IMF Calls Crypto a “Challenge”, Asks For Stablecoin Regulation

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  • The International Monetary Fund (IMF) has called crypto, along with COVID-19 and climate change, challenges.
  • The financial body urged regulators to make sure investors know about potential stablecoin risks.
  • However, the IMF acknowledged that cryptocurrencies, excluding stablecoins, do not yet pose a risk to the global financial system.

A recent report by the International Monetary Fund (IMF) has called crypto, along with Covid-19 and climate, a challenge. The report also urged regulators to make sure investors know about potential stablecoin risks.

In its new Global Financial Stability Report, the IMF has outlined its concerns regarding the risks that stablecoins pose to financial stability. The global body also asked regulators to monitor the growing market cap of stablecoins and clarify how these digital private coins are backed.

However, the IMF acknowledged that crypto-assets, excluding stablecoins, do not yet pose a risk to the global financial system. But it added that potential risks by cryptocurrencies “should be closely monitored given the global implications and the inadequate operational and regulatory frameworks in most jurisdictions.”

The IMF is an international financial institution with 190 member countries “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The global body holds huge sway and power, even claiming to have about $1 trillion available for providing loans to members.

Crypto: Presenting Opportunities and Challenges

The subhead of the IMF’s this year report — “COVID-19, Crypto, and Climate: Navigating Challenging Transitions” — clearly echoes the organization’s perspective of crypto as rather gloomy. However, throughout the report, it conceded that crypto also brings new opportunities. The report noted:

The crypto ecosystem continues its rapid growth, presenting both opportunities and challenges. This chapter discusses the latest developments and financial stability challenges posed by the crypto ecosystem, with a focus on emerging markets and developing economies.

The IMF argued “operational and financial integrity risks,” user protection risks, less liquid reserves backing stablecoins, and inadequate disclosure by such stablecoin are the challenges posed by the emerging crypto industry. The financial body also claimed crypto can accelerate cryptoization in emerging markets that can lead to destabilizing capital flows.

The report goes into detail regarding risks posed by crypto-assets, particularly stablecoins. Stablecoins, digital assets with their value pegged to fiat currencies, have burst into popularity recently. In the first half of 2021, stabelcoins made a transaction volume of nearly $3 trillion. Moreover, the total market cap of stablecoins has surpassed the $120 billion mark, which was just around $20 billion last year.

Nevertheless, the IMF urged regulators to correspond to the risks stablecoins pose as they are becoming more widespread. “Policymakers should implement global standards for crypto assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps. As the role of stablecoins grows, regulations should correspond to the risks they pose and the economic functions they perform,” it said.

It is worth noting that CBDCs, which are the primary rivals to stablecoins, have been repeatedly scrutinized by crypto advocates. Just recently, Edward Snowden said CBDCs will “ransom our future.” Prior to that, Rich Checkan had said CBDCs are terrible for user privacy, adding that they “were concocted in hell by Satan himself.”