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An Analysis of the International Monetary Regime in the Age of Cryptocurrencies


The international monetary system has evolved since its inception, with cryptocurrencies prompting a reevaluation of its adaptability to the changing economic landscape. This paper explores the international monetary regime in the era of cryptocurrencies.


The term 'international monetary system' was legally incorporated in 1962 through the General Arrangements to Borrow (GAB) decision of the International Monetary Fund (IMF). Later, the term was included in the Articles of Agreement of the IMF. However, neither the decisions nor the articles contained a substantial definition of the term. Scholars define the term by examining its interconnections with the IMF and International Monetary Law. Under this approach, the system refers to the structure of internationally accepted rules, and understandings regulating the balance of payments, and exchange rates, facilitating international trade, cross-border capital flows, and the maintenance of international reserves. This framework involves more than international monetary laws to ensure seriousness, with certain international institutions at its core for effective administration.


Before analyzing the current state of the international monetary system, it’s crucial to understand the need for such a system by examining domestic monetary structures. For instance, the Indian Financial System consists of (a) domestic currency, i.e., the Indian Rupee, which serves as the means of payment for all transactions within the nation, (b) commercial banks and financial institutions, which serve as intermediaries, in that they receive sums as deposits, and subsequently, lend the same, and (c) the central bank, i.e., the Reserve Bank of India, which is responsible for the issuance of the currency and also for regulation of its supply within the economy. It is noteworthy that the central bank also performs certain essential functions, such as the provision of ‘clearing house’ facilities for cheque clearance and inter-bank reconciliation and regulation of electronic forms of payments, such as NEFT and RTGS.


At the international level, similar infrastructure is required, but there are fundamental differences, notably the need for a currency conversion system based on market forces and a payment facilitation system relying on commercial banks, the primary players in the foreign exchange market. This reliance on diverse commercial bank structures, governed by separate rules and regulations, ties the international system to each nation's domestic monetary setup. Furthermore, the system is also influenced by specific domestic policies, impacting demand and supply forces in the forex market, leading to exchange rate fluctuations.


This dependence necessitates mutual agreements, rules, and supporting institutions to regulate exchange rate arrangements, promote confidence and liquidity, and address global imbalances.[1] However, the achievement of this balance is challenging, considering historical approaches failed to prompt timely policy changes in systemic nations. This raises questions about the current adequacy of the international monetary system and its supporting institutions to handle the anticipated impact of human integration into the global economy.[2]



The Bretton Woods Conference in 1944, the foremost multilateral charter for the regulation of the international monetary system, saw the constitution of the International Monetary Fund (IMF) and the introduction of the Bretton Woods System. This marked a shift from the conventional gold standard to a pegged, adjustable-to-change method based on the U.S. Dollar, which, in turn, was pegged to gold at a coordinated rate. However, the system collapsed in the 1970s, marking a radical transformation in the international monetary landscape. This shift was influenced not only by inherent issues within the Bretton Woods System but also by developments in trade, politics, and technology. Consequently, a decentralized, market-based system emerged, characterized by floating exchange rates, currency conversion allowances, and a liberal approach to cross-border capital flows.


Additionally, the institutions supporting the system, i.e. the International Monetary Fund (IMF) and the World Bank, have seen changes in their official objectives. In this context, it is pertinent to note that the world economic system during the post-war period (i.e., between 1945-1970) was devastated by the effects of war, with restrictions on trade and conversion of currencies, lack of means to purchase resources from the one economy which had excesses thereof (i.e., the United States of America) and the deep-seated fear of consequences similar to those which followed the first world war (including recession and unemployment). Consequently, those who took part in the Bretton Woods not only shared the goal to overcome such effects but also shared a fresh approach to thought and well-devised strategies to achieve that goal. The Articles of Agreement of the International Monetary Fund (IMF) clearly prescribed the twin objectives of the system, i.e., the enhancement of international trade through liberalization (i.e., reduction of restrictions on trade, currency conversions, etc.) and the promotion of employment and productivity.[3] While the former was entrusted to the IMF, which oversaw currency matters and maintained a common pool of resources to be utilized to overcome short and medium-term difficulties (e.g., balance of payments difficulties) the latter was entrusted to the World Bank, which extended monetary support and technical advice to overcome long-term difficulties (e.g, reconstruction and development difficulties).


Since the introduction of the said objectives, the world economic system has seen significant developments, including the rise of developing economies, foreign exchange convertibility, increased operations of multinational companies, and the gradual fall, from its superior position of the United States. These developments coupled with fresh political influences, have prompted international institutions to shift their focus towards other objectives, including the development of third-world nations, eradication of poverty, protection of the environment (through the promotion of sustainable development) and the promotion of employment.[4]


These institutions, being international entities, should collectively address international welfare needs that neither market mechanisms nor individual nations can fulfill. This is crucial due to externalities associated with certain government or private actions. Therefore, in light of the recent global economic developments, notably driven by technological advancements like cryptocurrencies, analyzing the current competence of the international monetary system necessarily requires an examination of the concept and legal status of cryptocurrencies.



