IMF Proposes Crypto-Risk Assessment Matrix to Monitor Vulnerabilities in the Cryptocurrency Sector
Summary:
The International Monetary Fund (IMF) has released a working paper suggesting a national risk-assessment matrix for the cryptocurrency sector. The Crypto-Risk Assessment Matrix (C-RAM) aims to identify potential risks and help devise regulatory responses. Authors applied C-RAM to El Salvador, revealing market, regulatory, and liquidity risks arising from their adoption of Bitcoin as legal tender. Amid the rapid growth of the crypto sector, international regulators are working to manage potential threats effectively.
A recent research document from the International Monetary Fund (IMF) has suggested a matrix to evaluate threats and potential regulatory reactions in the cryptocurrency sector at the national level. The paper, titled "Assessing Macrofinancial Risks from Crypto Assets," was released on 29th of September by authors Burcu Hacibedel and Hector Perez-Saiz who recommended a tool, Cryptocurrency-Risk Assessment Matrix (C-RAM), for nations to identify signs of potential risks in the sector and summarize probable responses by regulators.
The model involves a three-step process, beginning with the utilization of a decision tree to assess the level of impact that cryptocurrencies might have on the wider economy. This is followed by a review of similar indicators to those employed within the conventional financial sector. The final step focuses on worldwide macro-financial risks that impact the systemic risk assessments of different nations, linking the crypto ecosystem with the traditional financial sector.
The authors used this model as a test case on El Salvador, a country that legally recognized Bitcoin as a form of currency in September 2021. Their analysis suggested that the use of Bitcoin in El Salvador could lead to market, regulatory, and liquidity risks. The study concluded with the authors stating that, "the use of crypto assets in El Salvador could also be assessed as macro-critical as recent regulatory and legal changes entail the risk of substantial cryptoization in the country, undermining financial stability and affecting large remittances and other capital inflows."
The IMF has been a consistent voice warning against El Salvador's adoption of Bitcoin. In January 2022, the international fund cautioned the Central American country to revoke the legal status of Bitcoin. The IMF pointed out that utilizing Bitcoin as legal tender could lead to significant threats to areas like financial stability, financial integrity, and consumer protection.
As crypto progresses at a rapid pace, regulators worldwide are striving to implement responses to potential threats in this emerging field. The IMF and the Financial Stability Board (FSB) jointly developed a paper with policy suggestions in response to the Indian G20 presidency's request on September 7th. The document consolidates recommendations for various risks connected with cryptocurrency-related activities.
Published At
10/2/2023 11:30:16 AM
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