‘Cryptoization’ of Emerging Markets Poses Risks to Financial Resilience: Moody’s

Cryptocurrency adoption in emerging markets poses risks to monetary sovereignty and financial resilience, credit ratings giant Moody’s Ratings said in a report on Thursday.

The risks are most acute in areas where crypto’s use extends beyond investment into savings and remittances, according to the report. Moody’s suggests that higher penetration of stablecoins pegged to the U.S. dollar weaken monetary transmission when it leads to pricing and settlement increasingly occurring outside a market’s domestic currency.

Stablecoins are crypto tokens pegged to the value of a traditional financial asset, such as a fiat currency, with the U.S. dollar comfortably the most prevalent.

“This creates ‘cryptoization’ pressures analogous to unofficial dollarization, but withgreater opacity and less regulatory visibility,” Moody’s said.

Cryptocurrency can also provide new ways of for capital flight, through pseudonymous wallets and offshore exchange, allowing individuals to move wealth abroad discreetly, undermining exchange rate stability, according to the report.

Moody’s also highlighted how increased ownership of cryptocurrency has been concentrated in emerging markets, particularly in Southeast Asia, Africa and parts of Latin America. Here, adoption is often driven by inflationary pressure, currency pressured and limited access to banking services. In contrast, adoption in more advanced economies, adoption is driven by institutional integration and regulatory clarity.

Crypto ownership expanded to an estimated 562 million people by 2024, an increase of 33% from 2023, the report said.

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