Financial regulators are likely to agree on a global framework for crypto next year after the rapid growth of decentralized finance “woke them up”, one of the most senior figures in the debate told the Financial Times.
Benoît Cœuré, head of the Bank’s Innovation Center for International Settlements, said talks on high-level global principles for cryptocurrency and decentralized finance have intensified in recent months.
The former councilor of the European Central Bank has headed the BIS Innovation Center for the past two years, giving him a front-row seat in international crypto-policy deliberations, while the world’s central banks use the BIS to share information and set global guidelines.
Cœuré, the announced nominated on Thursday to head France’s competition authority, said it was “not necessarily the wrong decision” for regulators to let the market develop and gain an understanding of “how crypto assets work”.
“But now that it’s growing really fast and. . . become mainstream in different ways, then the time has certainly come for consistent regulation, ”he said in an interview last week.
Cœuré said the new “wake-up call” was a decentralized financial system – a rapidly growing corner of the cryptocurrency market that uses distributed ledger technology and so-called “smart contracts” to handle billions of dollars’ worth of transactions without a central hub like an exchange.
Decentralized finance, or DeFi as it is known, “opens up new avenues. . . for interlinking with traditional funding, which potentially creates new forms of systemic risk, “which regulators can no longer ignore, said Cœuré, pointing out that DeFi is linked to both stablecoins, which are often used as a resolution tool on DeFi platforms , as well as with traditional finances.
“This [new] Services will compete with traditional funding and money will flow from one universe to another. This creates a compelling reason to start a discussion on global principles of crypto regulation. “
The speed with which the regulations in the individual legal systems are developing also increases the urgency to create a global framework. “The risk in 2022 is that large jurisdictions [like] Europe, the UK, the US and China keep moving, but in different ways, producing a system that is globally inconsistent, ”said Cœuré.
“This is a risk that should be avoided and there is still time to avoid it,” he added, pointing out that different approaches would create the possibility of “regulatory arbitrage” where companies and individuals could search government agencies by choosing the most convenient locations for their business.
Cœuré said the Financial Stability Board, a global grouping of finance ministries and regulators hosted by the BIS, is the most natural forum to agree on a unified framework and has warned that they will be able to do so in 2022 however, that “we are probably at least two or three years away from having a stable landscape around the world,” as it will be some time for countries to take action.
He added that the crypto framework could include agreements on categories for different activities and deciding whether a stablecoin – a form of cryptocurrency backed by traditional assets such as the dollar – is electronic money, a money market fund, or trades a security. It should also include guidance so that “service providers in these ecosystems and platforms are regulated according to the services they provide”.
Cœuré favored “strict consumer protection rules” and “would personally not mind if pension funds were prohibited from investing in crypto currencies. . . it seems to run counter to the security you expect from a pension fund ”.
Still, he conceded that despite the strong case for global collaboration, different countries’ approaches to data protection would limit the scope for a global framework, as would the reluctance of some countries to share details about the technology used in their ecosystems, as the technology did Technology used in finance often overlaps with technology used for other strategic purposes.
“The final decisions of sovereign states will be. . . a balance between sovereign strategic considerations on the one hand and considerations about the good functioning of the financial system on the other, ”he said. “This is not new, it is just the way it is. . . Those balances are shifting because technology is so important. The new risk is that governments will put up technological fences that will fragment the global financial system. “
He also said that policy makers are increasingly aware that central bank digital currency “should not be treated as a separate discussion” or should stay on the separate track in which it evolved. “We see how the discussion turns. . . towards CBDC (central bank digital currency) is. . . a fundamental contribution to the new ecosystem, ”he said.
“You need central bank money as a secure asset that can be used as settlement balance to make the new system stable. . . The point is not that CBDC is the sovereign alternative to private money, but rather that CBDC is the glue that holds the system together. “
Source: Crypto News Austria