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The continuous rise in the demand of digital assets has given the International Monetary Fund a lot of concern. According to the International Monetary Fund, the upsurge in the demand for digital assets is a threat to global financial stability. With cryptocurrency becoming a highly valued commodity, the traditional financial system is concerned.

The International Monetary Fund in a blog post on 1st of October 2021, discussed the negative impact of the cryptocurrency industry on the global financial market. While the three authors in the blog post regarding the wide acceptance of digital assets as a” crypto nation”, state that it has only made the implementation of monetary and fiscal policies more difficult. While there have been complaints about money laundering, cybercrimes, and regulation, it seems there is a lot to be worried about.

While the negatives associated with the increased volatility of the cryptocurrency market are yet to manifest, the IMF believes that the consumers are at risk with the rise of the unregulated cryptocurrency boom.

The IMF states that financial challenges such as financial instability, fraud, cybercrimes, funding of terrorism, and money laundering are on the rise due to the increased rise in cryptocurrencies. However, the IMF has called for the need for rigorous regulation. If not, according to the IMF’s economist, the global financial system will suffer a knock-on effect caused by the fast growth of the stablecoin sector.

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Elizabeth Warren, the U.S Senator denounced Coinbase for prohibiting customers from having access to their funds. These extreme market moves together with heightened cybercrimes, money laundering, energy consumption, and tax evasion are some of the challenges aired by the IMF.

IMF Proffered Solutions to the Risks Posed By the Rapid Rise of Cryptocurrencies

The IMF announced that the emerging markets and countries grappling with development make use of cryptocurrency the most. This is after China has announced that cryptocurrency transactions are illegal. Also, the IMF has blamed cryptocurrencies for the inability of the financial markets to properly formulate monetary policies. Therefore, resulting in financial instability.

However, the IMF demands that regulators should supervise the growth in the crypto ecosystem and curtail the risks posed by setting to work tackling data gaps. In essence, policymakers must enhance cross-border regulation to reduce the risks of cryptocurrency arbitrage and ensure active supervision.

The Washington-based IMF claims the 10-fold boost in the market significance of crypto assets – digital or virtual currencies – to over $2tn since the beginning of 2020 needs effective and collective regulation by governments.

Having announced that these new crypto assets lack competent supervision and regulations in the Global Financial Stability Report, the IMF has urged policymakers to take urgent measures to prevent regulatory arbitrage. Thus, there must be an increased collective action taken by the governments to reduce the risks posed by unregulated cryptocurrencies to the global financial market. The global character of crypto assets demands that there is effective management and regulation of cryptocurrency.

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Alicia Maher

By Alicia Maher

Alicia Maher is an accomplished news writer with a passion for storytelling. With years of experience in the field, she is skilled at delivering accurate, engaging, and insightful news coverage to her audience.