The International Monetary Fund (IMF) has cautioned about the risk associated with the surging cryptocurrencies in recent times. According to the IMF, the risk is higher in developing parts of the world and that’s why global coordination is important. The IMF stressed a comprehensive, consistent as well as a coordinated set of regulations for the crypto market.
As per the data provided by the international finance body, so far there has been a market capitalization of around $2.5 trillion. This figure reflects the position of underlying technological advancements such as blockchain along with froth built in the environment of stretched valuations. The IMF does realize that the crypto challenge is not limited to determining the valuations.
It gave the instance of operational and financial integrity risks for crypto assets exchanges and wallets. According to the global monetary regulator, the advent of cryptocurrencies especially in emerging and developing countries can direct the world to ‘cryptoization’. Cryptoization is a term used for a situation when crypto-assets replace domestic currency while circumventing exchange restrictions as well as capital account management measures.
In addition to emphasizing the need for global coordination and setting up regulations, the global body also suggested three crucial cores for common crypto regulations. The first and foremost was the licensing of the crypto service providers such as businesses specializing in holding, transferring, settling, and custody of reserves and assets.
The second core was about channelizing regulations towards main use cases of crypto assets and stable coins. More importantly, the restrictions should coordinate to address the risks associated with crypto and its altering uses. Thirdly, the IMF remarked on the authorities’ actual role. It’s the responsibility of authorities to provide clear requirements on regulated financial institutions without reluctance.
To sum up, the international body stressed the need to enhance the present digital currency market. In particular, the recent IMF warning regarding cryptocurrency risk is not something entirely new since in India the government is already working on legislation for the same. PM Modi himself called for coordinated global norms for crypto along with social media in a virtually organized summit for democracy.