Cryptocurrencies Are a Threat to the Global Economy, Says IMF

Jafrin  |  Oct 13, 2021

The International Monetary Fund (IMF) has said the growing adoption of cryptocurrencies poses serious risks to the global economy. While digital currencies “appear contained for now,” they should be monitored closely, according to the financial institution.

IMF Warns on Growing Crypto Adoption

In its Global Financial Stability Report, released on Tuesday, the International Monetary Fund (IMF) said that the adoption of crypto assets and stablecoins in the emerging markets and developing economies could pose a challenge to those countries’ macroeconomic and financial stability.

“As the crypto ecosystem expands and evolves, new sources of risk will emerge such as stablecoins and decentralised finance.”

According to the IMF, increased trading of crypto assets in emerging markets like El Salvador, which recently began accepting bitcoin as legal tender could lead to destabilizing capital flows. While the report doesn’t name El Salvador, the IMF assured that the Central American country’s bitcoin law poses “macroeconomic, financial and legal issues.”

“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 inadequate reserves and disclosure for some stablecoins,” the IMF’s report said.

Additionally, the report suggests that countries enact policies that could control the growing crypto demand, which includes strengthening monetary policy, safeguarding the independence of central banks, and implementing “effective legal and regulatory measures to disincentivize foreign currency use.”

Stablecoin Could Harms Fiscal Policy

Furthermore, the IMF also warned the risks of stablecoins could also trigger a fire sale of commercial paper and could also harm fiscal policy by enabling tax evasion.

The IMF also warned that using stablecoins as means of payment and store of value could pose more challenges such as reinforcing economies to align their currencies with the U.S. dollar. This, on the other hand, could hurt central banks’ ability to make monetary policy, and lead to financial stability risks through currency mismatches on the balance sheets of banks, firms, and households.

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