A joint policy roadmap released by the Financial Stability Board (FSB) and the International Monetary Fund (IMF) has cautioned against outright bans on cryptocurrencies. The policy paper, commissioned by the G20 under India’s leadership, has emphasized the need for comprehensive regulatory oversight to address risks related to crypto-assets.
The report, set to be presented to the G20, is part of a broader effort to establish global norms for the crypto industry following a series of high-profile collapses last year. It highlights the importance of strengthening monetary policy frameworks, managing capital flow volatility, and establishing clear tax treatment for cryptocurrencies to tackle macroeconomic risks.
The report echoes the IMF’s position that blanket bans on cryptocurrencies may not effectively mitigate associated risks. Instead, it suggests that targeted restrictions could be useful, especially for emerging economies. Countries like India have expressed concerns about the potential impact of widespread crypto use on monetary policy in developing nations and have called for stronger prohibitions or specific measures to address these concerns.
The report argues that implementing blanket bans would make all crypto activities illegal within a jurisdiction. It further adds that a blanket ban is not only costly and technically challenging but could also lead to the migration of crypto-related activities to other jurisdictions, creating additional risks. They also tend to increase the incentives for circumvention due to the inherent borderless nature of crypto-assets, resulting in potentially heightened financial integrity risks and creating inefficiencies.
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The report emphasizes that restrictions should not replace robust macroeconomic policies, credible institutional frameworks, and comprehensive regulation and oversight, which serve as the primary defense against the macroeconomic and financial risks associated with crypto-assets. 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.
While blanket bans may not be advisable, the IMF and FSB suggest that jurisdictions consider targeted and temporary restrictions to manage specific risk factors during stressful times or while seeking internal solutions. The report mentions some examples of such restrictions, including targeted measures against privacy coins in Dubai and a ban on Nigerian banks serving crypto firms.
The roadmap also addresses concerns regarding stablecoins, which are cryptocurrencies pegged to the value of other assets or currencies. The report warns that the proliferation of stablecoins could pose threats such as currency replacement or bank runs in emerging economies. It claims that rapid capital flight could occur if foreign currency-denominated stablecoins become more accessible and affordable than foreign currency bank accounts. The report also highlights the risks associated with maintaining a stable value and dependencies on private issuers, as demonstrated by the de-pegging of algorithmic stablecoin terraUSD last year, which resulted in significant capital losses.
Finally, the joint paper suggests that discussions within the G20 could help regulatory bodies with data requirements. These discussions could also facilitate the collaboration of statistical agencies with regulatory bodies to influence regulations regarding data requirements for cryptoassets.
In conclusion, the joint policy roadmap released by the FSB and IMF urges caution against blanket bans on cryptocurrencies and emphasizes the need for comprehensive regulatory oversight. While targeted restrictions may be useful, jurisdictions should consider the potential risks and challenges associated with implementing bans. The report also addresses concerns regarding stablecoins and suggests that discussions within the G20 could help inform regulations and data requirements for the crypto industry. Overall, the aim is to establish global norms for the industry and mitigate risks related to crypto-assets.
