Thursday, 14 November, 2019
The Digital Regulator
International regulators tackle the issues of stable coins and digital money
Libra was a wake-up call for international regulators last summer. They realized that cryptocurrencies could rapidly become systemically relevant if they were to substitute national currencies to some extent. Analyses by the G7, Financial Stability Board (FSB) and the Bank for International Settlements (BIS) led to the introduction last October of a new category of token, the GSC, and to the formulation of strict authorization requirements. As a consequence, no such coin will be issued in the short term. The official sector has also been quite clear about the ineluctability of CBDCs and has initiated work to integrate CBDCs into a Distributed Ledger Technology (DLT) infrastructure.
Reportedly, China has positioned itself as a potential first CBDC mover. Depending on who starts the innovation process and on the degree of international influence of its currency, the current international monetary system based on the USD as a global payment currency could be challenged. Irrespective of conjectures, the intense regulatory focus has enhanced trust in digital and crypto finance.
The last few weeks has been rich of other noteworthy developments. Confirmation has been given in the US that the Bitcoin (BTC) and Ether (ETH) are not securities – and therefore fall outside the remit of securities law; that Liechtenstein has written history by becoming the first state to provide a comprehensive set of rules for a digital asset ecosystem; that China has unveiled plans to become a leading blockchain jurisdiction, and that Japan and Hong Kong have introduced guidelines for crypto fund managers.
Global Stable Coins are subject to new regulations
International regulators have introduced GSC as a new category and set strict authorization conditions for private initiatives, making the creation of a GSC such as Libra impossible for the time being.
Further growth in public-sector resistance towards the GSC project Libra
International regulators have started analysing the integration of CBDCs into a DLT infrastructure and now recognize the inevitability of CBDCs
Other noteworthy developments
BTC and ETH are not classed as securities in the US; securities law does not apply
Liechtenstein passed the Blockchain Act, making the state the first to provide a comprehensive legal framework for digital assets
The financial authorities in Japan and Hong Kong are introducing guidelines for crypto fund managers; more predictability will foster this industry segment
China embraces blockchain technology, news that has moved the market
The last 4-5 weeks have witnessed a strong regulatory focus on stable coins and, in particular, the introduction of the GSC category and related authorization conditions. These developments have made the creation of a private-sector GSC such as Libra impossible for the time being.
According to BIS statements, there is a clear belief that CBDCs are inevitable. China claims that it will soon issue the first CBDC. The BIS has initiated analysis of their integration into a DLT infrastructure in partnership with the Swiss National Bank. On balance, these developments have helped to enhance collective trust in digital and crypto finance.
Other noteworthy developments include the confirmation by US regulators that BTC and ETH are not securities in the US (this sets these cryptocurrencies outside the scope of securities law), the passing of the Blockchain Act in Liechtenstein (making Liechtenstein the first state to provide a comprehensive DLT legal framework), the introduction of guidelines for crypto fund managers in Japan and Hong Kong (creating further legal certainty). Finally, China has officially embraced blockchain technology, a development that has reverberated through the global crypto economy.
1See the Digital Investor - Enter Project Libra ↵
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