The International Monetary Fund (IMF) is venturing into the uncharted waters of crypto risk management. A recent working paper suggests the creation of a country-specific assessment matrix to evaluate the dangers posed by cryptocurrencies. This Crypto-Risk Assessment Matrix (C-RAM) was the brainchild of authors Burcu Hacibedel and Hector Perez-Saiz, who believe that this tool could help governments identify potential risks to their financial systems, generated by crypto activities.
The authors argue this approach could assist regulators in their ability to respond to these risk triggers effectively. The proposed three-step evaluation process commences with a decision tree assessment of the macro-criticality of crypto – its potential impact on the macro-economy. The system then analyses financial indicators analogous to those implemented for standard financial sector surveillance. The third and final step entails considering macro-financial hazards affecting the country’s systemic-risk assessment.
To put their matrix into practice, the authors examined the risks posed by Bitcoin in El Salvador, the country that controversially legalized BTC as tender in September 2021. They noted market, liquidity, and regulatory risks as significant threats and commented that the country’s regulatory and legal changes carry a risk of immense cryptoization that could undermine financial stability.
However, the IMF’s cautionary stance on El Salvador’s adoption of Bitcoin has received some pushback from globalization enthusiasts. Critics argue that this move could offer broader access to the financial system, particularly beneficial for countries with less developed financial infrastructures. They argue that El Salvador’s pioneering legalisation of cryptocurrency could serve as an influential experiment for other countries to observe, theorising that it may catalyze Bitcoin adoption internationally.
On the flip side, critics emphasize the potential problems, drawing attention to Bitcoin’s notorious volatility and the potential disarray this could create in a nation’s financial system. They assert the premise behind cryptocurrencies – their decentralised nature – can provide a safe haven for illicit activities, thereby posing a significant risk to a country’s security and economy.
As new technology takes root in our social and economic systems, regulatory bodies throughout the world are rushing to catch up and mitigate potential threats without stifling innovation. It’s an intricate balancing act between promoting innovation and ensuring protection. Thus, countries find themselves in a delicate situation – choosing to embrace the technological advancement of digital currencies, or stifling their growth, potentially missing out on what could be the future of finance.
Source: Cointelegraph
