overseen by the Bank of Central African States, as part of a larger currency system, the CFA franc, designed by France after its former African colonies achieved independence. The system, which pegs the CFA franc to the euro and requires member countries to deposit much of their currency holdings in France, has provided currency stability but also been criticized as a neocolonial arrangement.
In Argentina, a runaway inflation rate that is now close to 60 percent has led citizens to embrace cryptocurrency. It also led President Alberto Fernández to openly toy with making Bitcoin legal tender before the government’s recent commitment to the IMF to crack down on cryptocurrency.
The IMF, whose work on cryptocurrency includes recent consultations with India on that country’s forthcoming policy framework, has called for a coordinated international government response to the rise of cryptocurrency. Though the fund has discouraged the use of a crypto network like Bitcoin as a currency, it has encouraged national central banks to explore the use of Bitcoin’s underlying blockchain technology for digital upgrades to their own sovereign currencies. A transition to central bank digital currencies, knowns as CBDCs, would be less disruptive to existing monetary arrangements than the changes sought by cryptocurrency backers.
On Tuesday, the Bank for International Settlements, an international body owned by the world’s central banks, launched its own latest salvo against cryptocurrency with a new report arguing that fragmentation in the world of cryptocurrency means that “crypto cannot fulfil the social role of money.”
Instead, the report called for updating the national and supranational currencies overseen by its members. “There is more promise,” it states, “in innovations that build on trust in sovereign currencies.”
In the meantime, the conflicts brewing between developing countries and global financial powers over digital money are also exposing the rifts within each.
In El Salvador, the rollout of Bitcoin last fall was met with street protests, and opposition leaders in the Central African Republic have panned the country’s new law.
There is disagreement, too, within the world’s reigning financial powers, about the appropriate role of cryptocurrency, if any, in the monetary system. U.S. global leadership on the subject remains tentative while a lively debate about the technology continues to play out in domestic politics.
In March, IMF deputy managing director Gita Gopinath, previously the fund’s chief economist, told the Financial Times that Western sanctions imposed in response to Russia’s invasion of Ukraine would likely lead to wider adoption of cryptocurrency as actors around the world sought alternatives to the established financial system. But last month, European Central Bank President Christine Lagarde, herself a former IMF chief, opined that cryptocurrencies are “worth nothing.”
Within individual institutions like the IMF, no single school of thought prevails. The pronouncements of the “the big honchos at the top” do not always reflect the views of rank-and-file staffers, many of whom have wholeheartedly embraced cryptocurrency, according to John Kiff, who left his job as a financial sector expert at the IMF last year and now works as a managing director of the newly formed CBDC Think Tank.
“In terms of what comes out in public under the IMF banner, it has to filter through the IMF management and not fly in the face of the board of directors, which is made up of the member countries,” he said. “Even if the Fund were somewhat anti-crypto, there’s people in the bowels like myself who are buying and selling crypto.”
Ben Schreckinger covers tech, finance and politics for POLITICO; he is an investor in cryptocurrency.