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IMF Recommends Immediate Action on Malta’s AML and CFT Supervision

The IMF has said that Malta does not have the proper supervision for AML and CFT and is calling for “urgent action.”

The International Monetary Fund (IMF) has said that the Malta Financial Services Authority (MFSA) has critical gaps in its supervision for anti-money laundering (AML) and combating the financing of terrorism (CFT), and is recommending “urgent action.” The news was reported by local news outlet the Times of Malta on Feb. 28.

A Financial System Stability Assessment Report was purportedly issued by the IMF on Thursday, Feb. 28, and represents an assessment of Malta’s financial system, the quality of the regulatory and supervisory framework, as well as the country’s ability to cope with financial crises.

Per the report, the IMF stated that “containing financial integrity risks is critical to financial stability. A multi-prong approach is needed to address AML/CFT deficiencies. Enhancing the AML/CFT system is required to protect the financial sector and the broader economy from the ML/TF [money laundering/terrorism financing] threats.”

According to the Times of Malta, the report noted the need for enhanced screening processes for beneficiary owner information and monitoring of risk-sensitive accounts, specifically for non-resident clients, including opaque firms, new technologies like digital assets and e-gaming, and IIP-related funds.

In regard to blockchain technology and cryptocurrencies, the report purportedly recommended to employ more resources to supervise service providers. In addition, the report highlighted “the challenges facing the MFSA [Malta Financial Services Authority] from the increased demands of supervising the growing number of licensed financial institutions in an evolving and more complex regulatory environment, as well as the need to upgrade the MFSA’s operational capacity to enable it to operate more effectively.”

Malta is renowned for its cryptocurrency and blockchain-friendly regulations and political stance. However in January, the IMF highlighted blockchain — alongside remote gaming sectors and the government’s citizenship-by-investment scheme — as being high on their list of concerns regarding possible AML compliance violations. The agency then said:

“The increasing number of financial entities under supervision, the rapid development of new products, the evolving regulatory environment and the tightening of the labor market have put the Malta Financial Services Authority under considerable strain.”

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Why Ripple (XRP) Fits The Bill Of What The IMF Would Recommend To Global Central Banks

Less than 2 days ago, Ethereum World News did a report on the findings of one of IMF’s Deputy Directors with respect to how global Central Banks should respond to the current threat of cryptocurrencies  disrupting the business-as-usual trend in the banking industry. In the report by Dong He, the Deputy Director of the Monetary and Capital Markets Department, it was noted that for regular fiat to stay relevant, Central banks needed to tokenize their currencies to be in tune with the times. But is tokenization really necessary when we already have a coin with payment solution on the blockchain already working? This coin is none other than Ripple (XRP) and its products of xVia, xCurrent, xRapid and RippleNet.

So why would Central Banks use Ripple and its products rather than tokenizing regular fiat?

Firstly, it is a known fact that Ripple has partnered with between 40 and 50 such Central banks who are in turn part of the RippleNet network. This network is a decentralized global network of banks and payment providers using Ripple’s distributed financial technology, which provides real-time messaging, clearing and settlement of financial transactions.

In terms of integrating their already existing infrastructure to RippleNet, we have the API based xVia to simplify this for the banks in an instant. The same xVia is being used by two recent members of the RippleNet network from Brazil and Singapore, giving them access to the additional markets of United States, Southeast Asia, South America and Europe.

Secondly, Global Central banks need a reserve currency to facilitate cross border trade, investments, transactions and debt payments. If they are already part of RippleNet, they can have a reserve of XRP to aid in transactions. The coin has a high circulation of 39.189 Billion with another 55 Billion XRP locked up in Escrow. This latter amount can be purchased by Central banks and held as reserves. When each Central Bank wants to do business with another, the transaction will be almost-instant and secure due to XRP.

Thirdly, times are changing as Deputy Director at the IMF, Dong He, pointed out. Central Banks need to be progressive in a manner similar to how the IMF is able to forecast the general change in direction in the global financial systems. Any country that will not adapt, will find its currencies obsolete as its citizens gradually go digital. One needs only to look at the mobile apps we possess to know that we are heading to a peer-to-peer economy that bypasses all banks.

