Cryptos May Appear As Safer Store Of Value – IMF

Cryptos May Appear As Safer Store Of Value – IMF

According to the IMF, inhabitants in emerging economies with weak central bank credibility and a shaky banking sector may perceive cryptocurrencies as a safer store of money.

In a report titled ‘COVID-19, crypto, and climate: Navigating complex transitions,’ the IMF stated this.

It asserted that crypto acceptance was exceeding that of advanced economies in several emerging markets and underdeveloped countries, resulting in a surge of “cryptoisation.”

The IMF said, “Unsound macroeconomic policies combined with inefficient payment systems in some emerging markets and developing economies boost crypto adoption.

“Some potential pull factors for crypto adoption, such as speculative retail investing, may be common across countries, but some of the recent drivers are likely more specific to a subset of emerging markets and developing economies. For example, weak central bank credibility and a vulnerable banking system can trigger asset substitution as domestic residents seek a safer store of value.”

The IMF added that dollarisation pressures are a persistent risk for several emerging markets and developing economies.

It said, “The crypto ecosystem can help domestic residents convert some of the headwinds of traditional dollarisation -such as exchange rate restrictions and challenges in accessing and storing foreign assets – into tailwinds.

“For example, global crypto exchanges or other less secure methods, such as P2P transfers, can be used to bypass capital flow management measures; private wallets can act as a form of offshore bank account to store wealth.”

The IMF added that the inefficiencies in payment systems such as a lack of interoperability among various domestic payment systems are a major problem for remittances as well as trade.

It noted that given the large share of unbanked people in some emerging markets and developing economies, remittances took place through cumbersome cash-based methods, such as post offices and other transfer operators.

The IMF added the payment rails of crypto assets could make some of these services faster and cheaper, especially through the integration of stablecoins.

It stated that although these gains relied on access to the internet and other technologies, which were scarce in many of these countries.

The IMF said, “Whatever form of achievement is made by adoption of crypto as remittances will have a marginal impact on monetary policy or capital flows as the underlying crypto assets will likely be held for only a short time before it is exchanged into the local currency.”

It described “cryptoisation” as a threat to fiscal policy as crypto assets helped facilitate tax evasion, adding that seigniorage revenue might also decline due to the shrinking role of central bank money in the economy.

The IMF, therefore, added that the increased demand for crypto assets could facilitate capital outflows, affecting the foreign exchange market.

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