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Crypto consumers at substantial risk given limited disclosure and oversight: IMF

IMF said that widespread and rapid adoption can pose significant challenges by reinforcing dollarization forces in the economy—or in this case cryptoization—where residents start using crypto assets instead of the local currency. (Reuters)Premium
IMF said that widespread and rapid adoption can pose significant challenges by reinforcing dollarization forces in the economy—or in this case cryptoization—where residents start using crypto assets instead of the local currency. (Reuters)

  • The total market value of all the crypto assets surpassed $2 trillion as of September 2021, a 10-fold increase since early 2020, and an entire ecosystem is also flourishing, replete with exchanges, wallets, miners, and stable coin issuers

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NEW DELHI: Crypto boom poses new challenges to financial stability and consumer protection risks remain substantial given limited or inadequate disclosure and oversight, according to the International Monetary Fund (IMF).

The total market value of all the crypto assets surpassed $2 trillion as of September 2021, a 10-fold increase since early 2020, and an entire ecosystem is also flourishing, replete with exchanges, wallets, miners, and stable coin issuers.

According to the fund, many of these entities lack strong operational, governance, and risk practices. Crypto exchanges, for instance, have faced significant disruptions during periods of market turbulence.

“There are also several high-profile cases of hacking-related thefts of customer funds. So far, these incidents have not had a significant impact on financial stability. However, as crypto assets become more mainstream, their importance in terms of potential implications for the wider economy is set to increase," IMF’s financial experts Dimitris Drakopoulos, Fabio Natalucci, and Evan Papageorgiou wrote in a blog.

Giving example, the experts wrote that there are 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. Moreover, many of them have no volumes or the developers have walked away from the project. Some were likely created solely for speculation purposes or even outright fraud.

“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. Although authorities may be able to trace illicit transactions, they may not be able to identify the parties to such transactions," the blog said. “Additionally, the crypto ecosystem falls under different regulatory frameworks in different countries, making coordination more challenging."

IMF also said that widespread and rapid adoption can pose significant challenges by reinforcing dollarization forces in the economy—or in this case cryptoization—where residents start using crypto assets instead of the local currency.

Moreover, cryptoization can reduce the ability of central banks to effectively implement monetary policy. “It could also create financial stability risks, for example through funding and solvency risks arising from currency mismatches, as well as amplify the importance of some of the previously mentioned risks to consumer protection and financial integrity," IMF wrote.

The fund suggested the policy action by countries around the world needs to be decisive, swift and well-coordinated globally to allow the benefits to flow but, at the same time, also address the vulnerabilities.

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