Forbes India 15th Anniversary Special

IMF and FSB Releases Crypto Policy Recommendations in Response to G20 Request Spearheaded by India

IMF and FSB provide comprehensive policy recommendations on crypto policy regulation, highlighting stablecoin volatility and the importance of unified regulation

Shashank Bhardwaj
Published: Sep 8, 2023 03:52:15 PM IST
Updated: Sep 8, 2023 07:35:24 PM IST

IMF and FSB Releases Crypto Policy Recommendations in Response to G20 Request Spearheaded by IndiaImage: Shutterstock

The International Monetary Fund (IMF) and the Financial Stability Board (FSB) have unveiled a collaborative effort to provide comprehensive policy recommendations by publishing a policy paper in response to a request from the Indian G20 presidency. This joint initiative offers clear guidance and assists various jurisdictions in addressing the evolving challenges and risks associated with crypto activities.

This policy paper aims to amalgamate existing standards and consolidate collective recommendations to offer comprehensive guidance. It does not, however, introduce new policies, recommendations, or expectations for relevant authorities. Instead, it seeks to harmonise and provide a unified approach to managing crypto assets.

One key aspect highlighted in the policy paper is the volatility inherent in stablecoins, even though they are initially designed to maintain a stable value. The sudden volatility of stablecoins can significantly threaten financial stability, emphasising the need for comprehensive regulatory oversight.

The paper also discusses DeFi protocols and asserts that despite variations in the processes used to provide DeFi services compared to traditional financial platforms, DeFi essentially fulfils the same functions as the conventional financial system. It highlights the importance of acknowledging that DeFi, while innovative, can also inherit the risks and vulnerabilities present in traditional financial systems, including liquidity mismatches, operational fragility, interconnectedness, and leverage.

Furthermore, the paper reaffirms the IMF's standpoint, which opposes a blanket ban on cryptos. Instead of advocating for prohibition, the IMF suggests addressing the underlying demand drivers for cryptos, such as consumers' increasing preference for digital payment methods. This perspective aligns with the IMF's previous stance that an outright ban may not be an effective long-term solution.

The report is set to be presented to the G20, signifying a collective effort by international organisations to introduce global norms and guidelines for the crypto industry. It emphasises the need for robust monetary policy frameworks, and instead of targeted restrictions, comprehensive regulatory oversight is deemed a more effective approach.

This concerted effort by the IMF and FSB underlines the growing recognition of the crypto industry's significance and the necessity to establish a coherent global operation framework. It comes in response to the recent challenges and collapses witnessed in the crypto sector, intending to promote stability and minimise risks associated with digital assets.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash