The International Monetary Fund (IMF) has recently published some recommendations on how to effectively regulate the cryptocurrency sector around the world.
In a recent blog post, the IMF acknowledged that crypto assets are rapidly revolutionizing the entire global financial system. However, policymakers still struggle to monitor the risks associated with the market.
Regulators Must Act Fast
The financial institution pointed out that the rapid growth of the crypto space has caused it to interlink with the regulated economic systems while still being unregulated.
The IMF noted that these interlinkages could pose serious risks if global financial regulators do not act quickly to mitigate the threats and harness the revolutionary power of crypto.
“Policymakers struggle to monitor risks from this evolving sector, in which many activities are unregulated. In fact, we think these financial stability risks could soon become systemic in some countries,” the report reads.
The IMF called for a “comprehensive, consistent, and coordinated” approach to regulating the crypto space, emphasizing that uncoordinated regulatory measures may “facilitate potentially destabilizing capital flows” since most crypto firms operate across borders.
The IMF Suggestion
To effectively regulate crypto at a global level, the IMF listed three core requirements that regulators must include.
First, crypto service providers that deliver several critical functions, including transfer, storage, settlement, and custody of digital assets, should be licensed or authorized. The criteria for licensing should also be clearly stated, with the relevant bodies assigned.
Second, the requirements should suit the main use cases of these crypto assets. For instance, investment products should have requirements similar to those of securities brokers and should be monitored by securities regulators. Payments products should have requirements similar to banks and should be regulated by the central bank.
Third, the governments of different countries should mandate regulated financial institutions to provide clear and comprehensive details of their crypto exposure and engagements.
The IMF also warned of the increasing use of cryptocurrency in most developing countries. It said:
“Some emerging markets and developing economies face more immediate and acute risks of currency substitution through crypto assets, the so-called cryptoization. Capital flow management measures will need to be fine-tuned in the face of cryptoization.”
Earlier in July, shortly after El Salvador adopted Bitcoin as legal tender, the IMF warned that using crypto as a national currency is very risky.
For more blockchain news, please download WikiBit- the Global Blockchain Regulatory Inquiry APP.