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Moody’s Cautions Against Cryptocurrency Adoption, Says Risk Could Cause Financial Instability

Research published by a financial services firm, Moody’s, shows that crypto adoption comes with risks that may disrupt the financial sector if care is not taken.

According to the study, Bitcoin adoption by countries with no monetary policy is a high-risk adventure that could likely jeopardize broader economic stability.

Crypto is a Way of Sidestepping Capital Control

The key factor in Moody’s research is that most countries with weak macroeconomic frameworks will look at using crypto to dodge capital controls. In other words, digital assets can be used to disrupt the payment system in place due to its decentralized nature.

Furthermore, Moody’s noted that the rapid adoption of cryptocurrencies could lead to large-scale financial instability as its impact on the payment system will be massive and costly in the long run.

Meanwhile, the report also revealed that El Salvador’s adoption of Bitcoin has raised the country’s risk profile to a high level. The study did not directly research El Salvador’s Bitcoin adoption and its impact.

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The positive side to crypto adoption by countries, as noted by the report, is that digital assets can immensely benefit countries looking for faster and more affordable transactions, especially in the absence of robust financial infrastructures.

Countries that have since made Bitcoin legal tender have disclosed that they lacked a well-organized financial, hence their resort to using the flagship digital token.

Moreover, countries with weak macroeconomic models face significant risks if they adopt digital assets. The chances are subject to the peculiarities of the land. 

The most common of these is less government control over the monetary system, cyber fraud, and reduced power by the central bank to implement countermeasures in times of economic turmoil. Additionally, the ability to move capital without an easy trace is another effect, as remarked by David Rogovic, a senior analyst at Moody’s.

The IMF Can Help El Salvador’s Economic Recovery

A senior official from Moody’s has disclosed that the Central American nation has a credibility issue that makes it difficult for the International Monetary Fund (IMF) to wade in and help its economic revival.

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According to a report from Reuters, the country would gain a lot from the IMF if it were to be open about how it manages its finances.

It can be recalled that the IMF has been a vocal critic of the decision of the El Salvadoran government led by Nayib Bukele over its adoption of Bitcoin as legal tender and has been in constant discussion with the government to rescind its decision.

The country has been steadily buying a massive stash of BTC despite the crypto market crash that has engulfed the industry over the past week. In a show of character, the country holds fast to its decision and has constantly persuaded other countries to do the same.

The El Salvadoran president is currently hosting 44 representatives from developing countries interested in Bitcoin adoption and its benefits to their country’s economy.


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Shelly Melancon (Switzerland)

Shelly is a cryptocurrency enthusiast from Switzerland, she bought her first crypto in 2015 when it was way less popular then it is today and since 2017 she has been writing about cryptocurrency for online news portals. Shelly is the newest addition to the Tokenhell team, she writes mostly news and reviews related articles , stay tuned to her posts to stay up to date with the crypto world.

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