The International Monetary Fund (IMF) has strongly recommended that nations not grant the status of official currency or legal tender to cryptocurrencies, noting there are not enough stringent regulations in place at present to do so.
In a new report it just issued this month, the IMF wrote that there will need to be a comprehensive legal foundation which will address both the financial law aspects, and the private law considerations, which are capable of effectively regulating cryptocurrencies.
The report noted that the urgency of creating clear policies which would protect investors and forestall abuse of the systems was best demonstrated by the failures last year of the stablecoin Terra Luna, as well as the collapse of the crypto-trading platform FTX.
The report noted, “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 noted that although there have been some necessary steps taken by policymakers to safeguard consumers and promote financial integrity, there needs to be a consideration of the broader implications of cryptocurrencies. The report warned that cryptocurrencies, particularly stablecoins, which are denominated in established currencies, could in time come to replace official currencies, and that could have significant effects on the monetary and fiscal policies of entire nations. The report said, “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 issued policy recommendations, noting that the defense against the replacement of sovereign currencies should be based on the protection of the credibility of domestic institutions. The report said, “Transparent, consistent, and coherent monetary policy frameworks are crucial for an effective response to the challenges posed by crypto assets.”
The report said that to ensure the stability of financial institutions and minimize potential disruptions, policymakers should integrate crypto within existing regimes and rules which govern capital flows.
The report said, “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.”
The IMF concluded that if they embrace a comprehensive approach, and implement these recommendations, lawmakers can protect monetary sovereignty, safeguard investor interests, and create financial stability in these changing times.
