The IMF: Crypto Trading Is A Risk To The Global Financial System

The International Monetary Fund (IMF) published its global financial stability report that crypto asset trading, especially in emerging markets could pose a risk to the global financial system. According to the financial watchdog, crypto asset trading volumes soared just after the Western countries imposed heavy financial sanctions against Russia for its invasion of Ukraine.

The report emphasized that trading could also be potentially used to monetize their energy resources by Bitcoin mining.

“Policymakers around the world would thus need to step in to ensure stability in the market and to fill the regulatory gaps “to ensure the integrity and protect consumers in the fast-evolving world of crypto assets,” the IMF added.

The share of trading in crypto assets such as the largest stablecoin to date, Tether, which is used to settle spot and derivative trades, against EM currencies has been rising since the start of the COVID-19 pandemic.

“However, liquidity in the ruble and hryvnia trading pairs in centralized exchanges remains limited and has even declined more recently in the case of the ruble, making large-scale transfers of value through crypto asset exchanges impractical,” the report by the IMF stresses.

Bitcoin mining in Russia?

Sanctioned countries could also use their energy resources toward evading sanctions through crypto mining. Furthermore, the share of crypto mining in sanctioned countries could impose a risk to financial integrity.

It turns out that the monthly average of all Bitcoin mining revenues in 2021 was about $1.4 billion, with Russian miners responsible for 11 percent of all mining while Iranian miners captured 3 percent of global Bitcoin mining.

“Mining for energy-intensive blockchains like Bitcoin can allow countries to monetize energy resources, some of which cannot be exported due to sanctions. The monetization happens directly on blockchains and outside the financial system where the sanctions are implemented,” IMF said.

Regulatory pressure in front of policymakers?

Regulators in the United States and the United Kingdom, for instance, have already warned companies in their jurisdictions, including the crypto asset sector, to increase vigilance when it comes to potential Russian sanction evasion attempts.

Regulatory measures must also be taken in the light of the rapid expansion of countries around the world jumping on the state-backed CBDC projects, with China leading the race in the development of native digital currencies.