Moody’s agency warned that the integration of cryptocurrencies in developing economies poses a threat to the worldwide financial stability and economic independence of these nations, as per a report issued on Thursday.
The risk assessment organization stated that areas where digital assets are utilized for purposes beyond investment, such as heritage preservation or international shipping, pose higher risks.
Stablecoins, which are cryptocurrencies pegged to the dollar, have shown substantial growth and are widely used in developing nations as a more favorable way to access the dollar.
Moody’s argues that utilizing these assets can undermine domestic monetary authorities and impact the country’s foreign exchange dynamics, particularly in relation to the local currency’s value, by discouraging the use of local currencies.
This trend, as per the company’s experts, generates a form of pressure akin to informal dollarization but with more secrecy and less regulatory oversight, ultimately leading to currency depreciation.
Cryptocurrencies offer alternative ways for capital flight, particularly through digital wallets and cryptocurrencies that function independently of the asset owners’ home countries, enabling more discreet transfers.
The report highlights that the risks are higher in the developing markets of Southeast Asia, Africa, and certain parts of Latin America. Countries experiencing high inflation, struggling national currencies, and limited banking access are most affected by the adoption of cryptocurrencies. Conversely, in wealthier economies, adoption is influenced by factors like regulatory transparency and institutional compatibility.
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