The emergence of cryptocurrencies and their growing adoption dictate the need for crypto regulation. Issues such as project failures, exploits, high market volatility, and the misuse of digital assets in crimes have put regulators on their toes around the world.
After the US Fed decided to fight market inflation with its hawkish approach, the IMF called for a more comprehensive, consistent and comprehensive global regulatory policy for digital assets, according to the IMF’s report titled “The Right rules could provide a safe space for innovation”. ‘
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Deputy Director Aditya Narain and Deputy Director Marina Moretti of the IMF’s Monetary and Capital Markets Department released the report. Citing the complexity of regulating crypto assets, their technological nature and ever-changing needs, the authors said that regulating digital currencies is a difficult task and mentioned;
“Applying existing regulatory frameworks to crypto assets, or developing new ones, is difficult for several reasons. For starters, the world of crypto is changing rapidly. Regulators are struggling to acquire the talent and skills to keep pace, given limited resources and many other priorities. Oversight of crypto markets is difficult as data is patchy and regulators struggle to keep tabs on thousands of players who may not be subject to the usual disclosure or reporting requirements.
Additionally, outlining the mainstream use cases of cryptocurrency, the authors highlighted its importance as a means of cross-border payment, hedging against weak currencies, and speculative investing.
The IMF also discussed the possibility of issuing products privately via crypto, the terminologies used for staking, and the different regulatory frameworks for a type of product flowing across borders. The global authority suggested designing a comprehensive global policy for banks, securities, exchanges, wallets and other players involved.
Different Jurisdictional Approaches Cause Fragmentation, IMF Says
The process of harmonizing the global regulatory framework must be implicit so that crypto businesses can successfully transition from one jurisdiction to another and continue their operations, the article reads. As needed, a comprehensive and coordinated approach will help prevent the fragmentation created by different regulatory frameworks. For example, some prioritize user safety while others have financial goals.
The IMF expressed its views on how global authorities have worked hard to achieve appropriate and effective regulation to protect users. However, few of them have finished introducing an advanced regulatory framework like Switzerland and Japan, and others, like the United Arab Emirates and the European Union, are in the drafting stage.
But unfortunately, the authorities have designed the regulation rules with different strategies as some ban the issuance of crypto or maintain it with others making nationwide developments on crypto. Likewise, the divergent opinions of states have resulted in a “fragmented global response that neither guarantees a level playing field nor protects against a race to the bottom”.
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The article reads;
“The regulatory fabric is being woven and a pattern should emerge. But the worry is that the longer it takes, the more national authorities will be locked into different regulatory frameworks. This is why the IMF is calling for a global response that is (1) coordinated, so that it can close the regulatory gaps that arise from inherently cross-sector and cross-border issuance and ensure a level playing field; (2) consistent, so that it aligns with common regulatory approaches across the spectrum of activities and risks; and (3) comprehensive, so it covers all players and all aspects of the crypto ecosystem.
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