- A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets.
- It is a digital representation of value that can be digitally traded and functions as a medium of exchange but, unlike fiat currency like the rupee, it is not legal tender and does not have the backing of a government.
- Fiat money is a currency that lacks intrinsic value and is established as a legal tender by government regulation.
- ‘Legal tender’ is the money that is recognised by the law of the land, as valid for payment of debt. It must be accepted for discharge of debt.
- Blockchain technology enables the existence of cryptocurrencies (among other things). This technology has been exploited by the crypto currencies such as Bitcoin, Ripple, Litecoin etc as blockchain data is secured using cryptography.
Why in News?
- The International Monetary Fund (IMF) has warned against the adoption of Cryptocurrency, saying it can threaten financial stability of emerging markets. According to the IMF, Crypto currency poses new challenges to financial stability and consumer protection risks remain substantial given limited or inadequate disclosure and oversight.
- The total market value of all the crypto assets surpassed 2 trillion dollars as of September 2021, a 10-fold increase since early 2020.
- IMF’s financial experts said, anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors for money laundering, as well as terrorist financing. Although authorities may be able to trace illicit transactions, they may not be able to identify the parties to such transactions.
- Additionally, the crypto ecosystem falls under different regulatory frameworks in different countries, making coordination more challenging.
- The International Monetary Fund was conceived in 1944 at the United Nations Bretton Woods Conference in New Hampshire, United States.
- The IMF and the World Bank are called Bretton Woods twins.
- The IMF is a permanent observer at the UN.
- It is an organization of 190 countries. India is a founder member of the IMF.
- The mandate of the IMF as follows:
- To promote international monetary cooperation;
- To facilitate the expansion and balanced growth of international trade;
- To promote exchange stability;
- To assist member countries in correcting maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity;
- To assist in the elimination of foreign exchange restrictions which hamper the growth of world trade.