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In recent days, the dilemma faced by the central bank on how to deal with the rapidly growing global cryptocurrency market has become apparent due to two very different announcements.
On Thursday, the Basel Committee on Banking Supervision, the global regulator, stated that cryptocurrencies Is one of the most risky assets in the world, And called for stricter capital rules and stricter supervision of investor holdings.
However, El Salvador just a day ago Announce It will make Bitcoin a legal tender-the first country in the world to do so.
As cryptocurrency poses an increasing challenge to legal tender, regulators and central banks are competing for control of the monetary system, which may weaken the leverage that policymakers use to control economic operations.
Deutsche Bank analyst Marion Laboure said: “It is no surprise that the government is not inclined to give up its currency monopoly.” “As cryptocurrencies start to compete fiercely with conventional currencies and fiat currencies, regulators and policymakers will Blow.”
There are roughly two options: regulation and competition. Most countries are gradually adopting a joint approach, which is to strengthen the supervision of cryptocurrencies and private payment systems, while also developing digital currencies supported by the central bank.
The EU has developed a system Supervise The cryptocurrency market and the group’s national regulators also took measures in September last year. For example, BaFin in Germany push back Oppose the cryptocurrency exchange Binance’s efforts to issue digital tokens that mimic more strictly controlled traditional securities.
Regulators elsewhere are also taking action. In May, the People’s Bank of China Suppress Regarding cryptocurrencies, it is stated that financial institutions should not accept them as payment or provide services related to them.
China, which once accounted for the majority of global bitcoin transactions, took the first action in 2017 to close cryptocurrency exchanges.There were also signs last month that the mining pressure of virtual currency is greater. Inner Mongolia Province has established a hotline People can report suspicious mining equipment there.
After a relatively sluggish start, U.S. regulators also showed sign of Take a firmer attitude Bitcoin and its peers, despite their differences on the extent of the crackdown.
Hester Peirce, a senior member of the US Securities and Exchange Commission, recently warned against imposing too strict regulatory requirements on the cryptocurrency market.Her remarks are in stark contrast to those of the new commissioner Gary Gensler phone Make them subject to closer supervision.
At the same time, many central banks are adopting the technology behind cryptocurrencies in an attempt to compete with existing coins. According to data from the Bank for International Settlements, nearly 90% of central banks around the world have initiated projects to issue digital currencies.
The Bank for International Settlements stated in a January report: “The central bank, which represents one-fifth of the world’s population, stated that they may issue the first central bank digital currencies in the next few years.”
Potential benefits include making cross-border payments cheaper and faster, and allowing everyone to use the currency system, rather than dividing the world into those with bank accounts and those without bank accounts. The national digital currency may also trigger the reorganization of the world’s major currencies.
“We don’t usually associate the destruction with the central bank. But the major move to introduce the central bank’s digital currency may actually disrupt the financial system,” Morgan Stanley analyst Chetan Ahya said in a research report.
But this gambling is likely to trigger a vicious debate about data privacy, because the officially operated digital currency may give unprecedented power to decision makers.
Unlike cryptocurrencies that run on decentralized systems, central bank digital currencies will be issued, supported, and controlled by domestic national banks, enabling them to directly pay individuals. This will enable central banks and national governments to monitor every transaction and record all currency flows in their economies.
Randall Kroszner of the University of Chicago Booth School of Business said: “The digital currency revolution may develop in two directions: either decentralization and the victory of market forces, or centralization and government Monitoring of every transaction.”
It may also shake other economic relations. Sir Jon Cunliffe, Deputy Governor of the Bank of England, recently stated that the digital pound will allow parents to program their children’s pocket money so that they cannot buy sweets, which illustrates the potential power of the “British currency” in the UK plan.
China, Sweden and the Bahamas are world leaders in the development of their own cryptocurrencies. China has launched field trials of the digital renminbi, and millions of people are currently using it as a trial.
After a slow start, central bank governors in the United States, Europe, and the United Kingdom also responded. The European Central Bank recently concluded its public consultation on the digital euro and will make a decision on whether to proceed with the formal investigation phase later this summer.
Last month, the Chairman of the Federal Reserve (Fed/FED) Jay Powell outlined his plan to assess the prospects of the digital version of the dollar, but he said that before any firm commitments are made, there will be one this summer. “A well-thought-out process of deliberation.”
With the rapid growth of the economic role of private cryptocurrencies, this has forced policy makers and regulators to race against time to deal with the ethical issues involved.
“The dilemma facing society is: do we really want the central bank to understand all of our financial life?” said Eswar Prasad of Cornell University. “Ironically, the revolution triggered by Bitcoin may end [financial] privacy. “
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