{
  "title": "Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies",
  "publication": "Fintech Notes, December 6, 2023",
  "sourceUrl": "https://www.imf.org/en/publications/fintech-notes/issues/2023/12/05/macro-financial-implications-of-foreign-crypto-assets-for-small-developing-economies-541440",
  "canonical": "https://www.imf.org/en/publications/fintech-notes/issues/2023/12/05/macro-financial-implications-of-foreign-crypto-assets-for-small-developing-economies-541440",
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  "summary": "To explore risks associated with digital money, this Fintech Note simulates the hypothetical large-scale adoption of crypto assets in a model of a small open economy.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Alexander Copestake, Anh Le, Evan Papageorgiou, Brandon Joel Tan\n- Publication date: December 6, 2023\n- Series: Fintech Notes No 2023/012\n- Issue: 012\n- Volume: 2023\n- Pages: 26\n- DOI: https://doi.org/10.5089/9798400258367.063\n- Stock No: FTNEA2023012\n- ISBN: 9798400258367\n- ISSN: 2664-5912"
    },
    {
      "heading": "Key findings from the simulated small open economy model",
      "content": "- A foreign-currency denominated stablecoin can amplify currency substitution in response to negative shocks.\n- Adoption of such stablecoins can amplify capital outflows in response to negative shocks.\n- Monetary policy transmission is weakened under large-scale foreign crypto asset adoption.\n- Weakened transmission forces the central bank to adjust interest rates more aggressively in response to shocks.\n- Capital flow management measures that do not constrain crypto flows incentivize households to hold foreign stablecoins for circumvention purposes.\n- Circumvention via crypto holdings exacerbates the negative effects of crypto adoption on the macroeconomy.\n- Widespread crypto adoption can weaken policymakers’ available options for mitigating external shocks.\n- Widespread crypto adoption can potentially increase cross-country spillovers."
    },
    {
      "heading": "Policy implications and considerations",
      "content": "- Monitor and evaluate the macro-financial risks associated with foreign-currency denominated stablecoins, particularly in small open economies.\n- Recognize that standard capital flow management measures may be undermined if they do not address crypto flows, creating incentives for circumvention.\n- Anticipate the potential need for more aggressive interest rate adjustments by central banks when stablecoins gain large-scale adoption, due to weakened monetary policy transmission.\n- Consider policy frameworks that limit the circumvention of capital flow measures via crypto assets to avoid exacerbating macroeconomic instability.\n- Assess cross-border coordination needs given the potential for increased cross-country spillovers stemming from widespread crypto adoption."
    },
    {
      "heading": "Subjects and keywords emphasized",
      "content": "- Subjects: Central Bank digital currencies, Currencies, Dollarization, Economic sectors, Financial crises, Monetary policy, Money, Technology\n- Keywords: capital flow management measure circumvention, CBDC, Central Bank digital currencies, crypto asset adoption, crypto assets, cryptoization, Currencies, digital money, Dollarization, Global, IMF Fintech Note 2023/012, macro-financial risk, Macrofinancial implication, monetary policy shock, stablecoins, store of value\n\nSource: Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies, Fintech Notes No 2023/012 (December 6, 2023).\n\n---\n\n Content in this bundle\n\n- Macrofinancial Implications of Foreign Crypto Assets for Small Developing Economies\n  - Macrofinancial Implications of Foreign Crypto Assets for Small Developing Economies (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Macrofinancial Implications of Foreign Crypto Assets for Small Developing Economies (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fintech-notes/issues/2023/12/05/macro-financial-implications-of-foreign-crypto-assets-for-small-developing-economies-541440"
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    "Authors: Alexander Copestake, Anh Le, Evan Papageorgiou, Brandon Joel Tan",
    "Published: December 6, 2023",
    "Series: Fintech Notes",
    "DOI: https://doi.org/10.5089/9798400258367.063",
    "Authors: Alexander Copestake, Anh Le, Evan Papageorgiou, Brandon Joel Tan",
    "Publication date: December 6, 2023",
    "Series: Fintech Notes No 2023/012",
    "Issue: 012",
    "Volume: 2023",
    "Pages: 26",
    "DOI: https://doi.org/10.5089/9798400258367.063",
    "Stock No: FTNEA2023012",
    "ISBN: 9798400258367",
    "ISSN: 2664-5912",
    "A foreign-currency denominated stablecoin can amplify currency substitution in response to negative shocks.",
    "Adoption of such stablecoins can amplify capital outflows in response to negative shocks.",
    "Monetary policy transmission is weakened under large-scale foreign crypto asset adoption.",
    "Weakened transmission forces the central bank to adjust interest rates more aggressively in response to shocks.",
    "Capital flow management measures that do not constrain crypto flows incentivize households to hold foreign stablecoins for circumvention purposes.",
    "Circumvention via crypto holdings exacerbates the negative effects of crypto adoption on the macroeconomy.",
    "Widespread crypto adoption can weaken policymakers’ available options for mitigating external shocks.",
    "Widespread crypto adoption can potentially increase cross-country spillovers.",
    "Monitor and evaluate the macro-financial risks associated with foreign-currency denominated stablecoins, particularly in small open economies.",
    "Recognize that standard capital flow management measures may be undermined if they do not address crypto flows, creating incentives for circumvention.",
    "Anticipate the potential need for more aggressive interest rate adjustments by central banks when stablecoins gain large-scale adoption, due to weakened monetary policy transmission.",
    "Consider policy frameworks that limit the circumvention of capital flow measures via crypto assets to avoid exacerbating macroeconomic instability.",
    "Assess cross-border coordination needs given the potential for increased cross-country spillovers stemming from widespread crypto adoption.",
    "Subjects: Central Bank digital currencies, Currencies, Dollarization, Economic sectors, Financial crises, Monetary policy, Money, Technology",
    "Keywords: capital flow management measure circumvention, CBDC, Central Bank digital currencies, crypto asset adoption, crypto assets, cryptoization, Currencies, digital money, Dollarization, Global, IMF Fintech Note 2023/012, macro-financial risk, Macrofinancial implication, monetary policy shock, stablecoins, store of value",
    "**Macrofinancial Implications of Foreign Crypto Assets for Small Developing Economies**"
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