Financial Stability Board, IMF Warn of ‘Cryptoization’ Risks in Wake of Russia-Ukraine War

The Basel-based Financial Stability Board (FSB) has echoed sentiments expressed by the International Monetary Fund (IMF), with both bodies warning that in the wake of the war in Ukraine, an “acceleration of cryptoization in emerging markets” could be on the cards.

Today, in a letter from the FSB to G20 finance chiefs and central bankers, the body (formerly known as the Financial Stability Forum), which is tasked with monitoring and making recommendations about the global financial system, wrote that "the current financial stability challenges reinforce the importance, and increase the urgency, of the FSB’s ongoing policy work in a number of areas, including [...] strengthening the resilience of non-bank financial intermediation as well as cryptoassets and cyber risks.”

The FSB claimed that the “Russia-Ukraine war has reinforced pre-existing concerns” it has concerning the “growth and potential illicit use of cryptoassets.”

It explained:

“Cryptoasset markets are fast evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system.”

The FSB claimed that it was responding by “taking forward, in collaboration with standard-setting bodies,” including the Financial Action Task Force (FATF), its “work on the regulation and supervision of ‘unbacked’ cryptoassets and stablecoins,” as well as “analyzing the financial stability impacts” of the “rapidly evolving” decentralized finance (DeFi) sector.”

It claimed that its moves would “create the necessary conditions for safe innovation,” but did not expand on what kind of regulatory measures it might seek to recommend. Instead, it said that it would “keep the G20 updated” on its “work on cryptoassets.”

The IMF, meanwhile, has been addressing its own crypto-related concerns in its Global Financial Stability report, published yesterday, where it noted:

“Repercussions of the Russian invasion of Ukraine and ensuing sanctions continue to reverberate globally and will test the resilience of the financial system through various potential amplification channels, including […] the acceleration of cryptoization in emerging markets.”

In a foreword, the IMF’s Financial Counsellor Tobias Adrian warned that “the fragmentation of payment systems could be associated with the rise of central bank digital currency (CBDC) blocs.”

He added:

“[The] more widespread use of cryptoassets in emerging markets could undermine domestic policy objectives. Multilateral cooperation will remain key to overcome these medium-term challenges.”