Crypto Needs Comprehensive Policies to Protect Economies and Investors

IMF Blog, July 18, 2023

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Canonical URL: Crypto Needs Comprehensive Policies to Protect Economies and Investors

Publication date: July 18, 2023
Authors: Tobias Adrian, Dong He, Arif Ismail, Marina Moretti
Motivation:
- Failures of the FTX crypto trading platform and the Terra Luna stablecoin underscored urgency for clear policies to protect investors and prevent abuse.
- Despite industry challenges, investor optimism periodically revives (example: Bitcoin’s near doubling this year).
Global policy process:
- Global push for clearer policies accelerated under the Indian G20 Presidency.
- The IMF presented an assessment of macro implications of crypto assets to the G20 presidency and built on recommendations in the Elements of Effective Policies for Crypto Assets endorsed by the IMF Executive Board in February.

Core principle: maintain robust, trusted, and credible domestic institutions and transparent, consistent, and coherent monetary policy frameworks to defend against substitution of sovereign currencies.
Recommendations:
- Do not grant crypto assets official currency or legal tender status; doing so would require accepting them for tax payments, fines, and debt settlements, potentially generating fiscal risks and threatening financial stability or rapid inflation.
- Integrate crypto-related capital flows within existing regimes and rules that manage capital flows to address volatility and minimize disruptions.
- Tax policy actions:
- Ensure unambiguous tax treatment of crypto assets.
- Administrators should strengthen compliance efforts.
- Enact specific regulations to clarify tax treatment, including value-added taxes or levies on income or wealth.

Guiding regulatory principle: "same activity, same risk, same regulations."
Alignment with standard setters: Basel Committee on Banking Supervision, Financial Action Task Force, Financial Stability Board, International Organization of Securities Commissions.
Legal and regulatory requirements:
- Establish a comprehensive legal foundation covering private law and financial law to ensure predictability and enforceability of rights and appropriate classification of crypto.
- Implement strong AML/CFT, prudential, and conduct rules covering all entities and activities related to issuance, trading, custody, or transfer of crypto.
- For systemic stablecoin arrangements, apply additional requirements such as the Principles for Financial Market Infrastructures to ensure safety, efficiency, and resilience of FMIs.
FSB developments:
- In July the FSB established a set of high-level recommendations for crypto regulation focusing on financial stability.
- FSB recommendations include ensuring authorities’ regulatory powers and sound governance and risk management practices by providers, and revised high-level recommendations for addressing financial stability risks associated with "global stablecoin" arrangements.
Objective: promote consistency and comprehensiveness of regulatory, supervisory, and oversight approaches to crypto.

Domestic alignment:
- National authorities must align frameworks to emerging guidelines and standards being developed by standard setting bodies; alignment may require legislative changes.
- Develop strong supervisory capacity with necessary skills and resources to monitor and enforce rules effectively.
International cooperation:
- Given the borderless nature of crypto-assets, international collaboration and information sharing are crucial.
- Cooperation among supervisors and competent authorities is needed to monitor crypto asset service providers and maintain efficacy of regulatory policies.
Broader digital policy opportunities:
- Public authorities should leverage progress in digital technology to enhance public policy objectives.
- Authorities must actively collaborate to address cost, trust, and speed issues, particularly for cross-border payments.
- New multilateral platforms could improve transaction efficiency.

IMF commitments:
- Deliver to Leaders’ Summit in September a joint IMF-FSB synthesis paper highlighting building blocks for effective crypto policies.
- Provide tailored capacity building to IMF's 190 members based on recommendations and emerging guidelines from standard setters.
- Surveillance program will assess effectiveness of policy frameworks including crypto.
Expected outcomes:
- By implementing a comprehensive approach, policymakers can safeguard monetary sovereignty, protect investor interests, and promote financial stability in the digital age.

Source: IMF blog post "Crypto Needs Comprehensive Policies to Protect Economies and Investors" (July 18, 2023).