The International Monetary Fund (IMF) has unveiled a proposal in a working paper titled “Assessing Macrofinancial Risks from Crypto Assets.”
The document, authored by Burcu Hacibedel and Hector Perez-Saiz, introduces the Crypto-Risk Assessment Matrix (C-RAM), a tool designed to provide a comprehensive country-level assessment of vulnerabilities and potential policy responses within the crypto sector.
Unveiling the Crypto-Risk Assessment Matrix (C-RAM)
The C-RAM employs a three-step approach to systematically evaluate risks and regulatory responses:
- Macro-Criticality Analysis: Using a decision tree, the matrix assesses the potential impact of crypto on the macro-economy.
- Traditional Sector Indicators: The second step involves scrutinizing indicators similar to those used in monitoring the traditional financial sector.
- Global Macro-Financial Risks: The final step addresses global macro-financial risks, contributing to countries’ systemic risk assessments.
Applying C-RAM: El Salvador Case Study
To illustrate the matrix’s effectiveness, the authors applied it to El Salvador, a country that made Bitcoin legal tender in September 2021. The analysis further revealed market, liquidity, and regulatory risks associated with El Salvador’s use of BTC. The authors emphasized the macro-critical nature of these risks, highlighting potential threats to financial stability, large remittances, and other capital inflows.
IMF’s Ongoing Concerns about El Salvador’s Bitcoin Adoption
This isn’t the first time the IMF has expressed reservations about El Salvador’s embrace of Bitcoin. In January 2022, the IMF strongly urged the Central American nation to reconsider Bitcoin’s legal tender status. The international financial body cited “large risks” in areas such as financial stability, financial integrity, and consumer protection.
Global Initiatives: IMF and FSB Collaboration
As the crypto landscape evolves rapidly, regulators worldwide are racing to implement effective responses to potential risks. On September 7, the IMF and the Financial Stability Board (FSB) joined forces to release a joint paper, responding to the request of the Indian G20 presidency.
The paper also consolidates standards and policy recommendations, offering a comprehensive guide for addressing various risks associated with crypto activities.