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

A policy adviser argues that crypto regulation should focus on the risk that widespread crypto adoption in an emerging economy could undermine domestic monetary policy and capital flow management. Which policy objective does this concern primarily reflect?

The concern reflects the objective of preserving macroeconomic and monetary stability. If crypto assets substitute for domestic currency, they can weaken monetary policy transmission and bypass capital flow measures, which justifies regulatory attention.

  1. APreserving macroeconomic and monetary stability, including guarding against crypto-based currency substitutionCorrect
  2. BMaximising transaction fee revenue for validators
  3. CPromoting price discovery in domestic equity markets
  4. DReducing the accounting cost of audit for crypto firms

Explanation

Wider use of crypto in place of domestic currency (cryptoization) can weaken monetary policy transmission and circumvent capital flow controls. This is a macroeconomic and monetary stability objective, not about fees, equity price discovery or audit costs.

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