FSB, IMF: ‘Crypto Is a Threat to the World Economy’
Two international organizations have just published back-to-back finance reports that indicate they see crypto as a threat to future financial stability around the world. In two recently published studies, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) shared similar concerns regarding the potential effects digital currencies could have on global economic growth going forward.
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Is Cryptocurrency a Developing Threat to the Global Economy?
The FSB, an advisory body to the G20 international organization and whose nation-state members collectively account for over 85 percent of the world’s GDP, issued a report on Wednesday that identified current risks associated with the global crypto-asset market.
These include risks relating to the use of leverage, liquidity concerns, technologies, and “operational risks”. The so-called operational risks identified by the report are certain negative implications associated with blockchain’s infamous inability to scale, such as network speed limitations that make cryptocurrencies vulnerable to DoS attacks.
Another potential risk is the use of leverage, or financing crypto investments with borrowed money in order to increase returns. While a common practice among traditional investors, the FSB claims in their paper that, in the crypto-asset market, it can magnify volatility concerns.
In addition, the FSB also identified volatility and technological risks associated with cryptocurrency use. No one familiar with cryptocurrency would be surprised to learn that the market is volatile and, as a result, risky for investors and creditors alike.
A More Solemn Attitude Taken Towards Crypto
The FSB also questioned the sustainability of mining rigs, as they currently consume exorbitant amounts of energy and that will only increase as cryptocurrency becomes more popular. Furthermore, because blockchain is a relatively nascent technology, the FSB concluded that it likely still needs to be refined–something that is made difficult by a decentralized governance model.
The report itself marks a dramatic shift in attitude regarding crypto markets in general. Indeed, its previous assessment, which was published only a few months earlier in July, was comparatively more optimistic in its outlook.
Having said that, the FSB’s report was more cautionary in tone than declaring crypto to be an immediate risk to global economic stability:
“Based on the available information, crypto-assets do not pose a material risk to global financial stability at this time. However, vigilant monitoring is needed in light of the speed of market developments. Should the use of crypto-assets continue to evolve, it could have implications for financial stability in the future.”
The IMF Takes a Similar Stance
The FSB is not alone in its cautious analysis of crypto. The IMF recently published a report of its own that concluded that cryptocurrency assets could create “new vulnerabilities in the international financial system”.
According to the fund’s latest World Economic Outlook report, as banks adjust to the aftermath of bitcoin’s dramatic boom and bust–new vulnerabilities could emerge as a result of the “continued rapid growth of crypto assets”.
Furthermore, the report also made comments about cyber security breaches on financial infrastructure that they claim could represent additional risk because of potential disruptions to the flow of cross-border payments.
What do you think of the IMF and FSB commentary regarding cryptocurrency? Let us know in the comments section below.
Images via IMF, G20, FSB