Highlights
- The IMF has stated that the Financial Stability Board should create a global comprehensive, consistent, and coordinated crypto regulation
- The IMF also states that crypto has changed the international monetary and financial system and that its stability should be safeguarded
The IMF (International Monetary Fund) in a blog post and a tweet called for the Financial Stability Board to create a consistent and coordinated global crypto regulation. IMF commented that the services, products, and crypto assets have grown to a nearly $2.5 trillion market capitalization. The interlinkages of crypto with the regulated financial system are growing. Since the activities and risks of the system are not regulated, the IMF fears that the stability risks of crypto could become systemic. Acknowledging that the blockchain and other underlying crypto technologies have economic value, the IMF also cautions that the system has too many financial risks.
Danger Of Cryptoization
IMF also introduced a term called ‘cryptoization’ as:
Moreover, in emerging markets and developing economies, the advent of crypto can accelerate what we have called “cryptoization”—when these assets replace domestic currency, and circumvent exchange restrictions and capital account management measures.
Global Standards For Regulation
The IMF states that crypto challenges, such as valuation and risk management, defy the regulators. International standards are needed to assess these risks while allowing for an environment that supports useful crypto applications and asset products. The IMF called for the Financial Stability Board to develop global standards for crypto.
The Financial Stability Board, in its coordinating role, should develop a global framework comprising standards for regulation of crypto assets. The objective should be to provide a comprehensive and coordinated approach to managing risks to financial stability and market conduct that can be consistently applied across jurisdictions, while minimizing the potential for regulatory arbitrage, or moving activity to jurisdictions with easier requirements.
The IMF noted that crypto operated cross-border and cross-sector and that, therefore the different strategies taken by individual countries do not cover all the aspects of crypto. The cross-border nature of crypto also makes it challenging to enforce regional regulations. So, instead of country-specific crypto regulations, a global framework of consistent and coordinated standards is essential.
The three elements that the IMF has called for are:
Crypto-asset service providers that deliver critical functions should be licensed or authorized. These would include storage, transfer, settlement, and custody of reserves and assets, among others, similar to existing rules for financial service providers.
Requirements should be tailored to the main use cases of crypto assets and stablecoins. For example, services and products for investments should have requirements similar to those of securities brokers and dealers, overseen by the securities regulator. Services and products for payments should have requirements similar to those of bank deposits, overseen by the central bank or the payments oversight authority.
Authorities should provide clear requirements on regulated financial institutions concerning their exposure to and engagement with crypto.
To know more, visit the IMF blog post. The IMF has also outlined its strategy for the digital age.
