Crypto asset technologies, if not well regulated and supervised, could create de facto a new and alternative financial system, the IMF wrote in a September 29 working paper

The International Monetary Fund last week cautioned that crypto could create a new financial system.

Crypto asset technologies, if not well regulated and supervised, could create de facto a new and alternative financial system, the International Monetary Fund wrote in a September 29 working paper.

The study, titled “Assessing Macrofinancial Risks from Crypto Assets,” discusses the probable systemic risks related to the growing prominence of crypto currencies and offers a framework for understanding and tracking these risks.

The paper introduces a country-level Crypto-Risk Assessment Matrix (C-RAM) to summarize key vulnerabilities, indicators, potential triggers, and policy responses relevant to the crypto sector.

This matrix intends to assist policymakers and experts better identify and navigate the risks posed by crypto currencies and create relevant strategies to contain and manage those risks.

Major areas of concern include structural vulnerabilities in the crypto ecosystem, contagion risks between traditional finance (TradFi) and crypto, operational risks, regulatory arbitrage, limited transparency, and data availability.

The inherent susceptibility of the crypto industry to fraud, cybersecurity threats, and technology risks exposes it to several external threats, the International Monetary Fund added.

Liquidity risks, market integrity risks, and legal and consumer protection risks also pose significant challenges for the crypto industry, the IMF said.

Participants relying on a secured, transparent record for clearing, and settlement of financial transactions provided by distributed ledger technology mitigates some of the risks noted, but introduces regulatory challenges, the International Monetary Fund added.

What the IMF sees as probable risks to asses, is what the crypto currency advocates contend will make for a more efficient and accessible financial system.