The International Monetary Fund (IMF) in a recent report disclosed that Bitcoin has become a necessary financial tool for preserving wealth.
In the research titled “A Primer on Bitcoin Cross-Border Flows: Measurement and Drivers”, the IMF analyzed on how Bitcoin is increasingly serving as a critical channel for cross-border financial flows amid global instability and hyperinflation.
The research used comprehensive on-chain and off-chain data to analyze the scope and implications of Bitcoin’s integration into global financial systems. The IMF used three complementary and workable data assets to study Bitcoin transactions and cross border flows.
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Also, the pros and cons of the different approaches to estimating Bitcoin cross-border flows were analyzed, by presenting novel stylized facts using raw data that cover both on-chain and off-chain transactions, and analyzing the drivers of Bitcoin cross-border flows in comparison to capital flows for a large panel of countries.
The IMF disclosed that the rapid growth of Bitcoin since its launch in 2009 has increased its potential macroeconomic implications. Despite its price volatility and the fact that the crypto asset is not backed by any real asset or any governmental claim, the price of Bitcoin and the number of active users has increased over the decade.
The use of Bitcoin for cross-border transactions is geographically widespread, with relatively high intensities across regions both for on-chain and for off-chain flows, and some punctual differences driven by data coverage and the underlying estimation assumptions.
Analyses of the cross-border usage of Bitcoin highlight different activities from e-commerce to money linked to illicit undertakings. Nonetheless, independent of the underlying activity, cross-border transfers through Bitcoin are thought to be motivated by high costs or government controls hindering transfers via traditional financial institutions.
Notably, the magnitude of inflows relative to other countries, is particularly high in some Latin American countries such as Argentina and Venezuela. In these nations, Bitcoin has become a tool for preserving wealth and accessing global markets rather than just a speculative investment. Also, it was observed that relatively large inflows of Bitcoin transactions happened in a number of countries in Africa, Asia, and Eastern Europe.
Overall, the IMF research suggested that Bitcoin cross-border flows respond differently than capital flows to traditional drivers.
Of the estimated Bitcoin cross-border flows are sizeable with respect to several countries’ GDP, especially in those which experience smaller capital flows.
These findings are in line with a recent body of work suggesting that Bitcoin facilitates the circumvention of capital flow restriction. However, the IMF cautioned against the potential risks associated with the widespread use of Bitcoin for cross-border flows.
As highlighted by IMF policymakers in 2023, it stated that to manage capital flows, governments should ensure that capital flow management regulations cover crypto assets.
From a more structural perspective, the IMF also noted that it is important to address the underling imbalances which manifest in exchange rate pressures, since the usage of crypto assets would represent just symptoms of the imbalances.