Digital Money

The Crypto Boom and Financial Stability

Crypto assets offer a new world of opportunities: Quick and easy payments. Innovative financial services. Inclusive access to previously “unbanked” parts of the world. All are made possible by the crypto ecosystem, the IMF’s Dimitris Drakopoulos, Fabio Natalucci, and Evan Papageorgiou write in a new blog.

But along with the opportunities come challenges and risks. The blog describes analytical work tied to the latest Global Financial Stability Report, outlining the risks posed by the crypto ecosystem and offers some policy options to help navigate this uncharted territory. 

Where’s the risk?

Many crypto assets lack strong operational, governance, and risk practices. Crypto exchanges, for instance, have faced significant disruptions during periods of market turbulence. Consumer protection risks remain substantial given limited or inadequate disclosure and oversight. The (pseudo) anonymity of crypto assets also creates data gaps for regulators and can open unwanted doors for money laundering, as well as terrorist financing. Additionally, the crypto ecosystem falls under different regulatory frameworks in different countries, making coordination more challenging. 

Policy Action

As a first step, regulators and supervisors need to be able to monitor rapid developments in the crypto ecosystem and the risks they create by swiftly tackling data gaps. National regulators should also prioritize the implementation of existing global standards. Proportionate regulation to stablecoins should be considered. Strengthening overall macroeconomic policies and pursuing central bank digital currencies will help reduce cryptoizatoin pressures, the authors write.

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Read the chapter

📺 WATCH

Watch the launch event of Chapter 2 of the Global Financial Stability Report

Get Ready for More IMF Flagship Analysis

Next week, the IMF will release more analytical work related to its flagship reports of the World Economic Outlook, Global Financial Stability Report, and Fiscal Monitor.

Another analytical chapter of the Global Financial Stability Report will be released Oct. 4, looking at how investment funds can foster a transition to a green economy. Two analytical chapters of the World Economic Outlook will be released Oct. 6, taking a deeper dive on inflation and examining the economic importance of research and innovation, respectively. An analytical chapter of the Fiscal Monitor to be released on Oct. 7 will focus on how to strengthen the credibility of public finances.

Stay tuned to the IMF website for these releases. 

Monetary Policy

A New Tool for Emerging European Economies?

The purchase of government bonds by emerging market central banks may be reminiscent for some of the days of monetary financing of the government, which was often followed by rising inflation and currency depreciations. However, the successful actions by several central banks in emerging Europe to buy government bonds during the COVID-19 pandemic countered this history.

Amid the financial market turmoil at the start of the pandemic, central banks in Croatia, Hungary, Poland, Romania, Serbia, and Turkey rolled out asset purchase programs, buying up local currency bonds issued by governments but also by the private sector in the case of Hungary. New IMF research suggests that asset purchases in emerging Europe contributed to the relief of financial market dysfunction, without signs of destabilizing effects, the IMF’s William Lindquist, Nadeem Ilahi, and Jaewoo Lee write in a new Country Focus article.

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Read the IMF Departmental Paper

Finance & Development Magazine

F&D: Driving Deep Decarbonization

Carbon pricing is a key weapon in the fight to curtail global warming and reach a net-zero emissions future. In his recent piece for Finance & Development Magazine, Harvard’s James Stock explains how smart sectoral policies related to carbon pricing will be more effective toward driving deep decarbonization of the economy, especially as green energy costs drop.

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Read the Full September Finance & Development Issue

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🎧 LISTEN

James Stock discusses his article in this new IMF podcast.

Quote of the Week

For all of society’s sake, let’s hope that we have the wisdom and the courage to make sensible decisions sooner, rather than later.

—IMF Financial Counsellor Tobias Adrian in Sept. 27 remarks on the future of finance and the global economy.

WEEKLY ROUND-UP

01. Countering Climate Change in Asia

A high-level group of policymakers from Southeast Asia came together this week during a virtual event to discuss how efforts to fight climate change can be built into Asia’s recovery strategy. The event–featuring IMF Deputy Managing Director Antoinette Sayeh; Sri Mulyani Indrawati, Minister of Finance, Indonesia; Ravi Menon, Managing Director, Monetary Authority of Singapore; Benjamin E. Diokno, Governor, Bangko Sentral ng Plipinas; and Arkhom Termpittayapaisith, Minister of Finance, Thailand–covered opportunities for turning climate ambitions into action while creating vibrant and inclusive opportunities as part of the transition to the new green economy.

02. Assessing the SDGs

The developing world was not on track to achieve the Sustainable Development Goals (SDGs) before the COVID-19 pandemic, and now it will be even more difficult to achieve them. The pandemic has pushed millions into extreme poverty and shrunk the resources available for development. Without extraordinary efforts, the SDGs will remain out of reach by 2030. At an event this week hosted by the Africa Training Institute and the IMF’s Fiscal Affairs Department, a high-level panel discussed what it will take to advance the SDG agenda under the current difficult circumstances. The event featured IMF Fiscal Affairs Department Director Vitor Gaspar; IMF Deputy Managing Director Antoinette Sayeh; Leonard Rugwabiza, Economic Advisor to the Minister of Finance and Economic Planning, Rwanda; Zainab Shamsuna Ahmed, Minister of Finance of Nigeria; and Koen Doens, Director General for International Partnerships of the European Commission.

03. The Future of Finance

IMF Monetary and Capital Markets Department Director Tobias Adrian this week answered eight key questions examining the broad contours of the global economy of the future. The remarks were to EuroFinance’s 30th Annual International Treasury Management Week. To the first question on what major factors will shape the economy and society by mid-centruy, Adrian, who also serves as the IMF Financial Counsellor, laid out five key forces: digital technologies, sustainability, changing demographics, geopolitics, and the inevitability of structural transformation.

04. Revolutionizing Finance for Net Zero

IMF Deputy Managing Director Bo Li spoke this week at the Official Monetary and Financial Institutions Forum (OMFIF) Sustainable Policy Institute Symposium about the IMF’s role in COP26, fiscal policies and sustainable finance, carbon pricing, and the impact of fossil fuel subsidization on a green transition. Li outline three policy priorities: carbon pricing, green investments, and a just transition.

05. COVID-19 Crisis Capacity Development Initiative

The IMF Covid-19 Crisis Capacity Development Initiative responds to urgent capacity development needs in core and emerging areas of IMF expertise. These remain of critical importance as countries strive for a strong and sustained economic recovery. In addressing urgent needs, the work of the Initiative is also linked to important global themes, notably: tax policy and inclusive growth; supporting a green recovery; digitalization and financial access; debt management and revenue mobilization; and transparency and accountability in emergency response. Visit our new webpage to learn more on the 40+ activities funded under this Initiative, thanks to the support of nine development partners.