The International Monetary Fund (IMF) published the April 2023 issue of the Global Financial Stability Report which calls for global crypto regulation citing the collapse of multiple entities in the crypto asset ecosystem, including FTX.
The Global Financial Stability Report titled “Safeguarding Financial Stability amid High Inflation and Geopolitical Risks” noted that all critical activities and entities in the sector, including activities related to the storage, transfer, exchange, and custody of reserves should be covered by the crypto regulatory framework.
“Entities carrying out multiple functions should be subject to additional prudential requirements,” the report adds.
The IMF report notes a “rough year for crypto” and called for stringent prudential requirements should apply to stablecoin issuers.
“Strong international cooperation, supported by robust, comprehensible, globally consistent crypto regulation, is essential to provide guidance, ensure consistent implementation, and contain spillover risks,” IMF claims.
IMF also mentioned the collapse of Silicon Valley Bank saying the ripple effects of SVB’s impact on the core financial sector were felt by financial institutions exposed to it as well as the crypto ecosystem.
Circle’s USDC and MakerDAO’s Dai stablecoins which had uninsured deposits in SVB were depegged as a result of its failure, while Signature Bank of New York was shut down as a result of investors’ worries about its involvement in the crypto market, the report remarks.
IMF stated that these occurrences raise more concerns about the viability of digital assets and highlight the necessity of effective regulation.
While talking about FTX, IMF stated in the report that the sudden failure of the exchange was caused by a lack of business transparency in the corporate structure, inappropriate use of clients’ funds, reliance on self-issued unbacked tokens for solvency and liquidity, and inadequate financial reporting.
But the agency did note that the impact of FTX collapse outside of the crypto ecosystem has been limited, except in the case of a few small banks with close ties to crypto and some pension funds in the United States with investments in FTX.
The IMF has been critical of the cryptocurrency sector in multiple instances. Last month, IMF Chief supported India’s stance to ban crypto saying that crypto is a ‘speculative’ and ‘high-risk’ investment.