Global cryptocurrency regulation must be comprehensive, consistent and coordinated

The International Monetary Fund has plunged into the debate over the regulation of cryptocurrencies.

In a recent article, the organization stated that global cryptocurrency regulation must be comprehensive, consistent and coordinated.

“The IMF’s mandate is to safeguard the stability of the international monetary and financial system. And cryptoactives are profoundly changing the system,” the IMF wrote on Thursday (9).

The fund’s position comes at a time of great global debate on the regulation of digital currencies. In Brazil, for example, the Chamber of Deputies approved, last Wednesday (8), a Bill of Law aimed at regulating the sector.

In the United States, several executives from the cryptocurrency industry were summoned to appear on Capitol Hill to testify before Congress in order to clear up some of the many misunderstandings surrounding cryptoactives.

Systemic risk and ‘cryptization’

In light of this, the IMF underscored that policy makers are struggling to monitor the risks in this sector:

“In fact, we believe these risks to financial stability could soon become systemic in some countries,” the IMF said.

In addition, the organization reasoned that while the market value of cryptoactives is nearly US$2.5 trillion, this could indicate an environment of “extended valuations”.

“Determining valuation is not the only challenge in the cryptoecosystem: identifying, monitoring and managing risks challenges regulators and companies.”

The IMF also warned of what it called “cryptoization” (or “cryptoization”). The concept consists of replacing national currencies with cryptocurrencies.

According to the article, in this process, cryptoactives would circumvent exchange restrictions and capital management measures.

“These risks underscore why we now need comprehensive international standards that more fully address the risks to the crypto-asset financial system, its associated ecosystem, and its related transactions, while enabling an enabling environment for useful crypto products and applications.” they said

On global regulation, the IMF noted that countries are adopting very different strategies. Furthermore, he pointed out that many cryptocurrency service providers operate across borders. Thus, they make the task of supervising and inspecting activities even more difficult.

“Uncoordinated regulatory measures can facilitate potentially destabilizing capital flows.”

Global regulatory framework

For the IMF, the global regulatory framework must provide a level playing field in all activities. They listed three main topics that this framework should cover:

• Cryptoactive service providers that provide critical functions must be licensed or authorized. And the criteria for this must be clearly articulated by the responsible authorities;
• The requirements must be tailored to the main cryptoactive use cases. For example, investment services/products should have similar requirements to securities dealers. Payment services and products should have similar requirements to bank deposits;
• Authorities must provide clear requirements to financial institutions regarding cryptoactives.

Finally, the IMF said it will work closely with the Financial Stability Board and other members of the international regulatory community to develop an effective regulatory approach to crypto assets.