The rapid rise in global crypto adoption has fuelled the IMF thinktanks into expressing concerns regarding its potential use to facilitate illegal activities. Referring to data collected from the Global Consumer Survey Report by Statista, the International Monetary Fund has drawn a unique inference, indicating nations with high crypto adoption as corrupt. While it is a known fact that crypto adoption tends to be higher in developing rather developed regions and nations with fluctuating currency valuations, the inference is however unjustified.
IMF Downplaying Crypto
The IMF is suggesting that the high usage of cryptocurrencies in developing nations is used to shift the proceeds of corruption without the worry of tracking. The finance body is recommending the enforcement of strict crypto regulation laws to prevent abetting criminals. KYC requisites in particular will dissuade people from indulging in corruption. However, economics scholars across the world believe rising crypto adoption is more of an effect than a direct cause of corruption.
What Actually Happens
Economists James Robinson and Daron Acemoglu offer a valid reason behind the origins of corruption in their book “Why Nations Fail: The Origins of Power, Prosperity and Poverty”. The authors attempt to explore the reasons behind variations in corruption across several nations. Nations like Sweden and Canada enjoy low corruption, while Syria and Nigeria do not. The reason is not geography or culture, but the institutions within the nation that determines the success in reducing corruption.
The authors’ perception of institutions includes all governing aspects that mold a nation’s economy or political scenario: the right to property, enforcement of contracts, standard licensing procedures, financial regulation, and more. Inclusive institutions stimulate and help in fostering the necessary growth and constructive utilization of the entire society’s energy and entrepreneurship. On the other hand, extractive institutions operate exactly in reverse. They build an uneven playground to aid the ones with political power in all ways possible.
The groundbreaking book puts forward the idea of corruption being a by-product of institutions that are extractive in nature. Bribery is widespread, flowing back the assets back to the one in power.
Is Crypto Regulation the Solution?
Addressing a global challenge like corruption requires a lot of dedicated problem-solving in the long run. Starting with a breakdown of all institutions that offer unethical facilities to the elite, and replacing them with organizations that actually function for citizen welfare. The IMF’s prescribed remedial solution of crypto regulation works, but only on paper. This solution does not offer any positive contribution to the existing problems, be it malfunctioning organizations, corruption, inequality, or poverty.
In fact, illicit activities constituted a meager 0.15% of global crypto transactions across 2021, as per Chainalysis. Also, law enforcement agencies have collaborated with crypto companies for the successful apprehension of cybercriminals across the globe multiple times. Hence, the IMF’s suggestion of crypto regulation as an effective form of reducing corruption is illogical. The ground reality is this: exploitatory institutions and poor infrastructure have led to an increase in global crypto adoption. The exploited class view crypto as a means of escape.
The IMF’s verdict on the perils of crypto adoption is non-rational. The increase in global crypto adoption, particularly across developing nations may be either due to the role of digital assets as an option to bypass the country’s oppressive regime or as the last beacon of hope against failing economies, dipping currency valuations, and utter desperation.