In recent blockchain news, we’ve already seen how a number of Asian governments are enforcing regulation of cryptocurrency such as in India and South Korea. Now European policy makers want perhaps less stringent but equally cautious regulation, too.
France and Germany are leading the European Union with regulations on cryptocurrency, starting with the G20.
France and Germany, the two largest economies in the European Union, are now urging the G20, a meeting of international financial officials, to take measures to prevent cryptocurrency from undermining global financial stability and creating risks for investors. G20 is a powerful but supposedly informal group with representatives from 19 countries including the European Union, as well as members of the International Monetary Fund and the World Bank.
Several officials from countries in the EU have responded to the growth of cryptocurrency.
Bruno Le Maire, France’s Minister of the Economy, Peter Altmaier, acting German Finance Minister, Francois Villeroy De Galhau, governor of the Bank of France and Jens Weidmann, president of the Deutsche Bundesbank, wrote an official letter to the G20 urging its ministers to pursue regulation which will theoretically prevent risks posed by the rapid growth of cryptocurrency.
The letter describes why regulation is needed since “tokens could pose substantial risks for investors and can be vulnerable to financial crime without appropriate measures. In the long run, potential risks in the field of financial stability may emerge as well.”
The subject of cryptocurrency is clearly a pressing matter since the European Union leaders stated they want the issue to be central to the first G20 meeting.
The first G20 meeting between Finance Ministers and Central Bank Governors is to be held in Buenos Aires on March 19 and 20. There, the letter, specifically directed at Argentina’s minister of finance Nicolas Dujovne, will be on the agenda. The letter begins by noting the “significant rise and the volatility in the valuation and market capitalization over the past year of digital instruments issued through distributed ledger technology” also known as blockchain.
The officials then urged the G20 to adopt appropriate regulation via “international harmonized actions” recognizing the “transboundary implications” of cryptocurrency.
They acknowledged cryptocurrency offers a highly adaptable financial tool, but simultaneously is risky to investors and ripe for exploitation by criminals. The letter cited specifically listed four challenges cryptocurrency presents and that the G20 should take measures to address the challenges through regulation.
The first challenge is fostering a greater understanding regarding the nature of cryptocurrency tokens.
The letter authors said such tokens are mislabeled as “currencies,” but that regulators hold disparate views about the nature of such tokens. As a result of the confusion surrounding the very basic units of cryptocurrency, there is a “lack of clarity for investors” that will cause market speculation which could lead to chaos.
The authors called for a clear distinction between the actual tokens and the underlying distributed ledger technology. France and Germany do think such blockchain technology promises “sustainable innovation” worthy of pursuing.
Secondly, letter authors asked for regulation to monitor the rising exposure of market participants to tokens in terms of market integrity and financial stability.
This kind of regulation may have limited implications right now but given the expanding capitalization of tokens, it is deemed necessary to prevent risks to financial stability. The use of cryptocurrency tokens as a means of exchange as well as Banks issuing cryptocurrency should be monitored closely per monetary policy, urged the letter.
The third challenge cryptocurrency regulation should address, according to the letter, is to protect non-professional investors.
Cryptocurrency developers need to make risks more explicitly clear in plain language so that amateur investors understand the full picture.
The fourth and last challenge described by officials is the need for a common approach to tackle money laundering and counter-terrorism financing.
“France and Germany have already taken concrete regulatory measures regarding ‘virtual currencies’ in the field of anti-money laundering and counter-terrorism financing, and the European Union is working in the same direction. However, an efficient push-back against the use of ‘tokens’ and ‘virtual currencies’ for the purpose of criminal activities will require a coordinated international effort” states the letter.
The officials also want other international forums such as FSB, FATF, BIS, to conduct a report including potential regulations on these four challenges.