IMF warns of global danger from unchecked crypto popularity

The International Monetary Fund has issued a warning that the rising popularity of cryptocurrency in emerging market economies poses a danger to their governments’ ability to execute efficient fiscal policy, as well as threatening financial stability in economies at all stages of development.

The Washington-headquartered IMF said the tenfold growth in the market rate of crypto assets – digital or virtual currencies – to more than $2 trillion since early 2020 necessitated more active and collaborative government monitoring.

The IMF said many of the nascent cryptocurrencies needed additional governance and risk policies in a chapter from its upcoming Global Financial Stability Review.

Unstable policies

Unsound macroeconomic policies and ineffective payment systems, according to the IMF, are among the factors driving cryptocurrency acceptance in emerging nations, as well as the allure of quick profits, which has enticed investors all over the world.

However, the IMF stated that determining the exact amount of cryptocurrency use in developing markets is difficult.

Factors like central bank legitimacy and unsound domestic banking systems, which can promote “dollarization,” can also contribute to increased crypto adoption, IMF said.

In a blog post supporting a new financial stability report on crypto-assets posted Friday, IMF researchers Dimitris Drakopoulos, Evan Papageorgiou, and Fabio Natalucci wrote that “widespread and rapid adoption” of cryptocurrencies like bitcoin and ether in emerging markets “can pose significant challenges” when citizens begin using crypto assets instead of the local currency.

On hacking and mainstream crypto use

There have also been some high-profile incidents of consumer monies being stolen as a result of hacking. These incidents have had little influence on financial security so far.

The relevance of crypto assets in terms of possible repercussions for the wider economy is expected to grow as they become more mainstream, the experts said.

The IMF said that “cryptoization” might pose a challenge to fiscal policy, with digital assets potentially enabling tax avoidance.

The usage of cryptocurrencies can also enable tax cheating, according to the IMF, particularly in countries where governments lack access to advanced blockchain analysis techniques for tracking down tax fraudsters.

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Source: https://bitcoinerx.com/blockchain/imf-warns-of-global-danger-from-unchecked-crypto-popularity/