• CBDC and global crypto standards are recommended by the IMF for financial stability

  • The IMF’s new policies are aimed at reducing the financial risks associated with global crypto adoption.

    To ensure financial stability amid global crypto adoption, the International Monetary Fund (IMF) released a set of policies for emerging markets and developing economies.

    The IMF believes that crypto assets have the potential to be used as a tool for faster and cheaper cross-border payments, citing the dramatic increase in the value of crypto markets since May 2021, despite bearish trends. High returns, transaction costs and speed, and reduced Anti-Money Laundering (AML) standards are the primary drivers for crypto adoption, according to the report.

    To address the financial stability issues that have arisen as a result of increased crypto asset trading, the IMF recommends that:

    “By addressing data gaps, policymakers should implement global standards for crypto assets and improve their ability to monitor the crypto ecosystem. When faced with cryptoization risks, emerging markets should strengthen their macroeconomic policies and consider the advantages of issuing central bank digital currencies.”

    According to the IMF report, the crypto market has grown beyond Bitcoin (BTC), with a sharp increase in stablecoin offerings. According to three years of IMF data, non-stablecoin crypto assets like Bitcoin have risk-adjusted returns comparable to other mainstream benchmarks like the S&P 500, as shown in the chart below:

    The IMF also recommends “proportionate regulation to the risk and in line with those of global stablecoins” in addition to central bank digital currency (CDBC) issuance. De-dollarization policies, in addition to the CBDC, will aid governments in addressing macro-financial risks.

    We first reported on the IMF’s plan to “step up” monitoring of digital currencies in July 2021. “Payments will become easier, faster, cheaper, and more accessible, and will cross borders quickly,” according to an older IMF report highlighting the benefits of digital assets. These enhancements could boost efficiency and inclusion, which would be beneficial to everyone.”

    The IMF had also planned to meet with Salvadoran President Nayib Bukele to discuss the implications and possibilities of Bitcoin adoption in the mainstream.

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