Crypto boom creates new financial stability problems – IMF

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The International Monetary Fund has said the global cryptocurrency boom poses new challenges for financial stability.

The IMF said this in a blog post on Friday.

According to the organization, the crypto ecosystem enables fast and easy payments, innovative financial services and inclusive access to the unbanked.

The IMF said the total market value of all crypto assets has increased tenfold ($ 2 billion) since 2020, with the ecosystem thriving, teeming with exchanges, wallets, miners and coin issuers. stable.

But the organization said many of these entities lack strong operational, governance and risk management practices.

The monetary body said, “Crypto exchanges, for example, have faced significant disruption during times of market turmoil.

“There are also several high profile cases of theft of customer funds linked to the hack.

“So far, these incidents have not had a significant impact on financial stability.

“However, as crypto assets become more mainstream, their importance in terms of potential implications for the wider economy is expected to increase.

“The risks to consumer protection remain significant given the limited or inadequate disclosure and oversight. For example, over 16,000 tokens have been listed on various exchanges and around 9,000 exist today, while the rest have disappeared in one form or another.

“For example, a lot of them don’t have volumes or the developers have moved away from the project. Some were probably created purely for the purpose of speculation or even outright fraud. The (pseudo) anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors to money laundering, as well as terrorist financing.

According to the IMF, crypto adoption is being driven by emerging markets and developing economies, with residents of those countries increasing their transaction volumes in crypto exchanges in 2021.

The body said, “Going forward, widespread and rapid adoption may pose significant challenges by bolstering the forces of dollarization in the economy – or in this case crypto – where residents are starting to use crypto assets in the economy. instead of the local currency.

“Cryptography can reduce the ability of central banks to effectively implement monetary policy. It could also create risks for financial stability, for example, through financing and solvency risks resulting from currency mismatches, as well as amplifying the importance of some of the previously mentioned risks for consumer protection. and financial integrity.

“Threats to fiscal policy could also intensify, given the potential of crypto assets to facilitate tax evasion. And seigniorage (the profits from the right to issue money) may also decrease. An increased demand for crypto assets could also facilitate capital outflows that impact the forex market. ”

Global regulators and supervisors need to start monitoring developments in the crypto ecosystem and the risks they create by addressing data gaps, according to the IMF.

He added that the use of crypto in emerging economies was the result of weak central bank credibility, vulnerable banking systems, inefficient payment systems and limited access to financial services.

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