Efforts to establish a global policy approach for crypto gain momentum
The International Monetary Fund (IMF) and the Financial Stability Board (FSB) of the G20 have taken a significant step towards coordinating action on crypto. In a joint white paper, they emphasized the necessity of a comprehensive policy and regulatory response to address the risks associated with crypto-assets and their potential impact on macroeconomic and financial stability.
Although the authors of the paper recognize the limited connection between crypto and traditional finance, they argue that widespread adoption of cryptocurrencies would undermine the effectiveness of monetary policy and pose a threat to stability if granted legal tender status.
The paper outlines the collaborative efforts between the IMF, FSB, and other agencies to monitor the disruptive potential of crypto. It also highlights the implementation of high-level recommendations made by the FSB earlier this year.
Protecting economies from potential risks
The paper suggests that jurisdictions should take measures to safeguard monetary sovereignty, strengthen monetary policy frameworks, mitigate excessive capital flow volatility, and establish clear tax treatment for crypto-assets to protect their economies from potential problems.
While the paper does not introduce new recommendations, its focus is on identifying risks and providing a roadmap for the future.
Concerns over stablecoins and CBDCs
The FSB and IMF expressed concerns about the widespread use of stablecoins, warning that it could lead to fragmentation in global payments. They cited the 2022 collapse of the Luna/Terra ecosystem as an example of how a single failure could have ripple effects in the market.
Notably, the latest report does not cover central bank digital currencies (CBDCs), despite the increasing number of countries planning to issue them. The paper also does not mention non-fungible tokens (NFTs).
Hot Take
The joint white paper by the IMF and FSB underscores the need for a comprehensive policy and regulatory response to the risks posed by crypto-assets. It emphasizes the importance of safeguarding monetary sovereignty, strengthening monetary policy frameworks, and adopting clear tax treatment for crypto-assets. While stablecoins and their potential impact on global payments are a concern, the report does not address central bank digital currencies or non-fungible tokens. The collaborative efforts and roadmap outlined in the paper aim to protect economies and maintain financial stability in the face of evolving crypto technologies.
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