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Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier
Capital flow management measures (CFMs) can be part of the broader policy toolkit to help countries reap the benefits of capital flows while managing the associated risks. Their implementation typically requires that financial intermediaries verify the nature of transactions and the identities of transacting parties but is facing the rising challenge of crypto assets. Indeed, crypto assets have become a significant instrument for payments and speculative investments in some countries. They can be traded pseudonymously and held without identification of the residency of the asset holder. Many crypto service providers operate across borders, making supervision and enforcement by national authorities more difficult. The challenges posed by the attributes of crypto assets are compounded by gaps in the legal and regulatory frameworks. This paper aims to discuss how crypto assets could impact the effectiveness of CFMs from a structural and longer-term perspective. To preserve the effectiveness of CFMs against crypto-related challenges, policymakers need to consider a multifaceted strategy whose essential elements include clarifying the legal status of crypto assets and ensuring that CFM laws and regulations cover them; devising a comprehensive, consistent, and coordinated regulatory approach to crypto assets and applying it effectively to CFMs; establishing international collaborative arrangements for supervision of crypto assets; addressing data gaps and leveraging technology (regtech and suptech) to create anomaly-detection models and red-flag indicators that will allow for timely risk monitoring and CFM implementation.
Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier

Adoption Box 1. The Crypto-Asset Ecosystem Box 2. Types of CFMs and Their Objectives Figure 1. Trends in Crypto Assets Figure 2. Financial Account Restrictiveness Index (FARI), by Income Group and Year Figure 3. Decentralization and Ability to Regulate Figure 4. How Mixers Create Untraceable Transactions Figure 5. Crypto Assets as Vehicles to Circumvent Capital Outflow Restrictions Table A2.1. Drivers of Crypto-Assets Adoption (Proxy: Trading Volumes) Table A2.2. Drivers of Crypto-Assets Adoption (Proxy: Google Search Trends)

Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier

transactions history by using mixers and complex layering ( Figure 4 ). The use of mixers creates untraceable transactions by mixing the transactions of several participants and redistributing the funds to their original owners via new addresses. 14 Moreover, technological advances and new services such as the Lightning Network provide additional privacy with little information appearing on-chain. In lightning networks, transactions are anonymized within a payment channel: only the total transfer of value, but not the individual transactions within it, is visible