The International Monetary Fund (IMF) has released a working paper titled “Assessing Macrofinancial Risks from Crypto Assets,” outlining a novel framework for evaluating and addressing vulnerabilities in the cryptocurrency space.
In this study, the IMF introduces the concept of a Crypto Risk Assessment Matrix (C-RAM), which is designed to assist governments in identifying risk factors within the crypto industry. The C-RAM serves as a tool for defining regulatory measures to mitigate the identified risks. Notably, the working paper does not specifically address non-fungible tokens (NFTs).
The C-RAM matrix involves a three-step approach. First, it utilizes a decision tree to assess the impact of cryptocurrencies on the macroeconomy of a reviewed country. Subsequently, the matrix identifies indicators for monitoring traditional financial markets. Finally, it evaluates global macro-financial risks that could affect a country’s risk profile.
Recognizing that risks may be concentrated among specific entities, such as stablecoin issuers, the research recommends expanding the use of macroprudential instruments to address crypto-specific issues. This includes the establishment of capital buffers, liquidity limits, and the designation of certain banks as systemically significant. Additional suggestions encompass the creation of specialized oversight bodies, the development of updated models, and innovative policy responses to address cyber threats.
To illustrate the practical application of the C-RAM, the working paper employs El Salvador as a case study. El Salvador made headlines in September 2021 when it declared Bitcoin (BTC) as legal tender. The IMF study highlights that El Salvador’s adoption of Bitcoin introduces risks to the market, economic liquidity, and regulatory aspects.
Overall, the IMF’s research underscores that crypto assets share similarities with other risky asset classes, including the potential for mispricing and the transmission of shocks. However, crypto assets possess distinctive characteristics, such as automation and decentralization, which present unique regulatory challenges. These assets can impact monetary policy transmission, facilitate volatile cross-border capital flows, and are subject to data gaps, according to the paper.
To address these challenges, the working paper recommends expanding the use of macroprudential policy instruments to manage crypto-specific risks. It advocates for international cooperation to address data limitations that hinder effective oversight. The report emphasizes the importance of including crypto assets in systemic risk assessments tailored to each country’s specific vulnerabilities.
