## Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies

_Fintech Notes, December 6, 2023_

## Source details

**Canonical URL:** [Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies](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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## Bibliographic details
- 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

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### Overview
- 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

### Key findings from the simulated small open economy model
- 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.

### Policy implications and considerations
- 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 and keywords emphasized
- 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

*Source: Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies, Fintech Notes No 2023/012 (December 6, 2023).*

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_Source: https://www.imf.org/en/publications/fintech-notes/issues/2023/12/05/macro-financial-implications-of-foreign-crypto-assets-for-small-developing-economies-541440_