IMF warns of systemic risks from cryptocurrencies

The International Monetary Fund (IMF) warned of systemic risks to financial stability from the growing crypto sector and urged comprehensive, coherent and coordinated regulation of the industry.

Crypto’ $2.5 trillion market value shows the significance of innovations like blockchain—and reflects that it’s overvalued. Our #IMFBlog explains how regulation can safeguard financial stability. https://t.co/ZIZ6ggxuIu pic.twitter.com/tB1wVizCrV

— IMF (@IMFNews) December 9, 2021

“While a market capitalization of nearly $2.5 trillion points to substantial economic value of foundational technological innovations like blockchain, it may also signal a bubble forming in conditions of overvaluation. Indeed, the early reaction to the Omicron variant included significant sell-off in crypto markets,” the article published on December 9 says.

The IMF experts noted the need to establish international standards for regulating the digital asset industry to mitigate the related risks. They also urged developing a favourable environment for useful products and applications built on cryptocurrencies.

The authors argue that providers of digital-asset-related services should be licensed or authorised, and investment-oriented products should be separated from payments. The former, they contend, should be regulated as securities, and supervision of the latter should be transferred to central banks or authorities responsible for the payments sphere.

The IMF highlighted the risks of “cryptoisation” of developing markets and economies, where digital assets “substitute for the national currency.” The specialists also noted that the international character of projects in this space makes regulation and oversight difficult.

Earlier the IMF warned of “contagion risks” to the global economy from stablecoins.

In November the institution called for tighter regulation of cryptocurrencies, as the growth of the industry “creates a range of risks and challenges to financial stability.”

Earlier in the same month, IMF again criticised El Salvador for recognising Bitcoin as legal tender.

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