The International Monetary Fund (IMF) has urged regulators to keep an eye on cryptocurrencies to ensure global financial integrity and stability.
In her report qualified “Global Financial Stability Report”, corresponding to this month of October, the International Monetary Fund called on global regulators to constantly monitor the cryptocurrency industry, in order to minimize potential risks and ensure financial and economic stability.
According to the IMF, cryptocurrencies do not currently represent a risk to the stability of global markets, as many of the existing risks within this industry have been contained so far. However, the organization noted that since this is a new and rapidly growing market, it is possible that cryptocurrencies could become a challenge in the future and disrupt this stability, so regulators should keep an eye on these emerging markets.
The IMF is the organization that promotes the policy and stability of the international monetary system and one of the most influential in global trade. To date, 188 countries from all over the world make up this organization.
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IMF and the risks of cryptocurrencies
In its recent report, the IMF lists the potential benefits and risks involved in the cryptocurrency and digital asset industry, including the stablecoinsHowever, it does emphasize the possible, but unlikely, collapse of this growing industry.
The fund noted that poor operational or cyber resilience of some crypto-asset providers, poor governance and “significant data gaps” within the crypto industry represent major risks that may jeopardize the financial integrity of the global system. In its view, despite the many improvements that have been implemented to date, vulnerabilities within the cryptocurrency industry remain high.
Stablecoins and DeFi
The rapid growth of the cryptocurrency industry has brought with it new risks to financial stability, the IMF said. One of the biggest concerns cited by the international organization in its report is stablecoins and decentralized finance, known as DeFi.
According to the IMF, the stablecoin market can disrupt and negatively impact the global financial system. Especially, due to the liquidity risks within this market. It is worth remembering that stablecoins have grown more than 600% in the last year and currently exceed a market capitalization of 130.000 billion dollars. In addition to this, it is Tether (USDT), the most controversial stablecoin on the market, which dominates nearly 50% of this sector of the crypto industry, with a total capitalization of 68.000 billion dollars of which there is no certainty that it is 100% backed by physical reserves.
On the other hand, the IMF considers that DeFi is also a high-risk sector, as it handles large volumes of money in a non-transparent way. The IMF's negative assessment of decentralized finance is due to the lack of KYC and AML controls within the protocols of this sector, in addition to the risks of hacking and the high volatility of its tokens, as is the case with cryptocurrencies. In August, the analysis firm CipherTrace said that 69% of the hack losses seen in the crypto industry this year have occurred in the DeFi sector.
Centralization
Another point highlighted by the IMF as a risk is that much of the current value in cryptocurrencies moves through a single centralized platform, Binance, which is in the spotlight of regulators.
To date, more than a dozen regulators worldwide have warned about the operations and services of this company, which has been forced to implement new controls and restrict access to several of its products to comply with the regulators' demands. Due to centralization, the IMF noted that cybersecurity risks and increased regulatory pressure on this platform or on Tether could weaken the crypto market.
Warnings and crypto regulation
This is not the first time the IMF has warned about cryptocurrencies. In August, in light of the imminent arrival of Bitcoin as legal tender in El Salvador, the organization warned that this could have serious consequences for the country's macroeconomic and monetary stability; and even noted that El Salvador could face legal problems by adopting Bitcoin. Bitcoin.
However, despite the potential risks, the IMF is not urging regulators to ban cryptocurrencies or any of their sectors altogether, but rather to create regulatory frameworks that can manage such risks to ensure investor safety.
In August 2020, the IMF talked about cryptocurrencies as the next evolution of money, highlighting the need to regulate the industry to minimize risks and highlight its benefits. At the time, the organization said that the ease and speed that cryptocurrencies offer to transfer value across borders and the low commission costs could bring multiple benefits to current financial systems.
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