IMF calls for greater oversight on crypto, proposes new risk assessment matrix

The International Monetary Fund (IMF) released a working paper last week seeking to tackle the rapidly changing crypto market and highlight significant macro-financial risks they believe have yet to be fully addressed.

The “Assessing Macrofinancial Risks from Crypto Assets” paper points out the crypto industry is becoming an increasingly integral part of the global financial system, essentially operating as a parallel, unregulated financial system. 

This brings about considerable systemic risks that the traditional financial sector cannot afford to overlook, the IMF said in its paper released on Friday.

In a bid to meet that challenge, the IMF is proposing a new tool — the Crypto Risk Assessment Matrix (C-RAM) — aimed at monitoring and assessing those perceived emerging risks both nationally and globally.

One of the most pressing challenges identified is the absence of centralized data and regulatory oversight, which calls for immediate international cooperation. 

The IMF also urges that given the fast-paced innovation and the decentralized nature of the crypto market, existing policy frameworks are inadequate for effective risk management.

A need to expand current macroprudential policies to include crypto and decentralized finance considerations is required to shore up concerns surrounding their risk profile, the IMF said. 

Read more: G20 nations endorse IMF and FSB guidelines for crypto regulation

It also suggests that this expansion should be in concert with other macroeconomic policies to build a comprehensive risk management strategy.

Based in Washington DC and consisting of 190 member countries, the IMF positions itself as an entity promoting global economic stability and growth. It achieves this through financial support, policy guidance, surveillance, technical aid, research and capacity building. It often serves as a forum for international financial cooperation.

Its paper last week also took aim at countries that have mandated bitcoin as legal tender to co-exist alongside their national currencies, including El Salvador and the Central African Republic.

“These legal changes could quickly increase the adoption and exposures of highly volatile crypto assets, amplifying the many above mentioned risks,” it said.

El Salvador adopted bitcoin (BTC) as legal tender in November 2021, becoming the first nation to do so. Four months later the IMF urged the Latin American country to ditch those efforts, citing systemic financial risks it poses to the wider community.

The IMF plans to update its conceptual framework as more data and country-specific analyses become available. It will aim for a coordinated international effort to curtail the potential “macro-financial risks” from the crypto sector, it said.

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