IMF Warns Against Misuse Of Crypto Assets

Posted by African Examiner Business News, Latest Headlines Wednesday, April 6th, 2022

(AFRICAN EXAMINER) – International Monetary Fund (IMF) has cautioned against the risks involved in the use of Crypto assets, saying that they can be misused for money laundering, terrorist financing, and other illegal activities.

Crypto assets are privately issued digital tokens that use cryptographic techniques. Bitcoin is perhaps the most famous example.

IMF Deputy Managing Director, Bo Li gave the warning at a virtual seminar jointly organized by the IMF and the Bank of Tanzania to mark the 20th anniversary of the African Regional Technical Assistance Centre (AFRITAC) East, with the theme, “Central Bank Digital Currency and Crypto Assets”.

AFRITAC East was the first of what are now six IMF regional capacity development centers in Africa and the center’s location in the region facilitates the provision of prompt, tailored, and sustained hands-on support.

Through its workshops and peer-to-peer visit programs, the center promotes mutual learning as well as regional harmonization and integration. The center’s inclusive governance structure makes member countries a key part of the venture. And the close coordination with development partners helps to minimize duplicative community development efforts.

Li said in spite of the remarkable growth in crypto assets, there are a number of risks, adding that in as much as their movements are correlated with those of other financial instruments, crypto assets could lead to the amplification of shocks.

“They could, in some circumstances, replace local currency as a medium of exchange, a store of value, and a unit of account, a risk which has been dubbed as ‘cryptoization’. And they can be misused for money laundering, terrorist financing, and other illegal activities”, he said.

According to him, countries have however taken different regulatory approaches to address possible financial stability threats, some completely hands-off, others with licensing regimes of various restrictiveness, and yet others banning these assets outright.

He also noted that there is an active debate going on worldwide regarding the right regulatory and supervisory options to employ, adding that the IMF has made a strong call for a comprehensive, consistent, and coordinated global regulatory framework for crypto assets.

The IMF deputy director further observed that crypto assets have grown rapidly, noting that “market capitalization reached US$2.3 trillion by end-2021, and we’ve seen substantial action right here in the region, in such countries as Kenya, Nigeria, South Africa, Ghana, and Tanzania”.

Li said he was delighted to join in the celebration of the 20th anniversary of AFRITAC East and congratulated the organization for its remarkable accomplishments since inception.

“To begin with, let me congratulate AFRITAC East for reaching this notable milestone and thank all of the member countries, which have achieved so much in building their institutions over the past twenty years. A special vote of thanks goes to the Tanzanian authorities for hosting the center and to our donor partners for their generous support.

“AFRITAC East was the first of what are now six IMF regional capacity development centers in Africa. This was a major innovation in the way we participated in capacity building, and I think all stakeholders agree that it has paid handsome dividends.”, he added.

He further explained that AFRITAC East has been able to adapt quickly to countries’ evolving needs, as has been demonstrated amply during the COVID-19 pandemic.

He however, pointed out that to remain relevant, the center must continue to be agile, assisting its members with the realities they face.

“That is why the center has been collaborating with IMF headquarters to step up its support on key emerging issues, including: building resilience to climate change; promoting inclusive growth; and leveraging fintech and digital transformation”, he further explained.

Li also stated that unlike crypto assets, Central Bank Digital Currencies (CBDCs), are issued by central banks and recorded as a liability of the central bank, adding that central banks around the world are exploring the potential benefits and risks of CBDCs from various angles, including how a CBDC could improve the efficiency and safety of payments systems.

“If designed prudently, CBDC could reduce incentives for adopting crypto assets, and at the same time support public policy objectives such as efficiency and stability of the payment systems in the digital age”, he stressed.

He said introducing a CBDC is a complex process requiring appropriate resources and capacity, adding that areas for further efforts may include new legal frameworks, new regulation, and public-private partnerships to ensure successful adoption, or the building of additional features.

“This conference provides an opportunity to share country experiences and understanding about what might work and what pitfalls to avoid in regulating crypto assets and designing CDBCs. International coordination and collaboration remain vital in these rapidly evolving areas”, he added.

He also hinted that the IMF is playing its part in international efforts to develop appropriate policies, regulations, and standards, adding that they are gearing up to provide capacity development support to their member.