Ovunc Kutlu
01 October 2021•Update: 01 October 2021
ANKARA
The boom in cryptocurrencies market poses new challenges to financial stability, the International Monetary Fund (IMF) said Friday.
"The rapid growth of the crypto ecosystem presents new opportunities. Technological innovation is ushering in a new era that makes payments and other financial services cheaper, faster, more accessible, and allows them to flow across borders swiftly," it said in a report.
Although financial stability risks are not yet systemic, they should be closely monitored "given the global implications and the inadequate operational and regulatory frameworks in most jurisdictions," said Global Financial Stability Report's newly released Chapter 2: The Crypto Ecosystem and Financial Stability Challenges.
The IMF said some of the challenges include operational and financial integrity risks from crypto asset providers, investor protection for crypto assets and decentralized finance (DeFi), and inadequate reserves and disclosure for some stable coins.
"Policymakers should implement global standards for crypto assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps. As the role of stable coins grows, regulations should correspond to the risks they pose and the economic functions they perform," the report said.
Although the total market capitalization almost tripled in 2021 to an all-time high of $2.5 trillion early May, it later showed a steep decline of 40% later on along with high volatility.
The total market cap stood at $2.06 trillion on Friday at 12.25 p.m. EDT, according to data by digital asset price-tracking website CoinMarketCap.
"Consumer protection risks remain substantial given limited or inadequate disclosure and oversight. For example, more than 16,000 tokens have been listed in various exchanges and around 9,000 exist today, while the rest have disappeared in some form," the IMF said in a separate statement.
"The (pseudo) anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors for money laundering, as well as terrorist financing ... Additionally, the crypto ecosystem falls under different regulatory frameworks in different countries, making coordination more challenging," it added.
The IMF called for regulators to monitor rapid developments in the crypto market, and urged policymakers to implement cross-border coordination through the G20 Cross Border Payments Roadmap.
