IMF Official: Crypto Crash Has Not Affected Financial System, But Future Risks May Spill Over Globally

Antonio Garcia Pascual, Deputy Director of the Global Markets Analysis Department at the International Monetary Fund (IMF), stated in an interview with blockchain media Coindesk that the sell-off and crash in the cryptocurrency market could truly spread and impact a wider financial system.

The total market value of cryptocurrencies has dropped from $3 trillion in November last year to a recent low of $873 billion, evaporating more than two-thirds. Pascual stated on CoinDesk TV's "First Mover" program that the economic downturn has put pressure on crypto platforms, but to a large extent, these pressures "remain within the crypto ecosystem and have not spread to the real economy."

Pascual mentioned that we have seen dramatic changes in some risky assets, including certain stablecoins and tokens in decentralized finance (DeFi). Not surprisingly, Pascual was referring to a series of domino effects and collapses triggered by stablecoins like Luna and TerraUSD, resulting in significant losses for many investors.

In July, the International Monetary Fund released the "World Economic Outlook Update: Pessimism and More Uncertainty," which detailed how the sell-off of crypto assets led to massive losses in crypto investment tools and the failure of algorithmic stablecoins.

In addition to Pascual's belief that the crypto storm has not substantially impacted the financial system, Citigroup analysts shared a similar view in May. The bank's analysts stated that due to the relatively small scale of the crypto industry, the collapse of Terra is unlikely to affect the financial system.

However, Pascual believes that cryptocurrencies are still growing, and he thinks algorithmic stablecoins will eventually be adopted once clear regulatory policies are in place. This is mainly because cryptocurrencies are expanding rapidly in emerging markets, which are particularly vulnerable to global economic deterioration, especially in countries facing national debt, inflation, and currency devaluation. Cryptocurrencies allow people in these countries to move their funds into a globally stable online financial system to escape domestic turmoil, coupled with the consideration of cheaper cross-border payments, making it easier to promote adoption in these countries.

Therefore, Pascaul believes that although this current global financial turmoil has not been directly affected by the crypto crash, with the increasing popularity and market expansion of cryptocurrencies, the next round of turmoil could potentially lead to risks spilling over into the global financial system. As cryptocurrencies are more widely adopted as national currencies, as seen in countries like El Salvador and the Central African Republic, it is foreseeable that the risks could spread globally.

He pointed out that while adopting cryptocurrencies may promote financial inclusion and represent technological progress, when these countries are faced with "macroeconomic and financial stability issues," cryptocurrencies themselves could become a problem.

This article is authorized to be republished on Horizon News Network.