IMF Warns That Cryptocurrencies May Create Vulnerabilities In International Financial System

October 10, 2018 11:06 PM

The International Monetary Fund (IMF) is composed of 189 member countries that work toward global monetary cooperation, financial stability, international trade, and sustainable economic growth. Its primary role is to ensure stability of the international financial system.

Its latest World Economic Outlook (WEO) report, titled “Challenges to Steady Growth,” comes 10 years after the collapse of Lehman Brothers and the onset of the last global financial crisis. In the April 2018 WEO, global growth was predicted to rise to 3.9 percent in 2018 and 2019. Now, says the IMF, the outlook is “more tentative” as recent solid growth has “plateaued.”

The reasons given for this include easing growth in emerging markets, trade conflict between the US and China, and lingering uncertainty from Brexit. Policy uncertainty is a major issue; recent data shows weakening of trade, manufacturing, and investment.

Under the heading of “financial tensions” the IMF cites concerns over investments, hinting that the cryptocurrency markets and the uncertainty that surrounds them is troublesome. The IMF says: “Investors have moved into riskier asset classes in search of yield.”

In this WEO, the IMF does not specifically cite cryptocurrencies as these riskier asset classes, but the inclination seems to be there. Alongside other issues of tension like trade, interest rates, and inflation, the IMF says that cybersecurity breaches and cyberattacks are sources of risk to financial infrastructure and that “continued rapid growth of crypto assets could create new vulnerabilities in the international financial system.”

Cryptocurrency markets are certainly volatile. Moreover, there are global concerns over how to deal with this new asset class and digital cash, and there is nearly $218 billion of global investment already committed to this new type of investment. Considering this, it’s surprising that the IMF does not offer further comment regarding “crypto assets,” leaving the size of the risk open to interpretation.

A second report from the IMF in October 2018, the “Global Financial Stability Report – A Decade after the Global Financial Crisis: Are We Safer?” goes into more detail, saying that “clouds gather on the horizon.” While it makes no mention of crypto assets, the April 2018 version of that report says: “Crypto assets have features that may improve market efficiency, but they could also pose risks if used with leverage or without appropriate safeguards.”

The April report also claims that “at present, crypto assets do not appear to pose macrocritical financial stability risks.”

That same month, IMF Managing Director Christine Lagarde penned an official blog titled “An Even-handed Approach to Crypto-Assets.” Lagarde explained that the IMF’s preliminary assessment confirmed that cryptocurrencies did not “pose an immediate danger” to fiat markets.

Melanie Kramer is a freelance FinTech, blockchain, and cryptocurrency writer based between France and Canada. Melanie has studied, and retains an avid interest in, global politics, business, and economics.

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