In conclusion, the Global Central Banks should take the report by Mr. He as warning sign that they should accommodate current technology trends or risk being irrelevant. We can not ignore Venezuela for leading in crypto adoption albeit through what many economists stated as ‘the last kicks of a dying horse’. With respect to the latter, we shall leave it to history to decide if President Nicolas Maduro did the right thing.

Disclaimer: This article is not meant to give financial advice. The opinion herein should be taken as is. Please carry out your own research before investing in any of the numerous cryptocurrencies available.
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IMF Official: Central Banks Need to Compete With Crypto

A deputy director for the International Monetary Fund’s Monetary and Capital Markets Department believes that central banks need to offer “better” fiat currencies in order to fend off any potential competition from cryptocurrencies.

The suggestions came in an article published Thursday, penned by deputy director Dong He. In that article – which boasts the tagline “Crypto assets may one day reduce demand for central bank money” –  He argues that central banks may want to consider adopting some of the concepts in order to “forestall the competitive pressure crypto assets may exert on fiat currencies.”

It’s a notable statement and one that echoes past remarks from He as well as other IMF officials, including director Christine Lagarde. Indeed, Lagarde, back in March, said during an event that regulators should deploy some elements of the tech in order to “fight fire with fire.

He’s argument in the latest piece is based on the possibility that, should cryptocurrencies and crypto-assets see wider adoption, there is a chance that central banks will lose their ability to influence the economy through tactics such as interest rate changes.

The deputy director suggested that tightening regulation could provide a boost for central banks.

“Second, government authorities should regulate the use of crypto assets to prevent regulatory arbitrage and any unfair competitive advantage crypto assets may derive from lighter regulation,” He wrote. “That means rigorously applying measures to prevent money laundering and the financing of terrorism, strengthening consumer protection, and effectively taxing crypto transactions.”

He also pointed to the idea of central banks creating their own digitized assets that could be exchanged in a peer-to-peer fashion

“For example, they could make central bank money user-friendly in the digital world by issuing digital tokens of their own to supplement physical cash and bank reserves. Such central bank digital currency could be exchanged, peer to peer in a decentralized manner, much as crypto assets are,” the article went on to say.

It’s an idea that a number of central banks are researching, though opinions differ on the effectiveness of such proposals. Just this week, for example, an official for the Hong Kong Monetary Authority (the region’s de facto central bank) said that it currently has no plans for a digital currency launch in spite of its research in the area.

Image Credit: Kristi Blokhin /

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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IMF Report Says Crypto Does Not ‘Pose Risks’ To Global Finance

Cryptocurrencies “do not appear to pose risks to financial stability,” the International Monetary Fund (IMF) said in a report published the second week of April.

In comments on crypto assets as part of its Global Financial Stability Report, the organization continued its recent stance in promoting international agreements on regulation. The report continues, “…they could [pose a risk] should their use become more widespread without the appropriate safeguards.”

The tone is bullish against the titular theme of “a bumpy road ahead” for world finance, and does not discount the potential for cryptocurrency to “transform financial activity.” The report states:

“It is impossible to know the extent to which crypto assets may transform the financial infrastructure and whether most new crypto assets are likely to disappear as in past episodes of technological innovation (as many tech companies did during the boom of the late 1990s, for example). Before they can transform financial activity in a meaningful and lasting manner, crypto assets will first need to earn the confidence and support of consumers and financial authorities.”

The report adds that, in order to gain this confidence, there will need to be a consensus among the global regulatory community about what crypto assets are; a security or a currency.

The IMF thus follows in the footsteps of other financial institutions this year, notably the Financial Stability Board (FSB). The head of the FSB, Bank of England governor Mark Carney, told the G20 in March that crypto assets “do not pose risks” to the world’s economy.

Meanwhile, IMF chief Christine Lagarde has similarly adopted a weighted stance on crypto, acknowledging its “benefits” while simultaneously warning about illicit uses which require attention. “A judicious look at crypto-assets should lead us to neither crypto-condemnation nor crypto-euphoria,” she wrote in an official blog post last month.

