In the burgeoning crypto universe, going as far as prohibiting cryptocurrency would not eradicate its potential perils, avows an all-encompassing policy directive discharged by prominent global rule setters. The distinct dossier, put together by an intergovernmental consortium G20 under India’s patronage, takes into account a mix of standards established by the Financial Stability Board (FSB) and the International Monetary Fund (IMF) for the crypto complex.
The assembled report insists that countries should enhance monetary policy structures, shield against capricious capital flow dynamics and embrace unequivocal tax treatment of crypto to counter macroeconomic stressors. It re-emphasises the IMF’s stance that broad-spectrum prohibitions might prove ineffectual in mitigating cryptos’ associated vulnerabilities. However, under certain high-stress circumstances, the report does hint at targeted limitations that could be beneficial, especially for emerging economies.
It is intriguing that the report acknowledges the backfiring potential of blanket bans. For instance, making all crypto operations such as trading and mining illegal in one place would not only be costly and technically challenging but could also be the very catalyst that pushes the activity to migrate elsewhere, brewing spillover risks.
While the report does not suggest an absolute ban on crypto, it does concede that targeted and temporary restrictions could help manage risk factors during critical periods or while countries develop improved internal solutions. The call for this nuanced approach arises out of concerns over potential disruptions that can befall rudimentary market and regulatory structures in emerging economies due to the rapid escalation of crypto activities.
However, the report also draws attention to the growing popularity of stablecoins. While they could potentially facilitate a wide range of transactions, they inherently carry risks due to their need for maintaining a stable value and the dependency on private issuers. It delves into certain instances where these risks have manifested, like the algorithmic stablecoin’s de-pegging from the U.S. dollar, ensuing in a loss of billions from the market.
In essence, the report serves as a call for prudent oversight and regulation over the crypto sphere, far from a complete denunciation of cryptocurrency. It reminds that restrictions, targeted or blanket, should not be viewed as a standalone solution to the challenges posed by crypto-assets. Rather, well-thought-out macroeconomic policies and regulatory measures should be the primary line of defense to safeguard financial stability against potential disruptions that come with cryptocurrency’s expanding frontier. This strategic perspective not only illuminates a more balanced path forward but also embraces the inevitable presence of cryptocurrency in our financial ecosystem.
Source: Coindesk
