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Crypto Needs Comprehensive Policies to Protect Economies and Investors

Establishing effective policies has become a priority for authorities amid the failure of some exchanges and collapse of certain crypto assets

The global push for clearer policies on crypto assets has gained momentum under the Indian G20 Presidency. As this work continues, it’s important to recognize the progress already achieved, but more is needed, especially in implementing global standards.

Last year’s failures of the FTX crypto trading platform and the Terra Luna stablecoin highlighted the urgency of establishing clear policies to protect investors and prevent abuse. Despite recent industry challenges, investor optimism continues to revive periodically, as evidenced by Bitcoin’s near doubling this year. Without robust safeguards, the increased risk of fraud and misconduct could adversely impact investors' expected returns.

While some policymakers have taken necessary steps to safeguard consumers and ensure financial integrity, it is equally important to consider the broader implications of crypto. Such assets, particularly stablecoins denominated in hard currencies, could potentially replace official currencies, and significantly impact countries' monetary and fiscal policies. This is especially true in emerging markets and developing economies, underscoring the need for a comprehensive, consistent, and coordinated policy approach to crypto.

That’s why we presented an assessment of the macro implications of crypto assets to the G20 presidency earlier this year, building on recommendations outlined in the Elements of Effective Policies for Crypto Assets endorsed by the IMF Executive Board in February.

Our approach features three key pillars: a sound macro-policy foundation, clear legal treatment and granular rules, and effective implementation.

These are our key policy recommendations:

Clear legal treatment

Building on a sound macro-policy foundation, clear legal treatment and granular rules are crucial. The principle of "same activity, same risk, same regulations" should guide regulatory efforts.

Consistent with the recommendations by standard setters such as the Basel Committee on Banking Supervision, Financial Action Task Force, Financial Stability Board, and the International Organization of Securities Commissions, our recommendations are:

Significantly, the FSB in July established a set of high-level recommendations for crypto regulation, focusing on financial stability. They include ensuring authorities’ regulatory powers and sound governance and risk management practices by providers. It also features revised high-level recommendations for effectively addressing financial stability risks associated with "global stablecoin" arrangements.

Overall, the recommendations promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to crypto.

Effective implementation

Finally, ensuring effective policies requires several measures including strong coordination, at the domestic and international level:

The IMF will continue to support the G20 by delivering to the Leaders’ Summit in September a joint IMF-FSB synthesis paper highlighting the building blocks for effective crypto policies. In addition, we are committed to providing tailored capacity building to our 190 members based on the above recommendations and emerging guidelines from standard setters. Our surveillance program will also assess the effectiveness of policy frameworks including crypto.

By embracing a comprehensive approach and implementing these recommendations, policymakers can safeguard monetary sovereignty, protect investor interests, and promote financial stability in the digital age.