IMF Report on Crypto Ecosystem

WHY IN THE NEWS?

The International Monetary Fund (IMF) has released its report called “Global Financial Stability Report”, highlighting how digital currency assets bring in financial stability challenges.

About:

• In its report, IMF notes that the rapid growing crypto ecosystem presents new opportunities to the world. However, these digital currency assets also pose several financial stability challenges.
• According to a report, Technological innovation is starting a new era of making payments and other financial services faster, cheaper, and more accessible. Such transactions also allow flow across borders swiftly.

Innovative services

In its report, IMF highlights that, crypto-asset technologies are a potential tool for faster and cheaper cross-border payments. Using these technologies, bank deposits can be transformed into a stable coin, allowing instant access to financial products from digital platforms. It also allows instant currency conversion. According to IMF, decentralised finance can become a platform for more inclusive innovative and transparent financial services.

Challenges with the cryptocurrencies

• According to IMF, rapid growth and increasing adoption of crypto assets pose financial stability challenges.
• Such decentralised currencies could also lead to instability as they are extremely volatile. They are much more volatile than the equities or commodities or exchange rates.
• Its transaction costs are fairly expensive as compared to digital money.
• As per report, such transaction destabilizes the capital flows. It also poses several operational and financial integrity risks from the provides of crypto asset.

What are cryptocurrencies?

Cryptocurrencies are digital or virtual currencies where encryption techniques are used for regulating the generation of units and verifying the transfer of funds. Such systems are operating independently of any central bank.