Now we are talking about the newly released IMF report entitled “Global Financial Stability Report, October 2021”. The new policies recommended by the IMF aim to curb down the financial risks associated with global crypto adoption. The International Monetary Fund released a set of policies for the emerging markets and developing economies to ensure financial stability amid global crypto adoption.

In October 2018 the Financial Stability Board concluded that crypto assets did not pose a material risk to global financial stability (FSB 2018) but identified several transmission channels that could change its assessment. According to IMF, these channels include risks from the size of market capitalization, investor confidence effects, risks arising from direct and indirect exposures of financial institutions, and risks from the use of crypto assets for payments and settlements.

This time around, IMF raises concern over “…anonymity and limited global standards” that “… create significant data gaps for regulators and pose risks to financial integrity. The advent of crypto assets and stablecoins in emerging markets and developing economies may accelerate dollarization risks”. Accelerate dollarization risks. Apparently, the crypto advent is enough troubling phenomenon by itself to disrupt anything related to fiat currencies’ special status – be it de-dollarization (think El Salvador), or, vice versa, dollarization ones (think stablecoins)… It looks like the ideal situation would be to disconnect the entire cryptos ecosystem (the blockchain, that is to say) from anything related to fiat currencies. That is the spirit!

The IMF introduced its own vision for global governments “to fight back against crypto adoption” – or suffer the consequences. In its report, the IMF mentions the “financial stability challenges” of the “crypto ecosystem” in a dedicated chapter, and suggested that economic leaders fight back against crypto – by issuing their own central bank digital currencies (CBDCs), apparently confusing sovereign digital currency concept and blockchain instruments.

The IMF report also admits that the crypto market valuation has expanded beyond Bitcoin (BTC), along with a sharp increase in stablecoin offerings. Three years of IMF data suggests that risk-adjusted returns of non-stablecoin crypto assets such as Bitcoin are comparable to other mainstream benchmarks like S&P 500 (see below graphics). The IMF also believes that on the positive front the potential of crypto assets as a tool for faster and cheaper cross-border payments is favorable, whereas high returns, transaction costs and speed, as well as the reduced Anti-Money Laundering standards as the primary drivers for crypto adoption.

To counter the resultant financial stability challenges as a result of increased trading of crypto assets, IMF recommends that:

“Policymakers should implement global standards for crypto assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps. According to IMF, emerging markets faced with cryptoization risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies.”

Besides central bank digital currency (CDBC) issuance, the IMF further recommends “proportionate regulation to the risk and in line with those of global stablecoins.” In addition to CBDC implementation, de-dollarization policies will help governments tackle macro-financial risks. “Rapid technological innovation is ushering in a new era of public and private digital money,” the report reads, highlighting the benefits of digital assets. “Payments will become easier, faster, cheaper, and more accessible, and will cross borders swiftly. These improvements could foster efficiency and inclusion, with major benefits for all.”

Pic.1 Fragment of the IMF report’s Graphical Content

The critique (with moderate sympathy to daunting goals of the proclaimed mission) is here. At a glance, everything in that message appears filled with common sense. But what’s missing is a clear addressee. The concept of “policymakers” is evidently too broad to name concrete names. The U.S. Securities and Exchanges Commission is pioneering in global efforts of crypto oversight which, if successful or relatively successful, will be used as an international benchmark of some sort of offline crypto regulations. Time will pass. In the meantime, many countries’ policymakers (whoever they are – presumably, not central banks) are struggling to find out whether cryptos will be declared legal or illegal in their countries (right now the chances are around 50/50, with slowly but surely prevailing crypto-friendly nations over the crypto-hostile ones). Once this dilemma is cleared (hopefully, anytime sooner rather than later) the next question for governments of these nations (not for policymakers yet!) is what exact agency will assume responsibility for crypto oversight. Something tells us that there won’t be a long queue to self-identify such an authority. So, once again, IMF would have sounded much more convincing if it listed those whoever are camouflaged behind the policymakers’ collective term).

The next important consideration is IMF’s own role in this new emerging world. For example, the newly independent Afghanistan republic (if one can fall into that category) is apparently facing a humanitarian catastrophe and, normally, would eventually apply to IMF for a loan. But IMF does not issue no-strings-attached loans. Before giving away any funds, it needs to plot a roadmap of economic recovery in that country. In the case of Afghanistan some items in that kind of script can be unacceptable for the known ethnic and religious issues and principles, but impoverished Afghanistan still badly needs financial help. What other possibilities for such a country to receive funds, without the commitment of any burdensome obligations, exist? Admittedly, not many, beyond crypto and crypto funds. Impossible ‘by definition’? Who knows!

And, finally, the third important consideration in this respect. Regulators’ confusion of sovereign digital currency issuance with the blockchain-based cryptocurrency adoption becomes ridiculous. The dominating view that ramping up with the former may, somehow, slow down interest in decentralization is truly unexplainable and depicts the overall poor level of these regulators’ (or their scriptwriters thereof) expertise in the matter.