Emerging market ‘cryptoisation’ threatens financial stability – IMF

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LONDON, Oct. 1 (Reuters) – The advent of digital currencies in emerging markets could trigger ‘cryptoisation’ of local economies, potentially undermining currency and capital controls and disrupting financial stability, the International Monetary Fund said on Friday .

Bitcoin and its relatives have increased in price and popularity over the past year, with emerging and developing market economies such as Vietnam, India and Pakistan seeing rapid growth in some adoption measures, according to the American blockchain researcher Chainalysis.

Cryptocurrencies offer, in theory, a cheaper and faster way to send money across borders. Donors say digital tokens such as stablecoins could also help protect economies from high inflation or local currency fluctuations.

In September, El Salvador became the first country in the world to adopt bitcoin as legal tender, with backers rocking the experiment to reduce the costs of the billions of dollars in remittances sent to the Central American nation. . Read more

The IMF said unhealthy macroeconomic policies and inefficient payment systems are among the drivers of cryptocurrency adoption in emerging economies, along with the lure of quick wins that has also excited investors around the world. .

But the IMF said the exact level of crypto adoption in emerging economies was difficult to assess with precision.

Factors such as weak central bank credibility and weak domestic banking systems that can fuel “dollarization” may also contribute to the growing use of crypto, the Fund added.

Dollarization involves using a foreign currency – usually the US currency – in addition to or in place of a national currency. High inflation or the instability of a national currency are among the drivers of the process.

The wide-scale adoption of stablecoins – digital tokens designed to hold stable value and seen as useful for saving and trading – could also pose significant challenges by bolstering existing dollarization forces, the IMF said.

“Dollarization can hinder the effective implementation of monetary policy by central banks and pose risks to financial stability due to currency mismatches in the balance sheets of banks, businesses and households,” he said. declared.

“Cryptoization” could also become a threat to fiscal policy, with digital assets perhaps facilitating tax evasion, the IMF added.

The fund urged developing countries to strengthen their macroeconomic policies and consider the possible benefits of issuing central bank digital currencies in response to the rise of crypto.

Reporting by Tom Wilson. Editing by Jane Merriman

Our Standards: The Thomson Reuters Trust Principles.

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