The International Monetary Fund (IMF) recently released a board paper that provides guidance to IMF member countries on major elements of an appropriate policy response to crypto assets. This paper, titled Elements of Effective Policies for Crypto Assets, was discussed by the Executive Board of the IMF on February 8th, 2023.
The paper was written in line with the IMF’s mandate to support economic and financial stability across its membership. It noted the questions raised by IMF member countries on benefits along with risks of crypto assets, and also how to structure appropriate policy responses. The paper is fully aligned with the relevant standards of the Financial Stability Board and other standard setting bodies.
The paper has set a framework of nine elements that help the members to develop a comprehensive, consistent, and coordinated policy response. These nine elements or policy actions include safeguarding monetary sovereignty and stability by strengthening monetary policy frameworks, not granting crypto assets official currency or legal tender status, guarding against excessive capital flow volatility and maintaining effectiveness of capital flow management measures, analyzing and disclosing of fiscal risks while adopting unambiguous tax treatment of crypto assets, establishing legal certainty of crypto assets and addressing legal risks, developing and enforcing prudential, conduct, and oversight requirements to all crypto market actors, establishing a joint monitoring framework across different domestic agencies and authorities, establishing international collaborative arrangements to boost supervision and enforcement of crypto asset regulations, monitoring the impact of crypto assets on the stability of the international monetary system, and strengthening global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.
By adopting the framework, the policy makers can mitigate the risks associated with crypto assets and utilize the potential benefits of the technological innovation associated with it. The Executive Directors of IMF also emphasized that IMF could serve as a “thought leader” in further analytical work on rapidly evolving developments in crypto assets.
The crypto industry has been growing rapidly in recent years, and the collapse of many exchanges along with other actors within the industry, and also the collapse of certain crypto assets has alarmed authorities. Thus, effective policies for crypto assets have become a key policy priority. Doing nothing can be untenable as crypto assets continue to evolve despite current market slowdown.
The board paper provides important guidance to IMF member countries on how to develop effective policies for crypto assets. It is essential for the policy makers to understand the potential risks and benefits of crypto assets and develop appropriate policies to address them. The paper provides a comprehensive framework of nine elements that should be included in the policy response. These elements include safeguarding monetary sovereignty and stability, not granting crypto assets official currency or legal tender status, guarding against excessive capital flow volatility, analyzing and disclosing of fiscal risks, establishing legal certainty of crypto assets, developing and enforcing prudential, conduct, and oversight requirements, establishing a joint monitoring framework, establishing international collaborative arrangements, monitoring the impact of crypto assets on the international monetary system, and strengthening global cooperation.
By implementing these policy measures, the policy makers can mitigate the risks associated with crypto assets and capitalize on the potential benefits of the technology. The IMF has also emphasized that it can serve as a “thought leader” in further analytical work on rapidly evolving developments in crypto assets. It is clear that effective policies for crypto assets are essential to ensure economic and financial stability, and the board paper provides important guidance to IMF member countries on how to develop them.