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Bank Of Japan: Central Bank Digital Currencies Could Destabilize Existing Financial System

The Bank of Japan’s (BOJ) deputy governor spoke negatively about the effects of central bank-issued digital currencies (CBDC) on the current financial system in closing remarks at a fintech conference, published yesterday, April 16.

In his remarks, Deputy Governor Masayoshi Amamiya stated that while central bank-issued digital currencies (CBDC) could have a negative impact on the current financial system, the bank is open in the future to applying emerging economical technologies like crypto. The conference was held jointly by the International Monetary Fund (IMF), Japan’s Financial Services Agency, and the Bank of Japan.

The Deputy Governor spoke about the previous challenges for international financial authorities, i.e. the global financial crisis in 2008, which was a time when “crypto-currencies [sic] had not yet appeared.” With the arrival of this new innovation, Amamiya notes that CBDCs are now “stimulat[ing] global discussion on to what extent central banks should provide their payment and settlement infrastructures to society.”

Amamiya sees the current “two-tiered” role of a central bank as communicating with other banks, who then deal with the private sector directly, as “reflect[ing] the wisdom of human beings in history to achieve both efficiency and stability in the currency system.” According to this point of view:

“The issuance of central bank digital currencies for general use could be analogous to allowing households and firms to directly have accounts in the central bank. This may have a large impact on the aforementioned two-tiered currency system and private banks’ financial intermediation.”

Amamiya also mentions that central bank-issued cryptocurrencies could affect the way that the central bank gathers transaction information to maintain the stability of its payment system:

“To sum up, IT innovation raises many fundamental questions and challenges related to the currency system, the design of central bank infrastructure and the utilization of information attached to economic activities.”

Amamiya concludes that although the Bank of Japan will not be issuing its own virtual currency right now, the bank understands that the application of emerging technologies is always a possibility for central bank infrastructure.

The Bank of Japan and the European Central Bank are currently working on a joint initiative, Project Stella, researching Blockchain’s potential use for securities settlements.

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IMF’s Lagarde Counters Crypto Warnings With New Praise Of ‘Potential Benefits’

The head of the International Monetary Fund (IMF) Christine Lagarde was buoyant about cryptocurrency in a blog post in support of the technology, published Monday, April 16.

The post, which comes roughly one month after Lagarde cautioned against the “dark side” of cryptocurrency, sees the IMF leader focus on what she describes as the “potential benefits” of “crypto-assets such as Bitcoin.”

“A judicious look at crypto-assets should lead us to neither crypto-condemnation nor crypto-euphoria,” she writes.

While continuing her narrative about the need to reign in illicit activity involving crypto, which she had voiced during January’s World Economic Forum 2018 and since, Lagarde nonetheless reiterates the need for an “even-handed approach” going forward:

“Understanding the risks that crypto-assets may pose to financial stability is vital if we are to distinguish between real threats and needless fears. That is why we need an even-handed regulatory agenda, one that protects against risks without discouraging innovation.”

She continued, “A clear-eyed approach can help us harness the gains and avoid the pitfalls of the new crypto-assets landscape.”

Lagarde’s call for a balanced outlook on cryptocurrency comes at a time of increasing regulatory involvement in the industry, while traditional financiers continue to call Bitcoin a ‘bubble’ and pundits spy the start of a market surge.

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Don’t Read Too Much into the FSB’s Letter to the G20 on Bitcoin: Expert Take

In our Expert Takes, opinion leaders from inside and outside the crypto industry express their views, share their experience and give professional advice. Expert Takes cover everything from Blockchain technology and ICO funding to taxation, regulation, and cryptocurrency adoption by different sectors of the economy.

If you would like to contribute an Expert Take, please email your ideas and CV to

Bitcoin’s big rally has been attributed time and again to the fact that the Financial Stability Board (FSB), a major international regulatory body, delivered a letter to the G20 finance ministers and central bank governors declaring that Bitcoin does not post a “systemic risk.”  The overall market sentiment seems to be that the FSB’s declaration serves as a positive signal for the currency, providing a basis for the $1,000+ rally in Bitcoin’s value arising just as the G20 meets to discuss cryptocurrency policy in Buenos Aires.  

