Crypto rules crucial for financial stability, IMF says

Financial regulators have to establish the correct rules and infrastructure for the adoption of crypto assets, said the International Monetary Fund (IMF) Managing Director Kristalina Georgieva during an international conference on Thursday.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva gives a speech at a conference hosted by the Korean government and the IMF at the Four Seasons Seoul Hotel in central Seoul on Thursday. [MINISTRY OF ECONOMY AND FINANCE]

The chief of the International Monetary Fund (IMF) said on Thursday that crypto assets need clear rules and infrastructure to avoid various risks, warning of its threat to macro-financial stability.

The transition “is happening,” said the IMF Managing Director Kristalina Georgieva on the first day of the two-day conference at the Four Seasons Seoul Hotel in central Seoul. “Policymakers are either part of it, and help it to be done better, or it will be done anyway.”

The conference, hosted by the Korean government and the IMF, took place under the theme of “Navigating a Changing Financial Landscape,” which involved digital money.

Georgieva addressed the challenges the global financial authorities may face if crypto assets become widespread.

“High crypto asset adoption could undermine macro-financial stability,” she said. “What use is it to raise interest rates on a currency that a few people hold?”

She added that crypto asset adoption could also result in capital flow management measures, including limits on foreign currency holdings, to be circumvented and undermine fiscal sustainability if tax collection became more difficult to enforce.

However, the managing director said that the potential gains of crypto asset adoption could be significant, including offering transparency, fast settlements and a lower risk of trade failures.

Korea’s Finance Minister Choo Kyung-ho at the conference pledged to collaborate with governments and international bodies as digital money is borderless, noting the recent collaboration between the Bank of Korea (BOK) and the Bank for International Settlements in testing the commercialization of a Central Bank Digital Currency (CBDC).

The Financial Services Commission (FSC) also proposed rules to protect customers of virtual asset service providers, which are scheduled to take effect from July next year.

The rules include criminal penalties and fines “to punish unfair trading activities using virtual assets” and requires virtual asset service providers to perform monitoring and reporting of abnormal transactions to the FSC.

“There has to be a balance between protection and innovation,” said the FSC Vice Chairman Kim So-young during a panel discussion on digital money at the conference. “We haven’t really overregulated,” Kim said, while noting the past usage of crypto assets as a means for illegal activities, including terrorism, drugs and gambling.

He added that innovation in the crypto sector is very important and that the regulators will “consider them more in the next stage of regulation.”

BOK Gov. Rhee Chang-yong will open the second day of the conference, where the future of money and the role of central banks, as well as stablecoins and CBDCs, will be discussed.

BY JIN MIN-JI [jin.minji@joongang.co.kr]