Moody’s Report on Cryptocurrency Adoption Risks in Developing Countries

Credit rating agency Moody’s has released a report indicating that the rise of cryptocurrency adoption in developing nations could threaten monetary policy sovereignty and financial resilience.

The report emphasizes that this risk grows as cryptocurrencies evolve from mere investment tools to being utilized for savings and money transfers.

Impact of Dollar-Denominated Stablecoins

Moody’s posits that the spread of dollar-denominated stablecoins, in particular, along with the increasing use of currencies other than local ones for pricing and payments, might weaken the monetary policy transmission mechanism. This situation could lead to reduced transparency and regulatory insight, generating pressures akin to “cryptocurrency” or unofficial dollarization.

Additionally, the report mentions that cryptocurrencies can create new channels for capital flight through anonymous wallets and offshore exchanges, potentially undermining exchange rate stability. It was noted that the strongest adoption of crypto assets is found in Southeast Asia, Africa, and certain regions of Latin America, where factors like high inflation, currency depreciation, and limited access to banking services are prevalent.

Conversely, in developed economies, cryptocurrency adoption appears to be advancing primarily due to institutional consolidation and clearer regulatory frameworks. The report predicts that by 2024, around 562 million people worldwide will be engaging with cryptocurrencies, representing a 33% annual growth.

This is not investment advice!