IMF global financial stability report sees complex roles for cryptocurrency, DeFi

IMF global financial stability report sees complex roles for cryptocurrency, DeFi

AccordingTo the International Monetary Fund’s Global Financial Stability reportPublished TuesdayThe war in Ukraine — following hard on the heels of the coronavirus pandemic — has led to a tightening of global financial conditions. RapidChanges in fintech and the misuses and uses of cryptocurrency are part of the myriad of challenges facing the industry. global economy.

AccordingTo the report, the pandemic and war have led to accelerated “cryptoization” in emerging markets, due to increased speculative interest during the pandemic and then attempts to evade sanctions. GivenCompliance within the cryptocurrency industry, the use or attempted use of crypto to evade sanctions are impractical. report found. TheMixers, decentralized trades and privacy coins can be used to circumvent certain laws, but this would be limited by the availability of liquidity.

A related risk is the use by sanctioned countries of excess energy – possibly built up because of sanctions – to mine Proof-of-WorkAlthough cryptocurrencies are not yet available, financialThe flows from this activity would also be contained. Countries concerned about coming under sanctions in the future may come to find crypto more attractive as reserve currency – and major fiat currencies less so – thanks greater difficulty in immobilizing crypto.

AllThese issues point to the necessity forA coordinated regulatory approach to crypto forEffective control over capital flows ImprovingThis control could also be maintained by non-blockchain payments technologies.

The reportRegulators are not keeping up with rapid developments in many areas of fintech, according to another source. Decentralizedfinance, or DeFiDue to its adoption by traditional financiers,, is becoming more interconnected with traditional financial. financial institutions. DeFi’s lack of governance makes it a risk to financial stabilityLegal uncertainty creates an atmosphere of uncertainty. ItIt is vulnerable to cyber, liquidity, and market risks. However, it can offer benefits from greater efficiency. financial inclusion.

The IMFThe elements of the crypto ecosystem surrounding should be the focus of regulators. DeFiStablecoin issuers or centralized exchanges are examples of such organizations. They also encourage the creation and maintenance of self-regulating bodies within their industry.