IMF calls for a global crypto policy

Last year, we saw policymakers worldwide divided over the topic of crypto regulations. Overall, we have observed all sorts of legal treatments: from direct national bans to local adaptation as legal virtual currencies.

It is not yet clear which path this debate will take in 2022. However, surprisingly, one of the leading representatives of the IMF has taken an essential step towards a crypto-friendly world. According to Gita Gopinath – chief economist at the IMF – the need for a global crypto policy is now more urgent than ever.

This article will briefly discuss why Gopinath’s opinion on the matter is more relevant than one may initially believe. We will also go through the past views of IMF members on the crypto universe and reflect on what one can expect from the future.

Gopinath’s words

Gita Gopinath has introduced a global policy capable of discipline instead of banning cryptocurrencies. The reasoning made by the economist is relatively straightforward: governments cannot expect to introduce local bans on a global market.

Gopinath argues that banning cryptos in a country would have, as an effect, the transfer of capital towards offshore markets. The cryptocurrency market seems to have reached too large a capitalization to be erased with the simplicity of a legal ban.

Since so many operators and exchanges in the crypto universe are offshore companies, banning cryptos may, indeed, prove to be a useless move over the long term. Gopinath’s words are not a mere opinion shared by an economist, but they may represent an essential change in the IMF policy.

Who is Gita Gopinath?

Gita Gopinath, born in 1971, is an American economist of Indian origins. The current president of the ECB and former head of IMF, Christine Lagarde, nominated her chief economist at the same institution in 2019. She’s also head of the IMF research department.

Gopinath has a brilliant resume, starting from an academic career in India moving to a Ph.D. at Princeton University. Here, she had as supervisor Ben Bernanke, who is better known for being the former Federal Reserve Chairman.

Considering that Gopinath is set to become deputy director of the IMF, her opinion is likely to increase popularity on international politics tables.

What do Gopinath’s colleagues think of cryptos?

The International Monetary Fund, led by Kristalina Georgieva, has attacked the world of cryptocurrencies several times. Many of IMF’s prominent members accused the crypto universe of poor supervision and posing a threat to global financial stability.

The institute’s Global Financial Stability Report reports high risks from the “disappearance of tokens” linked to rug pulls phenomena. Furthermore, according to the report, the chances of money laundering are growing. Additionally, the anonymity of the blockchain system has always been one of the main concerns of regulators around the world.

The report goes on to explain that the use of cryptocurrencies “could increase threats to tax policies, as crypto-assets potentially facilitate tax evasion.”

In such a context, the words of the future deputy director of the IMF sound like a substantial break from the past.

The World is in Discord

Countries like China and Russia have significantly banned or eliminated cryptocurrency transactions. This was the response of policymakers to the prospect of a weakening of the role of central banks due to the spread of cryptocurrencies.

There are also risks of a capital outflow impacting the foreign exchange market. Furthermore, processes such as mining famously require enormous energy consumption. As a result, policymakers often cite this aspect favouring crypto bans.

On the other hand, several economies seem to transform into more crypto-friendly environments gradually. In this context, Germany appears to be one of the most active countries on this trend, which may continue in 2022.

What to expect from the future?

Gopinath’s opinion should take on more weight in international politics. We live in a world where many central bankers still see cryptocurrencies as an enemy. However, the IMF demonstrates a good level of open-mindedness.

Modern history is full of cases in which the market has managed to change the opinion of policymakers. It will be interesting to understand if a new political line will also follow this change of opinion.

IMF’s top levels do not seem to share Gopinath’s opinion. As a result, many crypto critics will find themselves working under a deputy director who opposes many economists. 

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On the one hand, it is incorrect to say that Gopinath has spoken out in favor of cryptocurrencies. But, on the other hand, her opinion comes from a good practical sense that the market might like it.

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