IMF Develops Comprehensive Policy Framework for Crypto Assets

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  • The IMF has released a paper addressing concerns raised by member countries on the risks and benefits of crypto and how to structure appropriate policy responses.
  • The paper sets out a framework of nine elements to help member countries develop a comprehensive, consistent, & coordinated policy response.
  • It aims to be mindful not to stifle innovation and allow leveraging the underlying technologies of crypto assets.

Last week, the Executive Board of the International Monetary Fund (IMF) published an article on its site discussing different elements of effective policies for crypto assets that will guide member countries.

The IMF argued that in the light of the failure of various exchanges and other actors within the crypto ecosystem, as well as the collapse of certain crypto assets, setting effective policies for digital currencies has become a key priority for authorities.

It says doing nothing is not an option, as crypto assets may continue to evolve despite the current downturn.

The IMF’s Proposal

With that in mind, the paper provides a framework of nine elements to develop a policy response that is comprehensive, consistent, and coordinated.

The IMF insists that by adopting the framework, policymakers can better mitigate the crypto risks while harnessing the potential benefits of its technological innovation.

The suggested policy actions involve safeguarding monetary sovereignty and stability by strengthening monetary policy frameworks and not granting crypto official currency or legal tender status.

Guarding against excessive volatility, maintaining the effectiveness of volatility management measures, analyzing and disclosing fiscal risks, and adopting a clear tax treatment are also part of IMF’s policy actions.

Other proposed elements include establishing legal certainty of crypto and developing and enforcing prudent oversight requirements for all crypto market actors.

Relevant Article: Compliant DeFi — the way out of Commingling Clean and Illicit Funds in a Decentralized Finance Economy

It also talks of establishing a joint monitoring framework across different domestic agencies and achieving global collaboration to enhance the enforcement of crypto asset regulations and avoid regulatory arbitrage.

At last, the IMF proposes monitoring the impact of crypto assets on the stability of the international monetary system and strengthening global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.

“The growing adoption of crypto assets in some countries, the extra-territorial nature of crypto assets and its providers, and the increasing interlinkages with the financial system, motivate the need for a comprehensive, consistent, and coordinated response,” stated the paper.

The IMF also notes in its paper that while the potential benefits of crypto have yet to be seen, significant risks have arisen, including risks to the effectiveness of the monetary policy, capital flow volatility, and fiscal risks. Additionally, the global financial agency also red-flagged several concerns around cryptocurrencies, such as consumer protection, legal risks, financial stability, and market integrity.

Not Keen on Outright Ban & Stifle Innovation

While the IMF has stressed that strict bans aren’t something they are keen on, they haven’t completely ruled it out either. Instead, they are batting for targeted restrictions.

At the same time, they want regulation to be mindful not to stifle innovation, as the agency believes the public sector could leverage some of the underlying technologies of crypto assets for their public policy objectives.

Relevant Article: Between Freedom and Security — Preserving Privacy in the Crypto Economy

Final Note

Although the IMF’s proposed crypto policy may not immediately impact end users, it could potentially lead to changes in the regulatory environment for cryptocurrencies that may affect their ability to access and use these assets in the future.

It may even end the most significant benefit of using cryptocurrencies, which is its privacy-friendly capabilities, thereby impacting the users that prefer to transact using crypto assets to keep their identity hidden.

Whatever approach or suggestions the IMF makes, it should do it from the end user’s perspective, and its aim should be to protect them by all means. However, banning an entire industry outright, especially one as innovative and game-changing as cryptocurrencies, should definitely be off the table. Curtailing innovation within the crypto space should not be an option either.

And just like traditional financial space, there are several malicious actors within the crypto space, too, but it is crucial to note the technology itself has no malicious intent. It is a mere tool.

Overall, regulators and industry stakeholders must work together to address all the issues currently present in the crypto world for the benefit of its end users globally, which by recent estimates, have surpassed a remarkable figure of 420 million. And only then will the industry prosper, achieve mass adoption, and complete the objectives that the cryptocurrencies were truly meant for.


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