Crypto risks ‘destabilizing’ emerging markets, says senior IMF official

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Sharp swings in cryptocurrency prices are causing ‘destabilizing’ capital flows in emerging markets, and using crypto in place of traditional currencies poses ‘immediate and acute risks’, says senior IMF official .

“Crypto is used to withdraw money from countries considered unstable [by some external investors]said Tobias Adrian, the IMF’s financial adviser and head of its monetary and capital markets department.

“It’s a big challenge for policymakers in some countries,” Adrian said in an interview with the Financial Times, noting that “cryptocurrency markets have lost about $1 billion in value since the peak.”

The IMF last week urged El Salvador to stop recognizing bitcoin as legal tender, reiterating its warning that the formal adoption of the digital asset last year posed “great risks” to stability and economics. integrity of the country’s financial system.

Nayib Bukele, the president of El Salvador – who is seeking over $1 billion in funding from the IMF – plans to raise funds by selling bonds linked to the world’s largest cryptocurrency. The scheme has drawn criticism from some of the international investors who own debt already issued by the government.

Adrian said some emerging markets and developing economies now face “immediate and acute risks” from replacing their existing established currencies with crypto assets, a process that has been dubbed “cryptocurrency”.

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“Capital flow management measures will need to be refined in the face of cryptoization,” Adrian said. “Applying established regulatory tools to manage capital flows can be more difficult when value is transmitted through new instruments, new channels and new service providers who are not regulated entities.”

Signs of a closer correlation between the performance of cryptocurrencies and other financial assets in developed countries, such as US tech stocks, government bonds and even crude oil, are also of concern to the IMF.

Officials at the Washington-based fund believe episodes of sharp cryptocurrency deleveraging are fueling the sell-off in equity markets.

“The correlation between the crypto and equity markets has risen sharply. Crypto is now very closely tied to what is happening in stocks. We can’t just dismiss it,” Adrian said.

The IMF has urged national and global regulators to establish a coordinated, consistent and comprehensive approach to supervising cryptocurrencies – a daunting task, given the speed at which digital assets are moving into traditional finance.

“Agreeing on global regulations is never quick. But if we start now, we can achieve the goal of maintaining financial stability while reaping the benefits of underlying technological innovations,” Adrian said.

Video: Where Will Crypto ‘Anarchy’ Stop | Lex Megatrends

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