Expert reacts to comments on crypto regulation at G20
At the G20 finance ministers’ meetings in India, IMF managing director Kristalina Georgieva stated that the UN finance agency would prefer to differentiate and regulate crypto-assets rather than enforce an outright ban.
Konstantin Shulga, CEO and co-founder of Finery Markets, provides his analysis of the comments from the G20 event.
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Classification of digital money
Q. Georgieva has stated that there is “still confusion about how to classify digital money”. What possible solutions can help solve this?
“Digital money is emerging as a new fundamental force in the financial system, offering the potential for greater efficiency, innovation and financial inclusion.
“As more and more institutions, countries and citizens embrace the potential of cryptocurrency, digital money, stablecoins and central bank digital currency, the complexity of this new environment has become apparent.
“It presents tough challenges for policymakers to create a consistent and coordinated set of global policy frameworks to ensure the safety of this new financial system.
“In particular, governments must reconcile the bi-monetary approach, where countries have both domestic and international currencies, while navigating intricate developments such as monetary policy, the legal status (currency, commodity, securities) of digital money and related tax rules, and supervisory requirements for market participants.
“The IMF, FSB and BIS play a key role in leading the development of these global financial standards, although full implementation is still years away.
“With the use of digital money here to stay, it is important that regulations keep pace with the changing times to ensure strong protection and growth of the global economy.”
Issuance of legal tender
Questions. What are your thoughts on Georgieva referring to a paper that says crypto-assets cannot be legal tender as they are not backed?
“Cryptocurrencies have the potential to revolutionize the global economy by offering exciting benefits such as faster, more secure and cheaper transactions and payments. They can also be a way for individuals to invest in a new asset class.
“Although few countries like Salvador or CAR are experimenting with Bitcoin as legal tender, most countries do not accept cryptocurrencies as legal tender, as highlighted by Georgieva.
“This could be seen as a risk to the existing financial system by financial authorities, so the risks, benefits and implications of cryptocurrencies should be carefully weighed before they are officially legal tender.
“This includes considerations such as how these digital currencies may affect existing economic and financial systems, how tax laws may be applied and how illegal activity may be combated.
“Governments should also be aware of the implications of decentralizing currency issuance, as it may pose an obstacle to monetary policy and governments’ power over their economies.”
Crypto Ordinance
Q. According to Georgieva, the inability to protect consumers from the rapidly evolving world of cryptoassets will be the primary catalyst for banning crypto. How can this be avoided? And how can consumers be protected?
“The best way to ensure consumer protection in the crypto space is to create robust regulations that are focused on protecting the rights and interests of customers.
“However, banning cryptocurrencies would be a bad decision for the financial authorities. Such a ban would limit the potential for legitimate uses of the technology, such as financial inclusion, cheap money transfers, fast payments and secure storage of wealth and transfer of value.
“Additionally, a ban would be difficult to enforce, as the technology is designed to exist on a decentralized, distributed ledger rather than in a central location. This will make the implementation of a ban a costly effort for the authorities, while also creating regulatory arbitrage and uneven competition for businesses that want to innovate in fintech.
“Finally, a ban will further isolate the country from the global economy, resulting in a reduction in investment and trading opportunities. The industry expects regulators to establish clear definitions of different types of digital assets/digital money and associated risks.”
“To provide consumer protection, clear regulations should also create distinct licensing requirements for crypto infrastructure, such as exchanges, custodians and wallet providers, and set standards for the storage and transfer of customer funds, including KYC/AML requirements and secure storage solutions.”
