GFOA believes that the use of cryptocurrency carries multiple risks, including that it is:
- Not legal tender as it is like an unregulated anonymous foreign currency
- Lacking underlying substantive value
- Extremely volatile in nature, which could cause loss of principal
- Potentially illiquid
Further, according to the International Monetary Fund (IMF) “Consumer protection risks remain substantial given limited or inadequate disclosure and oversight” of cryptocurrency assets.
GFOA advises governments to abstain from accepting cryptocurrency for receivables, using cryptocurrency for payables, and investing in these products.
Such volatile and unstable products are typically unauthorized by state laws as an allowable investment vehicle for governments. For comparison, state laws generally do not allow investing in foreign currencies or equities. Cryptocurrency also cannot be considered a viable currency for governmental entity receivables or payables purposes as there is no known way to assess its value, and it cannot be processed through normal banking operations. There are thousands of versions of cryptocurrency all with similar and different attributes and risks, including a substantial risk of loss through the conversion to dollars.
Governments can only utilize legal tender and products based on legal tender for receivables, payables, and investments such as checks, payment cards, electronic payments/ACH, wire transfers, and U.S. currency. Whether individuals wish to invest in or use the product themselves is outside the purview of GFOA.
Further, if governments find themselves in a situation such as a cyber-or ransomware attack where the counterparty demands payment in cryptocurrency, governments are strongly advised to speak with appropriate law enforcement authorities (local, FBI, and U.S. Secret Service) in these situations as well as to their own legal counsel and insurance company before taking any actions and establishing a cryptocurrency account.
GFOA will continue to monitor activity by U.S. federal regulators including the Federal Reserve, the U.S. Department of the Treasury, the Internal Revenue Service, the Securities and Exchange Commission, any Congressional action, and Canadian provincial/territorial securities regulators that would develop cryptocurrency into an acceptable product for governmental use. GFOA will also monitor actions by the banking industry related to these products and provide updates to this Advisory and resources to help governments navigate the evolving world of cryptocurrency.
- Committees: Treasury and Investment Management (TIM)
- Board approval date: Friday, March 4, 2022