The International Monetary Fund (IMF) has actually just recently launched its new Global Financial Stability Report, in which the whole chapter was devoted to the conversation about monetary stability obstacles postured by the speeding up crypto adoption.
The report restated old cautions, concentrating on the development of crypto in establishing economies, while dealing with a few of the new emerging dangers, particularly stablecoins and DeFi.
“Crypto asset providers’ lack of operational or cyber resilience poses risks,” checked out the report, including that “anonymity and limited global standards create significant data gaps for regulators and pose risks to financial integrity.”
Despite ensuring that monetary stability dangers are “not yet systemic,” the IMF alerted that they should, provided the global ramifications, be kept under a tight watch.
“Policymakers should implement global standards for crypto assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps,” advised the IMF, while encouraging on how to take on the global cryptoization pattern.
While confessing that crypto adoption in emerging markets features specific advantages, the IMF alerted that it “can accelerate cryptoization and circumvent exchange and capital control restrictions.”
“Increased trading of crypto assets in these economies could lead to destabilizing capital flows,” the report warned.
As for the nations excited to “fend off dollarization,” the IMF encouraged enhancing financial policy, securing the self-reliance of reserve banks, and executing “effective legal and regulatory measures to disincentivize foreign currency use,” along with thinking about the advantages of releasing reserve bank digital currencies (CBDCs).
Contagion dangers included with stablecoins
By dealing with stablecoins and DeFi, the report went over the new emerging sources of threat in information, while highlighting their capacity to scale up rapidly and end up being systemically crucial.
The report kept in mind the growing function stablecoins, such as Tether (USDT) and USD Coin (USDC) play in the growing environment, advising that “regulations should correspond to the risks they pose and the economic functions they perform.”
The IMF was alarmed about the contagion dangers included with stablecoins, as the report advised that the sector’s market capitalization quadrupled in 2021 to more than $120 billion.
“Even if stablecoins are, for the time being, not large enough to be deemed “systemic,” there are monetary stability ramifications for big banks in case of fire sales of the possessions that back stablecoins,” warned the IMF, including that “an investor run in one country can also lead to cross-border spillovers if large global crypto exchanges are involved.”
While defining “inadequate reserves and disclosure for some stablecoins” as the most important issues, the report alerted that “the concentrated ownership of stablecoins by market makers could also trigger wider contagion.”
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