However, if this was the spark for the Bitcoin rally, traders are almost certainly reading (way) too much into the FSB’s comments.

First, the FSB is only repeating views other regulators and agencies have made for years. As early as January 2016, the International Monetary Fund (IMF) reports have stated that virtual currencies “do not pose systemic risks to financial stability, owing to their small scale and limited linkages to the financial system.”  Similarly, US regulators have collectively acknowledged via the Dodd-Frank mandated Financial Stability Oversight Council that virtual currencies are used only by a “very small” number of consumers and said their impact on financial stability at present is “likely limited.”  Even at times the skeptical Bank of England has noted that digital currencies could only pose a risk “if a digital currency attained systemic status as a payment system.” But the general implication has always been, “but we’re not there yet.”

Second, the real action in the letter was in what the FSB, which is responsible for coordinating international regulatory action, was intending to do. Indeed, the letter was as much a foreshadowing of future regulation as it was anything else:

“Crypto-assets raise a host of issues around consumer and investor protection, as well as their use to shield illicit activity and for money laundering and terrorist financing. […]

Relevant national authorities have begun to address these issues. Given the global nature of these markets, further international coordination is warranted, supported by international organisations such as CPMI, FATF and IOSCO.”

These comments do not represent a détente in cryptocurrency regulation. Instead, the FSB is signaling that some of the efforts taken to combat fraud in the United States and elsewhere will be implemented on an increasingly international dimension.  Expect more coordination in antifraud enforcement from the International Organization of Securities Commissions (IOSCO), the international securities body, with the US Securities and Exchange Commission taking the lead.  Meanwhile, don’t be surprised to see finance ministries and treasury departments advancing new security safeguards via the Financial Action Task Force (FATF), the international forum for combatting anti-money laundering and terrorism financing, as well as central bankers raising global standards for clearing and settlement operations at the Committee on Payments and Market Infrastructures (CPMI).

The fact that the FSB was delivering the note to the G20 was in part a procedural step tied to facilitating the upcoming G20 summit, which will include discussions on a range of supervisory matters, including cryptocurrencies. But make no mistake, international regulatory work streams are already very much gearing up — and the jury is out as to what impact the enhanced scrutiny will ultimately have on cryptocurrency prices and the future shape of the market.

The views and interpretations in this article are those of the author and do not necessarily represent the views of Cointelegraph.

Chris Brummer is a Professor of Law at Georgetown University Law Center and Director of the school’s Institute of International Economic Law.

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Cryptocurrencies as Portfolio Diversification: Systematic Hedge With Excellent Risk-Reward Profile

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.

As Bitcoin and cryptocurrencies gain more and more media coverage, investors who have never been involved in crypto are increasingly asking the question of whether cryptocurrencies could provide meaningful portfolio diversification to the traditional portfolio asset allocation.

In order to answer this question one must look both backwards and forwards: backward looking to determine past correlations and risk-reward profile; and forward looking to understand the real risk of central bank policy mistakes and government debasement of fiat currencies.

Diversification of portfolio focuses on how the volatility of an underlying security plus their correlation with core market assets impacts a portfolio’s risk-return characteristics over the long-term or during periods of extreme macroeconomic or market stress.

Diversification drivers

The main reasons why Bitcoin provides portfolio diversification are: investability, politico- economic features, correlation of returns, and risk-reward profile.

Academic research has shown that investors prefer outcomes with known probability distributions compared to outcomes where the probabilities are unknown. Historical analyses of Bitcoin and gold returns vs. equity market returns at times of recent market volatility may provide some indications as to past data, but there is still insufficient information about how to conclude that the leading cryptocurrency could reliably act as a safe haven. With regards to risk-return profile there is no other asset in the world that has matched bitcoins optionality.

Near zero-average correlation over last five years

Bitcoin has demonstrated a near-zero average correlation with other asset classes over the past five years, compared with a small average positive correlation that some other traditional hedges like inflation-linked bonds, commodity indices, gold, the Japanese yen and Swiss franc often exhibit with other capital market assets.

