The G20 summit (a meeting among leaders of the world’s 20 biggest economies) wrapped up recently. We saw a rather surprising amount of time spent discussing cryptocurrency-specific topics, from regulation to CDBCs.
Here’s a quick recap of the major developments.
“Rapid adoption of global cryptocurrency regulations”
One of the major factors limiting the spread of crypto adoption has always been legal uncertainty. There’s just not very much coordination between nations, with each implementing its own patchwork of cryptocurrency laws and restrictions.
That may change in the years ahead. The G20 summit is actively working for a coordinated effort to create consistent crypto regulation – a framework to allow for the exchange of information between countries starting in 2027.
As the leaders wrote at the end of their two-day meeting in India:
We call for the swift implementation of the Crypto-Asset Reporting Framework (CARF) and amendments to the CRS [Common Reporting Standard]. We ask the Global Forum on Transparency and Exchange of Information for Tax Purposes to identify an appropriate and coordinated timeline to commence exchanges by relevant jurisdictions.
Furthermore, the G20 approved the Financial Stability Board (FSB)’s recommendations on the “regulation, supervision and oversight of crypto-assets activities and markets and of global stablecoin arrangements.”
The FSB is a global watchdog organization responsible for setting international financial standards and coordinating regulation across member nations. Yes, it sounds like just another international bureaucracy, exactly the sort of globalist technocrats so often perceived as the enemy by crypto-libertarians.
On the other hand, the FSB’s actual recommendations make good sense. Crypto platforms would be required to:
- Segregate customer funds from their own assets
- Clearly outline functions (market-making, custody etc.) to avoid conflicts of interest
- Coordinate international cooperation and oversight among regulatory bodies
- Automatically exchange information on cross-jurisdiction crypto transactions annually
In other words, the FSB gives regulators a consistent game plan that would help avoid the next FTX fiasco. And it’s a big deal! Several countries would be affected by the upcoming framework, including Argentina, Australia, Brazil, Canada, China, the entire European Union, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States. In other words, some ⅔ of the world’s population.
We say, “Better late than never.”
Speaking of late…
Showdown shaping up between CDBCs and traditional crypto
In a sense, it’s inevitable that central banks would regard the entire stablecoin ecosystem with envy. “Deciding what’s money is our job,” they argue.
Can’t we all just get along? The market will solve this problem for us, if we let it…
But monopolists cannot abide competition. In fact, European Central Bank (ECB) executive board member Fabio Panetta spoke against the conventional wisdom that CDBCs and private stablecoins can coexist. At least in Europe, euro-pegged stablecoins are rivals to a centralized digital euro (“e-euro” just sounds silly).
Possibly Panetta sees the Euro Zone’s $220 million in daily stablecoin transactions with a greedy twinkle in his eye. Or he could be legitimately concerned about the fragmentation of the general payment ecosystem.
Markets really can solve these problems if we let them. Those solutions sometimes emerge from creative destruction – a process that offers long-term stability but demands periods of upheaval on the way. Regulators, by their very natures, can’t abide uncertainty. So our markets exist in a state of dynamic tension, with regulators on one side scrambling to write laws to keep up with the innovators on the other side who just keep creating new products, new services and new forms of money.
CDBCs are a sort of compromise between fiat currency and cryptocurrency – crypto minted by a bureaucracy rather than a clique of coders. Depending on your personal politics, that might sound like a better or a worse invention than, say, Tether or USDC.
As I wrote some time ago:
The good news here is that national adoption of a CDBC essentially ushers an entire nation into crypto adoption – and that’s potentially huge. Some people aren’t ever going to trust money that doesn’t have a sovereign nation’s name on it. That perspective may seem somewhat provincial in a time of near-global 40-year high inflation, but let’s not pick on the central bankers. They’re doing the best they can.
The downside of CDBCs is, well, that first initial. “C” is for “central,” and whose interests does the central bank serve? Its citizens’ best interests? Alas, all too often, no.
Non-central cryptocurrencies already exist, and they’re already “programmed” for privacy. CDBCs, in the wrong hands, are a totalitarian regime’s dream come true. Bureaucrats in your wallet, approving or vetoing any single purchase?
Listen: 90% of the world’s central banks are actively developing CDBCs.
In other words, they finally figured out that most money is already digital. Granted, they’re 15 years behind the curve, but that’s not unusual.
The best thing about the surge in CDBC projects is enhanced adoption. A crypto on-ramp for an entire nation. Once the average citizen gets accustomed to using their CDBC wallet to make everyday purchases, is it much of a leap to expect them to diversify their savings with free-market cryptocurrencies like bitcoin and ether?
I think the answer is obvious. Between privacy concerns and purchasing power lost to inflation, I believe a significant portion of CDBC money will rapidly be converted into free market money.
So what does the future look like?
We already know cryptocurrencies cannot be effectively outlawed by tyrannical governments. Crypto doesn’t go away. So, instead, all governments are copying crypto innovations for their own use. And onboarding their citizens.
Which means that the market for crypto will only continue to grow, supported and encouraged by the very central banks that are rapidly becoming obsolete.
Is the future of money a hodgepodge of CDBCs, each developed and managed by a separate bureaucracy? Or existing cryptocurrencies, those already proven successful in the Darwinian jungle of the free market?
Maybe both? Fortunately, we don’t have to know the outcome – we can hedge our bets by diversifying our long-term savings with market-proven cryptocurrencies today.