Russian Study Says Digital Currencies Not a Threat to Nation’s Economy
The Russian Analytical Credit Rating Agency (ACRA) has recently unveiled a new study that the volatility in the digital currency market can still not hamper the nation’s financial stability. The study makes an interesting comparison by saying that the volatility in the crypto market is comparable to the price fluctuations in the food and other volatile commodity.
On the other hand, the experts of the study also found that crypto volatility can affect the Russian economy causing depreciation in the value of the ruble. This can also lead to can also lead to other factors like increase cost of borrowing, debt denomination in foreign currency, inflations and other risks associated with financial parameters.
The study also mentions that fluctuations in the cryptocurrency market can increase the interest rate on domestic borrowings by 1%. But this can only happen provided that the share of virtual currencies in the structure of corporate reaches up to 4 trillion ruble which is 6% of the total.
ACRA said that although high-volatility of the digital currencies can pose risks to the nation’s economy, but for Russia, the risks are balanced due to the high concentration of digital assets. The agency said: “the market value of the crypto currency attributable to the economy of the Russian Federation and held by residents for the first quarter of 2018 is 7.5-14 billion dollars, or 1-2% of the M2 money supply. At the same time, this volume is concentrated among a small number of owners, which eliminates risks for the Russian financial system. If such a volume of crypto-currency were distributed among the Russian population as widely as foreign currencies, for example, the volatility of their exchange rate would have an impact on the stability of the Russian economy.”
The study also mention that the Central Bank of Russia can also use the current policies of fiat currencies, also for other foreign currencies. This way, digital currencies can serve its purpose as cash foreign currencies and will also be traceable.
While somewhat leaning their opinion in favor of digital currencies, the experts from ACRA opined that digital currency volatility will seldom affect the country’s financial stability.
It stated: “Volatility of the courses of the cryptocurrency is able to have the same effect on interest rates as the sharp change in the exchange rate of the ruble against foreign currencies. The weakening of the ruble leads to a revaluation of debt denominated in foreign currency, which results in an increase in the volume of payments on debt that are not secured by cash flow. Additional demand for borrowed funds, an increase in the expected inflation and an increase in the counterparty’s risk assessment raise equilibrium rates on the debt market.”