IMF Executive Board Discusses Elements of Effective Policies for Crypto Assets

IMF News, February 23, 2023

Source details

Canonical URL

IMF Executive Board Discusses Elements of Effective Policies for Crypto Assets

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: February 23, 2023

Overview

• Press Release No. 23/51
• Washington, DC: On February 8, 2023 the Executive Board of the International Monetary Fund (IMF) discussed a board paper on Elements of Effective Policies for Crypto Assets that provides guidance to IMF member countries on key elements of an appropriate policy response to crypto assets.
• The paper operationalizes the principles outlined in the Bali Fintech Agenda (IMF and World Bank 2018) and includes macrofinancial considerations such as implications for monetary and fiscal policies.
• The proposed principles are fully aligned with the relevant standards of the Financial Stability Board and other standard setting bodies.
• Efforts to put in place effective policies for crypto assets have become a key policy priority for authorities, amid the failure of various exchanges and other actors within the crypto ecosystem, as well as the collapse of certain crypto assets. Doing nothing is untenable as crypto assets may continue to evolve despite the current downturn.

Nine elements (policy actions) set forth in the paper

1. Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status. 2. Guard against excessive capital flow volatility and maintain effectiveness of capital flow management measures. 3. Analyze and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets. 4. Establish legal certainty of crypto assets and address legal risks. 5. Develop and enforce prudential, conduct, and oversight requirements to all crypto market actors. 6. Establish a joint monitoring framework across different domestic agencies and authorities. 7. Establish international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations. 8. Monitor the impact of crypto assets on the stability of the international monetary system. 9. Strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.

Executive Board Assessment — substantive findings

• Directors welcomed the timeliness and importance of the paper and underscored the need for a comprehensive framework that addresses extra-territoriality of crypto assets and increasing interlinkages with the financial system.
• Directors generally observed that while the supposed potential benefits from crypto assets have yet to materialize, significant risks have emerged, including:
  • Macroeconomic risks: risks to the effectiveness of monetary policy, capital flow volatility, and fiscal risks.
  • Financial risks: concerns about financial stability, financial integrity, legal risks, consumer protection, and market integrity.
• Directors emphasized that crypto assets have implications for policies at the core of the Fund’s mandate and that robust macroeconomic policies, including credible institutions and monetary policy frameworks, are first-order requirements.
• Directors generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability.
• Fiscal risks posed by crypto assets, including contingent liabilities to the government, should be fully disclosed as part of countries’ fiscal risk statement, and the applicability of tax regimes should be clarified.
• Directors broadly agreed on the need to develop and apply comprehensive regulations, including prudential and conduct regulation to crypto assets, and effective implementation of the FATF standards on AML/CFT.
• Directors noted that the Fund should work closely to support the regulatory work under the leadership and guidance of standard-setting bodies and emphasized the importance of fully aligning the framework with initiatives and standards set by the standard-setters.

Policy guidance and implementation modalities

• Directors agreed that strict bans are not the first-best option, but that targeted restrictions could apply, depending on domestic policy objectives and where authorities face capacity constraints; a few Directors thought that outright bans should not be ruled out.
• Regulation should be mindful not to stifle innovation; the public sector could leverage some of the underlying technologies of crypto assets for public policy objectives.
• Prioritization, sequencing, and tailoring:
  • Prioritize elements of the framework where countries face implementation challenges, including weak regulatory institutions.
  • Pace and sequencing of implementation should be tailored to countries’ respective circumstances.
  • Underpin regulatory treatment with clear and sound private and public law frameworks.
  • Strong coordination between authorities, both domestic and international, is critical for consistent implementation and avoiding regulatory arbitrage.
  • Promote the principle of “same activity, same risk, same regulation.”

Fund role, capacity development, and data

• Use of the framework:
  • Guide staff’s policy dialogue with country authorities and capacity development activities.
  • Participate in discussions with standard-setting organizations.
• Focus areas for the Fund:
  • Emphasize the Fund’s comparative advantage and macrofinancial implications.
  • Serve as a bridge between membership experience and the international standard- and rule-setting process, including disseminating best practices.
  • Provide tailored advice and close dialogue with authorities, given different stages of crypto asset development and capacities across member countries.
  • Fund capacity development support will be crucial.
• Data and monitoring:
  • Directors stressed the importance of addressing significant data gaps and emphasized the role of the Fund in monitoring risks and impacts on the international monetary system.
  • They welcomed the new G20 Data Gaps Initiative.
  • Consistent recording of crypto assets in macroeconomic statistics across economies, underpinned by a reliable data framework, will be important.

Looking ahead

• Directors emphasized that the Fund could serve as a thought leader in further analytical work on rapidly evolving developments in crypto assets.
• They underscored the importance of promoting ongoing knowledge sharing and lessons from practical implementation issues in the field.
• Fund work on crypto assets is expected to remain within the agreed budget augmentation framework.

Media contact

• IMF Communications Department
• MEDIA RELATIONS — PRESS OFFICER: Pemba Sherpa
• Phone: +1 202 623-7100
• Email: MEDIA@IMF.org
• @IMFSpokesperson

IMF Communications Department — February 23, 2023.

References

• Press Releases
• PRESS CENTER
• Elements of Effective Policies for Crypto Assets
• https://www.imf.org/en/home