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IMF-FSB, Regulators Set Out Roadmap to Coordinate Global Cooperation on Crypto Asset Regulation

Global financial regulators and the International Monetary Fund on Thursday set out a roadmap to coordinate measures that stop crypto assets from undermining macroeconomic and financial stability. Such risks are exacerbated by noncompliance with existing laws in some instances, the G20’s risk watchdog, the Financial Stability Board, and the IMF said in a paper.

Many of the claimed benefits from crypto assets, such as cheaper and faster cross-border payments, and increased financial inclusion, have yet to materialise, it added.

“Widespread adoption of crypto-assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources available for financing the real economy, and threaten global financial stability,” the paper said.

The paper sets out timelines for members of the IMF and G20 to implement recent recommendations to regulate crypto from the Financial Stability Board and IOSCO, a global group of securities regulators.

It marks a further evolution in regulatory thinking after several years of seeing little threat from the sector, with attitudes hardening after the collapse of the crypto exchange FTX last November, which rattled markets and left investors nursing losses.

“A comprehensive policy and regulatory response for crypto-assets is necessary to address the risks of crypto-assets to macroeconomic and financial stability,” said the paper, which will be presented to G20 leaders at a summit this month in New Delhi.

The European Union has approved the world’s first comprehensive set of rules for crypto assets, but there is a patchier approach elsewhere to a borderless sector where fraud and manipulation are “prevalent”.

Other elements include governments avoiding large deficits which can lead to inflation that dents fiat currencies and encourages substitutes such as cryptoassets, the paper said.

The tax treatment of crypto assets should also be spelled out, along with how existing laws apply to the sector. 

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India’s Push to Regulate Cryptocurrency Gets Support From IMF, US at G20

A push by Group of 20 (G20) president India to regulate cryptocurrencies gained support from both the International Monetary Fund and the United States on Saturday as finance chiefs of the bloc wrap up two-days of talks.

India has said it wants a collective global effort to deal with problems posed by cryptocurrencies such as bitcoin, and the finance ministry said it had held a seminar for G20 member states to discuss how to come up with a common framework.

Speaking to Reuters on the sidelines of the G20 meeting in Bengaluru, US Treasury Secretary Janet Yellen said it was “critical” to put in place a strong regulatory framework but added that the United States had not suggested any outright bans.

“We haven’t suggested outright banning of crypto activities, but it is critical to put in place a strong regulatory framework,” Yellen said. “We’re working with other governments.”

Earlier, IMF Managing Director Kristalina Georgieva told reporters after co-chairing a meeting with Indian Finance Minister Nirmala Sitharaman that banning crypto should be an option.

Indian Prime Minister Narendra Modi’s government has for several years debated drafting a law to regulate or even ban cryptocurrencies but has not made a final decision. The Reserve Bank of India has said that cryptocurrencies should be banned as they are akin to a Ponzi scheme.

On Thursday, the IMF laid out a nine-point action plan for how countries should treat crypto assets, with point number one a plea not to give cryptocurrencies legal tender status.

Such efforts have become a priority for authorities, the fund said, after the collapse of a number of crypto exchanges and assets over the last couple of years, adding that doing nothing was now “untenable”.

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IMF Outlines Nine-Point Crypto Action Plan, Aims to Block Cryptocurrencies From Becoming Legal Tender

The International Monetary Fund has laid out a nine-point action plan for 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 said its Executive Board had discussed a paper, “Elements of Effective Policies for Crypto Assets,” that provided “guidance to IMF member countries on key elements of an appropriate policy response to crypto assets.”

Such efforts have become a priority for authorities, the fund said, after the collapse of a number of crypto exchanges and assets over the last couple of years, adding that doing nothing was now “untenable”.

The top recommendation was to “safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.”

The IMF had 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 Thursday’s list, 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.

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 “generally agreed,” too, that crypto assets should not be granted official currency or legal tender status, and though strict bans of assets are “not the first-best option,” a few directors thought they should not be ruled out.

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IMF Teams up with India to Formulate Global Level Crypto Laws Under G20 Framework

India has welcomed the International Monetary Fund (IMF)’s aid in its quest to formulate crypto laws that would work on an international level. The development has been confirmed by Ajay Seth, Secretary of India’s Department of Economic Affairs. India took over the presidency of the G20 group of nations in December last year. The countries involved in this planning under India’s leadership include Argentina, Australia, Brazil, Canada, and Russia, among others.

Drafting detailed laws to govern the crypto sector has been named among India’s primary agendas during its year-long G20 presidency. Nirmala Sitharaman, the Finance Minister of India, had shared India’s crypto-related intensions with the G20 group last December.

The IMF, which has previously voiced its concerns against spreading the use of these volatile crypto assets, would be preparing a draft work for potential crypto laws.

“IMF is working on a paper in consultation with us (India) which will focus on aspects of the monetary policy and the policy approach to crypto assets. There’s going to be 135-minute seminar on crypto assets on the policy response (during a G20 meeting later this month) and for that again the IMF is preparing the finalised paper that will form the base,” a Coindesk report quoted Seth as saying.

