- Paper advocates protection from capital volatility, fortifying monetary policy frameworks
- Mass bans that outlaw all crypto activities would be costly and challenging to enforce
A blanket ban on crypto won't eliminate the associated risks, a policy paper published by the Financial Stability Board (FSB) in collaboration with the International Monetary Fund (IMF) stated. The report encouraged “comprehensive regulatory and supervisory oversight of crypto assets” instead.
The paper will be presented to the G20 under India’s presidency this weekend. Among the measures it advocates are protection against excessive capital volatility, fortifying monetary policy frameworks, and adopting “unambiguous” taxation of crypto assets.
Targeted restrictions advocated
The IMF has traditionally maintained that a blanket ban on crypto might not mitigate the related risks. More targeted restrictions could specifically help emerging economies.
India and other countries have alarmed about the increased threat to emerging economies’ monetary policy from widespread crypto adoption, calling for institutions to enforce prohibitions or otherwise address specific concerns.
According to the report, mass bans that outlaw all crypto activities, including mining and trading, would be costly and challenging to enforce. They could also result in these activities moving to other jurisdictions, thereby causing spillover risk.
The authors recommend measures similar to the ban on Nigerian banks serving crypto companies to Dubai’s restrictions on anonymity-focused “privacy” coins.
Stablecoins threaten bank runs
The IMF-FSB report also addressed the issue of stablecoin proliferation, which is a leading concern among G20 countries. The concern is namely that stablecoins threaten bank runs or currency replacement in emerging economies. According to the authors, stablecoins denominated in foreign currency could become cheaper and easier to hold in large amounts, resulting in rapid capital migration.
Remembering UST
There are certain challenges with maintaining “stable” stablecoin value and stablecoins’ dependency on private issuers. In 2022, algorithmic stablecoin UST lost its peg to the US dollar. In just a few days, billions were wiped off the market.
The authors conclude that numerous jurisdictions are adopting global stablecoins, running the risk of transmitting “volatility more abruptly than other crypto assets.” This could threaten financial stability to a great extent.
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