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Push to police the 'dark side' of cryptocurrencies

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The world's financial leaders will call on international standard-setting bodies on March 20 for stronger monitoring of crypto-assets and to assess the need for a multilateral response as such assets could at some point threaten financial stability.

The call appears in a draft communique prepared for the meeting of finance ministers and central bank governors of the world's 20 biggest economies in Buenos Aires on March 19-20, seen by Reuters.

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US regulators warn of cryptocurrency risks

"If you're going to give them money, you'd better be prepared to lose it," top US financial regulators have warned a Senate panel unregulated exchanges pose significant risks to investors.

The financial leaders will say the technological innovation behind cryptocurrencies has the potential to improve the efficiency and inclusiveness of the financial system.

"Cryptocurrencies, however, raise issues with respect to consumer and investor protection, tax evasion, money laundering and terrorist financing. At some point they could have financial stability implications," the draft communique adds.

"We agree that international standard-setting bodies strengthen their monitoring of crypto-assets and their risks ... and assess whether multilateral responses may be needed."

International Monetary Fund managing director Christine Lagarde said the IMF could play a central role in co-ordinating the global regulation of cryptocurrencies. In a blog post, she cautioned about the "dark side" of digital cash and its potential to finance terrorism or facilitate money laundering.

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"No country can handle this challenge alone," she wrote. "We are uniquely situated to be a forum for helping develop answers in the evolving crypto-asset space."

Regulators globally have raised the alarm over cryptocurrencies, saying they may aid money laundering and terrorist financing, hurt consumers and undermine trust in the global financial system.

"Of course, money laundering and terrorist financing is only one dimension of the threat," Ms Lagarde wrote. "Financial stability is another. The rapid growth of crypto-assets, the extreme volatility in their traded prices, and their ill-defined connections to the traditional financial world could easily create new vulnerabilities."

Japan was the first country to adopt a national system to oversee cryptocurrency trading. It carried out checks on several exchanges this year after the theft of $US530 million from one exchange, Coincheck, in January.

France and Germany have said they will make joint proposals to regulate the bitcoin cryptocurrency market.

The head of the European Union's watchdog said a short-term strategy could be to focus on applying anti-money laundering and terrorist financing rules, warning consumers of the risk of trading in cryptocurrencies and preventing banks from holding them.

The US Securities and Exchange Commission said last week that many online trading platforms for cryptocurrencies should be registered with the regulator and subject to additional rules, in a further sign regulators are cracking down on the digital currency sector.

In a statement, the SEC said these "potentially unlawful" platforms may be giving investors an unearned sense of safety by labelling themselves as "exchanges". The regulator said these platforms needed to register with the SEC as a regulated national securities exchange or as an alternate trading system, or ATS.

Virtual currencies have existed for years but speculation in them has recently ballooned - along with scams promising investors returns of over 1000 per cent in weeks.

In a time of volatile markets, hackers are also active in the sector.

Bitcoin, the best known virtual currency, lost over half its value earlier this year after surging more than 1300 per cent last year.

Reuters and Bloomberg

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