By Lucas Williams
As the masses set their sights on a digital future, they’re looking to invest in cryptocurrency as well. For crypto holders, there’s a whole world of financial possibilities. They can access borrowing and lending services, as well as a decentralized financial ecosystem. But even so, the risks of venturing into crypto’s decentralized space prevail. This is according to the International Monetary Fund’s latest Global Financial Stability Report.
The crypto industry is growing with very few regulations. As of yet, it lacks proper practices with regard to governance and practices. Once digital assets gain mainstream-level recognition, it can have consequences for wider economy.
One major occurrence is that of crypto assets reaching an accumulated value of $2 trillion. The IMF has seen a few other trends. For instance, crypto exchanges face disruptions during phases of market turbulence. Then, crypto users are losing funds due to hacking-backed thefts. There is also the fear that cryptocurrency could be used for money laundering purposes or financing terrorist activities.
One of the reasons it’s so difficult to regulate cryptocurrencies is that there are no set rules. The ecosystem is subject to different rules based on the country. To make matters worse, people have raised their crypto trading volumes this year to a large extent.
At the same time, stablecoins are gaining increasing popularity. This group of crypto assets aims to peg its value to against that fiat currencies like the USD. Their supply grew four times over during 2021 to reach an accumulated sum of $120 billion.
Regulators are concerned that increased adoption can lead to major challenges by strengthening dollarization trends. Of course, in this case, the difference is that cryptonization will be a new force, as more people use crypto assets rather than local currency. This can reduce central banks’ powers when it comes to implementing proper monetary policy.
Not to mention, there’s an extra threat to fiscal policy because of cryptocurrency’s potential to allow tax evasion. So how will they address concerns? A
According to the IMF, in developing economies and newly emerging markets, cryptoization becomes a trend due to various factors. These include insufficiencies in payment systems, low central bank credibility, and little access to financial services.
In these regions, authorities should focus on building better macroeconomic policies. They should also start considering the advantages of issuing central bank-backed digital currencies to give digital access. Lastly, strengthening the payment system will help lower the chances of cryptoization.
Other potential measures could be the increased monitoring of occurrences in the crypto world. Furthermore, governments can close data gaps and increase international cooperation. Once they start implementing current global standards, it can make room for a more stable, centralized financial environment.