IMF Warns Against Granting Cryptocurrencies Legal Tender Status in New Policy Paper

The International Monetary Fund (IMF) has released a paper outlining nine key elements for effective policies surrounding cryptocurrency assets.

The IMF warns that granting cryptocurrency legal tender status or official currency status could have negative effects on monetary sovereignty and stability. In addition, it could increase adoption and exposure of traditional financial institutions to volatile assets, heightening their risk profiles.

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The paper notes that building stronger institutions and policies is essential for reducing the substitution of fiat for cryptocurrencies. The IMF suggests creating a Monetary Policy Framework (MPF) that is transparent, coherent, and consistent to anchor market expectations and ensure the effectiveness of monetary policy.

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The paper also highlights the importance of safeguarding against excessive capital flow and analyzing risks stemming from crypto assets.

Countries should establish “legal certainty” around crypto assets and address risks proactively, the IMF said. They also advised that countries should create frameworks that enumerate and enforce prudential, conduct, and oversight requirements. Additionally, countries should establish a joint framework across agencies to ensure timely and effective regulation of the sector.