Crypto needs comprehensive policies to protect economies and investors

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Global pressure for clearer policies on crypto assets has gained momentum under India’s G20 Presidency. As this work continues, it is important to recognize the progress already made, but more is needed, especially in the implementation of global standards.

Last year’s failures of crypto trading platform FTX and stablecoin Terra Luna underscored the urgency of establishing clear policies to protect investors and prevent abuse. Despite recent challenges in the industry, investor optimism continues to rise periodically, as evidenced by Bitcoin’s near doubling this year. Without strong safeguards, the increased risk of fraud and misconduct could negatively impact investors’ expected returns.

While some policymakers have taken the necessary steps to protect consumers and ensure financial integrity, it is equally important to consider the broader implications of crypto. These assets, especially stablecoins denominated in hard currencies, could potentially replace official currencies and have a significant impact on the monetary and fiscal policies of countries. This is especially true in emerging markets and developing economies, highlighting the need for a comprehensive, cohesive, and coordinated policy approach to crypto.

This is why we presented an assessment of the macroeconomic implications of crypto assets to the G20 Presidency earlier this year, building on the recommendations set out in the Elements of Effective Policies for Crypto Assets endorsed by the G20 Board of Directors. IMF in February.

Our approach is based on three key pillars: a solid macro-policy base, clear legal treatment and granular rules, and effective implementation.

Here are our key policy recommendations:

The defense against substitution of sovereign currencies is the maintenance of strong, reliable and credible national institutions. Transparent, consistent and coherent monetary policy frameworks are essential for an effective response to the challenges posed by crypto-assets. To protect national sovereignty, it is important not to grant crypto-assets official currency or legal tender status. This would require accepting them in many jurisdictions for payment of taxes, fines and debt settlements, and could generate fiscal risks to public finances and could threaten financial stability or rapid inflation. To address the volatility of capital flows associated with crypto, policymakers need to integrate them into existing regimes and rules that manage capital flows. This will help ensure stability and minimize potential disruptions.

Finally, tax policies should ensure unambiguous treatment of crypto assets, and administrators should strengthen compliance efforts. Specific regulations are needed to clarify the tax treatment of crypto, including value added taxes or levies on income or wealth.

Clear legal treatment

Building on a solid macro-policy base, clear legal treatment and granular rules are essential. The principle “same activity, same risk, same regulation” should guide regulatory efforts.

In accordance with the recommendations of standard setters such as the Basel Committee on Banking Supervision, the Financial Action Task Force, the Financial Stability Board and the International Organization of Securities Commissions, our recommendations are as follows:

A comprehensive legal basis is essential to effectively regulate crypto, addressing both private law and financial law aspects. This includes ensuring predictability and enforceability of rights while properly classifying crypto. Strict anti-money laundering and counter-terrorist financing (AML/CFT), prudential and conduct rules must be implemented to cover all entities and activities related to the issuance, trading, custody or transfer of crypto. For systemic stablecoin agreements, additional requirements such as the Principles for Financial Market Infrastructures, standards to ensure the safety, efficiency and resilience of FMIs, should be applied.

Significantly, the FSB in July established a set of high-level recommendations for crypto regulation, focusing on financial stability. This includes ensuring the regulatory powers of authorities and sound governance and risk management practices by providers. It also contains revised high-level recommendations for effectively addressing the financial stability risks associated with “global stablecoin” agreements.

Overall, the recommendations promote consistency and comprehensiveness in approaches to crypto regulation, oversight, and oversight.

Effective implementation

Finally, ensuring the effectiveness of policies requires several measures, including strong coordination, at national and international level:

National authorities need to align their frameworks with emerging guidelines and standards developed by standards bodies. This alignment is key to achieving consistent treatment of crypto assets and may require legislative changes. The development of a strong oversight capacity is essential to ensure effective monitoring and enforcement of the rules. Authorities need to have the skills and resources to oversee the evolving crypto asset landscape. Given the borderless nature of the crypto-asset ecosystem, international collaboration and information sharing is crucial. Cooperation between supervisors and relevant authorities will help monitor crypto-asset service providers and maintain the effectiveness of regulatory policies. Beyond crypto policies, public authorities should leverage advances in digital technology to enhance public policy goals and actively collaborate to address persistent cost, trust and speed issues, particularly for cross-border payments. . New multilateral platforms could improve transaction efficiency.

The IMF will continue to support the G20 by delivering to the Leaders Summit in September a joint IMF-FSB position paper highlighting the building blocks of effective crypto policies. In addition, we are committed to providing tailored capacity building to our 190 members based on the above recommendations and new guidance from standards setters. Our monitoring program will also assess the effectiveness of policy frameworks, including crypto.

By taking a holistic approach and implementing these recommendations, policymakers can preserve monetary sovereignty, protect investors’ interests, and promote financial stability in the digital age.

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