- The Balance of Payments Manual has sparked controversy over XRP, as the IMF’s framework implies that some utility tokens may impose obligations on issuers.
- David Schwartz has rejected any implication that XRP should be classified as a security, emphasizing its primary function as a bridge currency for cross-border payments.
Recent discussions within the cryptocurrency community have been fueled by claims that the International Monetary Fund (IMF) has classified XRP, the digital asset associated with Ripple Labs, as a security. The IMF released an updated version of its Balance of Payments and International Investment Manual (BPM7), a financial reporting framework developed through consultations with over 160 countries. This update formally introduces classifications for cryptocurrencies, aiming to standardize their treatment in global finance.
A key focus of the new framework is determining whether a cryptocurrency imposes financial claims or liabilities on issuers. According to the IMF, Bitcoin (BTC) does not impose financial liabilities due to its mining-based issuance model. Utility tokens, often referred to as altcoins, are suggested to impose obligations on their issuers. Some crypto-assets are classified as “debt securities” if they provide holders with future access to goods and services.
With the inclusion of cryptocurrencies in its framework, the IMF recognizes digital assets’ growing role in global finance. However, its classification approach has stirred controversy, particularly regarding XRP, whose role as a bridge currency in cross-border payments makes it distinct from many other tokens.
Ripple CTO Responds
As speculation over XRP’s classification intensified, David Schwartz, Ripple’s Chief Technology Officer (CTO), directly addressed the claims. He firmly rejected the notion that XRP should be classified as a security, emphasizing that its decentralized nature and independence from Ripple Labs exempt it from such a designation.
Taking to X, Schwartz challenged the IMF’s classification logic, stating, “If XRP is a utility token because you can use it to pay future transaction fees, then so are BTC and ETH.” By this reasoning, he argued that if XRP were considered a security, then Bitcoin (BTC) and Ethereum (ETH) should be as well, an assertion that contradicts both industry consensus and previous regulatory rulings.
Schwartz further stressed that XRP’s primary function is to enable fast, low-cost cross-border transactions, making it fundamentally different from traditional securities, which represent ownership in a company or financial claims on an issuer. The debate over XRP’s classification has played out not only in the financial sector but also in the legal arena.
In July 2023, a U.S. court ruled that XRP is not a security, contradicting earlier claims by the U.S. Securities and Exchange Commission (SEC). At the time, the judge determined that XRP sales on exchanges did not constitute an investment contract, meaning they did not meet the legal definition of a security.
Recently, CNF reported that Ripple Labs is now free from the SEC’s lawsuit, which was first filed in December 2020. This legal victory has helped restore confidence in XRP, driving a 4.21% price surge over the past seven days, pushing its value up to $2.45. Additionally, transactions have soared to $2.77 million, marking the highest level in recent months and signaling growing network activity.
