The IMF has today published a report on how crypto assets might be used to circumvent capital flow management measures, undermining the stability of domestic economies and the global system
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IMF: Capital Flow Management Measures in the Digital Age: Challenges of Crypto Assets
IMF | LinkedIn John Ho | May 11, 2022
The IMF has today published a report on how crypto assets might be used to circumvent capital flow management measures, undermining the stability of domestic economies and the global system
Highlights:
Capital flows can bring substantial benefits for countries but also carry risks. Capital flow management measures (CFMs) can be part of the broader policy toolkit to help countries reap the benefits of capital flows while managing the associated risks.
Implementation of CFMs typically requires that financial intermediaries verify the nature of transactions & the identities of transacting parties, but it is facing the rising challenge of crypto assets.
See: IMF asks Financial Stability Board to develop a global framework for standards for regulation of crypto assets
Crypto assets have become a significant instrument for payments and speculative investments in some countries, driven by a host of macroeconomic, institutional, & demographic factors.
Crypto assets can be traded pseudonymously and held without identification of the residency of the asset holder. Many crypto service providers operate across borders, making supervision & enforcement by national authorities more difficult.
The challenges posed by the attributes of crypto assets are compounded by gaps in the legal & regulatory frameworks, as the legal status of crypto assets is often not clear and CFM laws and regulations may not cover cryptoassets.
This IMF paper aims to discuss how crypto assets could impact the effectiveness of CFMs from a structural and longer-term perspective and does not analyze how crypto assets may have been used to evade country-specific sanctions or CFMs.
See:
Updated Report: Regulation of Cryptocurrency Around the World (Nov 2021)
BIS Update: 2021 Survey Results on Central Bank Digital Currencies, ‘Gaining Momentum’
To preserve CFMs’ effectiveness in an environment of growing crypto-asset use, policymakers need a multifaceted strategy. Essential elements of such a strategy include:
* Clarifying the legal status of crypto assets and ensuring that CFM laws and regulations cover them.
* Developing for persons and entities engaged in crypto activities and services a comprehensive, consistent, and coordinated regulatory framework and applying it effectively to CFMs
* Establishing international collaborative arrangements for supervision of crypto assets.
* Addressing data gaps and leveraging technology (regtech and suptech) to create anomaly detection models and red-flag indicators that will allow for timely risk monitoring and CFM implementation.
See:
Crypto Payments Report 2022: How digital currencies are revolutionizing commerce, corporates and culture
Ottawa to review Crypto, Stablecoins and CBDCs; Budget promises more financial cops
IMF believes that a new public infrastructure of digital payment platforms could enable countries to implement these and other measures more efficiently. From the outset, these platforms can be calibrated to country-specific needs and policy objectives—and they must include appropriate risk mitigation measures.
A comprehensive legal and regulatory framework as well as its consistent implementation will likely be conducive to the emergence of law-abiding and regulatory-compliant innovations —while providing the basis and mechanisms to deal with a minority of bad-faith actors and criminals.
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