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- Unstability, terrorism funding, scams should be looked upon seriously by the government and toughen supervision
- New cryptocurrencies lacked adequate governance and risk
- The IMF also raised concerns about the four-fold expansion in the supply of stablecoins
The International Monetary Fund (IMF) has called for tighter regulation to prevent the rapid expansion of cryptocurrencies from causing financial instability, consumer fraud, and terrorism funding.
The IMF in Washington stated that the 10-fold increase in the market value of crypto assets – digital or virtual currencies – to more than $2 trillion since early 2020 necessitated more active and collaborative government monitoring.
The IMF claimed many of the new cryptocurrencies lacked adequate governance and risk policies in a chapter from its upcoming Global Financial Stability Report. The chapter’s writers, Dimitris Drakopoulos, Fabio Natalucci, and Evan Papageorgiou, wrote in a blog that crypto exchanges had experienced major disruptions during times of market turmoil. There have also been some high-profile incidents of consumer monies being stolen as a result of hacking. These incidents have had little influence on financial stability so far. However, as crypto assets become more widespread, their importance in terms of possible economic ramifications is expected to grow.
Pseudo anonymity leaves regulators in jeopardy
Given that certain currencies were likely generated exclusively for speculation reasons or possibly outright fraud, the blog emphasised the significant risks to consumers from inadequate disclosure and regulation. The pseudo anonymity of crypto assets also leaves regulators with data gaps, which can lead to money laundering and terrorist financing.
The IMF also raised concerns about the four-fold expansion in the supply of stablecoins — cryptocurrencies whose value is pegged to the US dollar – to $120 billion (£88 billion) in 2021.
Given the makeup of their reserves, some stablecoins may be prone to runs, with ramifications for the financial system the site stated. Investors may be concerned about the quality of their reserves or the speed with which reserves can be liquidated to meet future redemptions, prompting the runs.
China made cryptocurrency transactions illegal last month, but the IMF said emerging and developing countries appeared to be leading the way in their adoption. This might jeopardise central banks’ ability to successfully implement monetary policy, as well as pose a risk to financial stability, according to the report.
Regulators need to keep a check
As a first step, regulators and supervisors must be able to keep track of rapid changes in the crypto ecosystem and the risks they pose by quickly addressing data gaps. Because of the global nature of crypto assets, governments should improve cross-border cooperation to reduce regulatory arbitrage risks and ensure effective supervision and enforcement, according to the IMF.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
