Explore the IMF’s working paper on cryptocurrency, addressing benefits, risks, and policy responses. Understand the evolving global framework, including elements crucial for effective policies. Gain insights on the IMF’s approach and recommendations for handling the challenges posed by crypto assets. Stay informed about the latest developments in the world of digital currencies.
International Monetary Fund, fondly remembered as IMF recently published a working group paper on the newly evolving so-called monetary devil known in popular parlance as “cryptocurrency” under which one becomes a multi millionaire or becomes bust at the click of a button. With the mention of the capital gains on the said item in two of my articles on G 20 Tax, written on USA and Australia, the time has come to really understand the IMF mind to clear our clogged minds. Reference to IMF web site is as under:
IMF Executive Board Discusses Elements of Effective Policies for Crypto Assets
Let us learn what IMF wants the member nations to discuss, and arrive at a common approach.
Quoting directly from the IMF,
“The paper addresses questions raised by IMF member countries on benefits and risks of crypto assets and on how to structure appropriate policy responses. It operationalizes the principles outlined in the Bali Fintech Agenda (IMF and World Bank 2018) and includes macro-financial considerations such as implications for monetary and fiscal policies.”
Collapse of crypto systems conducted by various exchanges or individuals have given sleepless nights to large number of investors of all kinds. Today’s news item of such a huge collapse of crypto deposit scheme of an individual for Rs 100 Crores (USD 12.2 million) by a single person from southern part of India has necessitated this article.
What will RBI or Government of India at the central level or at state level governments devise measures to lay down clear cut rules for crypto currency?
In terms of IMF paper, a frame work of 9 elements that would help its member nations to evolve clear policy guidelines, amend present rules and regulations or amend the current acts to help the common man to have a clean picture what to do with the said so called instrument that currently does not believe in any regulatory body.
The said 9 elements recommended are as under:
1. Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks by not granting any currency status or legal tender status.
2. Guard against excessive capital flow volatility and maintain effectiveness of capital flow management measures by reducing the flow or increase its availability which was recently seen during the pandemic days.
3. Disclose in unambiguous terms the fiscal risk and exact tax treatment of usage of crypto assets, if allowed legally. Many nations do want its usage.
4. Development and enforcement of prudential, and oversight requirements to all crypto market actors.
5. Evolve a strict monitoring framework among all monetary agencies who deal with crypto assets or whose members, depositors or state agencies have unavoidable contact with the same. Lackadaisical approach is strictly prohibited.
6. To establish legal certainty of crypto assets and address the legal risks associated therein.
7. Establish international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations.
8. To regularly study, report, and monitor the stability of international monetary system by the usage of the said assets.
9. To strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance to face this unclear monetary element.
What is happening currently with regard to crypto assets and their unauthorized or purchase by the Indian public without knowing the consequences of its realization, how it is measured and its monetary stability?
In the enlightened view of IMF what are the risks associated with crypto assets?
“Directors generally observed that while the supposed potential benefits from crypto assets have yet to materialize, significant risks have emerged. These include macroeconomic risks, which encompass risks to the effectiveness of monetary policy, capital flow volatility, and fiscal risks. They also noted serious concerns about financial stability, financial integrity, legal risks, consumer protection, and market integrity. Against this backdrop, Directors broadly welcomed the proposed framework and its elements.”
Let me continue with the detailed views of IMF as under:
- Directors stressed the importance of addressing the significant data gaps and emphasized the role of the Fund in monitoring risks and impacts on the international monetary system. They welcomed in this context the new G20 Data Gaps Initiative. Consistent recording of crypto assets in macroeconomic statistics across economies, underpinned by a reliable data framework, will be important.
- Directors agreed that the framework should be used to guide staff’s policy dialogue with country authorities and capacity development activities, as well as participation in discussions with standard-setting organizations. They underscored the need to focus on the Fund’s comparative advantage and on macro financial implications. They also saw a role for the Fund in serving as a bridge between the experience of its membership and the international standard- and rule-setting process, including disseminating best practices.
