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Is the IMF shutting the door prematurely on Bitcoin as legal tender?

Should the International Monetary Fund leave the door open for developing countries struggling with inflation? “Bitcoin was made for the Global South.”



Should the International Monetary Fund leave the door open for developing countries struggling with inflation? “Bitcoin was made for the Global South.”

There’s been little sunlight this crypto winter, so it may seem odd to present the “Bitcoin as legal tender” argument again. That is, will or should any country — other than El Salvador and the Central African Republic (CAR), which have already done so — declare Bitcoin (BTC) an official national currency?

The International Monetary Fund (IMF) raised the issue again last week in a paper putting forth nine crypto-focused policy actions that its 190 member countries should adopt. First on its list of “don’ts” was elevating crypto to “legal tender.” Or, as the multilateral lending institution’s executive board assessment stated:

“Directors generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability.”

Maybe it’s not fair to ask the question with crypto back on its heels, but was the IMF right to warn its member banks about cryptocurrencies? And if so, what exactly is lacking in the composition of private digital money that makes it unsuitable as an official national currency? Maybe it’s Bitcoin’s well-documented volatility, but if that’s the case, couldn’t the world’s oldest cryptocurrency still grow into a new role as an auxiliary scrip — perhaps in a few years when it has more users, is more liquid, and exhibits less price variance?

The IMF must tread carefully

“The IMF’s mandate is to promote global economic stability and growth. It is therefore reasonable that the IMF has recently advised countries to refrain from granting legal tender status to crypto-assets, which are, by design, often disruptive in nature,” Gavin Brown, associate professor in financial technology at the University of Liverpool, told Cointelegraph. “Such disruption does arguably present just as many opportunities as threats, but the IMF must tread a more prudent path when faced with such open-ended uncertainty.”

“There are very good economic reasons why most countries would not want to adopt cryptocurrencies like BTC as their local scrip,” James Angel, associate professor at Georgetown University’s McDonough School of Business, told Cointelegraph. “In short, they don’t want to lose the profits from printing their own money or the economic control over the economy that fiat currencies provide.”

While crypto maximalists may skewer governments for printing money non-stop to paper over deficits, “sometimes, the right thing to do is to print money,” added Angel, “like in the Great Recession or the pandemic. The trick is not to print too much, which happened in the pandemic.”

‘Bitcoin was made for the Global South’

In its policy paper, the IMF had multiple arguments for its position beyond crypto’s well-documented volatility. It could expose government revenues to foreign exchange rate risk. Domestic prices “could become highly unstable” because businesses and households would spend time deciding whether to hold fiat or BTC “as opposed to engaging in productive activities.” Governments would have to allow citizens to pay taxes in Bitcoin — and so on.

Adopting crypto as legal tender could even affect a government’s social policy objectives, the IMF paper stated, “particularly for unbacked tokens, as their high price volatility could affect poor households more.” 

But questions remain. Even if the IMF arguments are valid and hold in most circumstances, aren’t there exceptions? What about developing countries struggling with inflationary currencies, like Turkey?

“Bitcoin was made for the Global South,” Ray Youssef, co-founder and CEO of Paxful — and a founder of the Built With Bitcoin Foundation — told Cointelegraph. “In the West, a lot of attention is paid toward the suspected volatility of Bitcoin. That’s because the world runs on the dollar and the West is shielded from global inflation. Right now, Turkey has an inflation rate of over 50%, and Nigeria has an inflation rate of over 20% — in these economies, Bitcoin is a strong bet.”

But even in instances like these, it may not be so easy. “In order for cryptocurrency to be used effectively as legal tender in developing countries, governments will [still] need to heavily invest in the technological infrastructure and a suitable regulatory framework,” Syedur Rahman, a partner at law firm Rahman Ravelli, told Cointelegraph. If this can be done, it “will assist in financial inclusion.”

“Adopting a foreign/hard currency or monetary standard is a last resort to rein in hyperinflation,” commented Angel. “But even weak governments like to have the power of the printing press, as it provides a taxation mechanism to pay the troops.”

The Central African Republic made crypto legal tender in April 2022 — the second country to do so, after El Salvador. Some CAR representatives said that crypto would help reduce fees for financial transactions in and out of the country. Maybe that, too, is a valid reason to elevate crypto to official currency.

