The IMF has said the adoption of crypto currencies as the main national currency carries “significant risks and is an inadvisable short cut.”
In its latest global financial stability report the IMF cautioned that while the risks posed by crypto are “not yet systemic” the situation should be “closely monitored” by governments given the “global implications and inadequate operational and regulatory frameworks” in operation.
Chief amongst the report’s concerns was the uptake of crypto in emerging markets with weak central bank credibility and vulnerable banking systems triggering “cryptoization,” the substitution of national currencies with alternative assets.
“In emerging markets, the advent of crypto assets has benefits but can accelerate cryptoization and circumvent exchange and capital control restrictions,” wrote the report’s authors.
“crypto assets can facilitate tax evasion, and seigniorage revenue may also decline due to the shrinking role of central bank money in the economy,” the report warned, stating that Cryptoization poses “a threat to fiscal policy.”
“Increased trading of crypto assets in these economies could lead to destabilizing capital flows,” the report continued.
In 2021 the global crypto market has grown too big for regulators to ignore with total market capitalization swelling to $2tn.
Emerging economies have been at the forefront of crypto adoption according to recent research by Chainalysis which found that Vietnam, Pakistan and Kenya were amongst the countries leading digital asset uptake.
The recent decision by El Salvador to make Bitcoin legal tender alongside the US dollar has seen politicians in both Brazil and the Ukraine consider following suit.
The IMF stressed the importance of bringing crypto under regulatory oversight saying the “anonymity of crypto assets and limited global standards create significant data gaps.”
Read more: Crypto adoption jumps 881 per cent in a year