- Directors underscored the importance of tailored advice and close dialogue with authorities, given the different stages of development of crypto assets and different capacities among member countries. Fund capacity development support will be crucial.
- Enough cooperations between private and public sector units in tackling crypto assets, monetize its worth, monitor the growth of the assets in relation to the monetary systems in place, the value of the actual currencies accepted all over the world and the contingent liabilities that would arise on account of the development of the crypto assets as well as their stability over time, the technologies to be obtained to keep pace with its monitoring by the regulatory authorities who are not yet attuned to abrupt change of technology in monetary mechanism etc.
- It was agreed that IMF would help the countries to upgrade their technologies, universally accepted standards that may arise in future, and the total liaising among all nations to face the new developments on crypto assets etc.
Let us face the current situations that have arisen on the taxation fronts of U.S.A. and Australia which have allowed the taxing of the assets created under crypto assets field.
Internal Revenue service, USA, applies capital gains tax on more than one year selling of crypto assets if handled through well known exchanges, tax payer retaining all information on timing of purchase, amounts involved, details of what were purchased or sold etc.
Australian authorities do allow taxing of crypto currencies purchased/sold through banking channels and the exchanges which handle the crypto assets.
So far, as long as the assets exist, have the demands of purchase, sale or meet the expectations of the clients who indulge in them, the matter is routine.
But all over the world, an impression is created as if they would replace the whole monetary system, trans national in nature and hence uncontrollable. So, any regular tax payer for long decades demand that this channel will pave the way for diversion of funds, emergence of uncontrollable monetary authorities out of nowhere and driving in technological fields if any but no where accountable to civilized world of nations which have the actual pains/gains of multi-currency systems emergent out of Bretton Wood gold systems, recent explosion of LIBOR scandals and its emerging unbelievable world of transactions, many of them cooked up by banks on the values of currencies used etc.
Yes, emergence of IMF and world bank have stipulated systematic procedures, monitoring of monetary efforts of centralized banks, and most of whom who have proved their worth over hundreds of years.
Ever rating of nations and their credibility by IMF, reputed rating agencies, the whole world of private/public institutions who lend, borrow and effectively run the systems through exchanges, foreign exchange control instruments, and their accountability to the world of civilized nations have helped the civilization to have a peaceful economic life.
Just recollect the recent turmoil of Pakistan, Afghanistan or even a well-managed nation like Bangladesh who have to fine- tune their monetary policies toward the demand of IMF/World bank or other equally reputed lenders of international credibility.
IMF board discussed the introduction of Crypto assets totally in a 360-degree way of looking through the future to save the world from poaching vultures of economic world.
At the same time, some nations do not want to close the technological growth in monetary world which may multiply the money and its usage in unforeseen world of prosperity.
Indian authorities took the mid- way of tax laws for crypto assets without much details. This has been questioned by the intelligentsia in a big way.
Conclusion
RBI, Government of India and various technical experts have spoken on Crypto assets, the necessity to have detailed instructions and how to handle the risk associated in their possession. The recent events in the financial world portend a gloomy future for ill read tax payers, unsafe future for their hard-earned money and an unknown monetary goal. Can an investment of a simple Rs 100 give unbelievable returns on the basis of knowledge acquired by the civilized world over the centuries including disastrous world wars, mass killing of human being, vast destruction of assets and still emerging suffering of human beings/nations connected with disasters?
The discussion on crypto assets will not die down. India with its best software power will definitely participate in these multi-dimensional developments on the economies of the world.
More references
CNBC Website with the news item as under
Cryptocurrencies could cause the next financial crisis, Indian central bank head warns:
https://www.cnbc.com/2022/12/21/cryptocurrencies-could-cause-the-next-financial-crisis-rbi-reserve-bank-of-india-head.html
RBI
Micro financial risks (chapter 1)
https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=1224
More and more reading, research, or latest information on crypto assets would warn of more dangers ahead but unknown frontiers of income may also emerge.
Uncertain financial world alone propels future prosperity with the introduction of minute-by-minute growth of technology.
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