Crypto-CONUNDRUM-Coins: Consolidated standpoint needed
As early as January 2016, various regulators; international and national; have stated that virtual currencies do not pose systemic risks to financial stability, because of their small scale and limited linkages to the financial system – the International Monetary Fund (IMF), US regulators, the Bank of England, and more recently, the FSB or Financial Stability Board in their letter to the Buenos Aires G20 Summit, all seem to be in consensus about this.
The general idea has always been that, there is more hype around virtual currencies, than any real risk to the global financial system.
But that wasn’t all that the FSB letter to the G20 finance ministers and central bank governors, said. It also pointed out,
Crypto-assets raise a host of issues around consumer and investor protection, as well as their use to shield illicit activity and for money laundering and terrorist financing. […]
Relevant national authorities have begun to address these issues. Given the global nature of these markets, further international coordination is warranted, supported by international organisations such as CPMI, FATF and IOSCO.
The G20 consists of 19 individual countries and the European Union, and collectively, their economies account for around 85-percent of the gross world product (GWP), 80-percent of world trade, two-thirds of the world population, and approximately half of the world land area.
Taking cues from the private sector – Google and Facebook – at least the G20 countries seem to agree that there should be banning on marketing of cryptocoins investments, or initial coins offerings (ICO).
France’s finance minister, Bruno Le Maire, had said that a quarter of the summit’s participants were in favour of (taking this) action.
On top of that, in June 2014, the Financial Action Task Force (FATF) had highlighted the risky role that virtual currencies play in money-laundering (AML) and counter finance terrorism (CFT) activities. This has spurred central banks worldwide to take action, and closer to home, a policy document to ensure measures against these illicit activities, was released just last February.
But to be honest most of these steps taken around the cryptocoin ecosystem, seem more like stop gap reactions to virtual currencies, rather than anything that is proactive, long-term and impactful.
Much more could be done, and a big cause of inaction so far, seems to be the difference of opinions among G20’s members, about these digital currencies.
The crux of disagreement seems to be about what digital currencies actually are, and the official role they can play in a country’s and the international economy. There are even isolated whispers of governments, possibly backing a digital currency in the mid- to long-term future.
But at the same time, Sweden deputy central bank governor, Cecilia Skingsley, echoed her peers’ opinions when she said cryptocoins simply, “… don’t meet the criteria to be called money (legal tender).”
This is the general perception about the virtual coin right now, or at least it is a popular perception among the global regulator and banking community – it is too volatile, it is not a good store of value, and it is not an efficient medium of exchange. It could take up to 15 minutes for a bitcoin transaction, to be verified when one is buying groceries, for example.
Not regulated, but…
Although, virtual currencies are not regulated as at time of writing, they are generally not banned from becoming a means to enable or facilitate the carrying on of any financial services businesses.
Regulators in most countries have issued similar cautionary guidance about how to approach virtual-based transactions. Abu Dhabi’s Financial Services Regulatory Authority’s (FSRA’s), wordings for their guidance about virtual currencies for example, is as follows:
The Regulated Firm will have to demonstrate that the controls for the virtual currency transactions are fit for purpose. That includes putting in place control requirements to address any AML/CFT risks, technology risks, etc, associated with the use of virtual currencies.
Many observers note that for 2018, blockchain, the technology which underpins bitcoins and other cryptocoins, will start to inch towards the limelight and overshadow all the hype about virtual currencies.
With less attention on cryptocoins, perhaps a more consolidated standpoint about it’s role in the global economy, can be arrived at.