In the G20 economies, so-called “crypto assets” have recently come into the focus of the supervisory authorities. This article argues that the G20 has the ability and responsibility to coordinate these efforts to ensure that the building blocks of the next generation of decentralized finance (DeFi) and the internet enable a sustainable, balanced and inclusive global economic architecture.
The first mention of crypto assets by the G20 came at the Buenos Aires Summit in 2018 and the focus was on anti-money laundering efforts: “We will use crypto-assets to combat money laundering and terrorist financing according to the FATF [Financial Action Task Force] standards and we will consider other responses than necessary. At the Osaka summit in 2019, the G20 leaders said, While crypto assets are not currently a threat to global financial stability, we are monitoring them Develop accurate developments and remain vigilant for existing and emerging risks “and asked the Financial Stability Board (FSB) to monitor potential risks to financial stability, which resulted in the FSB 2018 report on the global stablecoins.
In Riyadh last year, in part in response to Facebook’s statement to issue a global stablecoin called Libra, G20 leaders reacted strongly: will not be treated adequately through proper planning and compliance with applicable standards. Facebook has since taken a step back 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 dollar-backed stable coin. Diem has yet to be released. During the same cycle as the Saudi G20 presidency, the FSB released a roadmap to improve cross-border payments, an area where global stablecoins like Libra would replace existing inefficient methods. The fate of Libra shows that if the G20 can act decisively, rebel private sector solutions can be brought under the control of sovereign states and public-private sector coordination can be strengthened in building the financial architecture blocks.
However, according to the latest 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 are other currencies, including ether, in which a large ecosystem of smart contracts is forming. Bitcoin itself has no utility; It is viewed by investors as “digital gold”, an accessible and liquid asset to store value and protect against rising inflation. Unsurprisingly, Bitcoin is particularly popular in emerging and developing countries, including G20 economies like Turkey, Brazil, Argentina, and Indonesia. Given historical macroeconomic instability and inflation risks, some of these countries are at risk of what the IMF calls “cryptocurrency”; i.e,. resident capital in the form of crypto assets.
Reactions to countries’ cryptocurrencies vary widely: China has imposed a complete ban on all cryptocurrencies in 2021. The main potential goal is to promote China’s central bank digital currency, an area where China is a world leader. Indian regulators have already imposed similar bans, but this has failed in court. While the internet is not as closely guarded as it is in China, it is also technically impossible to impose a ban on cryptocurrency trading, as most of the trading takes place in global entities, which are still accessible through virtual private networks (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 and already officially dollarized, has declared Bitcoin to be legal national tender.
The regulation of crypto assets, especially Bitcoin, which is 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 on which it runs on is global. Any transaction requires amendment of all ledgers worldwide. Therefore, unlike gold or securities, there is no local custody or exchange of Bitcoin. This is why no open economy can regulate Bitcoin or other crypto assets. This inability leads to fears and rules that would completely prohibit the exchange of crypto assets, which in turn will be useless for the same reason that assets are global in nature. .
The regulation of crypto assets, especially Bitcoin, which is 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 on which it runs on is global. Any transaction requires amendment of all ledgers worldwide. Therefore, unlike gold or securities, there is no local custody or exchange of Bitcoin. This is why no open economy can regulate Bitcoin or other crypto assets. This inability leads to fears and rules that would completely prohibit the exchange of crypto assets, which in turn will be useless for the same reason that assets are global in nature. .
Alternatively, this leads to a complete lack of regulation, which not only poses a risk for ordinary users and a lack of orientation for institutional investors, but also creates global problems in money laundering and terrorism financing.
The G20 should have a full understanding of the regulation of crypto assets and provide guidance to national regulators on the type of technology and best regulatory practices. It was supposed to mandate the OECD, in collaboration with the FSB, the FATF and the IMF, to develop guidelines for regulating crypto assets. The first generation of the internet economy was formed around large technology companies with no focus on sustainability and inclusivity. The second generation of the internet economy will be shaped by the crypto economy. While crypto assets do not currently pose a risk to global financial stability, it is imperative that the G20 help configure the regulatory architecture of the future internet economy.