Despite India’s silence around its stance on the crypto sector, Seth has reiterated that the crypto industry is not illegal in India.

While crypto holding and trading is allowed in India, some businesses have also been experimenting with accepting crypto payments. Unlike El Salvador, India does not equate any cryptocurrency to its fiat currency.

Industry insiders in India recently expressed disappointment after FM Sitharaman maintained a stark silence around anything related to cryptocurrency.

Speaking to Gadgets 360, representatives from crypto firms like WazirX and CoinSwitch said that it has been less than a year since crypto tax laws went live in India, and that the government is taking its time to analyse crypto-related trading and industrial patterns thriving in the nation.

For now, the IMF’s opinion around the virtual digital assets industry remains unknown.

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Morocco Finalises Crypto Laws, Framework With World Bank and IMF Suggestions, Central Bank Says

Morocco could see the introduction of a set of new laws designed to govern and oversee the crypto sector in the North African nation in the coming days. Abdellatif Jouahiri, the governor of Bank Al-Maghrib (BAM) reportedly said that the Moroccan central bank has already finalised the formulated laws. The financial authorities of Morocco worked with members of the World Bank and the International Monetary Fund to prepare these laws, Jouahiri said.

The laws have been formed in alignment with Morocco’s existing financial systems. While details of the legislation are yet to be revealed, the central bank governor did say that the rules are expected to promote a safe crypto ecosystem, than to restrict the experimentation, according to a Morocco World News report.

The Moroccan central bank will now hold dialogue with companies and members of its crypto ecosystem, as part of its roadmap for gradually framing the crypto sector in the legal framework.

“For cryptocurrencies, I can assure you that the project is ready. Now we are engaged in the discussion with the different stakeholders. It is long, but necessary to allow everyone to adhere to this project,” the Morocco World News [quoted] Jouahiri as saying on Tuesday.

The central bank will also open discussions regarding the laws with the Moroccan Capital Markets Authority (AMMC), the Insurance Supervisory Authority and Social Security (ACAPS).

Out of Morocco’s estimated population of 38 million, crypto assets are reportedly owned by over a million people in the country.

It is only natural that the government of Morocco is working to regularise the virtual digital assets (VDA) sector.

In the last year, the nation emerged as the fastest-growing crypto market in Northern Africa. The crypto industry has seen a tremendous growth in the African financial market.

According to the IMF, Kenya, Nigeria, and South Africa have the highest number of crypto users in the region.

Back in November last year, the IMF advised all crypto-friendly African nations to implement tighter regulations around the digital assets sector. At the time, the IMF had noted that regulating a highly volatile and decentralised system remains a challenge.

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Cryptocurrencies a ‘Clear Danger’, Warns RBI Governor Amid Global Crypto Uncertainty

Reserve Bank Governor Shaktikanta Das on Thursday described cryptocurrencies as “clear danger” and said that anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name.

The government is in the process of finalising a consultation paper on cryptocurrencies after gathering inputs from various stakeholders and institutions.

Reserve Bank of India (RBI) has been flagging concerns about cryptocurrencies, which are seen as a highly speculative asset.

In the foreword to the 25th issue of the Financial Stability Report (FSR) released on Thursday, Das also said that as the financial system gets increasingly digitalised, cyber risks are growing and need special attention.

“We must be mindful of the emerging risks on the horizon. Cryptocurrencies are a clear danger. Anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name,” Das said.

In recent weeks, cryptocurrencies, which are not back by any underlying value, have witnessed massive volatility amid global uncertainties.

RBI first come out with a circular regarding cryptocurrencies in 2018 and had barred entities regulated by it from dealing in such instruments. However, in early 2020, Supreme Court struck down the circular.

While regulatory clarity is yet to emerge with respect to the cryptocurrency space in the country, the government is working to finalise a consultation paper on cryptocurrencies with inputs from various stakeholders and institutions, including the World Bank and the IMF.

In the foreword of the FSR, Das also said that while technology has supported the reach of the financial sector and its benefits must be fully harnessed, its potential to disrupt financial stability has to be guarded against.

“As the financial system gets increasingly digitalised, cyber risks are growing and need special attention,” he noted.

Regarding the economy, he said it is skewed towards global spillovers and geopolitical tensions.

The Indian financial system exhibits underlying robustness and resilience to withstand these shocks. “Our endeavour is to face all challenges, external and internal, with strength and innovative solutions for the Indian financial system,” he added.

A noteworthy feature of the current situation is the overall resilience of Indian financial institutions, which should stand the economy in good stead as it strengthens its prospects. This reflects a combination of good governance and risk management practices, he said.

According to him, the stress test results presented in the FSR demonstrate that banks are well positioned to withstand even severe stress scenarios without falling below the minimum capital requirement.

He also said that the corporate sector is deleveraged with stronger bottom lines and the external sector is well-buffered to withstand the ongoing terms of trade shocks and portfolio outflows.

“In a dynamic environment with considerable uncertainty, we have been proactive and nimble footed in our policy responses. We have been calibrating our actions to the need of the hour and striving to preserve macroeconomic and financial stability to ensure sustainable and inclusive growth,” he said.

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