A recent report from the International Monetary Fund (IMF) has highlighted that the current evolution in the digital currency ecosystem presents both opportunities and challenges for the broader financial ecosystem.
According to the report, the IMF pointed to the potential benefits that can come from the growing adoption of digital currencies, including the push for financial inclusion.
The IMF report details:
“The rapid growth of the crypto ecosystem presents new opportunities. Technological innovation is ushering in a new era that makes payments and other financial services cheaper, faster and more accessible, and allows them to cross borders quickly. Crypto asset technologies have potential as a tool for faster and cheaper cross-border payments ”.
The international monetary watchdog also noted that bank deposits can be transformed into “stable currencies that allow instant access to a wide range of financial products from digital platforms and allow instant currency conversion.” The broad innovation driving digital currencies is also known to drive flexible public services in the form of decentralized finance that can potentially transform the monetary ecosystem.
The IMF also pointed out the inherent risks involved in adopting crypto, insisting on the limited framework to provide the necessary protection to investors.
“Challenges posed by the crypto ecosystem include operational and financial integrity risks of crypto asset providers, investor protection risks for crypto and DeFi assets, and inadequate reserves and disclosure for some stablecoins,” the report noted.
Providing recommendations to monitor the flaws seen in the fast-growing cryptocurrency industry, the IMF suggests creating improved monitoring systems for protocols operating under its jurisdictions.
Policymakers should implement global standards for crypto assets and improve their ability to monitor the crypto ecosystem by addressing data breaches. As the role of stablecoins grows, regulations must match the risks they pose and the economic functions they perform. Emerging markets facing crypto risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies, ”the report said.
Crypto regulation is a volatile and diverse affair between various countries today. While South Korea is stepping up its demands from crypto exchanges operating in the country, others, notably China, are phasing out any digital currency-related activity in a radical regulatory stance.
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