Senior IMF Official Says Crypto Poses “Acute Risks” For Emerging Economies

Days after the International Monetary Fund (IMF) urged El Salvador to ditch bitcoin as legal tender, a top official from the organization has voiced concerns over risks involved with cryptocurrencies especially in emerging markets.

Price Fluctuations In Crypto Are Destabilizing Developing Nations

The IMF, a UN organization that looks to boost monetary cooperation and financial stability around the globe, has once again issued a warning against cryptocurrencies.

Tobias Adrian, who is IMF’s financial counselor and Monetary and Capital Markets Department director, told the Financial Times that the high volatility in cryptocurrencies is causing destabilization to capital inflows in emerging markets, and warned that using unregulated crypto assets as a substitute for government-issued fiat money poses “immediate and acute risks”.

“Crypto is being used to take money out of countries that are regarded as unstable [by some external investors],” Adrian stated.

The IMF official further stressed that cryptocurrencies have become a huge challenge for policymakers in various countries. As such, capital management measures must be “fine-tuned in the face of cryptoization.”

“Applying established regulatory tools to manage capital flows may be more challenging when value is transmitted through new instruments, new channels, and new service providers that are not regulated entities,” Adrian added.

The IMF official is also concerned about the disturbing interconnectedness between cryptocurrencies and legacy markets. “Crypto is now very closely tied to what is happening in equities. We can’t just dismiss it,” he posited.

El Salvador And The IMF

This is not the first time the international organization is sounding the alarm on cryptocurrencies. Soon after El Salvador made history in September by becoming the first country to recognize bitcoin as legal tender, the IMF strongly criticized the move.

Most recently, the organization urged Salvadoran authorities to remove bitcoin’s legal tender status as it bears considerable risks to financial stability and consumer protection.

Still, El Salvador President Nayib Bukele has dismissed the repeated warnings. Bukele continues to purchase more bitcoin despite the latest market massacre causing significant dollar-nominated losses to the country’s treasury.

Moreover, it is believed that more countries such as Turkey could soon follow in El Salvador’s footsteps and adopt the flagship cryptocurrency.