Markets face ‘acute risks’ due to Crypto: IMF

Volatile crypto assets for global capital flows could create immediate and acute risks across emerging markets, an International Monetary Fund official has warned.

Tobias Adrian, a financial counselor and head of the monetary and capital markets department at the IMF, made the comments following the Fund’s recent plea to El Salvador to drop Bitcoin as legal tender. The IMF has repeatedly criticized El Salvador’s Bitcoin policy since it introduced the asset as an official currency last September.

“Crypto is being used to take money out of countries that are regarded as unstable,” he said.

Adrian said crypto has become a big challenge for policymakers in some countries, noting that traditional capital management measures will have to be fine-tuned in the face of “cryptoisation.”

He observed that 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.

The Bank of England also has warned that bitcoin could be “worthless” and people investing in the digital currency should be prepared to lose everything.

In a warning over the potential risks for investors, the British central bank questioned whether there was any inherent worth in the most prominent digital currency.

The deputy governor of the Bank of England, Sir Jon Cunliffe, said the bank had to be ready for risks linked to the rise of the crypto asset following rapid growth in its popularity. “Their price can vary quite considerably and [bitcoins] could theoretically or practically drop to zero.”

Last week, Bitcoin tumbled almost nine per cent to its lowest in six months as fears of a Russian attack on Ukraine saw riskier assets worldwide extend their sell-off.

— issacjohn@khaleejtimes.com