The International Monetary Fund (IMF) has strongly recommended against granting cryptocurrencies the status of official currency or legal tender, citing the need for stringent regulations.
In a report issued this month, the IMF argued that a comprehensive legal foundation – that would address both private law and financial law aspects – is essential to effectively regulating crypto.
It said that last year’s failures of the crypto trading platform FTX and the stablecoin Terra Luna highlighted the urgency of establishing clear policies to protect investors and prevent abuse.
“Despite recent industry challenges, investor optimism continues to revive periodically, as evidenced by Bitcoin’s near doubling this year. Without robust safeguards, the increased risk of fraud and misconduct could adversely impact investors’ expected returns.”
The IMF pointed out that while some policymakers have taken necessary steps to safeguard consumers and ensure financial integrity, it is equally important to consider the broader implications of crypto. Such assets, particularly stablecoins denominated in hard currencies, could potentially replace official currencies, and significantly impact the monetary and fiscal policies of countries, it warned. “This is especially true in emerging markets and developing economies, underscoring the need for a comprehensive, consistent, and coordinated policy approach to crypto,” the report stated.
The monetary fund issued key policy recommendations, claiming that the defense against the substitution of sovereign currencies is the maintenance of credible domestic institutions. “Transparent, consistent, and coherent monetary policy frameworks are crucial for an effective response to the challenges posed by crypto assets,” it wrote.
According to the report, policymakers should integrate crypto within existing regimes and rules that manage capital flows in order to ensure stability and minimize potential disruptions.
“Finally, tax policies should ensure unambiguous treatment of crypto assets, and administrators should strengthen compliance efforts. Specific regulations are needed to clarify the tax treatment of crypto, including value-added taxes or levies on income or wealth,” it said.
By embracing a comprehensive approach and implementing these recommendations, policymakers can safeguard monetary sovereignty, protect investor interests, and promote financial stability in the digital age, the IMF concluded.
Last year, nearly $1.4 trillion was wiped off the crypto market amid bankruptcies in the sector. The crisis was led by the collapse of FTX, the world’s second-largest crypto exchange at the time of its insolvency.
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