Crypto Boom Poses New Challenges to Financial Stability

2021-10-12T14:41:35-04:00October 1, 2021|

By Dimitris Drakopoulos, Fabio Natalucci, and Evan Papageorgiou

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As crypto assets take hold, regulators need to step up.

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.

Consumer protection risks remain substantial given limited or inadequate disclosure and oversight.

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

The Crypto Ecosystem—What Is It, What’s at Risk?

The total market value of all the crypto assets surpassed $2 trillion as of September 2021—a 10-fold increase since early 2020. An entire ecosystem is also flourishing, replete with exchanges, wallets, miners, and stablecoin issuers.

Many of these entities lack strong operational, governance, and risk practices. Crypto exchanges, for instance, have faced significant disruptions during periods of market turbulence. There are also several high-profile cases of hacking-related thefts of customer funds. So far, these incidents have not had a significant impact on financial stability. However, […]