Crypto Could Soon Pose Risks to Countries’ Financial Stability

Economists from the International Monetary Fund, (IMF), say that crypto assets “are no longer on the fringes of the financial system” and “could soon pose threats to financial stability in particular countries with widespread adoption of crypto.”

“Our Analysis Shows That Crypto Assets are No Longer at the Bottom of the Financial System”

On Tuesday, the International Monetary Fund (IMF), published a blog post warning about the dangers crypto assets pose for financial stability. Three economists from IMF’s Monetary and Capital Markets Department, Tara Iyer and Mahvash Shah Qureshi, wrote the post.

The IMF posts explains that “crypto assets like bitcoin have evolved from an obscure asset type with few users to an integral component of the digital asset revolution raising financial stability concerns.”

These were the details that the authors gave:

Our analysis shows that crypto assets are not now considered to be on the margins of the financial system. Their high volatility and high valuations could make them a risk to financial stability, especially in countries that have adopted crypto widely.

They wrote that it was now time to establish a global, comprehensive regulatory framework to guide national regulation.

In October 2017, three other members of the IMF’s Monetary and Capital Markets Department warned about the dangers crypto assets could pose to financial stability. Dimitris Drapoulos, Fabio Nalucci and Evan Papageorgiou explained that cryptoization could reduce central banks’ ability to implement monetary policies effectively. It could also increase financial stability risks.

However, the U.S. Federal Reserve doesn’t worry about crypto affecting the country’s financial systems. Fed Chairman Jerome Powell, who dismissed crypto as a concern for financial stability, warned that they could be risky because they “are not backed up by anything.”

In November 2017, Sir Jon Cunliffe (Bank of England deputy governor for financial stability) warned that cryptocurrency’s rapid growth is threatening global financial stability.