Crypto adoption ‘high’ in markets like India; could undermine macro stability: IMF MD

Global organisation International Monetary Fund (IMF) Managing Director Kristalina Georgieva has said crypto asset adoption is 'high", especially in emerging market economies like India, although data is scarce.

Georgieva, while speaking at the MOEF-BOK-FSC-IMF International Conference on Digital Money, says the challenge is that high crypto asset adoption could undermine macro-financial stability.

"Crypto asset adoption is high especially in emerging market economies like India, Nigeria, and Vietnam, according to Chainalysis, though data is scarce. In Brazil, for every 100 real spent on foreign securities 25 go into crypto assets, according to ongoing research by IMF staff," says Georgieva.

Calling the crypto industry 'Wild West', she says just last month, the founder of Binance, the world’s largest cryptocurrency exchange, pleaded guilty to charges of money laundering. He was charged right after the founder of FTX, Sam Bankman-Fried, was convicted of fraud and other crimes.

"Put simply, in the past 15 years, the crypto industry has not built a glorious reputation," adds Georgieva.

In terms of its future, she says crypto assets are not going away, and that the most prominent digital currency Bitcoin is trading at its highest value since April 2022.

"The crypto market cap doubled over the last year. And still today people search for the word “Bitcoin” about 20 times more than “health and wellness,” and 7 times more than “climate change"," she says.

The IMF chief says its research shows "crypto-ization" —the use of a crypto asset instead of domestic currency— can undermine "monetary policy transmission".

"What use is it to raise interest rates on a currency few people hold? In addition, capital flow management measures—such as limits on foreign currency holdings—could be circumvented. And crypto could undermine fiscal sustainability if tax collection became volatile or more difficult to enforce," she adds.

On its future, the IMF MD says the goal is to make a "more efficient, interoperable, and accessible financial system" by providing rules to avoid the risks of crypto, and infrastructure by leveraging some of its technologies.

Notably, India’s central leadership has reiterated its stand on crypto time and again, calling for international regulations to curb crypto due to fears over its misuse for illicit activities globally. Because of this, there has been regulatory uncertainty over the domestic crypto industry in the country and crypto assets are not currently recognised as legal tender.

India, meanwhile, has also introduced a 30% tax on income from crypto transactions and a 1% Tax Deducted at Source (TDS) on transactions above a specific threshold. These measures, says the government, aim to promote fiscal transparency while accommodating the evolving nature of digital currencies.

Globally, Singapore leads the pack as the top crypto hub across the world, as per a report by consultancy Henley & Partners. This is because of its government’s close cooperation with all actors — banks, businesses, and the public – for the development of the crypto sector. Switzerland sits in 2nd place (78.17%), with its well-established crypto infra, robust legal framework, and reputation for privacy and security, followed closely by the UAE in 3rd place at 76.17%.