Crypto assets have emerged as a potential vulnerability for global finance over the past year, the International Monetary Fund said in its latest Global Financial Stability Report.
Prices of crypto assets prices are significantly more volatile than those of commodities, currencies and stocks, the IMF said in its April 2018 report. There are also risks to financial stability from investors’ leveraged cryptocurrency positions, the infrastructure weaknesses of cryptocurrency exchanges and fraud, according to the international organization.
Regulators around the world are confronting the growth and increased trade in crypto assets, tamping down on speculation with enforcement actions, indirect interventions via the banking system, and outright bans, the report noted.
Even so, crypto assets create opportunities, and some central banks are even considering issuing their own digital currencies, the IMF added.
Although crypto assets have been touted as a new form of money, the IMF said they still don’t fulfill the three basic functions of money.
“While they may serve as a store of value, their use as a medium of exchange has been limited, and their elevated volatility has prevented them from becoming a reliable unit of account,” the report said.
Nonetheless, cryptocurrencies have enjoyed “spectacular” appreciation in the past year, the IMF noted, and could pose a competitive threat to traditional money.
“These shortcomings could change with wider adoption and technological improvements, and some crypto assets may be able to perform the functions of money better, thus putting competitive pressure on fiat currencies,” the organization said. Read more here.