IMF Warns of Negative Impact of Cryptocurrencies on Banks

Widespread adoption of digital assets could lead banks to lose deposits and curb lending, according to a report by the International Monetary Fund (IMF).

The report was presented in February 2023 at the G20 summit, but released a few days after the collapse of Silvergate Bank, Signature Bank and Silicon Valley Bank (SVB).

“Widespread adoption of cryptocurrencies is associated with significant risks to the effectiveness of monetary policy, exchange-rate management and capital flows, as well as to fiscal sustainability,” the report said.

The IMF noted possible adjustments to central banks’ reserve holdings and the global financial safety net.

According to the document, “there are many risks associated with digital assets, though their significance and relevance vary depending on country circumstances”.

The main theme of the report is the need to fill data gaps to facilitate the implementation of regulatory policy. Despite concerns, the IMF added that “cryptocurrencies have created technologies that the public sector can use to achieve its objectives”.

On March 10, the California Department of Financial Protection and Innovation closed SVB and appointed the FDIC as receiver. The decision was due to “insufficient liquidity and insolvency”.

On March 12, U.S. authorities announced that all deposits at Silicon Valley Bank and Signature Bank would be made whole.

Earlier in February, the IMF urged a “coordinated response” to cryptocurrencies.

Later in the organisation, they called for regulating digital assets rather than banning them.