IMF warns of financial stability challenges of crypto boom

The International Monetary Fund (IMF) warns that the growing popularity of cryptocurrencies poses new challenges for financial stability.

In the article entitled “The cryptocurrency boom poses new challenges to financial stability” by the three financial experts in the Money and Capital Markets Department, Dimitris Drakopoulos, Fabio Natalucci and Evan Papagorgiou, the agency emphasized:

“Cryptocurrencies can limit the ability of central banks to conduct monetary policy effectively. It could also create risks to financial stability. “

The IMF found that “the total market value of all crypto assets exceeded $ 2 trillion in September 2021 – a ten-fold increase since early 2020,” the IMF said, many units in the system. . These include exchanges, wallets, miners, and stablecoin issuers.

The authors had a discussion on “consumer protection risks” and found that the risk remains high due to limited or insufficient disclosure and oversight.

“Going forward, rapid and widespread adoption could pose significant challenges by consolidating the dollarization forces in economies – or in this case, cryptocurrencies – where people are starting to use crypto assets instead of local currency.”

“Cryptocurrencies can limit the ability of central banks to conduct monetary policy effectively. It could also create risks to financial stability. “

“The threats to financial policy could also increase as cryptocurrencies have the potential to facilitate tax evasion. Seigniorage (accumulated profits from foreign exchange rights) can also decrease. Increased demand for cryptocurrencies can also facilitate capital losses that affect the foreign exchange market. “

The authors also suggest policy measures:

“As a first step, regulators and custodians must be able to track the rapid developments in the crypto ecosystem and the associated risks by fixing data vulnerabilities as quickly as possible. The global nature of crypto assets means policy makers should strengthen cross-border coordination to mitigate the risks posed by arbitrage regulation and ensure effective oversight and enforcement.

IMF experts suggest:

“National regulators should also prioritize the implementation of existing global standards. Globally, as part of the G20 roadmap for cross-border payments, policy makers should prioritize making cross-border payments faster, cheaper, more transparent and more inclusive.

“Time is of the essence, and measures must be resolved, quickly and globally coordinated in order to achieve advantages, but also to remedy weak points.”

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