December 3, 2023

The International Monetary Fund (IMF) emphasized its view that cryptocurrencies require “comprehensive policies to protect the economy and investors.”

Published by the International Monetary Fund (IMF) blog More recently, it clarified that only a comprehensive cryptocurrency policy can adequately protect investors and economies.

The IMF policy recommendation comes amid a global push for clear guidelines for crypto assets under India’s G20 presidency.

Global cryptocurrency regulation on the G20 agenda

The collapse of some of the largest cryptocurrency platforms in 2022 underscores the urgent need for clear guidelines and policies for the industry to protect investors from a largely unregulated industry.

The massive losses and impact of the collapse of cryptocurrency trading platform FTX and the Terra Luna stablecoin clearly demonstrate that without comprehensive safeguards, the risk of fraud and misconduct can have disastrous consequences for investors.

The G20 therefore works to ensure that appropriate safeguards are in place.

Regulators such as the Financial Stability Board (FSB) have issued recommendations to develop a global framework for crypto-assets, and the Bank for International Settlements (BIS) is expected to provide further guidance.

The IMF subsequently contributed to the establishment of such a regulatory framework.

Three Pillar Approach

The reality of the evolving financial system is that the digitization of money and assets is inevitable, and the possibility of central bank digital currencies (CBDCs) and stablecoins replacing official currencies is increasing. To address the impact of such financial changes on national monetary and fiscal policies requires a comprehensive, coherent and coordinated policy approach to cryptocurrencies.

The IMF assesses the potential macro-financial implications of widespread CBDC adoption and relies on three aspects of its global regulatory framework approach.

The IMF lays out its approach in three key areas: “sound macro policy fundamentals, clear legal treatment and detailed rules, and effective implementation.”

The bank has developed some key policy recommendations based on these three pillars.

First, preventing the displacement of sovereign currencies will depend on maintaining sound, trustworthy, and credible domestic institutions. To effectively address the challenges of crypto assets, a “transparent, consistent and coherent monetary policy framework” is imperative.

IMF recommends protection of national sovereignty; cryptoassets should not be granted official or legal tender status.

The IMF’s third recommendation addresses the volatility of crypto-related capital flows. The bank believes that policymakers should incorporate cryptocurrencies into their existing capital flow management regimes and rules. Doing so will help ensure stability and minimize potential disturbances.

The IMF’s final recommendation is that tax policy “should ensure a clear treatment of crypto assets and regulators should strengthen compliance efforts.” The IMF believes that specific regulations are necessary to clarify the tax treatment of cryptocurrencies.

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