The IMF and Crypto Risk Assessment

Syed Rahman considers an International Monetary Fund paper’s proposal to track crypto-related risk.

The International Monetary Fund (IMF) has published a working paper assessing the macrofinancial risks of crypto assets.

IMF working papers describe research that is in progress and are published to prompt comment and debate. This latest paper states that failures in the cryptocurrency sector, such as the collapse of FTX and the fall of the Terra USD coin, have led to calls for a strengthening of countries’ policy frameworks for crypto assets. It adds that there is a need for enhanced regulation and supervision.

The paper introduces a conceptual macrofinancial framework to understand and track systemic risks stemming from crypto assets.

It proposes a country-level Crypto-Risk Assessment Matrix (C-RAM) to summarise the main vulnerabilities, useful indicators, potential triggers and potential policy responses related to the crypto sector.

The paper’s authors also go into detail about how experts and the authorities can work specific vulnerabilities stemming from crypto asset activity into their assessment of systemic risk - and how they can provide policy advice and take action to help contain systemic risks when needed.

The C-RAM proposal is a commendable initiative. This tool could serve as a valuable resource for both policymakers and regulators when it comes to identifying and addressing vulnerabilities within their specific jurisdictions. It acknowledges that crypto risks can vary greatly from one country to another and emphasises the importance of tailored approaches.

Strengthening policy frameworks and regulation in the crypto sector is not only a national concern – it has global implications. As the crypto market is inherently interconnected, coordinated efforts among countries and international bodies are crucial in mitigating systemic risks.