Neither banning nor legalising crypto is a solution, says IMF-FSB synthesis paper

• Follow

The ongoing G-20 summit under India’s presidency has highlighted the need for collaboratively developing a global regulatory framework for cryptocurrencies. In that vein, the much anticipated synthesis paper released by the International Monetary Fund (IMF) and Financial Stability (FSB) has recommended the nations to not grant crypto the status of legal tender or official currency. 

The paper also underlined that a blanket ban on these assets is neither advisable nor logistically possible. However, it proposes coming up with comprehensive regulations that are uniform across authorities, following the principle of “same activity, same risk and same regulation”. 

Says Rajagopal Menon, Vice President, WazirX, “The synthesis paper is a lighthouse for guiding regulatory framework and addresses minute details on financial inclusion, technological development and improving efficiency of transactions on transparent networks. We firmly endorse the ‘same activity, same risk, same regulation’ principle and strongly believe that international standards can serve as a foundation for innovation rather than a hindrance”. 

The synthesis paper strongly advocated that cryptocurrencies did not meet the fundamental criteria of being a legal currency, namely unit of account, store of value and medium of exchange. Hence, IT recommended against apex banks of various countries holding cryptocurrencies in their official reserve. However, it asked for setting up clear, direct accountability lines between crypto service providers/issuers and users. 

On matters related to risk management, the paper asked for crypto service providers to enact risk management protocols at par with traditional financial instruments. In one of its 2020 reports, namely Regulation, Supervision and Oversight of ‘Global Stablecoin’ Arrangements, FSB had floated the idea of a global stablecoin (GSC), which could reach and be adopted by multiple jurisdictions internationally, and worked as a stabilization mechanism for all cryptos. 

But, as the report noted, crypto posed an especially higher risk to emerging economies, which would therefore need additional safeguards. Owing to regulatory priorities, level of financial integration in the global economy and its size, such emerging markets have to be extra careful while addressing crypto concerns.