The International Monetary Funds (IMF) has released its report called “Global Financial Stability Report”, highlighting how digital currency assets brings in financial stability challenges.
Key findings of report
- In its report, IMF notes that rapid growing crypto ecosystem presents new opportunities to the world. However, this digital currency assets also pose several financial stability challenges.
- According to report, Technological innovation is starting a new era of making payments and other financial services faster, cheaper, more accessible. Such transaction also allows to flow across borders swiftly.
Innovative services
In its report, IMF highlights that, crypto asset technologies are a potential tool for faster and cheaper cross-border payments. Using these technologies, bank deposits can be transformed into a stable coin, allowing instant access to financial products from digital platforms. It also allows instant currency conversion. According to IMF, the decentralised finance can become a platform for more inclusive innovative and transparent financial services.
Challenges with the cryptocurrencies
- According to IMF, rapid growth and increasing adoption of crypto assets pose financial stability challenges.
- Such decentralised currencies could also lead to instability as they are extremely volatile. They are much more volatile than the equities or commodities or exchange rates.
- Its transaction costs are fairly expensive as compared to digital money.
- As per report, such transaction destabilizes the capital flows. It also poses several operational and financial integrity risks from the provides of crypto asset.
What are cryptocurrencies?
Cryptocurrencies are digital or virtual currencies where encryption techniques are used for regulating the generation of units and verifying the transfer of funds. Such systems are operating independently of any central bank.