Key takeaways
- The IMF warns that emerging economies are likely to face financial stability risks by adopting cryptocurrencies and stablecoins.
- Charles Hoskinson, founder of Cardano, replies that cryptocurrencies were rather the solution to hyperinflation.
- Crypto is still likely to face more oversight from global regulators in the future.
Emerging economies have been warned by the International Monetary Fund (IMF) that the adoption of digital currencies, if not properly regulated, could spark “cryptoization” of local economies. According to the IMF, cryptoization could potentially undermine financial stability in developing countries that were embracing digital assets and so were not an advisable investment for them.
“The adoption of crypto assets and stablecoins in emerging markets and developing economies could pose a challenge to those countries’ macroeconomic and financial stability,” their recent Global Financial Stability Report noted.
The organization adds that with the continued evolution and growth of the cryptocurrency industry, the risks they pose to economies were also bound to grow, despite appearing to be “contained for now.” According to them, the new sources of risks that were likely to emerge were to come from stablecoins and DeFi.
In particular, the IMF cites the lack of transparency in the reserves backing stablecoins as a sure warning sign of the risk to both the crypto-market and the global economy. The report warned that a collapse of stablecoins, which have grown phenomenally recently, could affect other sectors of the global financial market.
The report has warranted multiple reactions from the cryptocurrency space. Founder of the third-largest blockchain network Cardano, Charles Hoskinson has responded to the remarks made in the report. Hoskinson took a poke at the IMF’s motive for the warning. He stated that the IMF was only concerned that they could lose control of global finance if decentralization goes mainstream, adding that cryptocurrencies, contrary to the IMF’s warning, would save emerging economies from hyperinflation.
“And by collapse, we mean they won’t be laden with hyperinflation and highly centralized rails that are under our control.”
The IMF however has a history of holding an opposing stance on cryptocurrencies. When El Salvador first moved to adopt Bitcoin as legal tender, the organization warned the country that such a move could introduce highly unstable commodity prices. They also emphasized the increased risk of cryptocurrency assets being used contrary to Anti-Money Laundering laws and in the financing of terrorism.
However, the warning and their negative sentiment did little to deter President Nayib Bukele from going ahead to implement the law. El Salvador went ahead with the law in September and has given other countries reason to want to follow suit.
As the cryptocurrency market and industry expand, it is only likely to face more friction from regulators and governments. Already, the IMF has hinted that CBDC, which has been strongly spoken against by staunch cryptocurrency proponents including Edward Snowden is the acceptable way for economies to get digitalized.
