The IMF's Response To Challenges Posed By Crypto

Syed Rahman of Rahman Ravelli details the International Monetary Fund’s response to the challenges posed by cryptocurrency

The International Monetary Fund (IMF) has recommended a number of policies for emerging markets and developing economies as more nations look to adopt cryptocurrency.

The IMF says it has devised the policies in an attempt to ensure financial stability as cryptocurrency becomes increasingly popular around the globe.

In its Global Financial Stability Report, which details the measures, the IMF acknowledges the appeal of the potentially high returns and reduced anti-money laundering standards associated with cryptocurrency. The IMF also recognises the opportunities cryptocurrency provides for fast, cheap cross-border payments. But it also highlights the risks, including money laundering, terrorist financing, hacking, market volatility and fraud.

Recommendations

The IMF states that many crypto-related bodies are lacking operational, governance and risk management procedures. This, it believes, means there is a need for new policies to be introduced.

Its recommendations include:

• Policymakers implementing global standards for crypto assets, controlling the risks associated with them and improving transaction transparency.
• Improved monitoring of cryptocurrency, the addressing of what the IMF calls “data gaps’’ and enhanced cross-border coordination.
• Emerging markets faced with crypto-related risks strengthening their macroeconomic policies, considering the possible benefits of issuing central bank digital currencies and introducing “proportionate regulation to the risk’’.

The IMF report highlights the increase in the size and value of the cryptocurrency market. Data from the past three years shows that the risk-adjusted returns of non-stablecoin cryptoassets are similar to benchmarks such as the stock market. The IMF states that the total market value of all crypto assets had passed $2 trillion by last month, representing a 10-fold increase since early 2020.

The report concludes: “The design of capital flow restrictions in a digital world needs to be reconsidered, including via stablecoin regulations. Applying established regulatory tools to manage capital flows may be more challenging when value is transmitted on new platforms that are not bound by existing capital flow management measures. 

“Because of the way private entities organize or relocate their activities, the effectiveness  of regulation, supervision, oversight, and enforcement of capital flow management measures faces challenges at jurisdictional levels. Therefore, there is a need for cross-border collaboration and cooperation to address the technological, legal, regulatory, and supervisory challenges.’’