IMF Emphasizes Digitalization in Financial Inclusion Agenda

IMF Managing Director Kristalina Georgieva highlighted the role of digitalization in enhancing financial inclusion during a recent conference held in Marrakesh, Morocco. While advocating for comprehensive national strategies for financial inclusion, Georgieva also warned about the risks associated with digital financial services. This comes at a time when the IMF is actively involved in exploring cryptographic concepts and has recently presented a crypto-risk assessment matrix.

Speaking at the conference organized by the International Monetary Fund (IMF) focused on financial inclusion, Georgieva underscored the significance of digital tools in making financial services more accessible. “Digital is what moves help to people, investment, and the ability for the economy to accelerate,” she stated. She referred to digital currency transfers in Togo as an example, which were implemented during the COVID-19 pandemic to facilitate financial assistance.

While championing the role of digitalization, Georgieva also issued a word of caution. She stressed the need for regulatory frameworks to manage the risks associated with digital financial services, especially regarding financial stability. Her comments align with the IMF’s broader agenda, which includes rigorous scrutiny of cryptographic technologies that underpin digital assets.

The IMF is not a newcomer to the digital finance realm. On September 29th, the institution presented a crypto-risk assessment matrix, known as C-RAM, aimed at helping governments identify potential risks in digital asset operations. Moreover, in October, a “Synthesis paper” co-developed by the Bank for International Settlements (BIS) and the IMF received unanimous approval from the G20 Finance Ministers and Central Bank Governors, advocating for comprehensive regulation of cryptocurrencies rather than an outright ban.

As economies recover from the COVID-19 pandemic, the IMF is emphasizing the importance of digitalization, urging governments to focus on a future that is green, inclusive, and digitally advanced. The organization advocates for investments in green infrastructure, social assistance programs, and digitalization to foster equitable and sustainable recovery. The IMF is intensifying its policy advice on social protection and taxation, and has also launched a Climate Change Indicators Dashboard. On the digital front, it is exploring the macro-financial implications of digital currencies and the role of digitalization in financial inclusion. The IMF aims to help countries balance opportunities and risks in these key areas for a resilient recovery.

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EU Council Adopts DAC8 Directive to Enhance Tax Oversight on Crypto Transactions

The Council of the European Union has ratified a directive amending the region’s standing rules on tax administrative collaboration on October 17, 2023. This amendment, commonly referred to as DAC8, primarily targets the reporting and automatic information exchange regarding revenue stemming from crypto-asset transactions and advance tax rulings for high-net-worth individuals.

The directive’s primary goal is to fortify the existing legislative framework by widening the ambit of registration and reporting mandates, thereby enhancing the overall administrative synergy of tax authorities. The directive now encapsulates additional asset and income categories such as crypto-assets. A mandatory automatic information exchange between tax authorities is introduced, necessitating reporting by crypto-asset service providers. Previously, the decentralized essence of crypto-assets posed a formidable challenge to member states’ tax administrations in ensuring tax compliance. The cross-border characteristic of crypto-assets necessitates robust international administrative collaboration to actualize effective tax collection.

DAC8 extends to a vast range of crypto-assets, drawing upon definitions delineated in the Markets in Crypto-assets Regulation (MiCA). This includes crypto-assets issued in a decentralized fashion, stablecoins, e-money tokens, and certain non-fungible tokens (NFTs).

Tracing back to December 7, 2021, the Council expressed its expectation for the European Commission to unveil a legislative proposal in 2022 concerning the revision of Directive 2011/16/EU on tax administrative cooperation (DAC), specifically addressing crypto-assets and tax rulings for affluent individuals. Following through, on December 8, 2022, the Commission proposed an amendment to Directive 2011/16/EU, now known as DAC8.

DAC8 aims to broaden the scope of automatic information exchange under DAC to encompass information reported by crypto-asset service providers on crypto-asset and e-money transactions. This expansion seeks to aid member states in tackling challenges engendered by economic digitalization. The directive aligns with the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS) orchestrated by the OECD at the behest of the G20.

