Key G20 Policy Paper Suggests Against Blanket Crypto Ban, Calls for Comprehensive Regulatory Oversight

A joint synthesis paper from the International Monetary Fund (IMF) and the Financial Stability Board (FSB) on crypto regulations is set to be presented to G20 members during the leadership summit under India’s presidency on 9th and 10th September.  

The key policy paper, released on Thursday, acknowledges the challenges of enforcing a blanket ban on crypto-asset activities and calls for a comprehensive regulatory oversight instead. 

The IMF and FSB underscore that implementing blanket bans on all crypto-asset activities, including trading and mining, can be both costly and technically demanding. 

Instead, the paper suggests that targeted restrictions may be more suitable, especially for resource-constrained authorities, or as a means to support effective regulatory frameworks.

Indian regulators have also changed their tone on regulating crypto in the last year. The government of the world’s most populated country has gone from calling out for a complete ban on crypto to advocate for a global regulatory framework. 

Synthesis Paper Warns Against Granting Crypto Legal Tender Status

The core recommendations in the report provide a holistic guide for authorities grappling with the macroeconomic and financial stability risks posed by crypto-asset activities, including those associated with stablecoins and decentralized finance (DeFi). 

The paper acknowledges that while crypto assets are not yet a significant component of the global financial system, they could become a source of systemic risk in specific jurisdictions if they gain traction for payments or retail investments.

One key takeaway is that crypto assets should not be granted official currency or legal tender status, a stance intended to safeguard monetary sovereignty. 

Official payment use should be limited, as exposure to variations in crypto asset prices could impact government revenues.

Central banks are advised against holding crypto assets in their official reserves due to the risks they pose to monetary and global financial stability. 

The report also emphasizes the importance of clear tax treatment for crypto assets and encourages countries to protect their monetary sovereignty.

Developing Economies May Face Higher Macro-Financial Risk

Another crucial recommendation addresses capital flow volatility, especially in emerging markets and developing economies. 

These regions may face heightened macro-financial risks associated with crypto assets due to factors such as less developed tax frameworks, a substantial unbanked population, and higher cross-border transaction costs.

Regarding the contentious topic of banning crypto-related activities, the report acknowledges that this is a challenging route to pursue and suggests that temporary restrictions should not serve as a substitute for robust macroeconomic policies.

It underscores the need for effective frameworks, comprehensive oversight, and targeted restrictions where necessary, all aimed at mitigating the risks posed by crypto assets. As the G20 continues its discussions on regulating crypto assets, this paper provides valuable insights for policymakers worldwide.