By: Aleksandra Conway Silina
During the last G-20 meeting, member countries discussed the future of crypto. International Monetary Fund (“IMF”) Managing Director, Kristalina Georgieva, mentioned that “[w]e have to differentiate between central bank digital currencies that are backed by the state and stable coins, and crypto assets that are privately issued.” She also added that “[t]here has to be very strong push for regulation . . . if regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk.” This agenda seems a little harsh and may overlook the potential behind cryptocurrencies.
There are multiple issues discussed by the IMF board regarding crypto regulations including: not accepting crypto assets as a legal tender since they are not a real form of money; a strong push for crypto regulations is needed; and since crypto can create risks to financial stability, if the regulation fails or is slow, a ban of crypto should be considered. India, a G-20 country, mentioned that apart from assessing how crypto assets impact the overall economy, there is a fundamental question about whether crypto assets are truly the best solution for the current issues faced by global financial systems. The paper posted by the IMF after the meeting mentioned nine elements that can help members develop a comprehensive, consistent, and coordinated policy response. The nine elements are: safeguarding monetary sovereignty, managing capital flow volatility, disclosing fiscal risks, establishing legal certainty, enforcing oversight requirements, establishing monitoring frameworks, enhancing international collaborative arrangements, monitoring the impact of crypto assets on the international monetary system, and strengthening global cooperation for digital infrastructures and alternative solutions for cross-border payments and finance. Directors noted that although the anticipated advantages of crypto assets have not yet come to fruition, there have been notable risks. These risks involve macroeconomic concerns, such as risks to monetary policy effectiveness, capital flow instability, and fiscal risks. Additionally, they expressed significant apprehension about financial stability, financial integrity, legal risks, consumer protection, and market integrity. Given these circumstances, the proposed framework and its components were generally well-received by Directors.
The recent developments are most likely to affect how crypto is being regulated around the world. While there is a slight chance of crypto being banned, the advantages of this technology outweigh the disadvantages since even the IMF agrees that technology jumped ahead and new payment technologies including tokenization, encryption, and programmability taken together, can be extremely beneficial for the public. Tokenizing stocks, bonds, and other assets has the potential to reduce trading costs, facilitate market integration, and increase accessibility. However, purchasing these assets will require funds on a compatible ledger, such as stablecoins that comply with regulations. Moreover, banks are experimenting with tokenized checking accounts, and automation enables third parties to program functionality similar to building smartphone apps. While the private sector is driving innovation and customization, it does not guarantee safe, efficient, and interoperable transactions, even with proper regulation. Instead, the private sector may create networks solely for clients to trade assets and make payments. Open ledgers could emerge in an effort to connect private networks, but they may lack standardization and adequate investment due to limited profit potential. Additionally, using private forms of currency to settle transactions would pose risks for counterparties. Technology can aid in achieving significant public policy objectives, such as promoting interoperability among national currencies, ensuring safety through escrowed central bank reserves, settlement finality, automatic contract execution, and improving efficiency by reducing transaction costs, encouraging open participation, and providing contract consistency and transparency. However, this vision is still in the development stage, and there is much more to explore.
The cryptocurrency movement originally aimed to bypass intermediaries and public oversight, but ironically, its genuine value may arise from the technology that the public sector can utilize to upgrade payment and financial infrastructure for the greater good. By injecting interoperability, safety, and efficiency into private sector innovation and customization, technology can assist in achieving public policy objectives. The ban of crypto will only overlook the potential behind it, but also will harm millions of crypto users who are invested in it in one way or another.
Student Bio: Aleksandra Conway Silina is a second-year student at Suffolk University Law School. She is a staff writer on the Journal of High Technology Law. Aleksandra has received her first law degree with a concentration in corporate and business law from Higher School of Economics in Russia.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
