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As a step towards regulating the cryptocurrency space, the International Monetary fund has created a nine-point action plan of how countries should look at cryptocurrencies. The first point, however, is a major point of contention, as it says that Bitcoin must not be given the status of legal tender.

Upon discussing the “Elementss of Effective Policies for Crypto assets”, IMG has said that the paper guides IMF countries to create the right response to crypto assets.

Doing Nothing is Now Untenable – IMF

The crypto space saw the fall of many cryptocurrency exchanges last year. What started with the fall of Voyager soon infected the likes of Celsius. FTX also took the brunt of the regulatory blowback (although through its own fault), and more recently, BlockFi, after surviving for so long, has also gone under.

The downfall of these cryptocurrency exchanges and more whose names we don’t even know has led agencies to not ignore crypto regulations anymore.

Note that the fall of LUNA, which led to $70 billion worth of assets disappearing from the crypto space and onsetting the longest crypto winter, created rising calls for regulations.

Those who were once too bullish about cryptocurrencies being private and protected and wanted “nothing to do with financial authorities” have now started to seek asylum inside the regulatory guidelines.

The result is – IMF is not ignoring the crypto issues anymore and has introduced measures to “safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency of legal tender status.”

This response was a direct slap on the face of El-Salvador, who became the first country in Central America to adopt Bitcoin as a legal tender. Central African Republic copied that move, much to the dismay of financial authorities across the globe.

Nine-Point Action Plan – At a Glance

Here are the nine points IMF has put forth in its action plan:

Specify how each country should treat crypto assets.
Embrace international arrangements to increase regulations around crypto.
Monitor the impact of crypto assets on the market.
Strengthen monetary frameworks.
Control excessive capital flows.
More laws for cryptocurrencies and assets.
Impose taxes on organizations that use cryptocurrencies.
Be mindful of assets that can circumvent capital flow management.
Do not grant legal tender status to cryptocurrencies.

Controlling Capital Flows and Non-Confusing Tax Laws – Other Recommendations by IMF

The advice list also contained the following elements to make the crypto space align with the financial goals of the countries.

Excessive Capital Flows

Much of what happens inside the cryptocurrency space is akin to the wild west, which many say is an overcomplicated version of a Ponzi scheme. Excessive capital flows have always been a big issue in the crypto space that results in high inflationary pressures and a widening current account deficit.

Massive parabolic gains that crypto prices experience within short trading hours have become one of the ways to make money from cryptocurrencies as intra-day traders. But it has also given way to scammers. Also, an increased capital flow can create issues for a country’s financial health.

Unambiguous Tax Laws

While countries have tried to pigeonhole crypto profits inside the capital gains tax, the issue of unambiguity still remains. Cryptocurrency is still being analyzed by governments, and they don’t know whether to take them at face value. However, because of the breakneck speed at which the cryptocurrency market is growing, IMF suggests that its critical to introduce unambiguous tax laws.

More Laws Around Crypto Assets

Not every cryptocurrency is created for the same purpose. Some are metaverse cryptos, some are DeFi cryptos, and there are utility cryptos as well. However, inside regulations, all assets are categorized as tradable assets and financial instruments.

IMF suggests that there is a need to fine-tune the current laws around crypto assets. That would help the institutions categorize them properly and would lead to the creation of better regulations.

Oversight Requirements

There is no oversight on the cryptocurrency market currently. Countries have either limited the usage of crypto or have taken the same route as India – banning cryptocurrencies. This approach has not faired well. The lack of oversight has increased nefarious activities in the cryptocurrency markets, which further undermines what cryptocurrencies could mean for the financial space.

Also, Celsius and FTX have shown us that cryptocurrency exchanges need oversight. Otherwise, people’s assets would be at stake.

International Arrangements To Enhance Supervision is a Must – IMG

IMF has also highlighted the need for countries to establish international relationships to supervise the cryptocurrency space at an enhanced level. The goal here is to monitor the impact of cryptocurrencies on the global marketplace.

Global Crypto Adoption Can Undermine Monetary Policies – IMF

Taking a negative stance towards cryptocurrencies, IMF has said that an increased crypto adoption rate can undermine the effectiveness of the monetary policy, increase financial risks, and bypass capital flow measures.

All the members have collectively agreed that cryptocurrencies must not be given official legal tender status. Although IMF has said that ban is not a first-best option, some directors don’t intend to rule that out.

We Need Crypto Regulations But…

It is important to have cryptocurrency regulations to ensure that investors have an easier time navigating the cryptocurrency space. In fact, FTX’s downfall has shown us the need to have better rules.

However, what IMF has suggested recently is far off from being progressive. These regulations seem to be taken under desperate circumstances with no leeway provided from crypto assets.

And the fact that “banning” is a term that regulators have been thinking about has got us worried. Blockchain technology is the future, and cryptocurrency is an indispensable part of it. So, while we have taken one step towards regulating the cryptocurrency space, it seems like a regressive move.

However, remember that the nine-point asset action plan is nothing more than a plan at the moment. Expect many changes before these points are put into action. We hope that among those regulators are people with vision – those who know the importance of cryptocurrencies in the crypto space. That will help