IMF Proposes Crypto Risk Assessment Matrix for Macrofinancial Impact on Countries
The International Monetary Fund (IMF) published a working paper that highlights risk management strategies and policy changes for regulators.
The paper titled, “Assessing Macrofinancial Risks from Crypto Assets” released on Sept 29 proposes a crypto-risk assessment matrix (C-RAM) for risk-prone nations to identify, prevent, and mitigate the effects on investors.
According to the paper, a framework for accessing the macro-financial impact of crypto on society would include factors not utilized in traditional finance leading to a slight shift in strategy.
All players in the crypto market including issuers, miners/validators, exchanges, wallet providers, payment providers, and users are prone to market, credit, legal, liquidity, and concentration risks.
Digital assets are prone to high market volatility leading to loss of assets causing several financial regulators to require disclosures and tighten controls on multiple market makers in a bid to protect investors.
The C-RAM introduces a three-step approach to incorporate macro-financial risk in each country's decision.
The first step is to utilize a decision tree to determine the crypto space's importance to the economy while the second step involves embedding traditional tools that affect macroeconomic factors. Finally, the third step involves global risks to the country’s policies.
Authorities should first determine the use of digital assets in the country for payment, settlements, or other uses. Key examples are El Salvador and the Central African Republic.
Crypto being utilized as a legal tender opens up new channels of risks as it can undermine wider monetary policies based on its nature while adoption surges.
After this, authorities would single out risks involved based on
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