IMF, FSB Release Joint Policy Recommendations for Crypto Assets at Request of G20

The emergence of blockchain technology paved the way to creating cryptocurrency, a Decentralised Finance (DeFi) asset. The DeFi system is an innovation that transformed how finances are handled. Soon, it became a revolutionary technology with many advantages over the conventional fiat currency system. 

However, the new system has presented the currency world with a few challenges, making economists and fiscal experts rethink the transaction process and bring regulatory reforms for smooth and risk-free business operations. The recent Group of 20 (G20) Leaders’ Summit 2023, chaired by the Indian Presidency, expressed their concern about reforms in the policies related to crypto assets. 

The Washington Consensus, including the International Monetary Fund (IMF) and Financial Stability Board (FSB), took a step further into improving crypto asset policies. The official document pointed out a few areas in the crypto world where a tweak is necessary. Let’s recap the request for policy recommendations from G20 and its aftereffect on the crypto assets. 

G20 Event and Financial Assets

India is one of the biggest economies in the world, and the presidency of an important international event, G20, plays a crucial role that reflects the achievements of Indians in a few years. G20 gathers global leaders from the top 20 giant economies worldwide, where they discuss global affairs and seek solutions to international problems. 

India hosted the 18th Summit of the G20, which occurred in New Delhi, India. The summit intended to overcome global issues, including the Russia-Ukraine war, the African Union, the transport relationship between the U.S., Saudi Arabia, and India, and more. 

Simply put, the G20 Summit 2023 was a lucrative opportunity for the Indian government to portray itself as a diplomatic and economic titan. They raised their concerns over the blockchain-based crypto assets and their related security. The Indian Presidency requested the IMF and FSB to reassess the current regulation of digital assets to avoid the risks and volatility of the stablecoins. 

IMF-FSB Joint Policy Recommendation for Crypto Assets

As per the request from the Indian Presidency regarding concerns over crypto assets and the DeFi system, the IMF and FSB collectively presented an official document with regulatory recommendations about cryptocurrency and DeFi platforms. It is worth noting that the said financial institutions did not introduce new policies regarding decentralised assets. 

The paper is available on the official website of FSB with clear indications and guidance about bringing improvement in the digital financial system. Since the DeFi system, including blockchain, cryptocurrency, Non-Fungible Tokens (NFTs), etc., are evolving technologies, numerous challenges and complexities will accompany them. 

The role of India in technology and innovation is impeccable, with many popular names contributing to various tech giants. They pointed out the challenges linked to cryptocurrency and other blockchain-based DeFi platforms, making it mandatory for monetary institutions to address the challenges. Here are the concerns addressed in the paper from the IMF and FSB. 

Also Read: Binance Labs Continues to Lead Crypto Funding Amidst Regulatory Hurdles

1. Stablecoins and Volatility

Stablecoins are a type of crypto with a direct connection to fiat currency, such as the U.S. dollar. As the name reflects, stablecoins do not fluctuate in price unless the fiat currency moves in price. A few examples of stablecoins are Tether (USDT), USD Coin (USDC), Binance USD (BUSD), etc. 

The IMF-FSB joint policy recommendation for crypto assets highlighted the volatility of stablecoins. Since cryptocurrency is a volatile financial asset, stablecoins offer a safe path to investors and traders. The rapid fluctuation in this cryptocurrency brings challenges to investors as volatility elevates the risks of losing a fortune. 

Hence, the IMF and FSB demand regulatory oversight that ensures the stability of the stablecoin for lucrative investment opportunities in the crypto world. 

Related: PayPal Introduces USD-Backed Stablecoin, Igniting Share Surge

2. Concerns Over DeFi

The DeFi system is an innovative system that offers decentralised financial operations. In this module of business, the government or third-party organisations do not intervene in the fiscal affairs of a company, making it entirely user-centric. 

The IMF and FSB argued over the functionality of DeFi platforms, including crypto exchanges. Despite being a unique and diverse system, DeFi systems perform the same operations as conventional platforms. 

In other words, the concern is over the lack of capability of the DeFi system to solve the risks and challenges of Centralised Finance (CeFi), involving liquidity mismatches, interconnectedness, and more.

3. Supportive Hands Toward Cryptocurrency

While many financial and government institutions look forward to banning cryptocurrency and other blockchain-based services in various parts of the world, the policy paper from IMF and FSB ensured support towards crypto. 

The U.S.-based financial institutions oppose the blanket ban on innovative fiscal technology but demand improvements and upgradation to ensure an efficient working ecosystem.

Blockchain, DeFi, and Cryptocurrency

Cryptocurrency is a new form of finance that does not involve a bank or any other organisation for monetary transactions. It is a digital world of money, as crypto is a virtual financial asset. It has impressive popularity globally, with numerous big businesses accepting crypto as a payment for their services and products. 

Blockchain is the platform that hosts the operations and data of cryptocurrency on digital storage. The fun fact is that this digital ledger is a chain of blocks that requires burdensome calculations to access the data online, making blockchain a safe platform for data storage. 

Most blockchain-based projects are DeFi without affiliation to a government, bank, or other organisation. A group of tech experts run the project, providing ownership to the person who invests their money. Furthermore, there will be another crypto article here: https://player.me/crypto-tax-reporting-rules.

Frequently Asked Questions

Can the IMF Regulate Crypto?

Cryptocurrency is a DeFi asset with no intervention from any governmental organisation, including the IMF. The U.S. financial institutions can’t regulate crypto operations, but they can supervise the total impact of crypto on the global financial market. 

Is Cryptoisation a Dangerous Financial Act?

Cryptoisation is the widespread adoption of crypto assets for business transactions. It is a futuristic act that will transform the business finances with certain risks. Since crypto is volatile, businesses with crypto payments may suffer massive fiscal losses

What Is the Biggest Problem with Cryptocurrency?

Cryptocurrency is a virtual world with a pseudonymous nature, making it a dangerous financial asset to own. Though the transactions are transparent, linking them to a specific organisation or an individual becomes hectic for the government. Thus, tax evasion becomes easier with cryptocurrency.