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IMF ‘Warned G20’ Of Crypto Banking Risks

The International Monetary Fund (IMF) said on Monday it had warned the Group of 20 nations in a report last month that the widespread proliferation of crypto assets could cause banks to lose deposits and have to curtail lending.

The IMF released its report “Macrofinancial Implications of Crypto Assets” to the public following the successive failure over the past few days of three major crypto-linked banks – Signature Bank (SBNY), Silicon Valley Bank (SVB) and Silvergate Bank (SI).

The paper was presented to the G20 at a meeting late last month following “very helpful discussions with the Indian Ministry of Finance, as well as international focus group participants”, the IMF said.

It led to the G20 agreeing to frame global crypto regulations through a future paper to be jointly produced by the IMF and the Financial Stability Board (FSB).

Banking ‘risks’

“A widespread proliferation of crypto assets comes with substantial risks to the effectiveness of monetary policy, exchange rate management, and capital flow management measures, as well as to fiscal sustainability,” the February paper states.

“Moreover, changes may be required to central bank reserve holdings, and the global financial safety net, yielding potential instability. Finally, banks may lose deposits and have to curtail lending,” it continues.

It adds that “there are many risks associated with crypto assets, although the significance and relevance of specific risks differ by country circumstances”.

It calls for more data to facilitate policymaking and remarks that the technologies developed by crypto organisations can be leveraged by the public sector “in pursuit of its own policy objectives”.

At the meeting last month IMF managing director Kristalina Georgieva told reporters there “has to be a very strong push for (crypto) regulation” and that banning digital assets could not be ruled out.

Crypto caution

“If regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk,” Georgieva said.

US Treasury Secretary Janet Yellen said at the time she had not suggested banning cryptocurrencies but agreed it was “critical” that a strong regulatory framework be put into place.

The US government was forced to put emergency measures into place on Sunday to shore up confidence in the banking system following the collapses of SVB and Silvergate, the biggest bank failures since 2008.

All three banks had had a significant focus on serving the crypto industry, which has itself seen a number of high-profile failures over the past year, such as that of exchange FTX.

Matthew Broersma

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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