IMF issues Warning about Cryptocurrency
The International Monetary Fund has said that crypto assets should not be made official money or legal cash.
The International Monetary Fund (IMF) has strongly advised against making cryptocurrencies official currencies or legal tender, saying that strict rules are needed.
In a report that came out this month, the IMF said that to regulate crypto properly; there needs to be a solid legal foundation that covers both private law and financial law.
It said that the failures of the crypto trading site FTX and the stablecoin Terra Luna last year showed how important it was to make clear rules to protect investors and stop abuse.
"Despite recent problems in the industry, investor confidence keeps coming back, as shown by the fact that Bitcoin's price has almost doubled this year. Without strong protections, the higher risk of fraud and other wrongdoing could hurt investors' projected returns.
The IMF said that even though some policymakers have taken steps to protect customers and ensure financial stability, it is just as important to think about what crypto means for the world. It warned that these assets, especially stablecoins backed by hard currencies, could replace official currencies and significantly affect governments' monetary and fiscal policies. "This is especially true in emerging markets and developing economies," the report said, "which shows how important it is to have a complete, consistent, and coordinated policy approach to crypto."
The International Monetary Fund (IMF) put out essential policy suggestions, saying that the best way to protect against the substitution of sovereign currencies is to ensure that domestic institutions are trustworthy. "Transparent, consistent, and coherent monetary policy frameworks are crucial for an effective response to the challenges posed by crypto assets," it said.
According to the report, policymakers should include crypto in the systems and rules already in place to handle capital flows; this would help keep things stable and reduce the chance of disruptions.
"Finally, tax laws should clarify how crypto assets are treated, and administrators should make it easier to follow the rules. "Cryptocurrency needs clear rules about how taxes, like value-added taxes or taxes on income or wealth, are handled," it said.
The IMF concluded that policymakers could protect monetary sovereignty and investor interests and promote financial stability in the digital age by taking a comprehensive approach and following these suggestions.
Due to bankruptcies in the crypto market, nearly $1.4 trillion was taken off last year. The crisis was caused by the failure of FTX, which was the second-biggest cryptocurrency exchange in the world at the time of its collapse.