In the last year, the rise and acceptance of cryptocurrencies have proceeded at a fast rate, with some places already adopting Bitcoin as legal tender or as a means of payment.
According to research published by the International Monetary Fund (IMF) on March 25 entitled “Crypto, Corruption, and Capital Controls: Cross-Country Correlations,” people in nations with greater levels of corruption are more likely to use cryptocurrencies than in other countries.
“We find that crypto-asset usage is significantly and positively associated with higher perception of corruption and more intensive capital controls,” the IMF report said.
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The survey of thousands of individuals in 55 nations to investigate the factors underlying the growing usage of crypto-assets revealed that such nations also have severe capital restrictions, making it difficult to move money outside the country discreetly hence the number of crypto users increases even more.
Indeed, in those countries regarded as corrupt or having severe capital restrictions, cryptocurrency adoption is higher, bolstering the argument for stronger sector regulation, per the report.
“Residents of countries where the traditional financial sector is well developed may be less likely to feel the need for crypto.”
Bitcoin more stable than local currency
The International Monetary Fund questioned approximately 2,000 to 12,000 individuals in each country regarding their cryptocurrency usage, totaling over 110,000 persons in over 55 nations.
Numerous factors were uncovered by the authors of the paper that explain why Bitcoin may be more popular in one nation than another.
Considering high levels of inflation, a popular cryptocurrency such as Bitcoin may be more stable than a local currency in terms of value over the long run.
Tougher requirements
Since poorer nations tend to have more stringent capital controls processes that prohibit foreign funds from moving into and out of the country’s economy, cryptocurrency may be a useful tool for avoiding taxes and other government regulations.
“The pseudonymity of crypto-assets (whereby transactions require only digital identities) makes them a potential vehicle for illicit flows, including flows of proceeds from corruption.”
As a result of the findings, the authors argue, more severe international regulation of cryptocurrencies, notably know your customer (KYC) requirements that require crypto exchange clients to be identified, is needed rather than the more laissez-faire attitude that has characterized a section of the market.
The analysis demonstrates why nations may seek to compel intermediaries, such as digital currency exchanges, to follow KYC processes – ID verification requirements aimed to combat fraud, money laundering, and terrorist funding. Some nations, such as the United States, have already implemented these kinds of restrictions.
Regulators and political officials have lately expressed concern that Russian oligarchs who backed President Vladimir Putin’s invasion of Ukraine may resort to cryptocurrencies as a means of financing their operations or circumventing sanctions.
