IMF warns crypto is destabilising emerging economies
An IMF official has warned that crypto’s price volatility is “destabilising” capital flows in emerging markets while its use as currency poses “acute risks.”
“Crypto is being used to take money out of countries that are regarded as unstable [by some external investors],” Tobias Adrian, the IMF’s financial counsellor and head of its monetary and capital markets department, told the FT.
“It is a big challenge for policymakers in some countries,” said Adrian in an FT interview, noting that “cryptocurrency markets have lost about $1tn in value since the peak.”
It comes after the IMF last week urged El Salvador to ditch its crypto policy which saw bitcoin become legal tender in September. The IMF reiterated warnings that the adoption of digital assets as a currency alongside the dollar presented large risks to financial stability and the integrity of the country’s financial system.
El Salvador’s president Nayib Bukele, who is seeking a $1bn loan from the IMF, responded to criticism by posting a meme from TV show the Simpsons which read “I see you, IMF. That’s very nice.”
Bukele plans to issue small and medium sized businesses in the country with crypto backed loans and also plans to raise money by selling bonds linked to crypto assets. The scheme has drawn criticism from some of the international investors that already own government debt.
“Capital flow management measures will need to be fine-tuned in the face of cryptoisation,” Adrian told the FT, warning that emerging economies already face “immediate and acute risks” from digital assets. “Applying established regulatory tools to manage capital flows may be more challenging when value is transmitted through new instruments, new channels and new service providers that are not regulated entities.”
It comes as economists warn that crypto is becoming more closely bound to traditional capital markets. Correlation between the performance of crypto, tech stocks and global equity markets is an additional cause for concern at the IMF.
Read more: IMF urges El Salvador to rethink Bitcoin legal tender