IMF and FSB Unveil Crypto Policy Recommendations in New Joint Paper

The International Monetary Fund (IMF) and the Financial Stability Board (FSB) seek to address the evolving landscape of cryptocurrencies and their potential implications on global financial stability.

by Faruk Imamovic
IMF and FSB Unveil Crypto Policy Recommendations in New Joint Paper
© Getty Images News/Alex Wong

The rapid ascendancy of cryptocurrencies has left policymakers around the globe grappling with a novel and complex economic phenomenon. Addressing this growing concern, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) have released a crucial joint paper under the aegis of the Indian G20 presidency.

Unraveling the Crypto Conundrum

This collaborative report, a first of its kind, aims to distill the prevailing standards and recommendations into a single, coherent document. Its intent is to guide jurisdictions worldwide as they confront the multifaceted challenges and risks tied to crypto-related ventures.

With the cryptocurrency universe rapidly expanding and evolving, it's essential to have a unified policy framework in place. The paper issues a stern warning about stablecoins, which are essentially cryptocurrencies designed to peg their value to a more stable asset, like the dollar.

Despite the seemingly predictable nature of stablecoins, the report posits that they can become unexpectedly volatile, posing considerable threats to financial equilibriums.

DeFi: Revolution or Risk?

One of the paper's most compelling sections touches on Decentralized Finance, or DeFi for short.

As DeFi platforms aim to emulate the key features of conventional financial systems, they inadvertently risk mirroring their weaknesses too. This can manifest in a multitude of ways: from liquidity concerns to operational vulnerabilities, and from excessive interconnectedness to potentially harmful financial leverage.

The document further scrutinizes the actual decentralization claims of many DeFi platforms, asserting, "Claims of decentralisation often do not hold up to scrutiny. Presently, DeFi may exhibit unclear, opaque, untested or easy-to-manipulate governance frameworks that may expose users to risks.

The rapid evolution and international nature of crypto-asset markets also raises the potential for regulatory gaps, fragmentation and arbitrage." While cautionary in tone, the report stops short of advocating for extreme measures.

Reiterating the IMF's position from June 22, it highlights the likely inefficacy of a total ban on cryptocurrencies. The inference is clear: a blanket prohibition might prove futile in the long haul. In an era where digital assets are swiftly becoming a mainstream phenomenon, such guidelines from esteemed bodies like the IMF and FSB are not just timely but indispensable.