IMF warns that unregulated cryptocurrencies could threaten financial stability

The International Monetary Fund (IMF) has warned countries against the use of cryptocurrencies, stating that these assets could pose a threat to a country's monetary policy and financial stability. 

The details 

• In a presentation to the presidency of the G20, the IMF warned that the widespread and increasing adoption of crypto assets worldwide could prove problematic. 
• In its note, it stated that if people continue to prefer to save and invest in crypto assets, this could weaken the transmission of monetary policy.

Be smart: Monetary policy captures tools such as interest rate and reserve ratio which a country’s central bank uses to control the supply of money in the economy as a way of stimulating economic growth. Decentralized crypto assets cannot be influenced by these tools. 

• The IMF also warned that countries with unstable currencies could face the risk of currency substitution, in which people may prefer to use another fiat currency instead of the country's legal tender.
• It said that while crypto assets help to achieve financial inclusion, the need for internet access and digital literacy could reduce that further. 
• In conclusion, it advised that countries should carefully consider the macro-financial implications of wider adoption of crypto assets as the risks in it have begun to materialize. 

Key quote 

• The IMF said: 

“A widespread proliferation of crypto assets comes with substantial risks to the effectiveness of monetary policy, exchange rate management, and capital flow management measures, as well as to fiscal sustainability.” 

Before now 

• The IMF has previously shown its disapproval of cryptocurrencies and other digital assets and has called for their regulation and control. 
• It noted in a release earlier this year that crypto assets have been more of a disappointment than a revolution even if the technology backing these assets holds greater promise. 
• CBDCs have also not been spared in the criticism. The lender of last resort expressed concerns over the global adoption of CBDCs and stated that the widespread use of retail CBDCs may pose risks that are yet unknown.