On September 29, the International Monetary Fund (IMF) released a working paper titled “Assessing Macrofinancial Risks from Crypto Assets,” authored by Burcu Hacibedel and Hector Perez-Saiz.
In this paper, the authors introduced a framework called the crypto-risk assessment matrix (C-RAM) designed to help countries identify potential risks in the cryptocurrency sector and summarize possible regulatory responses.
The C-RAM consists of a three-step process. First, it involves using a decision tree to evaluate the extent to which cryptocurrencies can impact the broader economy. The second step looks at indicators similar to those used in monitoring traditional financial markets. The final step assesses how global macro-financial risks may influence a country’s overall systemic risk.
To illustrate the application of the C-RAM, the authors used it to assess risks in El Salvador, a country that adopted Bitcoin as legal tender in September 2021. According to the paper’s findings, El Salvador’s use of Bitcoin introduces risks related to market dynamics, liquidity, and regulatory concerns. The authors :
“The use of crypto assets in El Salvador could also be assessed as macrocritical 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 consistently advised against El Salvador’s adoption of Bitcoin. In January 2022, the IMF recommended that the Central American nation remove Bitcoin’s legal tender status. According to the IMF, using Bitcoin as a legal tender carries significant risks, particularly in areas such as financial stability, financial integrity, and consumer protection.
As the cryptocurrency sector evolves rapidly, regulators are working to develop responses to potential risks within this emerging space. On September 7, the IMF and the Financial Stability Board collaborated on a joint paper containing policy recommendations, at the request of the Indian G20 presidency. This paper consolidated standards and provided recommendations addressing various risks associated with cryptocurrency activities.
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