International Monetary Fund
(International Monetary and Financial Committee, IMF Executive Board)
★★⭐︎ – Intermediate
Topic A: The Regulation and Supervision of Crypto Assets & Currencies (International Monetary and Financial Committee (IMFC))
In September 2021, El Salvador was the first state to officially adopt the cryptocurrency Bitcoin as legal tender. This only forms one part of a rising utilization of crypto assets in the digitalized, global economy: Crypto assets increasingly serve for state and private actors as a decentralized means of payment and investment which promotes financial inclusion and allows for faster and cheaper cross-border capital flow. Especially individuals in developing countries with unstable market conditions and high structural inflation rates consider stablecoins a viable alternative to assets in the national currency.
However, crypto assets and brokers remain highly unregulated and unsupervised, which facilitates fraudulent and criminal usage such as tax evasion and money laundering. As cryptocurrencies are by definition not safeguarded by state financial institutions, they have proven to be of high volatility and unpredictability. The strong competition to bank deposits caused by stablecoins might push local banks to rely more on unstable and higher-priced funding sources to retain the same levels of loan growth. Moreover, the decentralized mining of crypto coins based on blockchain technology might be used to circumvent capital flow restrictions and environmental targets due to high energy consumption.
Therefore, the International Monetary and Financial Committee (IMFC) of the International Monetary Fund (IMF) has decided to elaborate the first set of complete global standards to the regulation and supervision of crypto assets which will be presented to the Board of Governors.
The IMFC advises and reports to the Board of Governors on the supervision and management of the international monetary and financial system and is composed of ministers, central bank governors, or politicians, and economists of a similar rank. At the end of a meeting, it will issue a communiqué which will provide guidance for the IMF’s work program for the next six months.
Topic B: Debt relief for the Global South in the light of Covid-19 Economic Hardship (Executive Board)
In the face of the global Covid-19 pandemic, many governments found themselves forced to launch debt-funded recovery programs to mitigate the economic and social hardship caused by the public health restrictions. By the end of 2020, the global debt level amounted to a triple of the world’s Gross Domestic Product.
Particularly, the least developed countries and states with inflation-ridden economies have experienced difficulties to amortize debts and loans granted by international lenders such as the IMF. Consequently, in the Executive Board, the demand arose to consider a new round of debt relief programs for the most affected countries after the implementation of the Debt Relief Service from the Catastrophe Containment and Relief Trust. This would enable a boost in social spending and investments which might result in a sustainable, long-term economic development.
To elaborate on this proposal and to debate about possible precautionary measures to prevent moral hazard and a backfall into the debt trap, the Members of the Executive Boards decided to convene in Dresden.