IMF Board disadvises legal tender status for assets; details policy actions to tame the crypto market

• The IMF Executive Board paper provides guidance for developing appropriate policy responses to crypto assets.
• The board suggested establishing a joint monitoring framework across different domestic agencies and authorities.
• The board members also explicitly stated that crypto assets should not be granted legal tender status.

Cryptocurrencies, being a part of the official currency system of a country, have been debated for a long time. While many countries have shown support, the International Monetary Fund (IMF) has always refrained from suggesting the same. The IMF is now also suggesting actions that could be used to form policies for crypto assets.

The IMF wants to tame crypto

The Executive Board of the IMF discussed a board paper regarding cryptocurrencies on February 8. The paper provided guidance to the member countries of the IMF on how they could make policy responses to crypto assets. The United Nations agency maintained its objectives of supporting economic and financial stability across its members. 

In line with the same, the IMF once again stood sternly against providing cryptocurrencies a legal tender or official currency status. The Executive Directors were of the opinion that refraining from doing so was necessary in order to "safeguard monetary sovereignty and stability".

In the past, the IMF has been rather vocal about its stance against the official currency status of these assets. The agency even went to the lengths of threatening El Salvador, the world's first country to legalize Bitcoin as a legal tender, of refusing monetary aid or loan if they did not budge. 

While the country did not pay much heed, the IMF continues to warn them, sending out notices more than a year later. The most recent warning sent was this month when the IMF stated,

"Bitcoin that could threaten the country's fiscal sustainability, consumer protection, financial integrity, and stability."

IMF's nine policy actions

The board paper detailed a framework that included actions that could help the member countries develop a policy response. These elements included:-

• Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.
• Guard against excessive capital flow volatility and maintain effectiveness of capital flow management measures.
• Analyze and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets.
• Establish legal certainty of crypto assets and address legal risks.
• Develop and enforce prudential, conduct, and oversight requirements to all crypto market actors.
• Establish a joint monitoring framework across different domestic agencies and authorities.
• Establish international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations.
• Monitor the impact of crypto assets on the stability of the international monetary system.
• Strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.

The IMF Executive Board further justified the reason for these policy actions by saying,

"By adopting the framework, policy makers can better mitigate the risks posed by crypto assets while also harnessing the potential benefits of the technological innovation associated with it."