The International Monetary Fund has proposed a regulatory framework for cryptocurrencies for governments to implement. There are three pillars in the framework, which are coordination, consistency, and comprehensiveness.
IMF explained that a coordinated approach was needed to ensure no regulatory gaps across sectors and borders. Additionally, the international committee said that all players in the crypto industry would have a level playing field.
IMF explained that the non-uniformity of the terminology used within the industry had created gaps in regulations across sectors and borders.
Concerns over the necessity for a coordinated approach stemmed from the boom of the crypto industry in recent years. Project developers race to receive funding from venture capitalists and traditional investors. The decentralized finance projects have also expanded outside of the crypto realm.
Consistency is crucial in cryptocurrency regulation, as it needs to align with mainstream regulations already implemented by each country’s government.
Every crypto product undergoes updates to improve its utilities. However, according to the IMF, authorities around the world face difficulties to find individuals with adequate knowledge of the latest updates within the crypto industry.
Additionally, IMF proposed that each country adopt a comprehensive cryptocurrency regulation that covers all market participants. It should also cover all aspects of the ecosystem too, including blockchains, currencies, services and mining activities.
IMF argued that governments could not keep tabs on every participant in the crypto industry as they were not required to report to the authorities. Furthermore, data about the crypto market that governments collected were not sufficient.
The absence of an appropriate regulatory framework for cryptocurrencies across the globe reportedly causes ambiguity in bylaws related to the industry. According to the IMF, current financial policies were not suitable for the crypto industry.
The recent slump in the crypto industry should drive countries to regulate cryptocurrencies, the IMF insisted. Various cryptocurrencies, including BTC and ETH, saw drops in valuation in recent months. Several crypto companies also announced bankruptcies earlier this year. These included Celsius and Voyager Digital.
Recent data showed that the overall crypto market valuation dropped by 70 percent throughout July compared to last year’s peak. The inflations that are currently affecting the global economy are one of the main reasons for the drought.
Implementing crypto regulation
Countries across the globe have different takes on cryptocurrencies. Japan recently introduced new regulations that cover cryptocurrencies and service providers. Japan said it started to regulate stablecoins to protect investors in the country. It now acknowledges digital currencies as legal tenders and has a tax guideline—designed specifically for crypto investors.
The United States, the United Kingdom and the European Union are reportedly in the phase of creating crypto regulations for their citizens. These three regions are among the largest crypto-user bases in the world.
Nonetheless, there are countries that have limited their citizens from dabbling in crypto assets. Argentina, for example, imposed a regulation that banned bank clients from conducting crypto transactions.
IMF said that the rising interest in the crypto market would make the system part of the “mainstream financial system.” Therefore, governments must introduce regulations that accommodate the digital ecosystem while allowing innovations to keep developing within the industry.