IMF warned stablecoins could pose inevitable risks to the global financial system according to their new report, arguing that the regulations for crypto are needed to ensure investors know more about how these assets are backed so let’s read more in our latest cryptocurrency news today.
The International Monetary Fund believes cryptos don’t pose a risk to the global financial system yet but the IMF warned stablecoins could be a potential threat. The IMF joins the list of institutions that are wary of stablecoins and their growing influence. In its 2021 Global Financial Stability Report, the IMF said that crypto doesn’t yet pose a systematic threat to the international system but that its risks should be monitored closely given the global implications and the inadequate operational and regulatory frameworks in jurisdictions. To address these inequalities it calls for a global standard for crypto assets and by doing so, it believes will help fend off the “contagion risk” to other markets.
On stablecoins: the instability concerns go beyond the commercial paper, etc. holdings.
Shifting into short-term Treasury holdings brings its own suite of financial stability concerns.
Quick thread on this systemic risk. 1/x
— Steven Kelly (@StevenKelly49) October 12, 2021
The IMF holds huge sway and is an intergovernmental body with 190 member states that promote global trade, poverty reduction, and stable monetary policies. This subhead of the year’s report shows that the IMF’s point of view by lumping digital assets with the pandemic and a potential disaster, the report focused on the opportunities and challenges that are arising from the digital asset’s growth. The report also spends a lot of room detailing how stablecoins that are pegged 1:1 to the US dollar or another currency, poses a risk given they are regulated differently from the jurisdiction to jurisdiction while managing to go from a market cap of $20 billion to $120 billion in the past year.
The report also noted a few problems. The first one was “poor disclosure” and in some cases of how the stablecoins are backed. Tether for example has been under scrutiny for quite some time regarding how the stablecoin can be redeemed. After a few years of insisting that each USDT in circulation was backed by the dollar, the firm walked by the assertion and the new reprots from the auditors found that about half of Tether’s reserves were commercial paper which is a type of debt.
US FED Chair testified before congress and commercial paper is liquid until it isn’t anymore, especially in times of financial crisis. He, therefore, thinks stablecoins should be regulated in the same manner as money markets and the IMF supports this assessment. IMF Director of Monetary and Capital Markets Tobies Adrian said:
“When you look at the market capitalization of stablecoins, they are of an order of magnitude with some of the largest offshore money market funds, so they are not small.”
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