Regulators and IMF Unveil Roadmap to Prevent Crypto Risks

Regulators and IMF Unveil Roadmap to Prevent Crypto Risks

On Thursday, global financial regulators, along with the International Monetary Fund (IMF), unveiled a roadmap designed to harmonize efforts aimed at preventing crypto assets from posing a threat to macroeconomic and financial stability.

The Financial Stability Board (FSB) of the G20 and the IMF reportedly emphasized that these risks are further amplified by instances of noncompliance with existing regulations. They noted in a paper that several of the touted advantages of crypto assets, such as more affordable and quicker cross-border transactions and enhanced financial inclusion, have yet to fully materialize.

The paper emphasized that widespread adoption of crypto-assets could potentially have detrimental effects such as undermining the effectiveness of monetary policy, bypassing capital flow management measures, heightening fiscal risks, diverting resources away from financing the real economy, and posing a threat to global financial stability.

The paper establishes timelines for members of both the IMF and G20 to implement recent recommendations for regulating cryptocurrencies, as put forth by the Financial Stability Board and IOSCO, a global organization of securities regulators.

This represents a notable shift in regulatory perspectives, following several years during which the sector was perceived as posing minimal threats. Attitudes have since become more stringent, especially in the wake of the FTX cryptocurrency exchange's collapse last November. The FTX incident shook the markets and resulted in significant losses for investors, contributing to this shift in regulatory thinking.

The paper emphasizes the need for a comprehensive policy and regulatory approach to address the risks associated with crypto-assets, particularly in relation to macroeconomic and financial stability. This policy framework will be presented to G20 leaders during an upcoming summit scheduled for this month in New Delhi.

The European Union has recently given its approval for the world's first comprehensive set of regulations governing crypto assets. However, in many other parts of the world, there is a less uniform approach to regulating this borderless sector, where concerns about fraud and manipulation are widespread. 

The paper also highlights the importance of governments avoiding large deficits, as these can lead to inflation that diminishes the value of fiat currencies and encourages the use of crypto assets as substitutes. Additionally, it calls for clear tax treatment guidelines for virtual assets and a clarification of how existing laws apply to this sector.

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