Cryptocurrency price fluctuations are undermining capital flows in emerging markets, Financial Times reported, citing remarks from Tobias Adrian, financial counselor of the International Monetary Fund (IMF) and head of their Monetary and Capital Markets Department since 2017.
External crypto investors are taking money out of unstable markets, which is causing big financial headaches in some countries, Adrian told FT. He pointed to the crypto market’s peak of $1 trillion in value that’s been lost.
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El Salvador President Nayib Bukele, which adopted bitcoin as legal tender in September 2021, was advised by the IMF in December 2021 to put an end to it in order to fend off instability and preserve integrity in the country’s financial system. El Salvador has been without its own fiat currency since 2001 when it adopted the U.S. dollar.
El Salvador is seeking a $1.3 billion loan from the IMF and is planning to raise the funds by selling bonds linked to crypto. The move has current investors holding debt from the country uneasy, per FT. The IMF has said that the loan won’t be granted unless El Salvador drops bitcoin as legal tender.
Read more: IMF’s Silence Signals El Salvador Needs to Abandon Bitcoin to Secure $1.3B Loan
There are several emerging markets and developing economies that are facing big risks because established currencies were replaced by crypto assets, a situation known as “cryptoisation,” FT reported.
“Capital flow management measures will need to be fine-tuned in the face of cryptoisation,” Adrian told FT. “Applying established regulatory tools to manage capital flows may be more challenging when value is transmitted through new instruments, new channels and new service providers that are not regulated entities.”
The IMF wants regulators from around the world to establish a unified and comprehensive approach to crypto oversight.
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