The International Monetary Fund (IMF) recently released some recommendations on how to effectively regulate the cryptocurrency industry around the world.
In a recent blog post, the IMF acknowledged that cryptocurrencies are rapidly revolutionizing the entire global financial system. However, policymakers still struggle to monitor the risks associated with the market.
Regulators need to act fast
The financial institution pointed out that the rapid growth of the cryptocurrency space has caused interconnection with regulated economic systems while still being unregulated.
The IMF noted that these interconnections could pose serious risks if global financial regulators do not act quickly to mitigate threats and harness the revolutionary power of cryptography.
“Policy makers struggle to monitor the risks of this evolving industry, where many businesses are unregulated. Indeed, we think these financial stability risks may soon become systemic in some countries, ”the report reads.
The IMF called for a "comprehensive, coherent and coordinated" approach to regulating the crypto space, noting that uncoordinated regulatory measures can "facilitate potentially destabilizing capital flows" as most crypto firms operate across borders. .
The IMF's suggestion
To effectively regulate crypto globally, the IMF has listed three basic requirements that regulators must include.
First, encrypted service providers that provide several critical functions, including the transfer, storage, settlement and custody of digital assets, should be licensed or licensed. The licensing criteria should also be clearly stated, with the allocation of the relevant bodies.
Second, the requirements should fit the major use cases of these crypto assets. For example, investment products should have similar requirements to those of securities brokers and should be monitored by securities regulators. Payment products should have similar requirements to banks and should be regulated by the central bank.
Third, governments of different countries should mandate regulated financial institutions to provide clear and complete details of their exposure and commitments in cryptocurrencies.
The IMF has also warned about the increasing use of cryptocurrencies in most developing countries. He said:
“Some emerging markets and developing economies face more immediate and acute risks of currency substitution through cryptocurrencies, so-called cryptoization. Capital flows management measures will have to be developed in the face of cryptocurrency ".
In early July, shortly after that El Salvador has adopted Bitcoin as fiat currency, the IMF has warned that using crypto as a national currency is very risky.