The International Monetary Fund (IMF) published a blog post on Tuesday warning of the risks that crypto assets pose to financial stability. The post is written by three economists from the IMF’s Monetary and Capital Markets Department: Tobias Adrian, Tara Iyer, and Mahvash S. Qureshi. “Our analysis suggests that crypto assets are no longer on the fringes of the financial system”
The authors detailed:
“Crypto-assets such as bitcoin have evolved from an obscure asset class with few users to an integral part of the digital asset revolution, raising financial stability concerns,” the IMF post describes. .
Our analysis suggests that crypto-assets are no longer on the fringes of the financial system. Given their volatility and relatively high valuations, their increased co-movement could soon pose risks to financial stability, especially in countries with widespread crypto adoption.
“It is therefore time to adopt a comprehensive and coordinated global regulatory framework to guide domestic regulation and supervision and mitigate risks to financial stability arising from the crypto ecosystem,” they wrote.
Three other people from the IMF’s Monetary and Capital Markets Department also warned in October last year about the risks that crypto assets pose to financial stability. Dimitris Drakopoulos, Fabio Natalucci and Evan Papageorgiou detailed: “Cryptography can reduce the ability of central banks to effectively implement monetary policy. It could also create financial stability risks.
The US Federal Reserve, however, is not concerned that crypto will harm the country’s financial system. In December last year, Fed Chairman Jerome Powell dismissed cryptocurrencies as a financial stability issue, but warned they were risky because “they are not backed by anything”.
What do you think of the IMF economists’ analysis? Let us know in the comments section below.
Meanwhile, the Bank of England’s Deputy Governor for Financial Stability, Sir Jon Cunliffe, warned in November last year that cryptocurrency was coming close to posing a threat to global financial stability due the rapid growth of the sector.
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