Furthermore, DAC8 extends the existing rules concerning the exchange of tax-relevant information to include provisions on the exchange of advance cross-border rulings for high-net-worth individuals and automatic information exchange on non-custodial dividends and analogous revenues. This initiative is aimed at mitigating the risks of tax evasion, tax avoidance, and tax fraud.

The directive’s journey towards adoption saw the Council concur on its position regarding the amendments on May 16, 2023, followed by the European Parliament expressing its opinion on September 13, 2023, under the consultation procedure. The directive was unanimously adopted by member states in the Council and is slated for publication in the Official Journal, with its enforcement commencing on the twentieth day post-publication.

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G20 Announces Standards for Global Crypto Regulation

The Financial Stability Board (FSB), the International Monetary Fund (IMF), and the Bank for International Settlements (BIS) have been tasked with establishing standards for a global cryptocurrency regulatory framework, according to an announcement by the Group of 20 (G20) on February 25th, 2023. The G20, comprised of the world’s 20 largest economies, has recognized the need for a coordinated international effort to address the risks associated with cryptocurrencies and establish clear regulatory guidelines for their use.

The announcement comes in response to the rapid growth of cryptocurrencies and their increasing use in global financial transactions. The FSB, IMF, and BIS will deliver papers and recommendations on the regulation, supervision, and oversight of stablecoins, crypto asset activities, and markets by July of this year. The recommendations are expected to establish clear guidelines for the use of cryptocurrencies and help prevent their misuse for criminal activities, such as money laundering and terrorist financing.

The G20 has also recognized the potential benefits of cryptocurrencies and the underlying blockchain technology. The use of cryptocurrencies could offer advantages such as increased efficiency, faster and cheaper transactions, and greater financial inclusion, particularly for the unbanked population. However, the G20 also acknowledges the risks associated with cryptocurrencies, including volatility, market manipulation, and cyber threats.

The regulatory framework is expected to strike a balance between the risks and benefits of cryptocurrencies, ensuring their safe and responsible use. The recommendations are likely to address issues such as licensing requirements, anti-money laundering and counter-terrorism financing (AML/CFT) measures, consumer protection, and market integrity. The G20 recognizes the need for a coordinated international effort to establish these standards and promote global financial stability.

In conclusion, the G20’s announcement marks a significant step towards establishing a global regulatory framework for cryptocurrencies. The recommendations from the FSB, IMF, and BIS will provide clear guidelines for the use of cryptocurrencies, ensuring their safe and responsible use while promoting financial stability. As cryptocurrencies continue to gain in popularity, it is essential to establish clear regulatory guidelines to prevent their misuse and ensure their potential benefits are fully realized.


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G20 To Establish Standards For Global Crypto Regulatory Framework

It was announced on February 25 by the group of the 20 largest economies in the world, known collectively as the G20, that the Financial Stability Board (FSB), the International Monetary Fund (IMF), and the Bank for International Settlements (BIS) will deliver papers and recommendations establishing standards for a global crypto regulatory framework.

The Financial Stability Board (FSB) is expected to publish its recommendations by July 2023 on the regulation, supervision, and oversight of global stablecoins, crypto asset activities and markets, as stated in a document that provides a summary of the outcomes of a meeting with finance ministers and governors of central banks.

The next set of guidelines is not anticipated to be released until September 2023. At that time, the FSB and the IMF are scheduled to jointly provide “a synthesis document incorporating the macroeconomic and regulatory aspects of crypto assets.” Another research on the “possible macro-financial ramifications of the broad adoption” of central bank digital currencies is scheduled to be published by the International Monetary Fund (IMF) in the same month (CBDCs). The following is an excerpt from the statement that was released by the G20: “We look forward to the IMF-FSB Synthesis Paper which will support a coordinated and comprehensive policy approach to crypto-assets, by considering macroeconomic and regulatory perspectives, including the full range of risks posed by crypto assets.”

Additionally, the BIS will provide a paper that discusses analytical and conceptual concerns in addition to potential risk reduction techniques associated with crypto assets. The text does not include any information on the deadline for this report. The use of cryptocurrency assets to finance terrorist operations will also be investigated by a financial task group established by the G20.

