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The International Monetary Fund (IMF) believes that endemic corruption could be accelerating crypto adoption, but it admits the data is patchy.
A new study by the IMF has found that the use of crypto-assets is “significantly and positively” correlated with a higher perception of corruption.
In its new working paper, the IMF also found that crypto adoption correlates with high capital controls and a history of high inflation.
Despite the challenge of sourcing accurate, global data on crypto adoption, the IMF said the results of its study nonetheless indicate the need for tougher crypto regulations “as opposed to taking a laissez-faire stance”.
In particular, the IMF’s main call to action is that all “intermediaries” in the crypto-asset ecosystem be required to implement know your customer (KYC) procedures.
“Overall, our interpretation, combined with a principle of prudence given the rapid increase in macroeconomic relevance of crypto assets, is that this evidence adds to the case for regulating crypto usage,” the report notes.
“Meanwhile, work should continue in using the technologies underlying crypto assets to realise the potential benefits to financial inclusion and the efficiency of governments.”
Data limitations
Despite recommending tougher regulation, the IMF admits there are limitations to the available data, and that more research is needed to understand the dynamics and driving forces behind crypto adoption.
For example, the study’s baseline data was drawn from Statista, which collected it as part of its Global Consumer Survey in 2020.
The survey had 2,000-12,000 respondents per country, with 55 countries covered, but the IMF noted that it was not able to confirm whether the respondents were “representative” of each national population.
In the Statista data, adoption was defined as the share of respondents who indicated they either owned or used cryptocurrencies in 2020, the year when the survey was conducted.
In its analysis of the data, the IMF found that countries with weaker control of corruption and a lower degree of capital openness tend to have a larger share of crypto adoption, suggesting that crypto-assets may be used to transfer the proceeds of corruption or to circumvent capital controls.
Moreover, a move from the 25th percentile to the 75th percentile in terms of control of corruption and capital openness (with all other things being equal) was associated with a decline in crypto adoption by around 2 and 4 percentage points respectively.
The study found that the number of bank branches per capita, a potential measure of financial system development, was “not statistically significant”, although this variable did produce the expected correlation (i.e., crypto adoption is lower in countries with more developed financial systems).
Commenting on the study, VIXIO analyst Katherine Long questioned some of its conclusions, noting that the IMF appears all too willing to derive causation from correlation when it comes to crypto-assets.
“It is unsurprising that countries with stricter capital controls, higher corruption and a history of higher inflation have more significant crypto-asset ownership,” she said.
“However, this paper provides no evidence that crypto-assets are contributing to or taking advantage of these factors: it provides evidence only that this correlation exists.
“The authors have also assumed that crypto-assets are negatively impacting the countries where they are used, but it could well be the case that crypto usage is alleviating the impact of corruption and inflation for ordinary people. Calls for stricter KYC rules based on this evidence seem premature.”
