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'Significant risks': IMF cautions countries against crypto adoption

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IMF says that widescale crypto adoption like the one seen in El Salvador poses “macroeconomic, financial and legal issues”

'Significant risks': IMF cautions countries against crypto adoption

The International Monetary Fund has once again highlighted the risk that wide-scale cryptocurrency adoption can bring to financial markets. This time, the international group underscored the risks associated with the adoption of cryptocurrency as legal tender by countries.

“The adoption of a crypto asset as the main national currency carries significant risks and is an inadvisable shortcut,” the fund said in its annual Global Financial Stability Report, which was released on October 12.

Some of the risks of crypto adoption pointed out include “macro-financial stability, financial integrity, consumer protection, and the environment”.

The group whose managing director Kristalina Georgieva was given a clean chit by the board of the international lender after a rigging scandal, said that risks, for now, were contained but called for greater regulation from nations on the developing crypto market.

“For now, the probability of such a scenario occurring due to a choice of households and businesses is low for most countries, given that the value of non-stablecoin crypto assets is too volatile and unrelated to the real economy to become the main unit of account,” the group added in its report.

The group’s report warned of the fact that as cryptocurrencies and the crypto market, on the whole, continue to grow and evolve, more risk factors would emerge. Current risk factors that the IMF identified were the presence of operational risk, ‘meme tokens’, large exchanges handling virtually a majority of the trading volume, and a “lack of transparency around issuance and distribution.”

The international group also noted that cryptoization — the substitution of assets and currency through cryptocurrency tokens —  was occurring at a rapid pace in developing and emerging markets. This phenomenon was noted to be driven by poor payments systems along with “unsound macroeconomic policies” in those countries.

The report goes on to detail policy suggestions in key areas of regulation, supervision, and monitoring of the crypto ecosystem; stablecoin-specific risks; and managing the

macro-financial risks for nations to stem the risks of cryptoization.

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