The International Monetary Fund is urging all countries to work together to deal with the fallout from the surge in cryptocurrencies and other new forms of financial assets as the Reserve Bank tempers expectations it will soon offer its own digital currency.
Amid warnings of the “cryptoization” of countries as their domestic currencies are replaced by technology-based assets, the IMF overnight said a global approach to regulating the emerging technology was necessary and needs to include regulations similar to the treatment of fiat money.
Treasurer Josh Frydenberg this week said he would seek more powers to regulate in the growing areas around digital wallets, cryptocurrencies and blockchain fintech companies, arguing a properly regulated payment system could set up Australia as a major player in the sector.
His new regulations, based on the findings of three separate inquiries into different aspects of the fintech and cryptocurrency sector, are not likely to be formalised until late next year.
The IMF, in a statement from three of its most senior financial and capital market experts, said crypto-asset providers that delivered critical functions should be licensed or authorised by local governments.
They said such regulations should cover the storage and transfer of such assets with requirements targeted at crypto assets and stablecoins.
Operators in these sectors would face the same type of licensing regulations as traditional securities brokers and be overseen by a securities regulator.
“There is an urgent need for cross-border collaboration and cooperation to address the technological, legal, regulatory, and supervisory challenges,” they said.
“Setting up a comprehensive, consistent, and coordinated regulatory approach to crypto is a daunting task. But if we start now, we can achieve the policy goal of maintaining financial stability while benefiting from the benefits that the underlying technological innovations bring.”
One concern of uncoordinated global regulations around crypto assets is a country may lose complete control over its own currency. The IMF noted capital flow regulation may need to be “fine-tuned” to prevent a run on local currencies by crypto players.
RBA governor Philip Lowe on Thursday backed the government’s plan to develop regulations across the fintech sector.
One issue to be investigated is a central bank digital currency. Unlike a cryptocurrency, a central bank digital currency would have the same standing as fiat money.
Dr Lowe said an RBA digital or eAUD (electronic Australian dollar) may be useful for people moving money through digital wallets but there was scant demand at present.
“To date, though, we have not seen a strong public policy case to move in this direction, especially given Australia’s efficient, fast and convenient electronic payments system,” he said.
“It is possible, however, that the public policy case could emerge quite quickly as technology evolves and consumer preferences change. It is also possible that these tokens could offer a lower-cost solution for some types of payments than provided by the existing technologies.”
Dr Lowe said he was sceptical cryptocurrencies would be used for general purpose payments, noting transactions backed by secure fiat currency or a stable value asset were much more attractive than a highly volatile crypto version of money.
He said while there may be a role for crypto-assets, investors should be cautious about their use.
“There is still a lot of uncertainty about the long-term usefulness of these assets. Before investing, it is best to understand fully the underlying value proposition,” he said.
“Relevant considerations here include the usefulness to end-users of the underlying payments functionality, the security of the funds invested, price volatility, the stability of the intermediaries used and the ultimate backing of the asset – not to mention the significant energy consumption that is required to make a transaction using some of these crypto-assets.”