The International Monetary Fund (IMF) has laid out a nine-point action plan on how countries should treat crypto assets, with point number one a plea not to give cryptocurrencies such as bitcoin legal tender status.
The global lender of last resort disclosed that its executive board has discussed a paper titled, ‘Elements of Effective Policies for Crypto Assets,’ which provided guidance to IMF member countries on key elements of an appropriate policy response to crypto assets.
According to the Fund, such efforts have become a priority for authorities after the collapse of a number of crypto exchanges and assets over the last couple of years, adding that doing nothing is now untenable.
The top recommendation is to “safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and not to grant crypto assets official currency or legal tender status.”
The IMF hit out at El Salvador in late 2021 when the Central American country became the first to adopt bitcoin as legal tender, a move that has since been copied by Central African Republic.
Other advice on action plan, which comes as G20 decision makers meet in India, included guarding against excessive capital flows, adopting unambiguous tax rules and laws around crypto assets, and developing and enforcing oversight requirements for all crypto market actors.
Countries should also establish international arrangements to enhance supervision and enforce regulations, the IMF added, as well as set up ways to monitor crypto’s impact on the stability of the global monetary system.
Executive Board’s Assessments
Outlining its executive board’s assessment, the IMF said directors welcomed the proposals and agreed the widespread adoption of crypto assets “could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks.”
They added that widespread adoption could also have significant implications for the international monetary system in the longer term. Directors, therefore, emphasized that robust macroeconomic policies, including credible institutions and monetary policy frameworks, are first-order requirements and that Fund advice in these areas will remain crucial.
Directors generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability. Fiscal risks posed by crypto assets including contingent liabilities to the government should be fully disclosed as part of the countries’ fiscal risk statement, and the applicability of tax regimes should be clarified.
Directors broadly agreed on the need to develop and apply comprehensive regulations, including prudential and conduct regulation to crypto assets, and effective implementation of the FATF standards on AML/CFT. They noted that the Fund should work closely to support the regulatory work under the leadership and guidance of standard-setting bodies. In this context, Directors emphasized the importance of fully aligning the framework with the initiatives and standards set by the standard-setters.
Directors agreed that strict bans are not the first-best option, but that targeted restrictions could apply, depending on domestic policy objectives and where authorities face capacity constraints. A few Directors, however, thought that outright bans should not be ruled out. Directors noted that regulation should be mindful not to stifle innovation, and the public sector could leverage some of the underlying technologies of crypto assets for their public policy objectives.
Directors emphasized the importance of prioritizing elements of the framework where countries face implementation challenges, including weak regulatory institutions. They stressed that the pace and sequencing of implementation should be tailored to the countries’ respective circumstances. It will be important to underpin the regulatory treatment with clear and sound private and public law frameworks.
Strong coordination between authorities, both at the domestic and international levels, is critical for consistent implementation and avoiding regulatory arbitrage. Directors also highlighted the importance of promoting the principle of “same activity, same risk, same regulation.”
A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system.
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