In recent years, the emergence and acceptance of cryptocurrencies have progressed rapidly, with some countries recognising Bitcoin as legal tender or as a payment method.
According to a study entitled “Crypto, Corruption, and Capital Controls: Cross-Country Correlations,” released by the International Monetary Fund (IMF) on March 25, individuals in nations with greater levels of corruption and capital controls are more likely to utilise cryptocurrency 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,” said the IMF report.
The study surveyed thousands of people in 55 countries to unravel the factors responsible for the growing usage of crypto-assets. The findings revealed that nations with more corruption also have stricter capital restrictions, making it difficult to transfer money out of the country discreetly, leading to an increasingly growing number of crypto users.
On the other hand, citizens of nations where the conventional financial industry is highly established might “be less inclined to sense the need for crypto”.
Bitcoin is more stable than the local currency
Bitcoin can remain more stable than a local currency. Source: Coinculture
The International Monetary Fund questioned about 2,000 to 12,000 people in each country on their cryptocurrency adoption, totalling over 110,000 individuals in more than 55 countries.
The results indicated some underlying factors for the more significant popularity of Bitcoin in one country than in another.
Owing to high levels of inflation, it is more likely for a popular cryptocurrency such as Bitcoin to remain more stable than a local currency concerning its value in the long run.
More stringent controls on crypto
Since poorer countries tend to impose more stringent capital controls that restrict foreign currencies from flowing into and out of these countries, cryptocurrency may be a way of tax evasion and avoiding other government rules.
“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.”
Rather than the laissez-faire stance of the market, it is more urgent to impose stricter international regulations on cryptocurrencies, such as know your customer (KYC) requirements that identify crypto exchange clients.
The study also indicates why governments may want to force intermediaries, such as digital currency exchanges, to adhere to KYC protocols — identity verification rules designed to fight fraud, money laundering, and terrorist financing. Certain countries, including the United States, have already strengthened such requirements.
Regulators and political leaders have recently voiced their concerns that Russian billionaires who supported President Vladimir Putin’s brutal invasion of Ukraine may use cryptocurrency to finance their activities or avoid sanctions.
