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The Official Monetary and Financial Institutions Forum (OMFIF) has just released their latest bulletin.

Included in the 30-page bulletin is an article covering fintech, written by Christine Lagarde, head of the International Monetary Fund (IMF), a global organization focused on bringing economic health and security to people around the world.

The article, entitled “A Regulatory Approach to Fintech: Guarding Against Emerging Risks Without Stifling Innovation,” touches on the pros, cons and challenges surrounding the adoption of cryptocurrencies.

Here’s a look at some of the highlights.

Crypto Assets Should Not Be Dismissed

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“Today, some enthusiasts say crypto-assets may represent the beginning of a similar breakthrough. Others condemn crypto-assets as little more than a fad or a fraud. We should not dismiss them so lightly.”

Fintech Is Both Risky and Promising

“Financial technology offers considerable promise, but it also poses risks. Consider distributed ledger technology, which underpins crypto-assets. It can enable faster and cheaper transactions, store records securely and execute so-called smart contracts automatically. But the technology has also been used for illicit purposes.”

Regulation vs. Freedom of Innovation

“Regulators face a difficult task. On the one hand, they must protect consumers and investors against fraud and combat tax evasion, money laundering and the financing of terrorism. They must also protect the integrity and stability of the financial system. On the other, they must beware of stifling innovation that benefits the public. By engaging with market participants at the centre of financial innovation, regulators can stay abreast of the benefits of new technologies and identify risk. Developing a forward-looking regulatory framework calls for creativity, flexibility, and new expertise….”

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“So far, national authorities have reacted with varying degrees of regulatory stringency. If this uncoordinated response continues, activity will simply migrate towards more lightly regulated jurisdictions in a race to the bottom. Because crypto-assets know no borders, a global approach is vital.”

Lagarde explains that the global financial crisis of 2008 taught us three important lessons.

Trust is the foundation of the financial system, but it is fragile and can be shaken easily.

Risk accumulates in unexpected places. In the years before the crisis, financial instruments emerged that were poorly understood by investors, such as collateralised debt obligations. It is unclear whether a decentralised financial system will be more stable or less.

In a globalised world, financial shocks quickly reverberate across borders. Responding to a crisis requires concerted action. And a global financial system may transmit shocks more quickly.

Crypto Assets Pose No Threat to Stability

“The Financial Action task force has given guidance to its members on addressing money-laundering and terrorist-financing risk associated with crypto-assets. The Financial Stability Board, which coordinates financial regulation for the economies, is studying ways to monitor crypto-assets.The G20 agrees with the FSB’s assessment that crypto-assets do not pose a threat to stability, though they could pose a threat in the future.”

Action Needed

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“New approaches may be required as risks emerge and as distinctions between entities and activities break down. One thing seems certain: we should not put off action until the answers become clear. Instead, we must begin to consider the regulatory framework of the future. One approach, undertaken in Hong Kong, Abu Dhabi and elsewhere, is to establish regulatory sandboxes where new financial technologies can be tested in a closely supervised environment.”

Conclusion

“Above all, we must keep an open mind about crypto-assets and fintech, not only because of the risks they pose, but also because of their potential to improve our lives. When in doubt, think of Bell and his telephone.”

You can download the full bulletin here.