International Monetary Fund (IMF) has issued a warning over cryptocurrency regulatory concerns against the the backdrop of broad adoption. The world agency is saying that the rapid growth of the unregulated digital currencies and the interest they are generating among conventional financial institutions could be a threat to world monetary system.
With the increasing popularity of the digital coins, many banks have been looking closely at them with the hope of using them for cheaper and faster cross-border transactions.
Ripple for instance has been building partnerships with a number of banks. This is enabling the use of the company’s financial solutions such as the xRapid in cross-border transactions.
These banks and other financial entities have been seeking ways to meet customers’ expectations and the blockchain network is offering a solution to international remittance challenges that the system has faced.
Cryptocurrencies became center stage phenomenon is 2017 after Bitcoin, the premier coin rose to $20,000 from less than $1000 in the same year. Since then, many traditional financial institutions have been seeking ways to make inroad into it.
Big banks such as Goldman Sachs has plans to set up a bitcoin trading desk to enable its customers participate in Bitcoin investments without being exposed to the direct risk of doing so in the unregulated coin market.
The concerns of regulators and the IMF over cryptocurrency adoption is based on the fact that cryptocurrencies are known to be volatile. For instance, Bitcoin rose to nearly $20,000 by December 2017 but has since plunged back to $6,500 at a point shedding about 70 percent of its value.Another concern has been the risk posed by cyber attacks. A data provided by McAfee the cyber security firm shows that digital currencies lost to hacks in the past couple of years are valued $1.5 billion. Click To Tweet
Although this figure may be deemed a small fraction of the global financial market, there are concerns that the trend may continue with greater adoption of cryptocurrencies. However, at the global stage, the value will be substantial and the effect more devastating.
The IMF report released last week said,
“Despite its potential benefits, our knowledge of its potential risks and how they might play out is still developing. Increased cybersecurity risks pose challenges for financial institutions, financial infrastructure, and supervisors. These developments should act as a reminder that the financial system is permanently evolving, and regulators and supervisors must remain vigilant to this evolution and ready to act if needed.”
Prior to the IMF report, some countries have expressed reservations over the use of cryptocurrencies. The UK had termed the ecosystem “wild west” and called for greater regulatory action. While China had since last year placed a ban on crypto trading and initial coin offerings within its borders.
Apparently taking a cue from the Chinese, South Korea followed up restrictions with its own ban. Since then, countries like India and Pakistan have moved against crypto trading activities shutting down exchanges.
In February, IMF chief said that a strict regulatory action against cryptocurrencies was ‘inevitable’ because of their use in illegal activities like money laundering.
It is obvious that governments have long realized the benefits of the blockchain technology and are actively seeking ways to harness it in fields such as record-keeping, data storage and security.
However, the challenges that cryptocurrencies present are yet to be followed up with definite defined policies. The primary concern over cryptocurrencies has been that they are easy channels for illicit funding due to their mainly pseudonymous nature.
This is why countries such as Japan that have put a regulatory structure on ground are even stricter on the privacy coins such as Monero and Dash which are completely anonymous.