By Ussal Sahbaz
So-called “crypto-assets” have recently been the focus of attention by regulators of G20 economies. This article will argue that the G20 has both the opportunity and the responsibility to coordinate these efforts to ensure that the building blocks of the next generation of decentralized finance (DeFi) and the internet are conducive to a sustainable global economic architecture. , balanced and inclusive.
The first mention of cryptoassets by the G20 came at the Buenos Aires summit in 2018 and the focus was on anti-money laundering efforts: âWe are going to regulate cryptoassets to fight against money laundering. against money laundering and terrorist financing in accordance with the FATF. [Financial Action Task Force] standards and we will consider other responses if necessary. At the Osaka summit in 2019, G20 leaders said, âWhile crypto-assets do not pose a threat to global financial stability at this point, we are closely monitoring developments and remain vigilant against existing risks. and emerging âand asked the Financial Stability Board. (FSB) to monitor potential risks to financial stability, which culminated in the FSB’s 2018 Global Stable Coins Report.
In Riyadh last year, in part in response to Facebook’s declaration to issue a global stablecoin named Libra, G20 leaders reacted strongly: adequately addressed through proper design and adhering to applicable standards. Since then, Facebook has backed down from Libra, which was supposed to be registered in Switzerland and backed by a basket of global reserve currencies, and renamed its efforts as Diem, now a stablecoin backed only by U.S. dollars. Diem has yet to be released. During the same cycle of the Saudi G20 presidency, the FSB released a roadmap to improve cross-border payments, an area where global stablecoins like Libra have reportedly replaced existing inefficient methods. The fate of Libra shows that if the G20 can act decisively, private sector rebel solutions can be brought under the control of sovereign states and coordination between the public and private sectors can be strengthened in building the blocks of the Libra. next-generation financial architecture.
Nonetheless, according to the recent Global Economic Outlook from the International Monetary Fund (IMF), stablecoins have a market capitalization of US $ 120 billion and represent only about 5% of the global market capitalization of crypto assets. Almost half of that volume is Bitcoin and the rest is made up of other coins, including Ether, on which a large ecosystem of smart contracts is forming. Bitcoin itself has no utility value; it is viewed by investors as âdigital goldâ, an accessible and liquid asset to store value and protect against rising inflation. Not surprisingly, Bitcoin is particularly popular in emerging markets and developing economies, including G20 economies such as Turkey, Brazil, Argentina, and Indonesia. Given historical macroeconomic instability and inflationary risks, some of these countries face a risk of what the IMF calls “crypto-currency”, i.e. resident capital in the form of crypto-assets.
Reactions to countries’ cryptoassets vary widely: China has imposed a complete ban on all cryptoassets in 2021. The main potential goal is to promote the Chinese central bank’s digital currency, an area in which China is a world leader. Indian regulators have already imposed similar bans, but have failed in court. While the internet is not as closely guarded as it is in China, it is also technically impossible to ban the exchange of cryptoassets, as most exchanges take place in global entities, which are still accessible through private networks. virtual (VPN). Some G20 economies, like Turkey, have imposed partial regulations, and most are discussing comprehensive crypto-asset regulations. The most advanced project is MiCa, published by the EU and currently under discussion for over a year. Meanwhile, El Salvador, a small country that is already officially dollarized, has declared Bitcoin as its legal national currency.
The regulation of crypto-assets, especially Bitcoin, the largest by market capitalization, requires global coordination. The reason is simple and technical. While the owners of Bitcoin are local users, the blockchain ledger it runs on is global. Any transaction requires the modification of all the ledgers in the world. Therefore, unlike gold or securities, there is no local custody or local exchange of Bitcoin. This is why no open economy can itself regulate Bitcoin or other crypto-assets. This inability leads either to fear and to rules that would ban the trading of cryptoassets altogether, which, in turn, will be futile due to the very fact that the assets are global in nature. Alternatively, this results in a complete lack of regulation, which not only poses a risk for ordinary users and a lack of guidance for institutional investors, but also creates global problems of money laundering and terrorist financing. .
The G20 should have a strong grasp of the regulation of crypto-assets, providing guidance to national regulators on the nature of the technology and best regulatory practices. It is expected to task the OECD, in cooperation with the FSB, the FATF and the IMF, to prepare guidelines for the regulation of crypto-assets. The first generation of the internet economy formed around big tech companies without a focus on sustainability and inclusiveness. The second generation of the internet economy will be shaped around the crypto-economy. While it is true that crypto-assets do not presently pose a risk to global financial stability, it is imperative for the G20 to act as a leader in defining the regulatory architecture of the future Internet economy. .
The opinions expressed above belong to the authors.