The International Monetary Fund (IMF) and the G20’s Financial Stability Board (FSB) have released a joint paper outlining a coordinated approach to regulating crypto assets. However, the paper aims to mitigate the risks posed by cryptoassets to global financial stability and will be presented at the upcoming G20 summit in New Delhi.
A comprehensive regulatory framework
The paper emphasizes the need for a comprehensive policy and regulatory response to address the macroeconomic and financial stability risks associated with crypto assets. Furthermore, it sets out timelines for IMF and G20 members to implement recent recommendations from the FSB and the International Organization of Securities Commissions (IOSCO). The coordinated approach comes after the collapse of crypto exchange FTX last November, which led to significant market volatility and investor losses.
The document also highlights that many of the claimed benefits of crypto assets, such as faster and cheaper cross-border payments and increased financial inclusion, have yet to materialize. It warns that the widespread adoption of cryptoassets could undermine monetary policy, exacerbate fiscal risks, and threaten global financial stability.
Global norms and targeted restrictions
The paper, commissioned under India’s G20 leadership, combines norms set by various international standard-setters for the crypto sector. Also, it argues against blanket bans on cryptocurrency, stating that such prohibitions are not only expensive and technically challenging but could also lead to activity migrating to other jurisdictions. Instead, the paper suggests targeted and temporary restrictions to manage specific risk factors, particularly in emerging markets and developing economies.
The report also addresses concerns about the proliferation of stablecoins, which are cryptocurrencies stabilized against the value of other assets or currencies. It warns that these could facilitate rapid capital flight and pose significant risks to financial stability, especially in emerging economies.
The European Union has already approved the world’s first comprehensive set of rules for cryptoassets, but the paper notes that there is a patchier approach elsewhere. It calls for clear tax treatment of cryptoassets and explains how existing laws should apply to the sector.
The coordinated roadmap will be presented to the G20 this weekend and is part of a series of efforts by international bodies to introduce global norms for the crypto industry, particularly following the numerous crypto enterprise collapses of 2022. It reiterates that restrictions should not substitute for robust macroeconomic policies and comprehensive regulation, which are the first line of defense against the risks posed by crypto assets.
