IMF Asserts Importance of Crypto Regulation across Certain Countries

The International Monetary Fund (IMF) said the full ban on crypto may not be the best approach, asserting the importance of crypto regulation across certain countries.

In its report on Latin America and the Caribbean (LAC), the IMF pointed to initiatives and approaches taken by the LAC countries to regulate the crypto industry and central bank digital currencies (CBDCs). It noted that the crypto regulation in these countries varies. For example, El Salvador has made Bitcoin legal tender, while other countries like Argentina and the Dominican Republic have prohibited the use of crypto assets due to concerns about their impact on financial stability, currency and asset substitution, tax evasion, corruption, and money laundering.

“While a few countries have completely banned crypto assets given their risks, this approach may not be effective in the long run. The region should instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording crypto asset transactions in national statistics,” the report said.

The IMF also mentioned that four Latin American countries, which are Brazil, Argentina, Colombia, and Ecuador, ranked among the top 20 in the global adoption of crypto assets in 2022 as they are seeking to benefit from the advantages of digital assets.

But it pointed out that the crypto asset regulation still poses various challenges and risks, particularly for vulnerable LAC countries which have a history of macroeconomic instability, low institutional credibility, substantial capital flows, corruption, and extensive informal sectors.

As for CBDCs, the IMF mentioned that the Bahamas was the first country to launch the CBDC, the Sand Dollar, in 2020.

Earlier in March, the IMF warned the G20 countries of the risks posed by the growing adaption of cryptocurrencies by their citizens.

The warning came in a report titled “Macrofinancial Implications of Crypto Assets,” in which the IMF presented countless risks to the G20 countries’ economies of the impacts of crypto adaption on their external and internal stability.

The report showed the IMF’s concern about the people’s shift from fiat to digital currencies denominated in foreign currencies, saying this could challenge the effectiveness of the monetary policies. It also pointed out that the growing adaption may affect the Global Financial Safety Net (GFSN) and capital flow stability, which badly affects the efficiency of the payment system.