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Citing its mandate to ensure the safety and stability of the global financial system, the International Monetary Fund (“IMF” or the “Fund”) has indicated that it will significantly step up its efforts to monitor and engage with various players in the virtual asset space. The IMF published a report details the various ways in which it must research and provide guidance related to the emerging digital economy.
Summarizing their goals, the IMF stated that:
First, the new forms of money must remain reliable. They must protect consumers, be safe and anchored in sound legal frameworks and support financial integrity. Second, domestic economic and financial stability must be protected by carefully designed public-private partnerships, smooth transition of the role of banks and fair competition. […] digital money should be designed to support climate sustainability and efficient fiscal policy. Third, the International Monetary System (IMS) should remain stable and efficient. Digital money must be designed, regulated and secured so that countries retain control over monetary policy, financial conditions, capital account openness and foreign exchange regimes. Payment systems must become more integrated, not fragmented, and must work across countries to avoid the digital divide. Moreover, configurations and reserve currencies must evolve smoothly.
Chief among the IMF’s many mandates related to virtual assets is the development of (1) improved surveillance capabilities and (2) a better understanding by Fund staff of the unique risks posed by non-traditional forms of money.
Given that “digital technology will have a major impact on future economic outcomes and shape the international monetary system[,]” The IMF must be able to recognize potentially problematic patterns of digital monetary behavior, which may indicate unsustainable economic activity.
As digitized forms of money become the norm, the IMF’s core principles (risk analysis, surveillance and safety nets) must be applied to this new economy, so that any systemic risk to the global financial system is quickly identified and mitigated.
The IMF is looking to put a special emphasis on Central Bank Digital Currencies (“CBDC”), as a recent survey they conducted showed that “100 countries are actively exploring CBDC” functionality. This means that the Fund is already likely behind the curve when it comes to assessing the relevant systemic risks that may arise from CBDCs, and that industry and regulatory input can be of great value in helping the Fund determine how best to achieve its mission as applied to this unique government-sponsored virtual asset.
The IMF closed by asking the directors whether they “agree that the role of the Fund would have to develop in view of the rapid changes in the development of digitalization[.]” It is clear from the expected macroeconomic impacts of currency digitization that the answer is “yes”.
Educating regulators and supranational organizations will be of utmost importance as the term “money” takes on new meaning and digitization forever changes the ways in which the global economic system functions.
🇺🇦 Ukraine to allow its Central Bank to issue CBDC
On June 30, the Verkhovna Rada (Ukraine’s equivalent of Parliament/Congress) approved a law allowing the National Bank of Ukraine to launch a CBDC. Ukraine has been a leader in CBDC development and advocacy, having first built a CBDC model on the Stellar blockchain in 2018. The law was signed by President Volodymyr Zelensky and will enable the development of both CBDC and non-governmental digital currency projects from the private technology sector .
🇺🇸 The US Department of Justice is investigating Tether for bank fraud
Following a settlement with New York’s attorney general earlier this year, Tether now faces another legal hurdle in its bid to remain a leading stablecoin issuer. The main question is whether Tether or its representatives “concealed from the banks that the transactions were related to cryptocurrency[.]” The investigation has implications not only for the legal entities involved in the issuance of Tether, but also for the managers of those firms. This investigation may test the strength of Tether’s stability, as speculation about the issuer’s viability will continue to increase.
🇺🇸 New crypto taxes included in bipartisan US infrastructure bill
A bill before the United States Congress would require people or entities that regularly transfer virtual assets to:
- Keep records of such transfers and
- Submit reports to the IRS, including reports detailing all digital asset transactions over $10,000.
If a potential taxpayer is found to be liable for unpaid taxes arising from information disclosed in these reports, the IRS would have the right to pursue such person for the full amount owed.
🇫🇮 Finland will sell its “dirty” Bitcoin
Finland’s customs agency has asked cryptocurrency companies for proposals regarding its expected sale of seized bitcoins, mostly obtained from drug-trafficking-related transactions. This action will “clean up” dirty coins and enable their reintegration into the global digital economy. The wallets and transactions included in the sale should be flagged by blockchain monitoring and analytics firms, as they can no longer be considered “risky” once they have been officially dispersed by a recognized government agency.
Tools like Navigator and Lens from Elliptic allow you to identify the risks associated with crypto transactions or wallets and are vital in separating the truly problematic coins from the innocuous (but previously worrisome) ones described above.
Missed our last week’s update? See here: US puts Stablecoins at top of policy agenda
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