Rahman acknowledged that “there are benefits such as seeing a reduction in transaction fees for financial transactions. If there is a weak traditional banking system or lack of trust, then cryptocurrency undoubtedly can provide an alternative means of payment.”

“Remittance is a great use case for Bitcoin,” said Youssef. “Money transfer companies charge high fees and funds can take days to arrive.” Bitcoin cuts down on fees, and transactions can take minutes. People who may not have a bank account can take advantage of remittances too. “This is a huge deal when you look at the amount remittances bring into some countries. In El Salvador, remittances account for over a quarter of the country’s GDP.”

Others were dismissive, however. “I think legal tender status in this context is likely a gimmick. I’m not sure how I might be more motivated to send BTC to someone living in CAR just because BTC is now viewed as legal tender in that jurisdiction,” David Andolfatto, economics department chair and professor at the University of Miami’s Miami Herbert Business School, told Cointelegraph.

Moreover, the act of granting a “foreign” currency legal tender status “seems to me to be an admission that a country’s institutions cannot be trusted to govern society effectively,” added Andolfatto, a former senior vice president of the Federal Reserve Bank of St. Louis where he became one of the world’s first central bankers to deliver a public talk on Bitcoin in 2014.

Bitcoin remains questionable as legal tender because it does little to quell the so-called “flight-to-safety” phenomenon, wherein the demand for money shifts violently with sudden changes in consumer or business sentiment, Andolfatto explained.

“These violent swings in the price level are unnecessary [...] What is needed is a monetary policy that expands the supply of money to accommodate the demand for money in times of stress. The provision of an ‘elastic currency’ serves to stabilize the price level for the benefit of the economy as a whole.”

“Transaction fees are a friction on global economic activity,” noted Brown, and developing nations often bear the burden of these inefficiencies. Still, “In my view, a pivot to crypto assets, such as in El Salvador today, is a risk too big to take,” Brown said. Georgetown’s Angel added, “El Salvador and CAR are special cases since they did not have their own currency to start with.” 

More maturity

Bitcoin is still relatively young and volatile. But with wider adoption, including institutional investors, couldn’t it become a stable asset, more like gold? “There is some merit to this argument,” says Andolfatto. “I believe BTC price volatility will diminish as the product matures.” But even if BTC remains stable for long periods of time, “it will always be susceptible to ‘flight-to-safety’ phenomena that would generate sudden large deflations — or inflations if people are dumping BTC,” he added. “BTC will appear stable, but it will remain fragile.”

Youseff, like some others, suspects the IMF has ulterior motives in all this. The fund is interested in self-perpetuation, he suggested, adding:

“Bitcoin has proven to lower inflation, give more people access to the economy and international work, increase transparency and act as a universal translator of money. It also has the potential to lessen a country’s reliance on international centralized power — like the IMF. It’s not hard to connect the dots on why the IMF is not welcoming of Bitcoin.”

“Cryptoassets such as Bitcoin are still young in currency terms,” noted Brown, but their inherent weaknesses like price volatility and pseudo-anonymity could present “insurmountable challenges from the perspective of nation-states. Nonetheless, Bitcoin has become a backstop alternative when fiat currencies fail through macroeconomic events such as hyperinflation and controls around capital flight.”

If not the lead, still a supporting role?

For the sake of argument, let’s agree with the IMF, crypto skeptics and others that there is no future role for Bitcoin as legal tender or official currency — even in the developing world. Does that still preclude BTC and other cryptocurrencies from playing a useful social or economic role globally?

“I see a very useful role for crypto technology, which is why I have been a vocal proponent of CBDCs [central bank digital currencies] since 2014,” answered Angel. “There are very good reasons why over 100 central banks are working on these.”

But he’s skeptical about Bitcoin because “governments have a long history of pushing private money aside. I’m surprised that it has taken as long as it has for governments to react and attempt to push aside Bitcoin in order to get all the seigniorage revenue for themselves.”

Overall, crypto assets such as Bitcoin may continue “to be held in limbo by many nation states and regulators,” opined Brown, given that they are inherently anti-establishment but also “near impossible” to ban in free societies.

Bitcoin and other digital assets can still serve a positive role as “the trigger forcing the monopoly, which are central banks,” to think again about their monetary policies “and to innovate in response,” said Brown.

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…



By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.



Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250

Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  


3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 

From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:


In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…



Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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