Tougher regulation is needed to prevent the rapid growth in cryptocurrencies leading to financial instability, defrauding of consumers, and the funding of terrorism, the International Monetary Fund (IMF) has said, Report informs referring to The Guardian.
The Washington-based IMF said the 10-fold increase in the market value of crypto assets – digital or virtual currencies – to more than $2 trillion since early 2020 required more active and collaborative supervision by governments.
In a chapter from its forthcoming Global Financial Stability Report, the IMF said many of the new cryptocurrencies lacked robust governance and risk practices.
The blog noted the substantial risks to consumers from inadequate disclosure and oversight, given that some currencies 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.”
The blog said: “Given the composition of their reserves, some stablecoins could be subject to runs, with knock-on effects to the financial system. The runs could be driven by investor concerns about the quality of their reserves or the speed at which reserves can be liquidated to meet potential redemptions.”
Last month, China made transactions in cryptocurrencies illegal, but the IMF said emerging, and developing countries appeared to be leading the way with their use. This risked damaging the ability of central banks to effectively implement monetary policy and potentially created financial stability risks, it added.
“As a first step, regulators and supervisors need to be able to monitor rapid developments in the crypto ecosystem and the risks they create by swiftly tackling data gaps. The global nature of crypto assets means that policymakers should enhance cross-border coordination to minimize the risks of regulatory arbitrage and ensure effective supervision and enforcement,” the IMF said.