In Brief:
- The report underlined that Stablecoins and crypto assets could threaten financial stability.
- The report points out, as crypto assets grow, the macro-criticality of such risks is likely to increase.
- It said markets with cryptoization risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies.
The International Monetary Fund (IMF) based in Washington DC, recently published its semi-annual “Global Financial Stability Report.” The report points out that the use of cryptocurrencies could potentially and adversely affect the global economy.
The report underlined that Stablecoins and crypto assets could threaten the macroeconomic and financial stability of emerging marketplaces and developing economies.
It said the risks were “contained for now” but asked regulators to keep an eye on cryptocurrencies and promote their safety for now. “New sources of risk” are also emerging in the booming crypto space, such as stablecoins and decentralized finance, or DeFi, according to the IMF.
In particular, the group identified a “lack of transparency” in the issuance and distribution of tokens as well as operational risks, including outages during extreme volatility.
Furthermore, it mentioned “meme tokens” and the underlying issue of centralization – major exchanges such as Binance handling major trading volumes, while Tether is responsible for most of the stablecoin supply – as factors to consider.
IMF said, “So far, losses as a result of such risks have not had a significant impact on financial stability, globally or domestically, However, as crypto assets grow, the macro-criticality of such risks is likely to increase.”
Previously, the IMF has reported on the challenges of central bank digital currencies and stablecoins. They also said that Cryptocurrencies are too volatile to be a National currency and suggested creating a CBDC to regulate the transactions.
The IMF points out that emerging markets faced with cryptoization risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies.
The IMF suspected that Cryptoization could moreover pose a threat to fiscal policy: crypto assets can facilitate tax evasion, and seigniorage revenue may also decline due to the shrinking role of central bank money in the economy.
Globally, policymakers should prioritize making cross-border payments faster, cheaper, more transparent and inclusive through the G20 Cross Border Payments Roadmap.
