The International Monetary Fund (IMF) has raised concerns about the rapidly evolving crypto market, emphasising significant macro-financial risks that it believes are not adequately addressed.
In its working paper titled “Assessing Macrofinancial Risks from Crypto Assets,” released last week, the IMF underscores the increasing integration of the crypto industry into the global financial system, portraying it as a parallel, unregulated financial system. The IMF argues that this brings substantial systemic risks that traditional financial sectors cannot afford to overlook.
A core challenge identified by the IMF is the absence of centralised data and regulatory oversight in the crypto market, necessitating immediate international cooperation.
To address this, the IMF proposes a new tool – the Crypto Risk Assessment Matrix (C-RAM). This tool is designed to monitor and assess emerging risks on both national and global scales. The paper highlights the urgency of international collaboration due to the fast-paced innovation and decentralised nature of the crypto market, emphasising that existing policy frameworks are inadequate for effective risk management.
The IMF suggests the need to expand current macroprudential policies to include considerations related to crypto and decentralised finance. This expansion, the IMF argues, should be complemented by other macroeconomic policies to create a comprehensive risk management strategy. As a key global financial institution with 190 member countries, the IMF positions itself as a promoter of global economic stability and growth through financial support, policy guidance, surveillance, technical aid, research, and capacity building.
The paper also addresses countries that have adopted bitcoin as legal tender, specifically citing El Salvador and the Central African Republic. It expresses concerns that such legal changes could lead to increased adoption and exposure to highly volatile crypto assets, amplifying risks. The IMF had previously urged El Salvador to reconsider its decision to make bitcoin legal tender, citing systemic financial risks.
The working paper introduces the Crypto Risk Assessment Matrix (C-RAM) as a tool to help countries strengthen their policy frameworks in response to the growing use of cryptocurrency worldwide. The matrix is seen as a method to assess the importance of cryptocurrency in any given nation, acknowledging that cryptocurrency usage is uneven globally and increasingly linked to the real economy.
The C-RAM, according to the IMF’s senior economists, is in its nascent stage due to insufficient systematic data gathering. It proposes a qualitative assessment, particularly regarding whether digital assets are macro-critical in a given nation. The matrix involves a decision tree for official crypto monitoring, considering factors like legal tender status and macro-criticality to a country.
The paper includes a case study on Vietnam, noting its high market penetration of cryptocurrency despite lacking legal acknowledgment. The authors project $150 billion in gross transactions in cryptocurrency in Vietnam by 2025. The authors emphasise the importance of refining policymakers’ thinking, considering issues like credit risk, liquidity, and concentration in the crypto sector.
The paper also draws attention to the joint efforts of the IMF and the Financial Stability Board in providing policy recommendations for crypto regulation, indicating a recognition of the need for international collaboration in addressing crypto-related risks. The ongoing research and public feedback aspect of the paper align with the IMF’s commitment to transparency and inclusive dialogue.