Rapid growth and adoption of crypto assets pose challenges to financial stability: IMF

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Rapid growth and adoption of crypto assets pose challenges to financial stability: IMF

The rapid growth of the crypto ecosystem presents new opportunities, the IMF has said but also warned that digital currency assets pose financial stability challenges. Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and to verify the transfer of money that operates independently of a central bank.

“The rapid growth of the crypto ecosystem presents new opportunities. Technological innovation is ushering in a new era that will make payments and other financial services cheaper, faster, more accessible, and allow them to flow faster across borders. gives,” said chapter one in its latest report, the Global Financial Stability Report.

Crypto asset technologies have potential as a tool for fast and cheap cross-border payments. The IMF, in its chapter titled Crypto Ecosystem and Financial Stability Challenges, states that bank deposits can be converted into stable coins that allow instant access to a wide range of financial products from digital platforms and allow for instant currency conversion. Is.

Decentralized finance can become a platform for more innovative, inclusive and transparent financial services.

“Despite the potential benefits, the rapid growth and adoption of crypto assets also poses financial stability challenges,” the IMF said.

In a recent interview to PTI, Tobias Adrian, financial advisor and director of the IMF’s Monetary and Capital Markets Department, said that bitcoin can create volatility because it is extremely volatile. It was trading above around 65,000 earlier this year, and then it dropped below 30,000.

“It can go back up, it can go back down. So if you are a trader, and you are quoting in bitcoin you are exposed to this huge volatility. Be it equity or commodity or even Much more volatile than exchange rates. It is a very volatile asset, and it is introducing volatility,” he said.

“It’s fine as an investment asset. But as a monetary aggregate, it doesn’t have the right qualities,” Adrian said.

“And let me just add two more problems with this. One is that transaction costs can be quite expensive and compared to digital money, as is the case in India, for example, where you have real-time gross Settlement is a payment system, it’s really slow because it’s a distributed ledger, and it has to be verified on all these different computers to know that the transaction has taken place. So, it’s not so instantaneous , and transacting can be expensive and it’s extremely volatile. It doesn’t have the qualities you wish you had money with,” he said.

The IMF said in its report that the challenges posed by the crypto ecosystem include operational and financial integrity risks from crypto asset providers, investor protection risks for crypto-assets and DeFi, and insufficient reserves and disclosure of certain stablecoins.

“In emerging markets, the advent of crypto assets has benefits, but may accelerate cryptoisation and bypass exchange and capital control restrictions. Increased trading of crypto-assets in these economies can destabilize capital flows. ,” it said.

“Policy makers should implement global standards for crypto-assets and enhance their ability to oversee the crypto ecosystem by addressing data gaps. As the role of stablecoins grows, so will the rules governing what they do. Emerging markets facing cryptocurrency risks should strengthen macroeconomic policies and consider the benefits of central bank digital currency issuance,” the report said. has gone.

In a joint blog post, three IMF officials Dimitris Drakopoulos, Fabio Natalucci and Ivan Papazorgio wrote that as crypto assets take hold, regulators need to step up.

“Crypto assets offer a new world of opportunity: quick and easy payments. Innovative financial services. Inclusive access to the first “bankless” parts of the world. All made possible by the crypto ecosystem,” he wrote.

“But with opportunities also come challenges and risks,” it added.

Read also:Why you should diversify investing in cryptocurrencies

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