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IMF raises alarm, says growing cryptocurrency adoption poses risk to global economy

“As the crypto ecosystem expands and evolves, new sources of risk will emerge such as stablecoins and decentralised finance.”

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The International Monetary Fund (IMF) has raised the alarm that growing adoption of cryptocurrencies pose risks to the global economy.

The IMF made this known in its ‘Global Financial Stability’ report released on Tuesday, October 12, adding that the adoption of crypto assets and stablecoins in emerging markets and developing economies could pose a challenge to those countries’ macroeconomic and financial stability.

It noted that the risks included hacking, lack of transparency around issuance and distribution of tokens, and operational risks including outages during periods of extreme volatility.

According to the international organisation, while the risks are contained for now, regulators have to monitor cryptocurrencies to keep them in check.

The fund said: “As the crypto ecosystem expands and evolves, new sources of risk will emerge such as stablecoins and decentralised finance.”

The IMF said the risks included hacking, lack of transparency around issuance and distribution of tokens, and operational risks including outages during periods of extreme volatility.

The fund said that ‘meme tokens’ and centralisations were also factors to consider, explainging that “So far, losses as a result of such risks have not had a significant impact on financial stability, globally or domestically. However, as crypto assets grow, the macro-criticality of such risks is likely to increase.

“The crypto ecosystem continues its rapid growth presenting new opportunities and challenges. Crypto asset exchanges pose several operational and financial integrity risks through their cross-border operations.

“Investor protection risks loom large for crypto assets and decentralised finance. For example, stablecoins have generally poor disclosures and can be subject to runs if their reserves come into question.”

The IMF said in emerging markets, the advent of crypto assets might be accelerating dollarisation and eroding the effectiveness of existing exchange restrictions and capital control management measures.

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The organisation added that the increased trading of crypto assets by emerging market users could potentially lead to destabilising capital flows.

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