The rapid growth of the crypto asset industry is raising concerns about potential risks to financial stability. A new working paper has been published by the International Monetary Fund (IMF). The paper highlights several failings in the cryptoasset space and argues for stronger regulatory frameworks.
A “parallel economy” with many challenges
The report’s authors describe the cryptoasset industry as a rapidly expanding “parallel financial system”. They point out that while these assets offer benefits such as more efficient payments, their integration into the global economy poses risks. Indeed, their volatility does not guarantee financial stability, just as their valuation remains tricky.
The need for a risk assessment matrix
In particular, the document proposes the implementation of a Crypto-Risk Assessment Matrix. This would track vulnerabilities, indicators and potential triggers of instability linked to cryptoassets. It also recommends extending macro-prudential tools to address the specific risks associated with crypto-currencies.
- Identifying vulnerabilities in the cryptoasset market
- Monitor performance and risk exposure indicators
- Identify potential triggers to anticipate financial stability problems
Global researchers are taking a keen interest in the integration of crypto assets into the financial system. This is reflected in the work being carried out by the IMF and the US Federal Reserve. However, regulators face the challenge of striking the right balance between innovation and stability in the face of growing demand for cryptoasset-related products.
Navigating between innovation and stability
The rise of the cryptoasset market requires regulators to take into account the advantages offered by this new asset class. We must guard against their potentially negative effects on financial stability. Thus, it appears necessary to put in place a specific regulatory framework adapted to the challenges posed by cryptocurrencies:
- Foster innovation by maintaining a favorable environment for technological development
- Ensure consumer protection by regulating the conditions of access to cryptoasset-related services and products.
- Implement measures to prevent money laundering and terrorist financing risks in the crypto ecosystem
- Adapting monetary and fiscal policies to the challenges posed by the integration of cryptographic assets into the global economy
The key challenge: international cooperation
The transnational nature of cryptographic assets represents an additional challenge for regulators. They will need to seek a coordinated approach on a global scale. To this end, communication between the various authorities is essential for greater financial stability. It also prevents any risks associated with cryptoassets.
Conclusion
The cryptoasset industry continues to evolve rapidly, presenting both opportunities and challenges for regulators and financial institutions. The IMF therefore stresses the urgent need to improve oversight and regulation of this ecosystem.
