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Cryptocurrency Adoption Boosted by Financial Openness

A new study has shed light on the relationship between financial openness and the adoption of cryptocurrencies. According to researchers Rico Shirakawa and Korwatanasakul, countries with a more liberal capital flow policy are more likely to be open to developments in new financial instruments, including cryptocurrencies.

The Study’s Findings

The study, published by the Asian Development Bank Institute (ADBI), analyzed data from 1990 to 2018 and found that:

• Countries with higher levels of financial openness tend to have more developed cryptocurrency markets.
• This suggests that policymakers may see cryptocurrency as a way to keep up with competition in international markets and maintain their country’s economic competitiveness.

The Risks and Regulations

However, the study also notes that greater financial openness can increase the risks associated with cryptocurrencies, such as large and volatile flows that could destabilize the financial sector. As a result, policymakers in financially open economies may be more likely to impose regulations on cryptocurrency use to mitigate these risks.

The Relationship Between Financial Openness and Cryptocurrency Adoption

The researchers used an econometric model to examine the relationship between de jure openness to cryptocurrency and de jure capital openness and institutional strength. They found that:

• Countries with higher levels of financial openness are more likely to have a more developed cryptocurrency market.
• This is driven by the desire to keep up with international competition rather than a desire to take on greater risk.

Key Takeaways

• Financial openness is positively correlated with cryptocurrency market development. • Countries with higher levels of financial openness are more likely to have a more developed cryptocurrency market. • Policymakers in financially open economies may be more likely to impose regulations on cryptocurrency use to mitigate risks. • The relationship between financial openness and cryptocurrency adoption is driven by the desire to keep up with international competition rather than a desire to take on greater risk.

Conclusion

The study’s findings suggest that policymakers should consider the potential benefits and risks of cryptocurrency adoption when making decisions about regulation. By adopting a nuanced approach that balances the need for innovation with the need for stability, countries can create an environment that is conducive to the growth of the cryptocurrency industry while also protecting their financial systems.