{"id":49483,"date":"2025-06-06T14:18:48","date_gmt":"2025-06-06T08:48:48","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=49483"},"modified":"2025-06-06T16:25:14","modified_gmt":"2025-06-06T10:55:14","slug":"crypto-surge-in-developing-countries-imf-raises-alarms-over-financial-risks","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/crypto-surge-in-developing-countries-imf-raises-alarms-over-financial-risks\/","title":{"rendered":"Crypto Surge in Developing Countries: IMF Raises Alarms Over Financial Risks"},"content":{"rendered":"<h2>Crypto Adoption in Developing Countries Latest News<\/h2>\n<ul>\n<li>IMF\u2019s First Deputy Managing Director Gita Gopinath expressed concern over the rapid growth of cryptocurrency adoption in developing economies.\u00a0<\/li>\n<li>She warned that the rise of\u00a0<a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/cryptocurrency\/\" target=\"_blank\" rel=\"noopener\" target=\"_blank\">crypto<\/a>\u2014particularly stablecoins\u2014poses risks such as currency substitution and the disintermediation of financial institutions in emerging markets.<\/li>\n<\/ul>\n<h2>Stablecoins<\/h2>\n<ul>\n<li>Stablecoins are cryptocurrencies pegged to stable assets like fiat currencies (e.g., USD) or commodities (e.g., gold).\u00a0<\/li>\n<li>Their value remains relatively stable compared to volatile cryptocurrencies like Bitcoin.<\/li>\n<\/ul>\n<h2>Surging Crypto Momentum Under Trump Administration<\/h2>\n<ul>\n<li>Bitcoin&#8217;s value has soared since President Donald Trump reversed his earlier skepticism on crypto.\u00a0<\/li>\n<li>As of June 6, Bitcoin traded at $104,512.82, slightly down by 0.07%. It recently crossed $110,000 after bipartisan Senate support for the GENIUS Act Bill.<\/li>\n<\/ul>\n<h3>GENIUS Act Bill and Its Impact<\/h3>\n<ul>\n<li>The proposed GENIUS Act seeks to expand the production of stablecoins, requiring issuers to:\n<ul>\n<li>Comply with anti-money laundering and anti-terrorism regulations<\/li>\n<li>Back stablecoins 1:1 with fiat or liquid assets<\/li>\n<li>Maintain separate reserves to support issued stablecoins<\/li>\n<\/ul>\n<\/li>\n<li>If passed, it could boost the stablecoin market tenfold to $2 trillion, according to industry estimates.<\/li>\n<\/ul>\n<h3>Developing Countries Embrace Cryptocurrencies<\/h3>\n<ul>\n<li>Pakistan has partnered with World Liberty Financial Inc (WLFI) through the Pakistan Crypto Council to use blockchain for financial inclusion, trade, remittances, and monetisation of national assets like rare earths.\u00a0<\/li>\n<li>The country aims to become a regional crypto hub through this initiative.<\/li>\n<\/ul>\n<h3>El Salvador\u2019s Limited Bitcoin Adoption<\/h3>\n<ul>\n<li>Despite making Bitcoin legal tender in 2021, El Salvador has seen minimal use of the cryptocurrency for everyday transactions, underscoring its limited utility in real-world commerce.<\/li>\n<\/ul>\n<h2>Alarm Over Crypto Growth in Emerging Economies<\/h2>\n<ul>\n<li>IMF First Deputy Managing Director Gita Gopinath has expressed concerns about the rapid uptake of cryptocurrencies in developing countries.\u00a0<\/li>\n<li>She warned that, though still nascent, crypto adoption\u2014particularly stablecoins\u2014poses rising risks of currency substitution and financial institution disintermediation in emerging markets.<\/li>\n<\/ul>\n<h3>Warning on Currency Substitution and Financial Risks<\/h3>\n<ul>\n<li>Gopinath emphasized that stablecoins could bypass traditional financial institutions and threaten monetary sovereignty by replacing national currencies.<\/li>\n<\/ul>\n<h3>Global Political Push: Trump\u2019s Strategic Crypto Vision<\/h3>\n<ul>\n<li>Gopinath\u2019s remarks come amid US President Donald Trump\u2019s call for a strategic crypto reserve and support for issuing stablecoins to position the U.S. as the \u201ccrypto capital of the world.\u201d<\/li>\n<\/ul>\n<h3>Pakistan\u2019s Deal with Trump-Backed WLFI<\/h3>\n<ul>\n<li>In South Asia, Pakistan has partnered with World Liberty Financial Inc (WLFI), a Trump-affiliated firm, aiming to become a regional crypto hub.