Select a page

Banking News

Crypto’s Conservative Coins – IMF

Crypto’s Conservative Coins – IMF

(7 September 2022 – Global) Stablecoins are far from the revolutionary ideals of crypto’s creators and are not without risk.

After launching in 2009, the crypto revolution was about more than finance. The GFC negatively impacted trust in “too big to fail” banks and governments that bailed them out as “lenders of last resort”. For those wanting to avoid traditional institutions and find alternative payment methods, Bitcoin and the innovative blockchain technology that underpins, distributed ledger technology (DLT), promised to decentralize and democratize financial services.

A stablecoin is a crypto asset that aims to maintain a stable value relative to a specified asset, or a pool of assets. These assets could be a monetary unit of account such as the dollar or euro, a currency basket, a commodity such as gold, or unbacked crypto assets. This stability can be achieved only if a centralized institution is in charge of issuing (minting) and redeeming (burning) these crypto assets. Another centralized institution must hold corresponding reserves, typically fiat currency issued by governments that back each unit of stablecoin that is issued.

“The stablecoin vision comes with some challenges. First, stablecoins are not all stable. Second, the DLT that underpins stablecoins has not been tested at scale from a payment perspective. Finally, regulatory barriers may arise. These technologies could make cross-border remittances and wholesale payments somewhat more efficient, but they may not offer sizable advantages over domestic payment systems, especially in advanced economies” stated IMF Monetary and Capital Markets Department Financial Sector Expert, Parma Bains.

“Any innovation that provides people with more choice, reduces the power of institutions that are too big to fail, and increases access to financial services should be explored. With the right regulation in place, stablecoins could grow to play a valuable role in delivering these benefits, but they won’t be able to do so alone. And they are far from the revolutionary vision of crypto’s creators” said IMF Assistant Director Ranjit Singh.

Comment on this article


Your comments will not be published. Required fields are marked *


Please enter the word you see in the image below:


Subscribe to our mailing list

Sign up now to keep up-to-date with the latest
market news and insights in B2B banking.

* indicates required

For more information please read our Terms and Conditions and Privacy Statements.