Diversification in portfolios is based on correlations and historically many assets were negatively correlated. One of the negative side effects of trillions of dollars of Quantitative Easing (QE) is that the price discovery mechanism is distorted and that traditional asset class volatility has been suppressed by large amounts of short volatility strategies implemented by investors looking for yield enhancement in low interest rate world.

Bitcoin as a hedge against Central Bank bubble

Central banks, before QE became the norm, were considered to be the “lender of last resort”. In the experiment of unconventional monetary policies however, the central bank has become the “buyer of the first instance”.

U.S. Monetary Base and its increase since the birth of Bitcoin in 2008

U.S. Monetary Base and its increase since the birth of Bitcoin in 2008

The U.S. is about to follow an unprecedented experiment in monetary policy with an unprecedented experiment in fiscal policy – “Trump tax cuts.” This new environment could challenge investors, as traditional asset class relationships might be less stable. Historically, investors could expect stocks and bonds to trade in opposite directions. The February stock market sell-off was triggered by a sell-off in the bond markets and both bonds and stocks fell at the same time.


A lot of traditional bankers and analysts have pointed out that Bitcoin might be in a price bubble but this raises the question of whether stocks and bonds in public markets are not in even more of a bubble.


The Federal Reserve and the European Central Bank (ECB), coupled with the Bank of England and the Bank of Japan have expanded their central bank balance sheets to unprecedented levels. The argument of equities are cheap because bonds are even more mis-priced is at the root of this distortion.

Bonds are safe and сrypto is “risky” narrative

The idea that low volatility assets like bonds are safe and high volatility assets like Bitcoin are risky is being re-thought by astute investors.  

Paul Tudor Jones, one of the fewer people on Wall Street who correctly predicted the Crash of 1987, recently opined that

“We are in the throes of a burgeoning financial bubble […] If I had a choice between holding a U.S. Treasury bond or a hot burning coal in my hand, I would choose the coal.”

While this might be a rather colorful description to indicate an “underweight” bonds view it shows that to some investors traditional bonds might not be safe after all.

Ex-Fed Chairman Alan Greenspan, who in many investors’ eyes has real practical experience in financial market bubbles recently stated:

“’We are in a bond market bubble’ that’s beginning to unwind”.  

To many traditional investors bonds as an asset class is safe due its low volatility and due to the belief that debt markets are efficient and can always re-finance and roll over debt.

Cryptocurrency markets on the other hand are still considered by many to be unsafe and not appropriate for the average investor due the asset class being less efficient and very volatile.

The focus of many traditional investors is that Bitcoin is very volatile even though US dollar price swings volatility has been predominantly to the upside. The one year return of BTC has risen 811 percent against the world’s reserve currency.

Unless you really understand the structure of the globally distributed censorship resistant immutable crypto market, it’s a little bit of a fool’s errand to focus solely on what the US dollar price of Bitcoin is.

Correlation risk and non-linear market moves

Noted global investor George Soros attributed his stellar investment performance over 50 years to the insight that while many play the game of investing but the rules, he was looking for changes in the rules of the game.

An asset allocation investment decision into cryptocurrency is such a bet that the rules of traditional finance will change.

The most important question as to the rules of investing and global financial architecture was recently posed by ECB President Mario Draghi.

In January Draghi hit out at US Treasury Secretary Steven Mnuchin’s claim that a weak U.S. dollar was good for the American economy, saying the Trump administration needed to uphold the rules of the international monetary system, which forbid nations from deliberately devaluing their currencies.

The extent of European officials’ concerns over the weakness of the U.S. dollar and whether Washington adheres to the rules of the (current) international monetary system are very valid and are related to the question about cryptocurrencies as a portfolio diversification.

If you think the (current) rules of international financial system will always stay the same, then there is no need to have any bitcoin or crypto as part of your strategic asset allocation.

And if you believe that global debt levels could become unsustainable and the U.S. dollar and other fiat currencies could face debasement then you cannot afford not to have crypto as part of strategic asset allocation.