During the course of the event, United States Secretary of the Treasury Janet Yellen said that it was “essential to put in place a solid regulatory framework” for activities relating to cryptocurrencies. In addition to this, she emphasized that the nation is not advocating for a “outright ban on crypto activity.” In a brief conversation with reporters on the margins of the main event, the managing director of the IMF, Kristalina Georgieva, suggested that the G20 nations need to have the option of outlawing cryptocurrencies.


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IMF Urges Countries to Consider Banning Cryptocurrencies

During a meeting of the Group of Twenty (G20) that took place on February 25, United States Treasury Secretary Janet Yellen emphasized how important it was to develop a robust regulatory framework for cryptocurrencies.

Yellen stated it was “essential to put in place a solid regulatory framework” while she was speaking to Reuters. In addition to this, she emphasized that the United States is not advocating for a “absolute prohibition on crypto activity.”

Yellen’s comments follow earlier ones made by the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, who stated that prohibiting cryptocurrencies should be an option: “There has to be very strong push for regulation… if regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk.” Yellen’s comments follow Georgieva’s earlier statements.

In addition, Georgieva emphasized to the media that it is essential to distinguish between stablecoins and cryptocurrencies, which are issued by private enterprises, and central bank digital currencies (CBDCs), which are issued by central banks.

Nirmala Sitharaman, who serves as India’s Minister of Finance, has advocated for a unified approach to be taken at the international level to deal with the widespread economic effects of crypto assets. Throughout her time in office, Sitharaman has been a proponent of developing cryptocurrency legislation in collaboration with other governments. For a number of years, the government of India has been debating whether cryptocurrencies should be regulated or outright prohibited.

The International Monetary Fund (IMF) on February 23 issued a plan of action on crypto assets, in which it urged governments to remove cryptocurrencies from their status as legal cash. A framework of nine policy principles that addresses macrofinancial, legal and regulatory, and international coordination challenges was detailed in the study that was named “Elements of Effective Policies for Crypto Assets.”

Following a visit to El Salvador earlier this month, the International Monetary Fund (IMF) made a recommendation to the nation that it reconsider its plans to increase its exposure to Bitcoin. The IMF made this recommendation citing the risk that cryptocurrencies pose to El Salvador’s ability to maintain its fiscal sustainability, protect its consumers, and maintain its financial integrity and stability.


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G20 Discusses Crypto Regulations Under India Presidency

During the time that India presided over the G20, the first meeting of its kind for the group’s Finance Ministers and Central Bank Governors (FMCBG) was conducted. At this meeting, key issues pertaining to financial stability and regulatory oversight were discussed. India has urged the other member nations to acknowledge the macro-financial consequences of crypto assets and has advocated the development of a coordinated worldwide strategy. In addition, India has proposed the formation of a global strategy coordination group.

In light of the fact that cryptographic assets are traded all over the globe, Nirmala Sitharaman, India’s Finance Minister, has in the past voiced her support for the establishment of crypto regulations in collaboration with other countries. This story is now being told as part of the discussions that are being held in the mainstream while India holds the presidency of the G20.

During the 24th and 25th of February, members of the G20 gathered with the FMCBG to discuss the prospects of technological advances while placing a focus on finding a balance between the risks associated with such developments. Among the most significant subjects that were discussed during the G20 meeting were the significance of financial stability and regulatory goals, policy measures for boosting financial inclusion, and productivity increases.

Sitharaman expressed appreciation to individuals who supported efforts to modify rules pertaining to crypto assets in her closing remarks. To be more specific, the Minister of Finance asked for a concerted effort “for creating and comprehending the macro-financial ramifications,” which could be used to change crypto legislation on a global scale. Specifically, the Minister of Finance asked for a concerted effort “for creating and comprehending the macro-financial ramifications.”

She then continued by expressing her appreciation to the International Monetary Fund (IMF) for producing a thorough paper on the implications that crypto assets will have on the overall macroeconomic system. In her final comments, Sitharaman underlined the need of cooperation between the nations that are members of the G20 “to foster responsible technological breakthroughs and protect the stability of the financial system.”


