Moody’s Warns Cryptocurrencies May Cause Financial Instability

Share Article
In Brief
  • Moody’s published research saying that fast adoption of cryptocurrencies comes with risks.

  • Those risks include financial fragmentation and instability.

  • The agency also said that El Salvador could benefit from a deal with the IMF.

  • promo

    Gensokishi Online – Fantasy World Economy on the Metaverse Read now!

The Trust Project is an international consortium of news organizations building standards of transparency.

Moody’s says that the adoption of cryptocurrencies comes with risks, including fragmentation of the payments system and financial instability. The agency also said that El Salvador could benefit from a program with the International Monetary Fund (IMF).

The financial services company published research on the adoption of bitcoin by countries, saying that crypto adoption is “highest among lower-rated sovereigns, increasing their macro risks.”

Moody’s claims crypto could be used to evade capital controls

The key point it makes is that countries with weaker macroeconomic frameworks could use crypto to evade capital controls. Crypto could also lead to a fragmentation of the payments system.

Moody’s says that “fast adoption of cryptocurrencies may lead to excessive financial fragmentation in payment systems and weaken financial stability.” While the report does not specifically refer to El Salvador, the company has stated that the country’s bitcoin trades have raised its risk profile in the past.

It does note, however, that crypto can benefit countries that want faster and cheaper transactions, especially if they do not have proper infrastructure. These are some of the reasons that countries have put forward in their reasoning behind making bitcoin legal tender.

“Risks associated with cryptocurrency adoption could increase macroeconomic instability for sovereigns with… these risks include operational hazards, such as cyber and fraud, reduced government control over monitoring the financial system, reduced central bank control over the money supply and ability to implement countercyclical monetary policy during economic crises; and increased ability to circumvent capital controls,” said Moody’s senior analyst David Rogovic.

Moody’s says El Salvador’s credibility would benefit from IMF deal

An official from Moody’s also said that El Salvador lacks credibility in managing its finances, according to a Reuters report. She said the country would gain from a program with the IMF.

The IMF has been discussing several issues with the El Salvador government. The organization has been a vocal dissenter of the adoption of bitcoin as legal tender.

El Salvador has been purchasing more bitcoin, despite the heavy crash the market has recently taken. It is confident in its decision and has been encouraging other countries to follow suit.

President Nayib Bukele is currently hosting representatives from 44 countries, mostly developing nations, that are interested in bitcoin, its use in the economy, and the potential benefits.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
Share Article

Rahul's cryptocurrency journey first began in 2014. With a postgraduate degree in finance, he was among the few that first recognized the sheer untapped potential of decentralized technologies. Since then, he has guided a number of startups to navigate the complex digital marketing and media outreach landscapes. His work has even influenced distinguished cryptocurrency exchanges and DeFi platforms worth millions of dollars.

Follow Author

Make your first deposit and trade now to earn up to $3,000 in rewards!      

Join

UUEX airdrop: Sign up to get 50 USDT, you can Withdraw to Wallet

Sign up

Poloniex Space Traveller Program: Sign up to get 30 USDT.

Get now