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FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets

A national authority is designing rules for unbacked crypto assets such as Bitcoin. Because these assets have no underlying issuer liability and trade across borders on platforms in many jurisdictions, which feature of the IMF policy discussion most directly supports the case for international coordination?

Cross-border operation of crypto platforms and assets allows firms to relocate to lenient jurisdictions, so regulatory arbitrage is the key reason for international coordination. Consistent standards close gaps that fragmented national rules leave open, which makes coordination central to regulating unbacked crypto assets.

  1. ACross-border activity lets firms shift to jurisdictions with weaker rules, creating regulatory arbitrageCorrect
  2. BUnbacked crypto assets are always legal tender in participating countries
  3. CDomestic regulators have no authority over any domestic crypto intermediaries
  4. DCoordination is needed only because crypto assets are denominated in a single currency

Explanation

Unbacked crypto assets and their intermediaries operate across borders, so uneven national rules let activity migrate to the weakest regime. Coordination reduces this arbitrage and gaps in oversight. The other options misstate legal tender status, domestic authority, or denomination.

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