IMF Raises Concern Over Capital Flow Volatility, Other Crypto Risks

This is even as the supposed potential benefits from crypto assets have yet to materialise.

The IMF Directors also, noted serious concerns about financial stability, financial integrity, legal risks, consumer protection, and market integrity.

IMF in a statement in Washington said, “Directors agreed that crypto assets have implications for policies that lie at the core of the Fund’s mandate.

“In particular, the widespread adoption of crypto assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks. Widespread adoption could also have significant implications for the international monetary system in the longer term.”

Directors, therefore, 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.

Directors generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability. Fiscal risks posed by crypto assets including contingent liabilities to the government should be fully disclosed as part of countries’ fiscal risk statement, and the applicability of tax regimes should be clarified.

“Directors broadly agreed on the need to develop and apply comprehensive regulations, including prudential and conduct regulation to crypto assets, and effective implementation of the FATF standards on AML/CFT. They noted that the Fund should work closely to support the regulatory work under the leadership and guidance of standard-setting bodies.

In this context, Directors emphasised the importance of fully aligning the framework with the initiatives and standards set by the standard-setters. Directors agreed that strict bans are not the first-best option, but that targeted restrictions could apply, depending on domestic policy objectives and where authorities face capacity constraints.

A few Directors, however, thought that outright bans should not be ruled out. Directors noted that regulation should be mindful not to stifle innovation, and the public sector could leverage some of the underlying technologies of crypto assets for their public policy objectives.

“Directors emphasised the importance of prioritising elements of the framework where countries face implementation challenges, including weak regulatory institutions. They stressed that the pace and sequencing of implementation should be tailored to countries’ respective circumstances.

“It will be important to underpin the regulatory treatment with clear and sound private and public law frameworks. Strong coordination between authorities, both at the domestic and international levels, is critical for consistent implementation and avoiding regulatory arbitrage.

Directors also highlighted the importance of promoting the principle of “same activity, same risk, and same regulation.

He, therefore, agreed that the framework should be used to guide staff’s policy dialogue with country authorities and capacity development activities, as well as participation in discussions with standard-setting organisations.