Earlier in 2017, the managing director of the International Monetary Fund (IMF), Christine Lagarde made the same point when she said that crypto assets should not be dismissed outright by governmental structures around the world as cryptocurrencies are positioned to provide conventional government-issued fiat currencies a “run for their money”.

“Instead of adopting the currency of another country – such as the U.S. dollar – some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0. So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy while being open to fresh ideas and new demands, as economies evolve.”

United States: In debt we trust?

The United States is the largest debtor nation in the history of mankind and its currency the U.S. dollar is both the world’s reserve currency as well as the anchor of the current debt based fiat currency reserve banking system.

Bitcoin and other cryptocurrencies on the other hand are an asset based system in the same way that gold is the only major asset where you do not have any counterparty risk. Your physical gold or digital Bitcoin is nobody else’s liability.  

The fact that you cannot QE gold nor Bitcoin makes it the perfect traditional asset diversifier for stocks and bonds denominated in paper money. Bitcoin as the money of the people versus fiat paper as the money of the state.

Hence it is understandable that those who administer the fiat money of the state would like to see increased regulation of the money of the people. Free choice in markets like in democracy is not always a given.  

Gold is inversely correlated to confidence in the financial and political system.

Gold is independent from the nation state government and the banking system and its scarcity created tremendous financial value. The same line of thinking increasingly is underpinning the HODL mentality of Bitcoin as a strategic asset allocation decision.

In a world where too much debt and potentially unsustainable debt, coupled with fears of a U.S. trade war with its largest creditor, China could lead to inflation expectations rising.

In such an environment, a true deflationary asset like cryptocurrencies is the ultimate portfolio hedge.

Gold for over 6,000 years and Bitcoin since at least 2013 is inversely related to confidence in nation state fiat currency based banking systems.

The reason why Bitcoin in many countries around the world trades at premium to the global average is due to the fact that in many developing countries many citizens do not trust neither the government nor their central bank nor do some citizens necessarily believe that local paper currency in a bank where you are exposed to bank counterparty risk is necessarily the best store of value.

Gresham’s law and HODL

Some traditional economists and mainstream bank CEOs have opined that Bitcoin has failed because so far we have not seen meaningful everyday spending done in BTC nor other cryptocurrencies.

Traditional economists who publicly say so might have forgotten about Gresham’s law. In economics, Gresham’s law is a monetary principle stating that “bad money drives out good”. For example, if there are two forms of money in circulation, which are accepted by law or the market as having similar face value, the more valuable money will disappear from circulation. In today’s world the manifestation of Gresham’s law is Bitcoin HODL.

Curiosity in 2009, legitimate investment case in 2018

Money is the ultimate network effect and this could be one reason why some government officials are concerned about the possibility of mass adoption of cryptocurrencies.

The upcoming G20 Meeting of Finance and Central Bank Deputies in Buenos Aires from March 17 to 18 has Bitcoin and cryptocurrency regulation as top agenda item. It is quite telling if not ironic that the finance and central bankers of developed countries – who oversee highly indebted nation state currencies – have a discussion about regulation of the “money without a state” in a country that has countless times failed their own people.  

Argentina as a country is the poster child as to why there is demand if not a real need for a currency that a government cannot control nor manipulate nor debase.

Argentina’s many years of military dictatorship (alternating with weak, short-lived democratic governments) had caused significant economic problems and led to many ordinary citizens losing their life savings several times.  

Wences Casares, the founder of bitcoin wallet XAPO and his family in Argentina were one of these unfortunate people and that gave Mr. Cesares the conviction not only to consider the leading cryptocurrency as a portfolio diversifier but to make Xapo and its secure vault storage a key part of the Bitcoin blockchain ecosystem.  

Bitcoin and cryptocurrencies have evolved from a mere curiosity in 2009 to a legitimate investment case in 2018 and beyond.

They are the summit of decentralization of counterparty risk and an escape from highly indebted nation state fractional reserve banking system. Take that into account, for when the international monetary system needs to be re-anchored and what that could mean for your life savings and strategic asset allocation.

