IMF floats "matrix" on crypto risk as use grows around the world
The International Monetary Fund has a working paper out on a "Crypto Risk Assessment Matrix," aimed at helping countries strengthen their policy frameworks.
Why it matters: The paper notes that the use of cryptocurrency is growing around the world, but unevenly so, with increasing links to the real economy.
- Because of that, they recommend a country-by-country assessment of how much it should be monitored.
Zoom out: The matrix, called the C-RAM by the the pair of IMF senior economists who authored the paper, is the beginning of a method to assess how important cryptocurrency is in any given nation.
- The authors note that it's nascent still, in particular, because there's not enough data gathering going on to be systematic.
- In fact, they acknowledge that one key point of assessment, whether or not digital assets are macro-critical in a given nation, should be done qualitatively.
How it works: The first decision to make is whether or not to engage in official crypto monitoring.
- If any cryptocurrency is legal tender (such as in El Salvador) then the answer is "yes." The only question is whether or not to monitor financial institutions (answer: not so much if their exposure is capped).
- If it's not legal tender, then the question becomes whether or not it's macro-critical to the country, which is a question of how big it is there and how interwoven it is with society.
After that, what officials should do gets fuzzier.
- The paper seems to be aimed simply at getting policymakers to begin refining their thinking. They ask that folks consider issues like credit risk for different assets, liquidity for assets like stablecoins, if there's concentration in an important cryptocurrency or service provider, et cetera.
- By multiple levels of analysis, the authors argue that officials can do a better job of writing policy that mitigates the salient risks in a particular country.
Case in point: In a case study on Vietnam, the authors note that it's a nation with one of the highest market penetrations of cryptocurrency in the world, and yet the assets are not acknowledged in the law.
- By going through the C-RAM process, the authors note, "There is no strong evidence that [the country's] financial sector is exposed to crypto," in part because digital assets are not permitted as a means of payment (for example).
- Yes, but: Because cryptocurrencies are self-custodied and permissionless, the authors note that people are using them with each other, and there are no rules around doing so to protect civilians in the space.
- The authors project Vietnam will see $150 billion in gross transactions in cryptocurrency by 2025.
The bottom line: "Over the last few years, the private crypto asset industry has experienced rapid growth and is becoming increasingly more integrated into the global economy," the authors write in the conclusion.
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