IMF: Extensive Policies Needed to Protect Economies and Investors

The International Monetary Fund (IMF) underscored its views that crypto requires “comprehensive policies to safeguard economies and investors.”

The International Monetary Fund (IMF) published a blog recently in which it clarifies that investors and economies will only be adequately protected by comprehensive crypto policies.

The IMFs policy suggestion comes amid a global push for clear guidelines for crypto assets under the Indian G20 Presidency.

Global Crypto Regulation on G20’s Agenda

The collapse of some of the biggest crypto platforms in 2022 highlighted the dire need for establishing clear guidelines and policies for the industry to protect investors against the implications of a mostly unregulated industry.

The sheer loss and impact of the implosion of the crypto trading platform FTX and the Terra Luna stablecoin made it clear that the risk of fraud and misconduct could be disastrous for investors without comprehensive safeguards.

As such, the Group of 20 Nations (G20) directed its efforts to ensure that appropriate safeguards are put in place.

Regulatory bodies such as the Financial Stability Board (FSB) have issued recommendations to develop a global framework for crypto-assets, with further guidance expected from the Bank for International Settlements (BIS).

The IMF subsequently made its contribution to establishing such a regulatory framework.

Three-Pillared Approach

The reality of an evolving financial system is that digitization of currencies and assets is inevitable, and the likelihood of central bank digital currencies (CBDCs) and stablecoins replacing official currencies is increasing. To address the impact of such financial changes on countries’ monetary and fiscal policies, a comprehensive, consistent, and coordinated policy approach to crypto is needed.

The IMF assessed the potential macro-financial implications of the widespread adoption of CBDCs and relies on three aspects in its approach to a global regulatory framework.

The IMF developed its approach on three key aspects: “a sound macro-policy foundation, clear legal treatment and granular rules, and effective implementation.”

The bank developed a few key policy recommendations based on these three pillars.

First, protecting against substituting sovereign currencies will depend on maintaining robust, trusted, credible domestic institutions. To address crypto assets’ challenges effectively, “transparent, consistent, and coherent monetary policy frameworks” are imperative.

The IMF suggests to protect national sovereignty; crypto assets should not be granted the status of official currency or legal tender.

The IMF’s third recommendation addresses the volatility of capital flows associated with crypto. The bank believes policymakers should integrate crypto within their existing regimes and rules for managing capital flows. Doing so will help ensure stability and minimize potential disruptions.

The IMF’s final recommendation is tax policies “should ensure unambiguous treatment of crypto assets, and administrators should strengthen compliance efforts.” The IMF argues specific regulations to clarify the tax treatment of crypto are necessary.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.