IMF Warns Stablecoins Could Pose 'Contagion Risk' to Global Financial System

Add the International Monetary Fund (IMF) to the list of institutions wary of stablecoins' growing influence.
In its 2021 Global Financial Stability Report, the IMF says cryptocurrency doesn't yet pose a systemic threat to the international system but that "risks should be closely monitored given the global implications and the inadequate operational and regulatory frameworks in most jurisdictions."
To address those inadequacies, it calls for "global standards for crypto assets." Doing so, it believes, could help fend off a "contagion risk" to other markets.
The IMF holds huge sway. It is an intergovernmental body of 190 member states that promotes global trade, poverty reduction, and stable monetary policies. It uses dues from its members to provide loans to other members who agree to its terms. According to an April 2021 fact sheet, it has about $1 trillion available for such loans, a little under half of the total cryptocurrency market cap.
This subhead of this year's report—"COVID-19, Crypto, and Climate: Navigating Challenging Transitions"—telegraphs the IMF's point of view by lumping digital assets in with a pandemic and a potential catastrophe. But the report itself is more measured, referring to "both opportunities and challenges" arising from digital assets' growth.

"The rapid growth of the ecosystem has been accompanied by the entrance of new entities, some of which have poor operational, cyber risk management, and governance frameworks," the report reads, pointing to service disruptions on exchanges, attacks to centralized platforms on which crypto is still dependent, and low transparency around the issuance and distributions of some tokens.
While these have all led to losses that can be crippling for over-leveraged individuals, they haven't impacted the current financial order. But that could change, says the IMF, especially as most crypto trading volume happens on one exchange, Binance, and stablecoin Tether is the primary means for making Bitcoin trades; attacks to either entity, either digitally or via regulatory pressure, could weaken the entire ecosystem—and the legacy financial systems they lean on.
The report spends plenty of space detailing how stablecoins, which are typically pegged 1:1 to the US dollar or another fiat currency, present a risk given that they are regulated differently from jurisdiction to jurisdiction and they have managed to go from a market cap of roughly $20 billion to well north of $120 billion in the last year.

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