March 17, 2023

IMF Warns G20 Countries of Risks of Crypto Adaption

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The International Monetary Fund (IMF) warned the G20 countries of the risks posed by the growing adaption of cryptocurrencies by their citizens.

The warning came in a report titled “Macrofinancial Implications of Crypto Assets,” in which the IMF presented countless risks to the G20 countries’ economies of the impacts of crypto adaption on their external and internal stability.

The report showed the IMF’s concern about the people’s shift from fiat to digital currencies denominated in foreign currencies, saying this could challenge the effectiveness of the monetary policies. It also pointed out that the growing adaption may affect the Global Financial Safety Net (GFSN) and capital flow stability, which badly affects the efficiency of the payment system.

The report underlined that the nations’ adaption of digital currencies could encourage them to isolate themselves from the global drive to enhance cross-border payment functionalities.

“A widespread proliferation of crypto assets comes with substantial risks to the effectiveness of the monetary policy. Moreover, changes may be required to central bank reserve holdings and the global financial safety net, yielding potential instability,” the report noted.

However, the IMF report mentioned the advantages of using digital currencies, saying the blockchain could offer higher operational resilience than centralized entities in the financial sector.

Earlier in February, MF warned of making cryptocurrencies legal tender, a move which sparked strong opposition from the crypto community on social media.

On February 23, the IMF executive board endorsed its crypto asset policy framework, titled “Elements of Effective Policies for Crypto Assets,” which had nine principles, including not granting crypto assets official currency or legal tender status, Cointelegraph reported.

In its framework, the fund said: “the widespread adoption of crypto assets could undermine the effectiveness of the monetary policy.”

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