IMF speaks on why it is ‘afraid’ of cryptocurrencies

Key Takeaways

• IMF expresses concern over continued crypto popularity.
• Calls for strict regulation to keep crypto at bay.

NIGERIA (Coinchapter.com) – The International Monetary Fund (IMF), has again spoken down on cryptocurrencies, this time revealing certain reasons digital assets give it ‘sleepless nights.’

IMF expressed its ‘fears’ in a blog post authored by Tobias Adrian, Dong He, and Aditya Narain. It was titled ‘Global Crypto Regulation Should be Comprehensive, Consistent, and Coordinated.’

The world financial body opened the post stating that crypto continues to ‘render it obsolete.’

“The IMF’s mandate is to safeguard the stability of the international monetary and financial system, and crypto-assets are changing the system profoundly, the blog post opened.

IMF’s real fear about cryptocurrencies

Due to its cross-border, cheap, anonymous, and ubiquitous nature, Cryptocurrencies are said to render banks obsolete in the future eventually. Apparently, the IMF is conscious of the prediction thereby, working hard to bring it under their control through regulation.

In the blog post, the IMF identified determining valuation, identification, monitoring, and management of risks as some of the challenges of cryptocurrencies. They also argued about “comprehensive international standards” to address the risks posed to the financial system from cryptocurrencies.

Crypto market overvalued?

Another major concern for the IMF is that the crypto market is overvalued. The monetary body raised concerns over “cryptoization” of emerging markets and developing economies, where cryptocurrencies “replace domestic currency and circumvent exchange restrictions and capital management measures.”

In a tweet, IMF said the crypto market is overvalued with its $2.5 trillion market value.

“Crypto’ $2.5 trillion market value shows the significance of innovations like blockchain—and reflects that it’s overvalued. Our #IMFBlog explains how regulation can safeguard financial stability, they wrote.

Proposed solutions to the myriad of crypto problems

IMF hinged the solution on regulation through licensing and authorizing crypto service providers. They also called for distinctions to be made between services and products for investments versus those intended for payments, with the former being overseen by the securities regulator and the latter overseen by “the central bank or the payments oversight authority.”

“There is an urgent need for cross-border collaboration and cooperation to address the technological, legal, regulatory, and supervisory challenges. Setting up a comprehensive, consistent, and coordinated regulatory approach to crypto is daunting. But if we start now, we can achieve the policy goal of maintaining financial stability while benefiting from the benefits that the underlying technological innovations bring.”

The world monetary body also called for financial institutions with exposure to crypto to adhere to “clear requirements,” including limits on exposure, investor suitability, and risk assessments.