WASHINGTON: The International Monetary Fund (IMF) has called for cross-border collaboration and cooperation to address the technological, legal, regulatory and supervisory challenges associated with the adoption of cryptocurrencies.
Senior IMF officials said in a note that setting up a comprehensive, consistent and coordinated regulatory approach to crypto is a daunting task.
“But if we start now, we can achieve the policy goal of maintaining financial stability while benefiting from the benefits that the underlying technological innovations bring,” added Tobias Adrian, director of the IMF’s monetary and capital markets department, Dong He, the deputy director of the monetary and capital markets department, and Aditya Narain, a deputy director in the IMF’s monetary and capital markets department.
They said that determining valuation is not the only challenge in the cryptocurrency ecosystem, as identification, monitoring and management of risks defy regulators and firms.
Some of these risks include operational and financial integrity risks from cryptocurrency asset exchanges and wallets, investor protection and inadequate reserves and inaccurate disclosure for some stablecoins, they said.
The advent of cryptocurrency can accelerate “cryptoisation” in emerging markets and developing economies – when so called digital assets replace domestic currency and circumvent exchange restrictions and capital account management measures, they said.
The risks underscore the need 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”, the IMF officials said.
The organisation recommended the Financial Stability Board (FSB), which reports to the Group of 20 nations, to develop a global framework comprising standards for regulation of cryptocurrency assets with an aim to provide a comprehensive and co-ordinated approach to managing risks to financial stability and market conduct that can be consistently applied across jurisdictions.
The fund said it will work closely with the FSB and other members of the international regulatory community to develop an effective regulatory approach to cryptocurrency assets. “The global regulatory framework should provide a level playing field along the activity and risk spectrum,” IMF officials said.