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    IMF outlines cryptocurrency risks, calls for coordinated global regulation

    IMF outlines cryptocurrency risks, calls for coordinated global regulation

    IMF outlines cryptocurrency risks, calls for coordinated global regulation
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    By CNBCTV18.com  IST (Published)

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    The worries the IMF stated are well-founded as many countries are struggling to make headway with regulations that will ensure the financial stability of the markets and at the same time not curb or hinder the growth of the crypto space and the technology underneath it.

    The International Monetary Fund (IMF) has called for "comprehensive, consistent and coordinated" global regulations for cryptocurrency. In a blog post published on December 9, IMF said, "While the nearly $2.5 trillion market capitalisation indicates the significant economic value of the underlying technological innovations such as the blockchain, it might also reflect froth in an environment of stretched valuations."
    The organisation that works towards providing global financial stability and facilitating international trade, stressed the need for global regulations. It said: "The global regulatory framework should provide a level playing field along with the activity and risk spectrum."
    It noted that there is an urgent need for cross-border collaboration and cooperation to address the technological, legal, regulatory, and supervisory challenges. "Setting up a comprehensive, consistent, and coordinated regulatory approach to crypto is a daunting task," it said.
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    It also laid out the risks associated with an unregulated crypto market. "Policymakers struggle to monitor risks from this evolving sector, in which many activities are unregulated,” they state in the report, adding, “In fact, we think these financial stability risks could soon become systemic in some countries."
    The worries the IMF stated are well-founded as many countries are struggling to make headway with regulations that will ensure the financial stability of the markets and at the same time not curb or hinder the growth of the crypto space and the technology underneath it.
    It pointed out that in emerging markets and developing economies, the advent of crypto can accelerate "cryptoization"— a situation when these assets replace domestic currency and circumvent exchange restrictions and capital account management measures. This, the IMF said, underscores the need for comprehensive international standards.
    The Fund listed three essential cores to global crypto regulation.
    First, the need for crypto service providers to be “licensed or authorised. The crypto-service providers include businesses that provide storage, transfer, settlement, and custody of reserves and assets services, among others.
    "Regardless of the initial authority for approving crypto services and products, all overseers—from central banks to securities and banking regulators—need to coordinate to address the various risks arising from different and changing uses."
    Second, regulations “should be tailored to the main use cases of crypto assets and stable coins." Regulators need to coordinate to address the various risks arising from different and changing uses, it said.
    Third, defining the role of authority in a crypto market. It said: "Authorities should provide clear requirements on regulated financial institutions concerning their exposure to and engagement with crypto."
    Back home, Prime Minister Narendra Modi, last week urged democracies to unite to formulate global rules for emerging technologies, including cryptocurrencies. As democracies, "We must also jointly shape global norms for emerging technologies like social media and cryptocurrencies, so that they are used to empower democracy, not to undermine it," the PM said.
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