Interest and investment into cryptocurrencies continue to grow with unbounded enthusiasm, especially in emerging countries according to an IMF report. The worry for the IMF though are the challenges this will present to the global financial system.
According to an article on the report by WAtoday the renewed interest in cryptocurrencies has been caused in part by low to zero interest rates globally. This means that there is very little interest yield to be had in the traditional finance system, and what can be had in crypto decentralised finance makes this pale in comparison.
However, the IMF report does admit that there are indeed advantages to be had with cryptocurrencies, which is rather a refreshing change from the usual “fraud” and “money laundering” claims that normally abound from this type of organisation, although criminals circumventing monetary systems was given a mention.
The main advantage that the IMF highlighted was that cryptocurrencies gave many poor people in the undeveloped world access to financial services. Services they were always excluded from in the traditional financial system, due to not being able to access bank accounts or other types of finance.
However, the main concern for the IMF is that of “cryptoisation”, which is the phenomenon whereby people are choosing to use cryptocurrency rather than their own local fiat currency, an interesting upgrade to “dollarisation”, where people had been using the dollar rather than their own currency.
The report warned that “strong macroeconomic policies may not be enough to prevent a mass movement of a country’s residents to cryptocurrencies”.
“Crypto assets on their own do not change the economic forces that lead to the international use of currencies or increased dollarisation, yet the technological advance of the crypto ecosystem, and especially stablecoins, could reinforce the incentives behind currency and asset substitution and ease adoption. Hence, the tolerance for policy missteps is greatly reduced.”
The report also mentioned that global standards would need to be agreed upon, which would allow the authorities to monitor the growth of the crypto system. It also suggested that banks might consider offering cryptocurrencies in order to help reduce the demand for private crypto assets.
It remains to be seen how such ponderous beasts as banks can even hope to compete with the break-neck innovation happening in the crypto sector. We shall await developments with interest.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
