The IMF believes a comprehensive, consistent, and coordinated regulation will harness the benefits of crypto’s underlying technology while mitigating its risks.
The financial institution focused on maintaining worldwide financial stability, The International Monetary Fund (IMF), recently published recommendations on effectively regulating the cryptocurrency sector around the world. According to a recent blog post, the IMF acknowledges that digital assets were rapidly revolutionizing the entire global financial system.
The financial institution noted that policymakers were still struggling to monitor the risks associated with the market. On this background that IMF outlined a proposal for establishing a global regulatory framework for crypto. The institution called for a “comprehensive, consistent, and coordinated” approach that would harness the benefits of crypto’s underlying technology while mitigating some of its risks.
Cryptocurrency easily crosses borders
The IMF noted that the rapid development of the crypto sphere could pose serious risks if global financial regulators do not act quickly to mitigate the threats and harness the revolutionary power of crypto. According to the report, the rules need to be international because cryptocurrency easily crosses borders.
Currently, some individual nations have adapted regulations or devised new ones, but the “existing laws and regulations may not allow for national approaches that comprehensively cover all elements of these assets.” The report suggests that such an approach could provide dangerous loopholes since “uncoordinated regulatory measures may facilitate potentially destabilizing capital flows.” The report proposes regulating crypto at a global level should have three core elements:
“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 similar to those of bank deposits
“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.”
The IMF repeated its warning of the increasing use of cryptocurrency in most developing countries. It said:
“Some emerging markets and developing economies face more immediate and acute risks of currency substitution through crypto assets, the so-called cryptoization. Capital flow management measures will need to be fine-tuned in the face of cryptoization.”
Earlier in July, shortly after El Salvador adopted Bitcoin as legal tender, the IMF warned that using crypto as a national currency is very risky.