Cryptocurrency Consumers at Substantial Risk Given Limited Disclosure and Oversight: IMF

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NEW DELHI: The crypto boom poses new challenges for financial stability, and consumer protection risks remain significant given limited or inadequate disclosure and oversight, according to the International Monetary Fund (IMF).

The total market value of all crypto assets topped $ 2 trillion in September 2021, a 10-fold increase since early 2020, and an entire ecosystem is also thriving, teeming with exchanges, wallets, miners. and issuers of stable coins.

According to the fund, many of these entities lack strong operational, governance and risk management practices. Crypto exchanges, for example, have faced significant disruption during times of market turbulence.

“There are also several high profile cases of theft of customer funds linked to the hack. So far, these incidents have not had a significant impact on financial stability. However, as crypto assets become more and more mainstream, their importance in terms of potential implications for the economy at large is expected to increase, ”IMF financial experts Dimitris Drakopoulos, Fabio Natalucci and Evan Papageorgiou wrote in a blog.

As an example, experts wrote that more than 16,000 tokens have been listed in various exchanges and that around 9,000 exist today, while the rest have disappeared in one form or another. In addition, many of them do not have volumes or the developers have moved away from the project. Some were probably created purely for the purpose of speculation or even outright fraud.

“The (pseudo) anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors to money laundering, as well as terrorist financing. While authorities may be able to trace illicit transactions, they may not be able to identify the parties to those transactions, ”the blog said. “In addition, the crypto ecosystem falls under different regulatory frameworks in different countries, which makes coordination more difficult.

The IMF has also said that widespread and rapid adoption can pose significant challenges by bolstering the forces of dollarization in the economy – or in this case cryptoisation – where residents begin to use crypto assets instead of local currency. .

Additionally, crypto-encryption can reduce the ability of central banks to effectively implement monetary policy. “It could also create risks for financial stability, for example due to financing and solvency risks resulting from currency mismatches, as well as amplifying the importance of some of the risks mentioned above for consumer protection and financial integrity, ”the IMF wrote.

The fund suggested that political action by countries around the world must be decisive, swift and well coordinated globally to allow benefits to flow while addressing vulnerabilities.

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