What should be done about the crypto clown car crash? Should regulators step in and bring some basic oversight and impose clear rules on the industry, or merely laugh, shrug and let the whole thing burn?
Last week the IMF made its position clear (ish). Our emphasis below:
Efforts to put in place effective policies for crypto assets have become a key policy priority for authorities, amid the failure of various exchanges and other actors within the crypto ecosystem, as well as the collapse of certain crypto assets. Doing nothing is untenable as crypto assets may continue to evolve despite the current downturn.
This seems a bit weird. The IMF’s own executive board notes in classic deadpan bureaucratese “that while the supposed potential benefits from crypto assets have yet to materialise, significant risks have emerged”. You don’t say.
Yet the negligible wider impact of the crypto cluster is pretty notable. Aside from a few small banks that jumped into bed with crypto, the mainstream financial fallout has mostly been mirth. It therefore seems a stretch to call the arm’s-length crypto approach of every major financial regulator thus far “untenable” — whether that approach is by design or paralysis.
Any effort to impose regulation might just give the space an official imprimatur. After all, there’s a reason why so many libertarian crypto bros are now espousing the benefits of regulations and lobbying for more government involvement (FTX was a pioneer in this). And watchdogs aren’t exactly underemployed sniffing out malfeasance in honest-to-God real markets that actually matter, and desperate for a whole new hot mess to get stuck into.
Still, it’s not like the IMF has suddenly found crypto religion. Managing director Kristalina Georgieva said at this weekend’s G20 shindig that crypto assets are “nothing”, should not be accepted as legal tender, and “if regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk”.
Anyway, here are the high-level “elements” that the IMF ‘s paper (titled Elements of Effective Policies for Crypto Assets) argues should underpin the regulatory approach:
1. Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.
2. Guard against excessive capital flow volatility and maintain effectiveness of capital flow management measures.
3. Analyze and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets.
4. Establish legal certainty of crypto assets and address legal risks.
5. Develop and enforce prudential, conduct, and oversight requirements to all crypto market actors.
6. Establish a joint monitoring framework across different domestic agencies and authorities.
7. Establish international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations.
8. Monitor the impact of crypto assets on the stability of the international monetary system.
9. Strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.
You can read the full paper here (PDF).
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