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OECD Presents New Transparency Framework for Crypto-Assets to G20

The Organization for Economic Co-operation and Development (OECD) – an intergovernmental organization with 38 countries, established to promote economic progress and world trade – has released its new tax reporting framework, the Crypto-Asset Reporting Framework (CARF), to G20 countries.

The release was based on a request by G20 countries for the intergovernmental organization to develop a framework that provides reporting and exchange of information between countries on crypto assets.

G2O finance ministers and central bank governors will meet on 12-13 October to discuss their views on the new regulatory framework, OECD disclosed the matter.

The CARF framework builds on certain enhancements to the Common Reporting Standard (CRS) that address tax transparency concerns in the digital economy.

The new transparency initiative, developed together with G20 countries, comes amid rapid adoption of the use of cryptocurrencies for a wide range of investment and financial uses.

Unlike traditional financial products, cryptocurrencies can be transferred and held without the intervention of traditional financial intermediaries like banks and regulators like central banks. The crypto market has also given rise to new intermediaries and service providers, like crypto exchanges and wallet providers, many of which currently remain unregulated.

Such developments mean that cryptocurrencies and related transactions are not comprehensively covered by the OECD/G20 Common Reporting Standard (CRS). This, therefore, increases the likelihood of their use for tax evasion while undermining the progress made in tax transparency through the adoption of the CRS.

The CARF framework, therefore, seeks to ensure transparency in crypto transactions by automatically exchanging such information with the local regulators about taxpayers on an annual basis. The CARF aims to achieve this objective by targeting entities offering crypto exchange transaction services on behalf of customers to be obliged to report under the CARF. Most crypto assets such as NFTs, DeFi, cold wallets, wallet addresses, and intermediaries like crypto exchanges and DeFi providers are now comprehensively covered by the reporting standard, unlike in the past.

The CARF framework consists of three building blocks: rules that can be transposed into domestic legislation, guidelines to help local administrators with the implementation of the exchange of information, and technical solutions to support such exchange of information.

The CARF proposal comes at an uncertain time for the crypto market, as recent fluctuations in the values of Bitcoin and other assets have affected several crypto businesses and left them with budget constraints.

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G20-Backed FSB Sets Out Roadmap for Stablecoins and CBDCs, Optimizing Cross-Border Payment System

The Financial Stability Board (FSB), a G20-backed think tank, has cited the duo of government-issued Central Bank Digital Currencies (CBDCs) and stablecoins as key drivers in pursuing a better cross-border payment system. (32).jpg

A recent report published by the FSB highlights the projected roadmap in the buildup to facilitate a switch to sustainable payment models. The body said it is recommending that relevant authorities should “make any revisions to standards and principles or provide further guidance supplementing existing standards and principles in light of the FSB Report and following their review of their existing frameworks,” including on cooperation, coordination, and information sharing amongst authorities.

Several countries have different regulatory frameworks that guide their embrace and permit stablecoins and digital currencies as a whole. Despite these frameworks, most of which are unfriendly, there has been a significant switch from traditional financial payment models with their inherently high cost and slow speed. More consumers are beginning to rely solely on privately issued stablecoins for the transfer of value. 

With the uptight effort, the FSB and its partner organizations are working hard to stump the dominant role of these privately issued digital assets in global payments. The proposed recommendation to revise local standards is billed to run till the end of 2021.

The FSB also posits that CBDCs can be a very viable competitor to digital currencies and recommends that global monetary watchdogs, including the IMF, World Bank, and the Bank for International Settlements (BIS), will need to capitalize on its already concluded stock-take of provisional domestic CBDC designs and central bank experimentation to determine the extent they could be used for cross-border payments.

At present, as many as 110 Central Banks are noted to be at various stages of their CBDC development. The overall target is to provide sustainable solutions to the pervasive challenges in local and international payments. For these, a recommendation for CBDC interoperability is also a development offering that CBDC issuers will need to consider in the near future.

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