The International Monetary Fund (IMF), which has had a negative approach towards cryptocurrencies until now, made new statements. Warning about stablecoins this time around, the IMF said the rapid growth of stablecoins could accelerate currency substitution in countries with weak monetary systems and reduce central banks' control over capital flows. In its report titled “Understanding Stable Cryptocurrencies,” the IMF stated that stablecoins are risky and that these risks require not only regulation but also strong macro policies. At this point, the IMF stated that international coordination is essential to manage the risks associated with the growing stablecoin market. The IMF added that the rise of backed stablecoins and their easier cross-border use could push people and businesses in unstable economies to choose dollar-backed stablecoins over local currencies. “Stablecoins can contribute to currency substitution, increase capital flow volatility by circumventing capital controls, and fragment payment systems if interoperability is not achieved.” In response, the IMF noted that stablecoins could expand financial access if they have appropriate regulatory and legal frameworks. However, while the IMF acknowledged the benefits of stablecoins, it noted that these benefits carry significant macrofinancial risks. The IMF noted that growing demand for stablecoins remains a fundamental fear, adding, “If users lose confidence in their redemption rights or the value of reserve assets declines, issuers may be forced to sell their reserve and other assets urgently, potentially negatively impacting overall markets.” *This is not investment advice. Continue Reading: IMF Issues Cryptocurrency Statement, Warns Again!
