Don’t avoid cryptos due to LUNA crash, says IMF’s MD

Kristalina Georgieva added it is regulator’s responsibility to offer investors protection

Managing director of the International Monetary Fund Kristalina Georgieva                                 
MD of the International Monetary Fund Kristalina Georgieva – Photo: Alamy

The MD of the International Monetary Fund (IMF) has said that investors should not avoid crypto due to the collapse of terra (LUNA) and depegging of its stablecoin terraUSD (UST).

Kristalina Georgieva, speaking at the annual meeting of the World Economic Forum (WEF) in Davos, said: “I would beg you not to pull out of the importance of this world. It offers us all faster service, much lower costs, and more inclusion, but only if we separate apples from oranges and bananas.”

Georgieva added that it is the responsibility of regulators to offer protection and education to protect investors, BNN Bloomberg reported. 

Algorithmic stablecoin caution

Georgieva went on to say there was a big difference between algorithmic stablecoins, such as UST, and stablecoins that are backed by cash.

UST was designed to maintain its peg to the US dollar through a combination of mathematical equations and active trading. Investors could swap UST regardless of its value for $1 of LUNA, the theory being that trade in UST would keep it at $1 – or at least close to the value. However, this broke down earlier this month after UST became depegged.

“The less there is backing it, the more you should be prepared to take the risk of this thing blowing up in your face,” said Georgieva.

Cryptos vs central banks

The IMF MD was speaking alongside François Villeroy de Galhau, governor of the Bank of France, during a panel discussion regarding central bank digital currencies (CBDCs).

Villeroy de Galhau did not agree with the perception that central banks are losing people’s trust as cryptos and decentralised finance (DeFi) are becoming more popular.

Referring to the collapse in LUNA’s price, he said: “My impression is more that in recent weeks, citizens have lost trust in crypto, more than in central banks.”

Only last week, Villeroy de Galhau called the depegging of UST a “wake-up call for the urgent need for global regulation” – and added that finance chiefs from the G7 nations would discuss the issue of regulating crypto assets.

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