International financial institutions and cryptocurrencies - centralization vs decentralisation during the 2020s



The following article is based on my policy report "The Skepticism of International Financial Institutions to Adopt Blockchain Technology and Decentralized Finance" published via AIDBLOCK

Since 2015, several international financial institutions such as the International Monetary Fund (IMF), Group of 20 (G20) and Banks of International Settlements (BiS) have been doing more work regarding cryptocurrencies and blockchains. This development is interesting since the mentioned institutions have a history of working in favor of the interests of national governments and international law, while cryptocurrencies are seen as a symbol of decentralization and global integration. Also, cryptocurrencies are historically created by individuals and communities influenced by libertarian, anarchist and other ideas where centralized public institutions and governments are seen as something negative and problematic.

One of the main reasons international financial institutions are showing more interest in decentralized technology is the increased number of humans and systems using cryptocurrencies, blockchains and other decentralized tools such as smart contracts, self-sovereign identity and reward systems. The development is also influenced by the fact that most national governments worldwide have adopted some decisions or legislation regarding how cryptocurrencies are defined. Especially cryptocurrencies are becoming more popular in both the Global North, as in the EU and USA, and in Global South, as in Vietnam and Venezuela, due to "cryptoneurship" (crypto entrepreneurship), easier financial transactions and civic distrust in authoritarian governments.

When it comes to institutions such as the IMF and BiS, it is often assumed and seen that such institutions are always "anti-crypto". The reality is more mixed and nuanced. For example, the IMF has more positive views on crypto than BiS regarding global financial transactions for trade and between family members. While for example, the UN agencies have mainly positive but also some negative perceptions and experiences with the usage of blockchain for transaction systems, databases, and mission tools.

In general, one can also say that several international institutions are "cherrypicking" regarding decentralized technology. One current example are ideas around central bank digital currencies (CBDCs) where blockchain is used. CBDCs are seen, for example, BiS, as an alternative to cryptocurrencies and a way to "centralize decentralization" to prevent cryptocurrencies from replacing national money systems such as the American Dollar and Japanese Yen.

The current development is that several institutions, such as the BiS, are against the idea of recognizing cryptocurrencies as money because the tasks and functions of such institutions are to protect and preserve the current centralized monetary and financial systems with central banks and public money. At the same time, such institutions are aware that it is more or less impossible to "ban crypto" and totally prevent humans from using it. Instead, BiS and other institutions, such as the United Nations Conference on Trade and Development, are using other approaches and methods to make crypto harder or less appealing.

Such behaviors include policy and legislation proposals regarding cryptocurrencies and money laundering, risks for terrorism and organized crime. Other examples are communication and "recommendations" to governments as in Africa, to practice censorship and remove content, ads and information about cryptocurrencies, as in social media. Even the IMF in its recent negotiations with Argentina, demanded commitment that the nation would not legalize crypto as Bitcoin.

The mentioned behaviors of international institutions are part of the ongoing conflict between supporters of centralization and supporters of decentralization regarding how the global future should look regarding money, markets and mobility. One can say that between the rows, institutions such as BiS are saying that "crypto will not replace us" and it is a common thing, for good or bad, that public institutions are trying to keep themselves accepted and legitim. At the same time, due to decentralized functions, more humans can create their own systems, communities and alternatives. Because cryptocurrencies and blockchains are not only about economic factors but also tools and methods for improving and renewing the ways humans cooperate, engage in democratic decision-making, and relate to each other in everyday social life.

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