The G20 meeting of finance ministers and central bank governors in Buenos Aires was good for cryptocurrencies. There had been some concern beforehand that onerous regulation would be announced, but the G20 deferred to the Financial Stability Board to study the topic more and report back in July.
Several representatives commented that cryptocurrencies were a ‘hot topic’ and that governments were ‘far behind’ when it comes to understanding them. Participants were split between adopting more restrictive measures and a more benign attitude. Views were divided, not so much along country lines but between central banks and ministries of finance, with the latter being more relaxed.
The G20 signalled that cryptocurrencies are being taken seriously at the highest political level. There was some agreement that regulatory measures are needed, but it was felt that monetary innovations should not be stifled unduly. Care was taken to label cryptocurrencies as crypto-assets to make sure there is no mix-up with fiat currencies.
The crypto-asset label is tantamount to the notion that official currencies should not be subject to competition from private actors. This represents a fundamental obstacle to treating cryptocurrencies as currencies. Central banks will find it difficult to engage with non-official entities to discuss some form of cohabitation. It would require reneging on their customary legal rights to issue sovereign currencies that are the sole legal tender in their countries. There is room for rethinking monetary relationships, but several central banks appeared highly defensive of their privileges.
The introduction of digital currencies by central banks did not feature prominently. One central banker indicated that, with the difficulties in the euro area, there are ‘no plans’ for a digital euro. It was pointed out that motivations for introducing digital currencies should not be guided only by considerations in advanced economies. A central banker from an emerging market stressed that they wanted to be ‘cutting edge’ on currency matters and were keen to exploit technological possibilities.
The communiqué of the G20 meeting reads, ‘Crypto-assets lack the key attributes of sovereign currencies. At some point they could have financial stability implications.’ One central banker reiterated the notion that a currency ‘is something you need to trust’. Several representatives indicated that cryptocurrencies do not represent systemic risks, owing to their relatively small size. The Financial Action Task Force, which works on combatting terrorist financing and money laundering, is to review standards for cryptocurrencies. Consumer protection was the other big concern.
In a letter to the G20 on 13 March, the FSB had warned that ‘wider use and greater interconnectedness could, if it occurred without material improvements in conduct, market integrity and cyber resilience, pose financial stability risks through confidence effects’. Other representatives said cryptocurrencies and related applications should have no regulatory advantages over conventional processes.
Yet there were also warnings that regulators have a tendency to fighting the ‘last war’ and put in place measures to solve the ‘last crisis’ instead of future ones. Others repeated that there should be no ‘regulatory arbitrage’ between countries, highlighting the importance of international co-operation on the issue.
Cryptocurrencies have come a long way and have already transformed thinking about the role of governments in the production of money and the meaning of money itself. To date, this remains the greatest contribution of cryptocurrencies.
Ousmène Jacques Mandeng is a Visiting Fellow in the Institute of Global Affairs at the London School of Economics and Political Science.