The dilemma faced by central banks over how to tackle the world’s growing cryptocurrency market has been blatantly thrown in recent days by two very different announcements.
On Thursday, the global regulator of the Basel Committee on Banking Supervision said that cryptocurrencies are… Are some of the most dangerous assets in the worldHe called for stricter capital rules and stricter control over investor property.
However, El Salvador only had one day announce It will make bitcoin legal tender – the first country in the world to do so.
Regulators and central banks are battling for control of the monetary system as cryptocurrencies become an increasing challenge to fiat currencies, threatening to weaken the levers that policymakers rely on to control the management of their economies.
“It is not surprising that governments are not inclined to abandon their monetary monopolies,” said Marion Laboure, an analyst at Deutsche Bank. “As cryptocurrencies begin to compete seriously with cryptocurrencies and fiat currencies, regulators and policy makers will take drastic action.”
There are two broad options: regulation and competition. Most countries are slowly moving towards a common approach to tightening controls on cryptocurrencies and private payment systems with the development of central bank-backed digital currencies.
The European Union established a system for Supervision Cryptocurrency markets in September last year, and national regulators in the bloc took steps as well. For example, BaFin was in Germany go back Against efforts by crypto exchange Binance to issue digital tokens that mimic traditional securities that are strictly regulated.
Regulators elsewhere are also on the move. In May, the People’s Bank of China stepped up its multi-year currency عمله repression on cryptocurrencies, saying 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 trading, first moved to shut down cryptocurrency exchanges in 2017. In the past month, there have also been signs of increased pressure on virtual currency mining, as it set up the province of Inner Mongolia. hot line Where people can report suspected mining equipment.
After a slower start, regulators in the US also appear يظهر Signs From Take a more assertive approach towards bitcoin and its peers, although there are disagreements about the extent of the crackdown.
Hester Pierce, a senior member of the Securities and Exchange Commission, recently warned about the very stringent regulatory requirements of the cryptocurrency markets. Her comments contradicted those of new Commissioner Gary Gensler calls to put them under closer supervision.
Meanwhile, many central banks are adopting the technology behind cryptocurrency in an effort to compete with existing coins. Nearly 90 percent of the world’s central banks have launched projects to issue digital currencies, according to the Bank for International Settlements.
“Central banks representing a fifth of the world’s population say they are likely to issue the first central bank digital currencies in the next few years,” the Bank for International Settlements said in a report in January.
The potential benefits include making cross-border payments cheaper and faster and making the monetary system accessible to all individuals, rather than dividing the world into those with bank and unbanked accounts. National cryptocurrencies can also lead to the re-mixing of the world’s most dominant currencies.
We don’t usually associate turmoil with central banks. “But any major move to introduce central bank digital currencies could really disrupt the financial system,” Chetan Ahya, an analyst at Morgan Stanley, said in a research note.
But the adventure risks sparking a fierce dispute over data privacy because officially operated digital currencies can give policymakers unprecedented power.
Unlike cryptocurrencies that operate on decentralized systems, central bank digital currencies will be issued, backed and controlled by local national banks, giving them the ability to pay money directly to individuals. This will allow central banks and national governments to monitor every transaction and keep a record of all money movements in their economies.
“The digital currency revolution can go in two directions: either the victory of decentralization and market forces or the victory of centralization and government control of every transaction,” Randall Kruszner of the University of Chicago’s Booth School of Business told the Financial Times.
It can also destabilize other economic relations. Bank of England Deputy Governor Sir John Cunliffe said recently that the digital pound would allow parents to program pocket money for their children so that they would not be able to buy sweets, illustrating the potential powers of a planned “Britcoin” in the UK.
China, Sweden and the Bahamas are the world leaders in efforts to develop national digital currencies. China has already launched live trials of its digital renminbi with millions of people currently using it as an experiment.
After a slower start, central bankers in the United States, Europe and the United Kingdom responded. The European Central Bank recently concluded a public consultation on the digital euro and will make a decision on moving forward with the formal investigation phase later this summer.
Last month, US Federal Reserve Chairman Jay Powell outlined his plans to assess prospects for a digital dollar issuance, though he said there would be a “deliberate and deliberative process” this summer before any firm commitments are made.
This leaves policy makers and regulators in a race against time to address the relevant ethical issues, as the economic role of privately run cryptocurrencies grows rapidly.
“The dilemma that society faces is: Do we really want the central bank to know everything about our financial lives?” Eswar Prasad of Cornell University said. “The great irony is that the revolution unleashed by Bitcoin could be the end of it.” [financial] total.”
To get the latest fintech news and opinions from FT’s worldwide network of reporters, sign up for our weekly newsletter الإخبارية #fintechFT