If you are familiar with and have stayed long in the crypto sector, you’ll know that the International Monetary Fund (IMF) hasn’t been kind to the DeFi industry.
According to IMF Managing Director Kristalina Georgieva, the IMF would rather discriminate and regulate crypto assets than impose a total prohibition. Simultaneously, the nuclear option would be kept on the table for the time being.
On the sidelines of the G20 finance ministers’ meeting in Bengaluru, India, IMF Managing Director Kristalina Georgieva explained how the United Nations financial agency perceives digital assets and what regulations it might be interested in seeing.
The IMF intends to distinguish between central bank-generated state-backed digital currencies and freely traded crypto assets such as stablecoins. “We are strongly in favor of regulating the realm of digital money,” she remarked, adding that this is a major priority.
In an interview, she reacted to a question about her recent comments about a possible total ban on cryptocurrency. She added that there is still some confusion over the classification of digital currency.
According to Kristalina Georgieva, the IMF’s initial goal is to distinguish between central bank digital currencies supported by the government and publicly issued crypto assets and stablecoins.
Georgieva defines digital assets as having two components: technology and policy, both of which need development space.
Policies are now being created to protect user data, protect customers from danger, and ensure transaction transparency.
Georgieva also highlighted that the IMF preferred regulation to a ban, and warned that a ban “should not be ruled out” if cryptocurrencies represent a greater threat to financial stability.
The International Monetary Fund, the Financial Stability Board, and the Bank for International Settlements are working together to develop regulatory framework recommendations for release in the second quarter of this year (BIS).
She also highlighted a recent paper supporting worldwide regulatory rules to argue that unbacked crypto assets cannot be considered lawful currency.
She stated that the inability to safeguard consumers from the fast-changing world of crypto assets would be the driving force behind the decision to ban crypto.
The IMF, the Financial Stability Board, and the Bank for International Settlements will provide regulatory framework guidelines in the second half of the year.
IMF game plan
The first of the IMF’s nine recommendations is to avoid making bitcoin (BTC) and other cryptocurrencies legal tender. The policy outlines how countries should handle cryptocurrency assets.
The IMF’s executive board addressed the document “Elements of Effective Policies for Crypto Assets,” which gives suggestions to IMF member countries on important features of a sound policy reaction to crypto assets.
Also with the failure of a number of cryptocurrency exchanges and assets in recent years, the fund has indicated that such operations have become a target for authorities and that it is “untenable” to continue as before.
To “properly protect monetary sovereignty and stability by enhancing monetary policy frameworks and do not award crypto assets main currency or legal tender status” was the major recommendation.
Other suggestions included preventing excessive money flows, adopting and executing clear tax regulations and legislation involving crypto assets, and developing and implementing supervisory standards for all crypto market participants.
In 2021, the IMF scolded El Salvador for being the world’s first country to accept bitcoin as legal cash; the Central African Republic immediately followed El Salvador’s lead.
Furthermore, US Treasury Secretary Janet Yellen underlined the significance of building a strong regulatory framework for crypto assets during the G20 meeting. Yet, she noted that the US had placed no restrictions on these assets.
The IMF has not urged the direct prohibition of cryptocurrency operations, according to US Treasury Secretary Janet Yellen, but it is critical to developing a solid regulatory framework. We work with other governments.
The most effective techniques for governing the crypto sector are regulation, predictability, and consumer safety.
The United States and the IMF do not support a total nuclear ban, but it remains an option. A uniform and comprehensive method for regulating crypto assets is projected to be established when the IMF, FSB, and BIS collaborate on regulatory framework principles.
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