Consumers at potential risk due to limited disclosure to cryptos: IMF

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The International Monetary Fund (IMF) has said the rise of cryptocurrencies pose new challenges to financial stability and consumer protection rights remain substantial due to the limited or inadequate disclosure and oversight, news agency Reuters reported. As of September 2021, the total market value of all the crypto assets crossed the $2 trillion, an increase of ten fold since early 2020. Also, the crypto ecosystem is also flourishing, filled with exchanges, wallets, miners and stable coin issuers.

The IMF said that many of these entities lack strong operational, governance and risk practices. For instance, time and again, crypto exchanges have faced significant disruptions when there is a market turbulence.

It also said that incidents of several high-profile theft funds related to hacking have been reported, but did not have any significant impact on financial stability. However, with mainstreaming of crypto assets, their importance in terms of potential implications for the wider economy is set to increase.

By giving examples, it noted that more than 16,000 tokens have been listed in various exchanges and around 9,000 of them exist today, while the rest have disappeared in some form. Also, many of them do not have any volumes or the developers have walked away from the project. They could also have been created solely for speculation purposes or even for fraudulent activities.

Cryptoisation could lead to financial instability

IMF also said that rapid adoption of cryptocurrencies could lead to cryptoisation, where residents start using crypto assets instead of the local currency.

This could potentially lead to the limitation on the part of central banks to effectively implement monetary policy, it said. Adding to that, cryptoisation could also create financial stability risks through funding and solvency risks arising from currency mismatches.

IMF also suggested that policy actions need to be swift, decisive and well-coordinated by countries across the world to allow benefits to flow and at the same time address the vulnerabilities.