The Strategist

IMF warns of risk of destabilising emerging economies due to cryptocurrencies

02/01/2022 - 06:32

Sharp fluctuations in the value of cryptocurrencies threaten to destabilise developing economies, an IMF official has warned. Earlier, the organization called on El Salvador to refuse to stop recognizing Bitcoin as a means of payment, calling it a major obstacle to the allocation of a $1.3 billion loan to the country.

Marco Verch
Marco Verch
The sharp fluctuations in the price of cryptocurrencies can destabilize the economies of developing countries. This was said in an interview with the Financial Times by Tobias Adrian, Financial Advisor and Director of the IMF's Monetary and Capital Markets Department.

Some developing countries, the expert said, face "immediate and acute risks" as a result of replacing existing established currencies with crypto-assets. 

"The application of traditional tools to regulate capital flows may prove more difficult when value is transferred through new instruments, new channels and new service providers that are not regulated entities," the IMF official said.

The IMF's concerns are also raised by the growing correlation between the value of cryptocurrencies and other financial assets in developed countries, such as US technology stocks, government bonds and even oil. 

Earlier, Goldman Sachs experts also reported the growing dependence of crypto on traditional macroeconomic indicators. Their analysis showed that Bitcoin's value correlates positively with break-even inflation, oil prices and shares of advanced technology companies, while it correlates negatively with real interest rates and the US dollar.