Crypto Ecosystem and Challenges of Financial Stability

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Crypto Ecosystem

According to a recent report by the International Monetary Fund (IMF), crypto assets can present a challenge to financial stability.

As part of its Global Financial Stability Report, the IMF has assessed the opportunities and challenges facing financial stability from the crypto ecosystem.

The crypto ecosystem includes exchanges, wallets, miners and stable coin users.

Crypto currencies are digital or virtual currency. These encryption techniques are used to regulate the creation of units and to verify the transfer of funds. There is no interference of the central bank in its operation.

The total market capitalization of crypto assets has grown 10 times since the start of the year 2020, to currently reach US$2 trillion.

Key findings of the report:

  • Opportunities: Quick and easy payments, including cross-border payments; Instant access to innovative financial services; Inclusive access to the formerly “unbanked” parts of the world, etc.
  • Identified Risks: Financial instability (extremely volatile nature); fraud with consumers (inadequate disclosure and oversight); Money laundering and terrorism financing etc.

Crypto currencies in India:

  • Significantly, in May 2020, a circular issued by the Reserve Bank of India (in the year 2018) was declared unconstitutional by the Supreme Court. In this circular, all banks were banned from exchanging in crypto currencies.
  • Recently, the government has announced the introduction of the “Crypto Currency and Official Digital Currency Regulation Bill, 2021”. Through this the creation of an official digital currency as well as all private crypto currencies in India will be banned.

Source – The Hindu

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