The International Monetary Fund (IMF), through its directors of the Monetary and Capital Markets Department, Tobias Adrian, Dong He and Aditya Narain, has called for the cryptocurrency market to be regulated globally.
The IMF seeks “comprehensive, coherent and coordinated” regulation of bitcoin and other digital currencies to “safeguard the stability of the international monetary and financial system,” which is being profoundly changed by crypto assets.
In a blog post Adrian, He and Narain warn that “policymakers struggle to monitor risks from this evolving sector, in which many activities are unregulated. In fact, we think these financial stability risks could soon become systemic in some countries.”
The experts allude to the fact that “crypto assets and associated products and services have grown rapidly in recent years,” but that this remains an unregulated financial system. In fact, they are concerned that “interlinkages with the regulated financial system are rising.”
They also assert that determining valuation is not the only challenge in the crypto ecosystem, “identification, monitoring, and management of risks defy regulators and firms. These include, for example, operational and financial integrity risks from crypto asset exchanges and wallets, investor protection, and inadequate reserves and inaccurate disclosure for some stablecoins.”
In addition, they stress that “in emerging markets and developing economies, the advent of crypto can accelerate what we have called ‘cryptoization,’ when these assets replace domestic currency and circumvent exchange restrictions and capital account management measures.”
For all these reasons the IMF calls for “comprehensive international standards that more fully address risks to the financial system from crypto assets, their associated ecosystem, and their related transactions, while allowing for an enabling environment for useful crypto asset products and applications.”
In their view it is not effective for each country to have its own approach and adopt its own strategy: “Crypto’s cross-sector and cross-border remit limits the effectiveness of national approaches. Countries are taking very different strategies, and existing laws and regulations may not allow for national approaches that comprehensively cover all elements of these assets.” And they added that “many crypto service providers operate across borders, making the task for supervision and enforcement more difficult.”
Adrian, He and Narain propose three elements that, according to them, must be part of a global regulatory framework: Crypto-asset service providers that deliver critical functions should be licensed or authorized, requirements should be tailored to the main use cases of crypto assets and stablecoins and authorities should provide clear requirements on regulated financial institutions concerning their exposure to and engagement with crypto.
