IMF Authorities Warn of Crypto Impact on Conventional Markets

  • The many collapses of tokens and exchanges may harm conventional markets.
  • Investors in developed countries have been flocking to some of these assets.

Global policymakers are becoming more concerned about the unpredictability of cryptocurrency markets. IMF officials Nobuyasu Sugimoto, deputy division chief of the division of financial supervision and regulation, and Bo Li, deputy managing director of the IMF, issued a warning on the potential impact of cryptocurrency market volatility on the global financial system in an article published on January 18.

Given the existing closeness of ties between the two systems, the article notes that the volatility in crypto markets due to the many collapses of tokens and exchanges may harm conventional markets and institutions.

Financial Stability Risks From Crypto

The authors note that investors in developed countries have been flocking to some of these assets because of the profits they provide and suggest that regulation of these markets is essential to prevent this from occurring.

According to a post on the IMF’s blog:

“Advanced economies are also susceptible to financial stability risks from crypto, given that institutional investors have increased stablecoin holdings, attracted by higher rates of return in the previously low-interest rate environment.”

The International Monetary Fund (IMF) still does not view cryptocurrencies and stablecoins as serious threats to the global financial system. However, some countries are replacing their currency with cryptocurrencies and stablecoins, which complicates efforts to maintain centralized oversight of these assets. Sugimoto and Li argue that this might lead to “the potential to cause capital outflows, a loss of monetary sovereignty, and threats to financial stability, creating new challenges for policymakers.”

People in countries hit hard by inflation and depreciation at the same time tend to abandon their national currencies in favor of more stable ones, such as those tied to the U.S. dollar.

Content writer by profession. A crypto lover and has passion for writing. Follows the developments of digital currency right from its launch, years ago.