The International Monetary Fund (IMF) has warned that the growing popularity of cryptocurrencies poses new challenges to financial stability. “Cryptocurrency can reduce the central bank’s ability to effectively implement monetary policy. It can create a risk to financial stability.”
The IMF sees new challenges to financial stability from crypto
The International Monetary Fund (IMF) warned in a blog post published on Friday about the risks posed by the cryptocurrency boom. Entitled “Crypto Boom Creates New Challenges for Financial Stability”, the post was written by three financial experts from the IMF’s Finance and Capital Markets Division: Dimitris Dracopolos, Fabio Natalucci and Ivan Papaziorgio.
Noting that “the total market value of all crypto assets has exceeded 2 2 trillion by September 2021, increasing 10-fold since the beginning of 2020,” they said that many entities in the ecosystem “lack strong performance, governance and risk practices.” These include exchanges, wallets, minor and stablecoin issuers.
The authors have come forward to discuss “consumer protection risks” that they have “substantially remained due to limited or inadequate disclosure and oversight.”
They warned: “Looking ahead, the massive and rapid adoption could pose a significant challenge to strengthening the dollar’s strength in the economy – or in this case cryptocurrency – where residents begin to use crypto resources instead of local currencies.” IMF experts further described:
Cryptography can reduce the ability of the central bank to effectively implement monetary policy. This can create a risk of financial stability.
In addition, they said: “Threats to fiscal policy could be exacerbated by the potential for cryptocurrency to facilitate tax evasion, and may also reduce signage (profits from the right to issue currency). Capital outflows can also be easier.
The authors also suggest policy action. “Regulators need to take action while retaining crypto assets,” they wrote.
“As a first step, regulators and supervisors need to be able to monitor the risks they pose by developing the crypto ecosystem quickly and addressing the data gap,” they detailed. “The global nature of crypto resources means that policymakers should increase cross-border coordination to reduce the risk of regulatory arbitration and ensure effective oversight and enforcement.”
IMF experts suggest: “National regulators should also prioritize the implementation of existing global standards. Globally, policymakers should prioritize making payments at the border faster, cheaper, more transparent and inclusive through the G20 Cross Border Payments Roadmap. They concluded:
Time is of the essence, and global decisions need to be acceptable, fast and well-coordinated to allow the benefits to flow, but at the same time, address the weaknesses.
What do you think of the IMF’s warnings and advice? Let us know in the comments section below.
Image credit: Shutterstock, Pixabay, WikiCommons
Denial: This article is for informational purposes only. It is not a direct offer or request for a purchase or sale offer, nor is it a recommendation or approval of a product, service or company. Bitcoin.com does not provide investment, tax, legal, or accounting advice. The Company or the Author is not directly or indirectly responsible for any loss or damage caused by or in connection with the use or reliance on any content, product or service referred to in this article.