The latest Global Financial Stability Report from the International Monetary Fund (IMF) highlighted the factor of virtual currency volatility. The IMF said that while the cryptocurrency sector was paving the way for several new opportunities, including improved and affordable cross-border payments; it also warned people that digital assets could pose a problem for financial stability.
IMF Financial Stability Report
“The rapid growth of the crypto ecosystem brings new opportunities. Technological innovation is ushering in a new era that makes payments and other financial services cheaper, faster, more accessible and allows them to flow rapidly across borders… Despite potential gains, rapid growth and growing adoption of cryptocurrencies also pose problems for financial stability,
Tobias Adrian, a financial advisor to the IMF’s director of monetary and capital markets, told the Press Trust of India (PTI) that Cryptocurrencies such as BTC could cause instability due to extreme price fluctuations. He also compared cryptocurrencies with stocks and commodities. He stressed that even though they are all risky investments, cryptocurrencies still play a leading role as the most risky due to volatility. Adrian argued that cryptocurrency may be a good investment opportunity, but it can never be compared to a monetary aggregate.
“It could go back up, it could go back down. So if you’re a trader and trading BTC, you’re exposed to this huge volatility. It is much more volatile than stocks or commodities or even exchange rates. It is a very, very volatile asset and it brings instability… As an investment asset, it is fine. But as a monetary aggregate, it simply does not have the right characteristics. “
The IMF report criticizes stablecoins
The IMF report also aligned with the position of regulators, stressing that cryptocurrency seriously needed a legal framework. The report mentioned the rapid growth of stablecoins as a potential risk to the economic system and that regulators should establish their proper regulations. In addition, the IMF supported the issuance of the CBDC in the digital age.
“Legislators should implement global standards for crypto assets and improve their ability to monitor the crypto ecosystem by addressing data gaps. As the role of stablecoins grows, regulations should be commensurate with the risks they pose and the economic functions they perform. Emerging markets facing cryptocurrency risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies. ”