A joint comprehensive paper prepared by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) advocates for comprehensive regulation and supervision of crypto assets, rather than a blanket ban to address macroeconomic and financial stability risks. It also advocates the use of money laundering norms to check whether crypto assets are being misused by criminals and terrorists.
The document, along with India’s presidency note, will be discussed at the G20 leaders’ summit in Delhi on September 9-10. This will help countries build blocks and roadmaps. This paper was prepared at the request of the Indian Presidency and incorporates a note from the IMF (issued in February) and high-level advice from the Financial Stability Board (issued in July).
call for comprehensive policy
The document emphasizes that a blanket ban that would make all cryptoasset activity illegal, such as trading and mining, could be costly and technically demanding to enforce. Due to the inherently borderless nature of cryptoassets, they also tend to increase incentives for adversity, leading to heightened potential financial integrity risks and creating inefficiencies, the paper said.
Referring to a comprehensive policy and regulatory response, the document states: “Regulation and supervision of licensed or registered crypto asset issuers and service providers can support capital flow measures, fiscal and tax policies, and financial integrity requirements. play.” For example, licensed, regulated and supervised crypto-asset service providers and appropriate reporting requirements can reduce data gaps, which is particularly important for capital flow measures that rely on cross-border transactions and capital flow monitoring.
The document stated that the widespread adoption of encrypted assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources that could be used to finance the real economy, and threaten global financial stability. “These risks are likely to reinforce each other, as financial instability makes maintaining price stability more difficult, and vice versa; creates instability in financial flows; and strains fiscal resources,” the paper said.
targeted measures
To address financial integrity risks and reduce criminal and terrorist misuse of cryptoassets, jurisdictions should implement the Financial Action Task Force’s (FATF) Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) standards, the document said, applying For Virtual Assets (VA) and Virtual Asset Service Providers (VASPs). “Jurisdictions should identify and assess money laundering and terrorist financing (ML/TF) risks associated with virtual assets and take appropriate steps to manage and mitigate these risks,” the report said.
The paper also calls on some jurisdictions, particularly emerging economies, to take additional steps to address specific risks. These jurisdictions may wish to tailor these targeted measures to their country-specific circumstances, especially as they face heightened macro-financial risks posed by crypto-assets. Jurisdictional characteristics that may determine the vulnerability of cryptoassets to macro-financial risks include the size of the economy and financial system, regulatory priorities, institutional quality and capabilities, and the level of financial integration into the global economy. “The implementation of these measures may vary according to the unique circumstances and capacity constraints of different countries,” the document said.
Crypto assets have been around for over a decade and have exhibited enormous volatility. In January 2009, shortly after the onset of the global financial crisis, the value of crypto assets fluctuated wildly, with multiple sharp appreciations and subsequent sharp price corrections.For example, in 2021, the total market value of encrypted assets has increased by 3.5 times, and in the turmoil of the encrypted asset market that began in May 2022, the total market value has shrunk from the peak value of 2.6 trillion US dollars to less than 1 trillion US dollars
