The IMF working paper provides a country-level assessment matrix for crypto risks

A working paper published by the International Monetary Fund (IMF) outlines support weaknesses and potential policy responses to the crypto sector.

On September 29, the IMF published a working paper entitled “Assessing Macro-Financial Risks from Crypto Assets”. In the paper, authors Burcu Hacibedel and Hector Perez-Saiz propose a crypto-risk assessment matrix (C-RAM) for countries to identify potential risk indicators and triggers in the sector. The matrix also aims to summarize regulators' responses to risks they may have identified.

The matrix consists of a three-step approach. The first step involves using a decision tree to assess crypto's macro-criticality or potential to impact the macro-economy. The next step involves looking at indicators comparable to those used to monitor the traditional financial sector. The last step covers international macro-financial risks related to the assessment of countries' systemic risk.

For example, the authors apply C-RAM to identify risks in El Salvador, a country that will legalize Bitcoin (BTC) in September 2021. According to the paper, El Salvador's use of BTC poses market, accounting, and regulatory risks. The authors write:

“The use of crypto assets in El Salvador can be assessed as macro because recent regulatory and legal changes pose a significant risk of cryptorization in the country, affecting financial stability and affecting large remittances and other capital flows.

The IMF has consistently discouraged Salvador from using Bitcoin. In January 2022, the IMF urged the Central American country to drop Bitcoin's legal tender status. According to the IMF, using BTC as legal tender poses “significant risks” to areas such as financial stability, financial integrity and consumer protection.

Related: IMF's CBDC push gets backlash from crypto community – ‘No one wants this'

As crypto grows rapidly, regulators are still scrambling to respond to potential threats in the space. On September 7, the IMF and the Financial Stability Board collaborated on a joint paper containing policy recommendations at the request of India's G20 president. The paper combined standards and consolidated recommendations for various risks associated with activities in crypto.

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