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Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier

-border P2P frequent transactions or tracking multiple senders and recipients. More broadly, challenges from crypto assets may imply the need by the regulatory authorities to find in CFM enforcement the right balance between ex ante approval and ex post monitoring. However, even with such a multifaceted strategy in place, the challenges crypto assets pose to CFMs will likely persist, especially in emerging market and developing economies where regulatory and technological capacity constraints are significant. Some crypto assets and related activities may go underground

Tara Iyer

interconnectedness could include growing acceptance of crypto-related platforms and investment vehicles in the stock market and at the over-the-counter market, or more generally growing Bitcoin adoption by retail and institutional investors, many of whom have positions in both the equity and crypto markets. Given the increased interconnectedness between crypto and financial markets at large, the hitherto “light touch” regulatory approach toward crypto assets needs to be reviewed. Regulations should correspond to the risks crypto assets pose ( BIS 2021 ), and oversight of the

Mr. Ke-young Chu and Mr. Sanjeev Gupta

financially sustainable, benefits should be commensurate with available resources. To this end, benefits should be limited to families with low per capita incomes. In practice, however, targeting benefits on the basis of household incomes or assets poses difficulties in identifying eligible households. This is particularly so when incomes of the majority of households are clustered together around the poverty line—the income level that is used to distinguish the poor from the non-poor. In such a situation, many of the officially designated nonpoor may not be significantly

Mr. Glenn Gottselig and Mr. Paul Collier

on probably the most for the last few months. Resource-rich countries are distinctive in that natural assets pose problems of depletion and problems of price shocks. So depletion and volatility go hand in hand with resource riches, and each has implications. The depletion of natural assets obviously has implications for savings. As you run down one set of assets, you need to build up some offsetting asset. Maybe not one for one, but you certainly need to build up, and that implies that for the resource-rich countries, the savings rates need to be even higher than

International Monetary Fund. Asia and Pacific Dept

prudential safeguards. The rapid growth in financial technology activities, including crypto assets, poses new financial-stability risks: a balance needs to be struck between regulatory activism and fostering innovation (see October 2021 Global Financial Stability Report , Chapter 2). To avert catastrophic climate change, policies must be geared to support reallocations toward greener and more inclusive sectors. Laying the foundation for green growth will require a flexible, pragmatic, and equitable approach to establishing minimum carbon prices that considers

Tara Iyer
Crypto assets have emerged as an increasingly popular asset class among retail and institutional investors. Although initially considered a fringe asset class, their increased adoption across countries—in emerging markets, in particular—amid bouts of extreme price volatility has raised concerns about their potential financial stability implications. This note examines the extent to which crypto assets have moved to the mainstream by estimating the potential for spillovers between crypto and equity markets in the United States and in emerging markets using daily data on price volatility and returns. The analysis suggests that crypto and equity markets have become increasingly interconnected across economies over time. Spillovers from price volatility of the oldest and most popular crypto asset, Bitcoin, to the S&P 500 and MSCI emerging markets indices have increased by about 12-16 percentage points since the onset of the COVID-19 pandemic, while those from its returns have increased by about 8-10 percentage points. Spillovers from the most traded stablecoin, Tether, to these indices have also increased by about 4-6 percentage points. In absolute terms, spillovers from Bitcoin to global equity markets are significant, explaining about 14-18 percent of the variation in equity price volatility and 8-10 percent of the variation in equity returns. These findings suggest that close monitoring of crypto asset markets and the adoption of appropriate regulatory policies are warranted to mitigate potential financial stability risks.