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IMF advises that the exponential expansion of cryptocurrencies threatens financial stability

Bitcoin fluctuations (Source: Unsplash)
Bitcoin fluctuations (Source: Unsplash)
IMF warns against 'cryptoisation' which refers to the preference of dealing with crypto assets rather than local currencies. While cryptocurrencies may be innovative and introduce benefits to consumers, they can destabilize and generate risks to the financial system of countries.

The Global Financial Stability Report (2021) has suggested that the fast adoption of crypto assets facilitates an inventive financial system that permits a less restrictive and inclusive access to speedy and easier purchasing methods especially in developing economies such as in Vietnam and Pakistan. Furthermore, stablecoins could prevent against high inflation and fluctuations in legal tenders. Consequently, El Salvador accepted bitcoin as a legal currency in September.

Even though crypto assets may generate some benefits, the IMF posited that cryptoisation could result in financial instability due to the highly volatile nature of cryptocurrency. These vast fluctuations are not only difficult to monitor but are very challenging to regulate as they bypass exchange and capital control restrictions particularly in emerging economies. As a result, the crypto ecosystem can threaten monetary policy as well as promote tax evasion.

The IMF also argues that the transaction expenses of crypto exchanges can cost more and be processed slower than digital money such as in India where the transaction process must be monitored on many different computer systems. Moreover, crypto assets can threaten investor protections and generate operational risks.

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> Notebook / Laptop Reviews and News > News > News Archive > Newsarchive 2021 10 > IMF advises that the exponential expansion of cryptocurrencies threatens financial stability
Aleem Ali, 2021-10- 6 (Update: 2021-10- 6)