IMF issues a report warning the rapid growth of cryptocurrencies and their risk of creating instabilities on the financial system. The international bank is mostly worried about cybersecurity risk coming from the accelerated growth of cryptocurrencies such as Bitcoin. The bank is also strongly pushing for regulation of digital assets, as they see an unregulated market vehicle for various forms of illegal activities.

The International Monetary Fund (IMF) issued a stark warning about the rapid growth of cryptocurrencies and the cybersecurity risks. The head of IMF Christine Lagarde said at a speech;

The world is on the verge of another financial crash. The increased cybersecurity risk coming from the rapid development of financial technologies such as digital currencies is a reminder that the permanent evolution of the financial system requires vigilant regulators and supervisors,

The agency writes in their World Economic Outlook;

“Cybersecurity breaches and cyber attacks on critical financial infrastructure represent an additional source of risk because they could undermine cross-border payment systems and disrupt the flow of goods and services. Continued rapid growth of crypto assets could create new vulnerabilities in the international financial system

The banks main concern comes mostly from the illicit use of cryptocurrencies for various parties to conduct illegal activities. Lagarde wrote earlier this year;

What some people call crypto-currencies—are so appealing is also what makes them dangerous. These digital offerings are typically built in a decentralized way and without the need for a central bank. This gives crypto-asset transactions an element of anonymity, much like cash transactions.

The result is a potentially major new vehicle for money laundering and the financing of terrorism.

This comes back off the UK government stating that crypto currencies are the “Wild West” and should be regulated. The UK Treasury committee noted;

“Bitcoin and other crypto-assets exist in the Wild West industry of crypto-assets. This unregulated industry leaves investors facing numerous risks.

Given the high price volatility, the hacking vulnerability of exchanges and the potential role in money laundering, the Treasury Committee strongly believes that regulation should be introduced

With all this said, the IMF and Lagarde see the massive potential of cryptocurrencies. She states;

In my view, the fintech revolution will not eliminate the need for trusted intermediaries, such as brokers and bankers. There is hope, however, that decentralized applications spurred by crypto-assets will lead to a diversification of the financial landscape, a better balance between centralized and de-centralized service providers, and a financial ecosystem that is more efficient and potentially more robust in resisting threats.

Despite the IMF and other governmental bodies’ concerns about cryptocurrencies and digital assets, they all still believe in the utility of such new assets. Naturally, all these regulatory bodies want to bring these assets under regulatory scrutiny to prevent potential havocs on the financial system.

For now the IMF can probably relax as volatility in Bitcoin is totally gone.

Source: Bloomberg