\u00a0<\/li>\n<li>The deal promotes blockchain adoption and stablecoin-based payments and remittances.<\/li>\n<\/ul>\n<h2>Warnings on Financial Instability<\/h2>\n<ul>\n<li>Experts caution that cryptocurrencies pose systemic risks to developing economies.\u00a0<\/li>\n<li>A paper titled \u2018<strong>Crypto Assets as a Threat to Financial Market Stability\u2019<\/strong>\u00a0warns that due to high inflation, domestic currencies in emerging markets may lose value as stores of wealth, leading to their substitution by foreign or crypto assets.<\/li>\n<\/ul>\n<h3>The Risk of Cryptoisation<\/h3>\n<ul>\n<li>A UNCTAD study highlights the growing \u2018cryptoisation\u2019 of developing economy currencies\u2014driven by macroeconomic instability and younger populations\u2014where cryptocurrencies gain an outsized role relative to GDP.\n<ul>\n<li>Cryptoisation refers to the process where cryptocurrencies, especially stablecoins, are substituted for a country&#8217;s domestic currency and assets.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3>Stablecoins and the Risk of Bank Run-Like Crises<\/h3>\n<ul>\n<li>Stablecoins are particularly risky. Their peg to fiat currencies can create arbitrage and speculative behavior.\u00a0<\/li>\n<li>If investors lose confidence in the asset backing, a rapid sell-off\u2014similar to a bank run\u2014can occur.\u00a0<\/li>\n<\/ul>\n<h2>Crypto Adoption in Developing Countries FAQs<\/h2>\n<p><strong>Q1.<\/strong>\u00a0What is crypto adoption in developing countries?<\/p>\n<p><strong>Ans.<\/strong>\u00a0It refers to increasing use of cryptocurrencies like stablecoins for payments, trade, or remittances in emerging economies.<\/p>\n<p><strong>Q2.<\/strong>\u00a0Why is the IMF concerned about crypto adoption?<\/p>\n<p><strong>Ans.<\/strong>\u00a0The IMF warns it could displace national currencies and weaken financial institutions in emerging economies.<\/p>\n<p><strong>Q3.<\/strong>\u00a0What is cryptoisation?<\/p>\n<p><strong>Ans.<\/strong>\u00a0Cryptoisation is when cryptocurrencies replace a nation\u2019s fiat currency in usage due to instability or lack of trust.<\/p>\n<p><strong>Q4.<\/strong>\u00a0What is the GENIUS Act\u2019s role in crypto expansion?<\/p>\n<p><strong>Ans.<\/strong>\u00a0The GENIUS Act boosts stablecoin issuance with strict compliance, possibly growing the market to $2 trillion.<\/p>\n<p><strong>Q5.<\/strong>\u00a0How is Pakistan promoting crypto adoption?<\/p>\n<p><strong>Ans.<\/strong>\u00a0Pakistan partnered with WLFI to use blockchain for financial inclusion and aims to become a regional crypto hub.<\/p>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/indianexpress.com\/article\/business\/crypto-developing-economies-concerns-imf-gita-gopinath-why-10050843\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a>\u00a0|\u00a0<a href=\"https:\/\/www.msn.com\/en-in\/news\/other\/traditional-banks-losing-share-to-fintechs-globally\/ar-AA1G62O7?apiversion=v2&amp;noservercache=1&amp;domshim=1&amp;renderwebcomponents=1&amp;wcseo=1&amp;batchservertelemetry=1&amp;noservertelemetry=1\" target=\"_blank\" rel=\"nofollow noopener\">MSN<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>IMF warns of financial instability as crypto adoption rises in developing nations. Stable coins, currency substitution, and regulation are key concerns.<\/p>\n","protected":false},"author":8,"featured_media":49432,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[729,60,22,59],"class_list":{"0":"post-49483","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-crypto-adoption-in-developing-countries","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/49483","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=49483"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/49483\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/49432"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=49483"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=49483"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=49483"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}