Ukraine’s Crypto Law Sent Back to Parliament
In Ukraine, the recently adopted law “On Virtual Assets” was sent back to the the…
The International Monetary Fund (IMF) are the latest controlling body to warn about the potential risks posed by the cryptocurrency boom.
Crypto’s rising popularity was discussed in a blog post published on Friday. The post titled “Crypto boom poses new challenges to financial stability,” has three financial experts from the IMF’s Monetary and Capital Markets Department discuss recent developments in the crypto space and its effect on the globally financial system:.
The authors noted that while “the total market value of all the crypto assets surpassed $2 trillion as of September 2021 — a 10-fold increase since early 2020,” many entities in this space “lack strong operational, governance, and risk practices.” Entities referred to are exchanges, wallets, miners, and stablecoin issuers.
The authors proceeded that lack of governance poses risks to customers, stating that they “remain substantial given limited or inadequate disclosure and oversight.”
The blog post warns about the “cryptoization” of the economy, the effect it has on monetary policies and could lead to financial distress. The authors wrote:
“Looking ahead, widespread and rapid adoption can pose significant challenges by reinforcing dollarization forces in the economy — or in this case cryptoization — where residents start using crypto assets instead of the local currency.”
“Cryptoization can reduce the ability of central banks to effectively implement monetary policy. It could also create financial stability risks.”
Furthermore, the article stated: “Threats to fiscal policy could also intensify, given the potential for crypto assets to facilitate tax evasion. And seigniorage (the profits accruing from the right to issue currency) may also decline. Increased demand for crypto assets could also facilitate capital outflows that impact the foreign exchange market.”
The financial experts continued: “National regulators should also prioritize the implementation of existing global standards. Globally, policymakers should prioritize making cross-border payments faster, cheaper, more transparent and inclusive through the G20 Cross Border Payments Roadmap.”
Policy policy action is required, according to the IMF. “As crypto assets take hold, regulators need to step up,” the article noted.
“As a first step, regulators and supervisors need to be able to monitor rapid developments in the crypto ecosystem and the risks they create by swiftly tackling data gaps. The global nature of crypto assets means that policymakers should enhance cross-border coordination to minimize the risks of regulatory arbitrage and ensure effective supervision and enforcement.”
The article concluded with immediate advice:
“Time is of the essence, and action needs to be decisive, swift and well-coordinated globally to allow the benefits to flow but, at the same time, also address the vulnerabilities.”
The IMF already expressed concerns about El Salvador’s decision to make Bitcoin legal tender in the country, pointing at “a number of macroeconomic, financial and legal issues”. Four years ago nevertheless, the IMF was already on alert about the possible cryptoization of the world’s economies.
The post IMF Sees “Cryptoization” as a Threat to Financial Stability appeared first on iGaming.org.
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Author: Peter Siu