The rapid growth of Bitcoin and other cryptocurrency assets could create “new vulnerabilities in the international financial system”, the IMF has warned.
In its latest World Economic Outlook report, the global financial body cautioned that these new digital financial systems remain relatively untested and could provide bad actors with an entry point to exploit the system unless regulators.
The IMF warned: “Despite its potential benefits, our knowledge of its potential risks and how they might play out is still developing. Increased cybersecurity risks pose challenges for financial institutions, financial infrastructure, and supervisors. These developments should act as a reminder that the financial system is permanently evolving, and regulators and supervisors must remain vigilant to this evolution and ready to act if needed.”
The value of Bitcoin may have crashed from a peak of nearly $20,000 in December 2017 to a more stable price around $6,500 today, but its acceptance as a global currency and interest in the wider blockchain technology continues to grow. Bitcoin is already accepted by technology giant Microsoft, travel agency Expedia, iGaming firm Bitstarz, computer giant Dell, and restaurant chain Subway.
Meanwhile, dozens of banks are reportedly considering the introduction of Ripple Labs new blockchain-based xRapid service to improve the speed and efficiency of cross-currency and cross-border financial transfers. And banking giant Goldman Sachs is already experimenting with selling Bitcoin-related products to its investors.
Whilst these new technologies can fix a variety of issues with the current financial system, they also present a new set of targets for hackers looking to disrupt the flow of goods and services around the world and other criminals looking to launder money without governmental oversight. McAfee estimates that approximately £1.5bn of cryptocurrencies has been stolen in the past two years, and whilst financial regulators have started to attempt to tame the “wild west” of digital assets, it is still early days and much more needs to be done.
The IMF warnings about cryptocurrencies were published alongside a sobering analysis of the current state of the global financial system. The Washington-based lender of last resort described a financial system under strain from debts that had already risen well above those at the time of the 2008 financial crash and where the risk remains that unregulated parts of the financial system could trigger another global collapse.
These warnings echo similar statements from regulators around the world, which have cautioned that Donald Trump’s determination to rip up multilateral agreements had undermined international efforts to prepare for another downturn, and left countries to act on their own without leadership from countries like the US.