IWF warns of new challenges for financial stability before crypto boom
IWF warns of new challenges for financial stability before crypto boom
The International Monetary Fund (IMF) warns that the increasing popularity of cryptocurrencies poses financial stability with new challenges. "Cryptoization can restrict the ability of the central banks to effectively implement monetary policy. It could also create risks to financial stability."
IMF sees new challenges for the financial stability of crypto
The International Monetary Fund (IMF) warned in a blog post published on Friday about the risks of the cryptocurrency boom. The article entitled "KryptoBoom represents new challenges for financial stability" was written by three financial experts from the IMF monetary and capital market department: Dimitris Drakopoulos, Fabio Natalucci and Evan Papagenorgiou.
You found that "the overall market value of all crypto-assets in September 2021 exceeded $ 2 trillion-a 10-fold increase since the beginning of 2020", and said that many units in the ecosystem "lack strong operating, governance and risk practices". These include stock exchanges, wallets, miners and stable coin emitters.
The authors continued to discuss "consumer protection risks" and explained that they "remain significant in limited or insufficient disclosure and supervision.
They warned: "With a view to the future, a widespread and quick introduction can bring considerable challenges by reinforcing the forces of dollarization in business-or in this case the cryptoization-in which the residents begin to use crypto-assets instead of the local currency." The IMF experts further described:
Cryptoization can restrict the ability of the central banks to effectively implement monetary policy. Risks for financial stability could also arise.
In addition, they found: "The threats to financial policy could also increase, since crypto-assets have the potential to make tax evasion easier. The Siebniorage (the profit from the right to issue currencies) can also decrease. An increased demand for crypto-assets could also make capital outflows easier that affect the currency market."
The authors also suggested political measures. "Since crypto-assets prevail, the supervisory authorities have to be reinforced," they wrote.
"In a first step, regulatory authorities and supervisory authorities must be able to monitor the fast developments in the crypto ecosystem and the associated risks by quickly tackling data gaps," they explained. "The global character of crypto-assets means that political decision-makers should improve cross-border coordination in order to minimize the risks of the regulatory arbitrage and ensure effective supervision and enforcement."
The IMF experts suggested: "The national regulatory authorities should also give priority to the implementation of existing global standards. Political decision-makers should be a priority for cross-border payments worldwide to make cross-border payments faster, cheaper, more transparent and integrative." They came to the conclusion:
Time is urged, and measures must be determined, quickly and globally coordinated so that the advantages flow, but at the same time the weaknesses are tackled.
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