To analyze the concept and status of cryptocurrencies, we need to first discern an appropriate definition of the term “cryptocurrencies”. Now, as per the definition coined by the Financial Action Task Force (FATF) in its 2014 Report, the term cyber currency (or virtual currency) means “a digital representation of value that can be digitally traded and functions as (i) a medium of exchange and/or (ii) a unit of account and/or (iii) a store of value but does not have legal tender status (i.e., when tendered to a creditor as a valid and legal means of payment) in any jurisdiction. It is not issued or guaranteed by any jurisdiction and fulfils the above functions only by agreement with the community of users of the virtual currency”. [5]


The European Central Bank (ECB), in its 2012 Report, defined the term as “a type of unregulated, digital money which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community”, and later, in its 2015 Report, as “a type of unregulated, digital money which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community”.[6]


Later, the International Court of Justice (ICJ), in the case of Skatteverket vs. Hedqvist, determined cryptocurrencies as a means of payment accepted by persons engaged in such transactions. Furthermore, The ICJ clarified that these transactions pertained to domestic currency and qualified for exemptions from value-added taxes.[7]


These definitions highlight that cryptocurrencies, operating within specific virtual communities, lack legal recognition, preventing them from being considered “full forms of money”. Despite being deemed an acceptable means of payment, the lack of "general acceptability," a key aspect of money, is not addressed in the aforementioned decision. Consequently, cryptocurrencies do not fit within the definitions of "money" as outlined by traditional theories, including the State theory, which emphasizes legal recognition, and the Societary theory, which emphasizes general acceptance within a community.[8]



Under public international law, money has been considered a state prerogative, with scholars relying on established theories rather than crafting a distinct definition. Despite monetary sovereignty not being expressly recognized either in the Articles of Agreement of the IMF, the Agreements thereof or any other prominent instrument of international law, the Articles make a presumption as to the monetary sovereignty whilst remaining silent about the principle and the surrounding concepts of "money" and “currency”. [9]


The landmark France vs. Kingdom of the Serbs, Croats and Slovenes[10] case remains case remains a pivotal authority, upholding states' authority over their currency based on general acceptance in international law. Consequently, public international law recognizes state sovereignty over its currency and aspects of its monetary and financial systems.[11]


At the domestic level, courts globally recognize the sovereignty of foreign states over their currency, addressing issues like counterfeiting within national boundaries. This recognition implies not only a right for the state but also an acknowledgement by other states. International law aligns more with the State theory, considering currency issuance a sovereign act. [12] As the creation of cryptocurrencies involves private or commercial acts, it does not meet the definition of 'money' under domestic or international legal systems, lacking the recognition and consequences associated with traditional currency.


International law is, therefore, more in line with the State theory in that it considers the issuance of currency to be an essentially sovereign act capable of recognition and consequences. The creation of cryptocurrencies, being like a private (or commercial) act, must lead to the conclusion that cryptocurrencies do not fall within the definition of ‘money’ and are not capable of such recognition or carry such similar consequences, whether examined under the lens of a domestic or an international legal system.




Considering traditional theories of "money" and concepts of "monetary sovereignty," the conclusion seems correct. However, the rise of cryptocurrencies could challenge these theories, prompting a reevaluation of monetary principles. The recent growth in cryptocurrency usage may have implications for states, impacting their obligations concerning cryptocurrencies: Firstly, apart from preventing counterfeiting, states have no obligation to protect other states' monetary systems. If a state perceives cryptocurrency as a threat, it cannot demand regulation.[13] Secondly, states may use cryptocurrencies for fulfilling financial obligations, based on treaty terms or tribunal orders for international compensation. [14] Thirdly, following the Skatteverket case, recognizing cryptocurrencies as an acceptable means of payment implies their value, requiring acknowledgement as 'property' under national and international legal systems. [15]Therefore, the potential widespread adoption of cryptocurrencies necessitates collective action by international financial institutions notwithstanding the principles of monetary sovereignty.



In agreement with Dr. Frances Stewart's assertions about the inadequacy of International Financial Institutions (IFIs) in dealing with new world economic challenges, a radical governance change is crucial. However, addressing the cryptocurrency issue, which challenges monetary sovereignty while promoting decentralization, requires specialized attention. Therefore, IFIs or the Economic and Social Security Council (ESSC) must strive for a delicate balance between these conflicting concepts.


[1] Mark Carney, ‘The Evolution of the International Monetary System’ [2009] 14 BIS 1-10.

[2] ibid.

[3] Frances Stewart, ‘The Governance and Mandates of the International Financial Institutions’ [1995] 26 IDS 4, 30.

[4] ibid.

[5] Virtual Currencies: Key Definitions and Potential AML/CTF Risks [2014] Financial Action Task Force 4 <>

[6]‘Virtual Currency Schemes—A Further Analysis’ [2015] European Central Bank 4 <>

[7] Case C-264/14 Skatteverket vs. Hedqvist [2015] ECLI:EU:C:2015:71.

[8]Charles Proctor, ‘Cryptocurrencies in International and Public Law Conceptions of Money’ [2019] 1 Oxford 33-37.

[9]Claus D. Zimmermann, ‘The Concept of Monetary Sovereignty Revisited’ [2013] 24 EJIL 3 797-818.

[10]Also known as the Serbian Loans Case.

[11] R.M. Lastra, ‘Legal Foundations of International Monetary Stability’ [2006] 12 OUP 16-17.

[12] Charles Proctor, ‘Cryptocurrencies in International and Public Law Conceptions of Money’ [2019] 1 Oxford 39

[13] ibid.

[14] ibid.

[15] ibid.

Name: Varun Agarwal

University: O.P. Jindal Global University, 3rd Year

Programme: LL.B. (Hons.)


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