The prescriptions for regulating cryptos could serve as global baseline minimum standards for countries that wish to adopt them. “A comprehensive policy and regulatory response for crypto-assets is necessary to address the risks of crypto-assets to macroeconomic and financial stability,” the paper said.
NEW DELHI: A paper synthesising separate recommendations by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) has set out a roadmap to coordinate measures to stop crypto assets from undermining macroeconomic and financial stability.
However, the synthesis, put together at the request of the Indian G20 presidency, stopped short of endorsing a blanket ban on such assets, saying it can be “costly and technically demanding to enforce”.
The crypto asset regulation is a key part of the agenda for G20 leaders when they meet in New Delhi this weekend.
The IMF-FSB Synthesis Paper: Policies for Crypto-Assets provides comprehensive guidance to address the macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and those conducted through so-called decentralised finance (DeFi).
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View Details »The paper cautioned that these digital assets could have significant implications for monetary stability and capital flows, especially if they are granted official currency or legal tender status.
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“Widespread adoption of crypto assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources available for financing the real economy, and threaten global financial stability,” it said.
Any legal tender status for crypto assets could expose government revenues to exchange-rate risks as well, the synthesis paper cautioned.
The paper sets out timelines for the IMF and G20 membership to implement recommendations on crypto assets from the FSB and the International Organization of Securities Commissions (IOSCO).
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The prescriptions for regulating cryptos could serve as global baseline minimum standards for countries that wish to adopt them. “A comprehensive policy and regulatory response for crypto-assets is necessary to address the risks of crypto-assets to macroeconomic and financial stability,” it said.
The latest paper marks a change in approach towards the treatment of such instruments after the collapse of crypto exchange FTX last November that rattled digital asset markets.
The finance ministry has been pushing for global regulation on crypto assets that transcend borders while the Reserve Bank of India wants a total ban on them.
Given the borderless nature of crypto transactions, blanket bans tend to raise incentives for circumvention, potentially raising financial integrity risks, the paper said, arguing against them.
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“A decision to ban is not an ‘easy option’ and should be informed by an assessment of money laundering and terrorist financing risks and other considerations, such as large capital outflows and other public policy aims,” it said.
At the same time, the paper acknowledged the potential requirements of certain jurisdictions, in particular emerging markets and developing economies, to take additional targeted measures that go beyond the global regulatory baseline to address specific risks pertaining to cryptos.
Tax policies, it said, need to ensure unambiguous tax treatment of crypto assets, and compliance efforts in this regard must be bolstered. Collaboration on crossborder information sharing and financial regulation is crucial for effective tax compliance, it added.
The paper also pitched for a directive to crypto asset issuers and service providers to put in place and disclose a comprehensive governance framework with clear and direct lines of responsibility and accountability for all their activities.
“Authorities should, to the extent necessary to achieve regulatory outcomes comparable to those in traditional finance, require crypto-asset issuers to address the financial stability risk that may be posed by the activity or market in which they are participating,” it said. It has recommended similar regulatory and supervisory principles for global stablecoins.