- The IMF has laid a matrix for assessing crypto risks.
- The financial body has proposed the framework to individual countries.
- The framework uses El Salvador as a use case to demonstrate crypto risks.
The International Monetary Fund (IMF) has proposed a three-step approach that individual countries can adopt to evaluate and mitigate microfinancial risks associated with cryptocurrencies.
Termed the Crypto-Risk Assessment Matrix (C-RAM), the approach aims to identify indicators and triggers of potential risks in the digital assets industry and summarize how regulators ought to respond to the identified threats.
A Three-Step Approach
According to a recently published working paper by the IMF, the authors of the C-RAM approach have derived its mechanisms from multiple failures in the crypto industry, including the fall of FTX and TerraUSD.
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The first step in the paper entails leveraging a decision tree to gauge the crypto “macro criticality” in response to a country’s economy. Following this, the next step examines indicators comparable to those in traditional finance to establish the scope for systemic risk. Finally, the last step scrutinizes the national macro-financial implications crypto assets could possess.
Although the proposed matrix could have a broad global application, it is tailored for country-level analysis to help regulators elucidate potential vulnerabilities and adopt comprehensive policy tools for mitigating systemic risks.
To demonstrate this, the authors of the framework applied C-RAM to identify the market risks posed by El Salvador’s use of Bitcoin (BTC) as a legal tender.
El Salvador Use Case
Per the IMF, the ongoing use of BTC as a legal tender in El Salvador carries a range of “large risks” in areas such as financial integrity, financial stability, and consumer protection.
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“The use of crypto assets in El Salvador could also be assessed as macrocritical as recent regulatory and legal changes entail the risk of substantial cryptoization in the country, undermining financial stability and affecting large remittances and other capital inflows,” the paper read.
The IMF has consistently discouraged El Salvador from BTC adoption and even urged the country to drop the cryptocurrency as a legal tender in January 2022.
Read more about the crypto asset policies proposed jointly by the IMF and FSB:
New Crypto Asset Policies Laid Out in IMF, FSB Joint Paper
Stay updated on why G20 leaders want to implement cross-border crypto regulation:
G20 Rallies for Global Crypto Regulatory Framework Push