The views expressed here are the author’s own and do not necessarily represent the views of

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IMF Chief Lagarde On ‘Dark Side’ Of Crypto: Blockchain is ‘Exciting’ But Needs Regulations

International Monetary Fund (IMF) Chief Christine Lagarde said that crypto markets must be regulated by the same laws that apply to the traditional markets in an IMF blog post published today, March 13.

The post, “Addressing the Dark Side of the Crypto World,” begins by praising the virtues of Blockchain technology, which she refers to as an “exciting advancement that could help revolutionize fields beyond finance.” However, Lagarde adds that regulators must “understand the peril that comes along with the promise.”

In terms of specific ways to enact regulations that will protect consumers in the crypto markets, Lagade writes that one must “fight fire with fire.” She brings up two examples: using digital ledger technology (DLT) to “create registries of standard, verified, customer information along with digital signatures,” and using biometrics, artificial intelligence, and cryptography to more quickly find suspicious transactions.

As cryptocurrencies are decentralized, anonymous, and have no inherent need for a central bank, Lagarde sees a potential for their use in money laundering and financing terrorism. She mentions the example of darknet marketplace Alphabay, which had more than $1 bln exchanged through crypto on its platform by the time it was shut down in July 2017.

Lagarde writes that cryptocurrencies could threaten the stability of traditional financial markets, and that regulations must be developed on a global scale with help from the IMF:

“No country can handle this challenge alone […] Since crypto-assets know no borders, the framework to regulate them must be global as well.”

Lagarde’s goal is to give crypto consumers the same protection that they have in traditional markets, and references several agencies which she sees as good exemplars of regulatory diligence; the Financial Stability Board (FSB), which observes fintech innovation, and the Financial Action Task Force (FATF), which fights money laundering and terrorism financing. The FATF is currently preparing a report on ways to prevent crypto use in money laundering for the upcoming G20 summit.

She also mentions the US Securities and Exchange Commission (SEC) and other regulators internationally beginning to apply securities laws to Initial Coin Offerings (ICO).

Lagarde’s takeaway is that crypto is “somewhere in between” a fad and a revolution, and that only global cooperation, along with the IMF, can “harness the potential of crypto-assets while ensuring that they never become a haven for illegal activity or a source of financial vulnerability.”

Lagarde has previously said that she believes crypto regulation is both inevitable and necessary. However, she has also spoken positively of the potential role for cryptocurrencies to play in countries with weak currencies.

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IMF's Lagarde: Track Cryptos with Blockchain to 'Fight Fire with Fire'

The head of the International Monetary Fund (IMF), Christine Lagarde, has said regulators should use blockchain technology to curb the “peril that comes along with the promise” of cryptocurrencies.

“The same innovations that power crypto-assets can also help us regulate them. To put it another way, we can fight fire with fire,” Lagarde wrote in an IMF blog post on Tuesday.

Lagarde warned that cryptocurrencies could create financial instability, as well as facilitate terrorism and money laundering, arguing that distributed ledger technology and cryptography could be used in internationally coordinated regulatory efforts.

Distributed ledger technology, she claimed, “can be used to speed up information-sharing between market participants and regulators.”

Lagarde wrote:

“Those who have a shared interest in maintaining safe online transactions need to be able to communicate seamlessly. The technology that enables instant global transactions could be used to create registries of standard, verified, customer information along with digital signatures. Better use of data by governments can also help free up resources for priority needs and reduce tax evasion, including evasion related to cross-border transactions.”

In the post, Lagarde also said that cryptography, in addition to AI and biometrics, could be used to “remove the “pollution” from the crypto-assets ecosystem.”

According to Lagarde, these technologies, “can enhance digital security and identify suspicious transactions in close to real time. This would give law enforcement a leg up in acting fast to stop illegal transactions.”

The IMF managing director went on to suggest that regulators should look toward the frameworks of the Financial Action Task Force (FATF) and the Financial Stability Board to inform their own rules.

The views expressed in the blog post largely align with Lagarde’s previous comments on cryptocurrencies, though the literal fiery rhetoric could indicate that the IMF is seriously entertaining intervening in the crypto industry sooner rather than later.

Christine Lagarde image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.