The International Monetary Fund has pointed to the collapse of FTX as well as “turmoil” in the banking sector in its calls for regulating digital assets.
In its “Global Financial Stability Report” released on April 11, the IMF renewed calls for “comprehensive and consistent regulation and adequate supervision” following the failures of cryptocurrency firms including FTX as well as the subsequent collapse of crypto-friendly banks, including Silicon Valley Bank and Signature Bank. According to the financial agency, regulation for entities in the crypto-asset ecosystem — with “strict prudential requirements” for stablecoin issuers — should include the storage, transfer, exchange and custody of reserves for digital assets.
“[Silicon Valley Bank]’s spillover from the core financial sector reverberated across the crypto ecosystem and financial institutions exposed to it,” say the report. “Its failure resulted in a depegging of two stablecoins (Circle USDC and Dai), which held uninsured deposits in the bank, as well as the demise of Signature Bank of New York because investors became concerned about its footprint in the crypto sector. These events add to questions about the viability of digital assets and reinforce the need for appropriate regulation.”
Clear communication by central banks is vital to minimize economic and financial uncertainty, and using separate tools to achieve monetary policy and financial stability goals can address multiple challenges at once. https://t.co/FbiSNdCpVd #GFSR #IMFpublications pic.twitter.com/rCBJQEyi6Y— IMF (@IMFNews) April 11, 2023
The report cites a “rough year for crypto” in 2022, pointing to the collapse of the FTX exchange — not the failures of Terraform Labs, Celsius Network or others that preceded the firm’s bankruptcy filing — as an event that “created significant contagion” in the ecosystem. However, the IMF reported that the impact outside of the crypto space due to these collapses was largely “limited.”
Criticism of cryptocurrencies and digital assets is nothing new for the IMF. In February, the agency’s executive board endorsed a policy framework that did not include recognizing crypto as legal tender. However, members have reportedly leaned toward regulating digital assets rather than outright banning them.
The international monitoring body Financial Stability Board plans to publish its own recommendations for regulatory and supervisory approaches to crypto assets and stablecoins in July 2023. The G20 also reported in February that the board would be releasing “a synthesis paper integrating the macroeconomic and regulatory perspectives of crypto assets” in coordination with the IMF in September.