In a landmark move, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) under G20 leadership have released a joint policy paper outlining a coordinated approach to regulate crypto assets. The paper, set to be presented at a G20 summit in New Delhi this month, aims to mitigate the risks posed by cryptoassets to global financial stability.
A comprehensive regulatory framework
The policy paper emphasizes the need for a “comprehensive policy and regulatory response” to address the macroeconomic and financial stability risks associated with crypto assets. It sets out timelines for IMF and G20 members to implement recent recommendations from the FSB and the International Organization of Securities Commissions (IOSCO). The paper marks a significant shift in regulatory thinking, which hardened following the collapse of crypto exchange FTX last November.
The document also highlights that many of the claimed benefits of crypto assets, such as cheaper and faster cross-border payments and increased financial inclusion, have yet to materialize. It warns that widespread adoption of cryptoassets could undermine monetary policy, exacerbate fiscal risks, and threaten global financial stability.
Addressing risks and loopholes
The paper calls for clear tax treatment of cryptoassets and spells out how existing laws should apply to the sector. It also advises against imposing blanket bans on crypto activities, stating that such bans could lead to activity migrating to other jurisdictions, thereby creating spillover risks. Instead, the paper suggests that targeted and temporary restrictions might be more effective, particularly for emerging economies.
Countries like India have expressed concerns about the enhanced threat from widespread crypto use to monetary policy. The paper acknowledges these concerns and suggests that emerging markets may need to take additional targeted measures that go beyond the global regulatory baseline.
The roadmap also addresses the proliferation of stablecoins, warning that they could facilitate rapid capital flight and pose significant risks to financial stability. It notes that stablecoins may transmit volatility more abruptly than other crypto assets and calls for comprehensive regulation and oversight as the first line of defense against the risks posed by crypto assets.
The European Union has already approved the world’s first comprehensive set of rules for cryptoassets, but the paper notes that there is a patchier approach elsewhere, particularly in a borderless sector where fraud and manipulation are prevalent.
The coordinated effort by the IMF and FSB comes at a crucial time when the crypto industry is under increased scrutiny following numerous enterprise collapses in 2022. The paper is part of a series of efforts by international bodies to introduce global norms for the rapidly evolving industry.