The International Monetary Fund has proposed a policy framework that its member countries can use to regulate crypto assets effectively.
This framework comprises nine key elements, including analyzing and disclosing fiscal risks, protecting monetary sovereignty and creating practical, conduct and oversight requirements for all crypto market players. The guideline is not legally binding and instead serves as a model for crypto policies.
According to the IMF's recent press release, its Executive Board met on February 8, 2023, to formulate the "Elements of Effective Policies for Crypto Assets."
The proposed crypto regulation framework encounters mixed reactions from the crypto community. Some industry players welcome the guideline, describing it as a step toward higher legitimacy and acceptance of digital assets.
On the other hand, others said the IMF might aim to clamp down or even ban cryptocurrency altogether. The crypto community said the IMF expects greater control over crypto, likely due to the fear of crypto disrupting the stability of the global economy or bypassing the "system" entirely.
The IMF's press release said that strict bans on crypto would not be the "first-best option" in managing the nascent industry. However, a few IMF directors still believe that outright bans on crypto should not be "ruled out."
Another concern voiced by crypto community members is how the policy guidelines can limit innovation within the crypto industry. It can also make it more difficult for new or small-scale players to participate in the market.
Some also criticized the IMF's policy guidelines for failing to recognize the potential benefits of cryptocurrency and blockchain technologies, such as greater transparency. They also said that the framework failed to adequately address issues of crypto adoption in developing countries, which they said could be a missed opportunity to boost financial inclusion in these regions.
IMF's classification of digital assets
Officials at the IMF have often publicly discussed crypto assets in recent years, including managing director Kristalina Georgieva. In June 2022, Georgieva listed three types of digital assets based on the level of stability — central bank digital currency (CBDC), stablecoin and crypto assets without backing.
CBDC is a government-backed asset and offers finality once transactions are settled. Several countries, including China, have conducted pilot studies to test their own digital currencies. Meanwhile, a stablecoin is backed by other stable assets — like the U.S. dollar, bonds and gold — with a ratio of 1:1.
Georgieva described crypto without proper asset backing as a "pyramid." The IMF chief added that crypto without asset support could not be considered "money" because it was not a "stable store of value."
She also replied to questions about how some countries already legalized Bitcoin as a legal tender, saying it was a sovereign decision but not necessarily a "good" one.
Welcome to crypto pic.twitter.com/xXDkZbY20V
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According to Georgieva, CBDC's main issue is "interoperability" — how digital currencies from different countries will interact with each other. On the other hand, the issues with stablecoins and other crypto assets are the lack of regulation and financial education.
"So, my point here is that there are very important responsibilities for the central banks and also for other regulators — regulators of financial services, regulators of this asset class — to make sure that everybody can step into this world with some confidence," Georgieva said.
Georgieva acknowledged that crypto offers faster service, significantly lower cost and inclusivity, but only if financial authorities could classify digital assets properly. She added that regulators "have a huge responsibility" to properly oversee the crypto industry.
Regulators around the globe have started to craft regulations surrounding digital assets for years, but only a few countries have managed to implement these laws. Calls for crypto regulation intensified last year after some crypto companies announced bankruptcies, leaving many customers without access to their assets.