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IMF: ‘Deeper effort’ on digital asset regulation

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) last night urged The Bahamas to undertake “deeper efforts” to regulate digital assets firms by providing more resources to inspect their operations.

The Fund, in issuing its statement on the annual Article IV consultation with this nation, warned that “vigilance will be of the essence” in supervising the fast-evolving industry as The Bahamas continues to manage the fall-out from last November’s implosion of the FTX crypto currency exchange.

In particular, it called on The Bahamas to ensure that planned reforms to the Digital Assets and Registered Exchanges Act, the key law in its regulatory regime, are aligned with international standards set by the likes of the Financial Stability Board and Basel Committee.

“Deeper efforts are recommended to analyse, monitor and mitigate financial stability risks stemming from crypto assets,” the IMF urged. “The regulatory framework for crypto assets has been updated and the authorities have legislated an amendment to the Digital Assets and Registered Exchanges (DARE) Act to strengthen the regulation and supervision of crypto assets.

“Critically, this should be accompanied by the provision of more resources for on-site inspections to help identify and rectify operational deficiencies and reduce reputational risks.

“Further amendments to the legislation to fully align The Bahamas’ framework for crypto assets with global standards like the Financial Stability Board’s high-level recommendations on crypto assets and the Basel Committee standards on the prudential treatment of crypto exposures are advised. Vigilance in this nascent but rapidly-evolving area of regulatory oversight will be of the essence.”

The Bahamas likely does not need to be warned twice following FTX’s collapse, which has sparked liquidation and winding-up legal proceedings in both this nation and Delaware amid efforts to untangle assets that have been “hopelessly commingled”.

The IMF, though, found no threat to The Bahamas’ foreign currency reserves that are critical to supporting the one:one exchange rate peg with the US dollar. “Protection of the exchange rate peg requires sustained preservation of international reserves,” it said. 

“The recovery in tourism, external public sector borrowing and the presence of long-standing capital flow management measures have supported international reserve accumulation even as domestic short-term interest rates remain well below those in the US.

“However, capital flows can be sensitive to interest rate differentials, especially during periods of uncertainty or volatility. Liquidity management operations, as well as allowing interest rates to rise as needed by market conditions, could be useful for mitigating these risks, reduce banks’ carrying cost of reserves and, in turn, narrow the spreads between deposit rates and rates on loans to private borrowers.”

Elsewhere, the IMF prodded The Bahamas to remedy all concerns identified in its 2019 Financial Sector Assessment Programme (FSAP). “The progress made by the authorities in implementing the 2019 FSAP recommendations are welcome, but some areas remain to be addressed,” it added. 

“A separate Resolution Unit within the Central Bank has been established but will require adequate staffing to become fully operational. Plans are underway to establish The Bahamas Financial Stability Council (BFSC) to improve inter-agency co-ordination and information exchange among financial stability regulators.

“Efforts should be furthered to increase the coverage of deposit insurance for domestic banks by increasing premiums levied on banks for all deposit liabilities, while improving the Deposit Insurance Corporation’s governance and operational structure. The collection of loan-level data by supervisors would assist in identifying systemic risks and, if needed, in designing macro-prudential policies.”

Calling on The Bahamas to persist with the introduction of the Central Bank Digital Currency (CBDC), the IMF added: “Usage of the Sand Dollar, the central bank’s digital currency, remains limited. Despite the large diffusion of electronic wallets, the Sand Dollar still represents a small, albeit growing, percentage of money in circulation.

“The Central Bank is continuing its outreach efforts to the public and has formalised the governance framework surrounding the Sand Dollar. The bank’s multi-pronged approach to increasing Sand Dollar adoption has the potential to increase financial inclusion and increase the resilience of the payment system.

“Continued efforts to identify and manage cyber security risks and improve the security infrastructure will also bolster confidence in the Sand Dollar, and strengthen prospects for a larger circulation.”

Comments

AnObserver 4 months, 4 weeks ago

How about just banning crypto altogether? It has zero use, aside from buying illicit goods on the darkweb, and enabling the ransomware industry.

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ThisIsOurs 4 months, 4 weeks ago

The Bahamas is the perfect testing ground for snake oil. I listen to people get excited about oil drilling, illegal gambling, home porting, blockchain technology, bitcoin, FTX, marijuana, satellite wifi technology and crypto and the story is always the same with the same result.

I saw it with the marijuana town hall everybody crammed into a room eagerly asking questions, with illegal gambling, people marching downtown demanding they get to make a million dollars too, home porting everybody talking about "getting ready" for something that it was clear was never sustainable. With satellite everybody heard "Elon Musk" and like clockwork everybody was going to switch to the new slower more expensive platform. That was an interesting anomaly because the sales pitch hadnt even started, they just heard the name and imagined they'd be getting some money in the deal.

But it's the same story over and over again. Some rich people flash money and talk about how well theyve done for themselves, Bahamians with the aid of the few locals who will actually benefit, start talking about how theyll get some of the money, the rich people get to do what they want and the Bahamians are left in the lurch to wait for the excitement of the next snake oil pitch.

The biggest snake oil pitch happens like clockwork every 5 years.

Getting excited about financial opportunity is normal what happens in the Bahamas is an anomaly. Because the excitement happens in an information and research vacuum.

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LastManStanding 4 months, 3 weeks ago

I agree with your general point, but you are way off on Starlink. Starlink is both superior, and cheaper, than any service that I have ever received from BTC or Cable. BTC and Cable are effectively dead in the Family Islands when it comes to internet. I wish that Elon Musk would buy BPL, or better yet just buy the whole country; things might actually function as they should.

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