IMF Piles in on Crypto “Risks”
Posted by Colin Lambert. Last updated: February 27, 2023
The International Monetary Fund (IMF) has become the latest body to sound the alarm on crypto assets, observing in a paper that “…while the supposed potential benefits from crypto assets have yet to materialise, significant risks have emerged.”
The IMF paper, Elements of Effective Policies for Crypto Assets is intended to provide guidance to IMF member countries on key elements of an appropriate policy response to crypto assets. It addresses questions raised by IMF member countries on benefits and risks of crypto assets and on how to structure appropriate policy responses.
The IMF observes that efforts to put in place effective policies for crypto assets have become a key policy priority for authorities, amid the failure of various exchanges and other actors within the crypto ecosystem, as well as the collapse of certain crypto assets. “Doing nothing is untenable as crypto assets may continue to evolve despite the current downturn,” it states.
The paper sets forth a framework of nine elements that can help members develop a comprehensive, consistent, and coordinated policy response. The nine elements—or policy actions—are:
- Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.
- Guard against excessive capital flow volatility and maintain effectiveness of capital flow management measures.
- Analyse and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets.
- Establish legal certainty of crypto assets and address legal risks.
- Develop and enforce prudential, conduct, and oversight requirements to all crypto market actors.
- Establish a joint monitoring framework across different domestic agencies and authorities.
- Establish international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations.
- Monitor the impact of crypto assets on the stability of the international monetary system.
- Strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.
By adopting the framework, policy makers can better mitigate the risks posed by crypto assets while also harnessing the potential benefits of the technological innovation associated with it.
As noted, IMF directors cited “significant risks” around crypto, namely, macroeconomic risks, which encompass risks to the effectiveness of monetary policy; capital flow volatility; and fiscal risks. They also noted “serious concerns” about financial stability, financial integrity, legal risks, consumer protection, and market integrity.
The widespread adoption of crypto assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks, the IMF says, largely mirroring recent sentiments from the Bank for International Settlements, which has been equally wary of crypto-associated risks.
The fund’s directors emphasised that robust macroeconomic policies, including credible institutions and monetary policy frameworks are first-order requirements and that Fund advice in these areas will remain crucial. Crucially, they generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability.