‘Blanket crypto ban hard to implement’

CoinBlock.Asia 2023-09-07 18:09

NEW DELHI : A blanket ban on crypto assets may be hard to pull off, and nations must instead apply rules on money laundering and terror finance to these assets and service providers, an influential policy paper said, while noting that increased adoption of these assets could undermine monetary policy transmission.

The joint paper from the International Monetary Fund (IMF) and G20’s risk watchdog, the Financial Stability Board (FSB), has attempted to offer a roadmap for regulating crypto assets and helping nations integrate virtual digital assets into their digital financial systems.

“They (blanket bans) 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 can also create inefficiencies,” the paper said.

The paper also called on nations to implement the Financial Action Task Force (FATF) anti-money laundering and counter-terrorist financing (AML/CFT) standards for virtual assets (VAs) and virtual asset service providers (VASPs). It also recommended developing a common framework and collection of ‘test data’ on digital money and crypto assets for being used as a means of payment that are enabled by fintech firms.

India is seeking to secure a consensus among G20 nations on crypto assets, with the government preparing a presidential note on cryptocurrency, which, along with the IMF and FSB report, will be discussed by leaders during the upcoming G20 summit. Getting these recommendations agreed by other G20 nations will be a significant achievement for the Indian presidency.

The IMF-FSB paper advised emerging markets and developing economies (EMDEs) to take additional targeted measures that go beyond the global regulatory baseline to address specific risks related to crypto.

“The roadmap includes currently planned and ongoing work related to the implementation of policy frameworks, which, taken together, seek to build institutional capacity beyond G20 jurisdictions; enhance global coordination, cooperation and information sharing; and address data gaps necessary to understand the rapidly changing crypto-asset ecosystem,” the paper said. It also warned the widespread adoption of crypto-assets could threaten the effectiveness of monetary policy.

“The transmission of monetary policy would weaken if firms and households prefer to save and invest in crypto assets that are not pegged to the domestic fiat currency or to use them as payment instruments or medium of account,” it said. “The risk of currency substitution (“cryptoization”) is particularly pertinent for countries with unstable currencies and weak monetary frameworks.”

The paper has set out timelines for members of IMF and G20 nations to implement recommendations to regulate crypto from FSB and International Organization of Securities Commissions (IOSCO).

The IOSCO is set to review feedback and finalize policy recommendations to address investor protection and market integrity risks in crypto-asset markets. These policy recommendations will be finalized by the end of 2023, according to the paper. “Crypto-assets have implications for macroeconomic and financial stability that are mutually interactive and reinforcing.”

“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, adding that this regulatory and supervisory oversight of crypto assets should be a baseline to address macroeconomic and financial stability risks.