The International Monetary Fund (IMF) has introduced a three-step approach named the Crypto-Risk Assessment Matrix (C-RAM) to evaluate macrofinancial risks associated with cryptocurrencies within countries.
It notes that the main sources of risk to the external sector comes from cross-border payments and the volatility of cross-border capital flow.
IMF Proposes Three Step Approach To Combat Crypto Risks
According to the report, the Crypto-RAM approach allows countries to dissect the complexities of cryptocurrency risks step by step while maintaining an overarching perspective.
It begins with the application of the decision tree method as its initial phase. This method is centered on the evaluation of the macrocritical nature of crypto assets within an economic context.
Macrocriticality assesses an economic issue that significantly influences current or future balance of payments or domestic stability.
Likewise, the decision tree approach assesses whether crypto assets are being used in a way that significantly impacts the economic landscape of a country.
In the second phase of C-RAM, the emphasis shifts towards the quantification of crypto-related risks within an economy. This can conducted through the process of country risk mapping.
At the forefront of the vulnerability list is systemic importance. This gauges the significance of crypto or other elements within the ecosystem to the economy.
This can be assessed using metrics like the crypto asset market cap as a percentage of GDP. Furthermore, it can also use a country’s crypto adoption indicators, or adoption within a country.
IMF Advises Against Banning Crypto in Nations
The third involves the assessment of crypto from a global perspective.
However, it highlights limited availability of data and regulatory frameworks for cryptocurrency assets. By utilizing a table and the decision tree approach, the IMF recommends that governments can employ this method to formulate policy proposals for crypto. Additionally, it can also assess the potential consequences and the probability of their occurrence.
Meanwhile, the IMF has issued a recent warning against the imposition of sweeping bans on crypto.
Collaborating with the Financial Stability Board (FSB), they jointly released a report advocating for specific regulatory measures aimed at mitigating the inherent risks linked to the crypto industry.
Furthermore, the report highlights that implementing regulations on cryptocurrency service providers and strengthening anti-money laundering protocols will be a more effective approach compared to an outright ban on digital assets.
Read more: How To Master Risks and Emotions in Crypto Trading
