The IMF has expressed its concerns about the possible outcome of the confiscation of Russian assets abroad as a consequence of the ongoing military conflict between the nation and Ukraine. Julie Kozack, a spokesperson for the institution, called for these actions to have a proper justification to avoid threatening the world’s financial system. IMF Calls […]
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IMF Chief Calls for Clear Crypto Regulation — Warns High Crypto Adoption Could Undermine Financial Stability
The head of the International Monetary Fund (IMF) has called for clear crypto regulations worldwide, cautioning that high crypto adoption could undermine macro-financial stability. “Our goal is to make a more efficient, interoperable, and accessible financial system by providing rules to avoid the risks of crypto, and infrastructure by leveraging some of its technologies,” she stressed.
IMF on Crypto Adoption and Financial Stability
International Monetary Fund (IMF) Managing Director Kristalina Georgieva called for the establishment of clear regulations and robust infrastructure worldwide to mitigate the risks associated with crypto assets at an international conference in Seoul on Thursday. The two-day conference, titled “Digital Money: Navigating a Changing Financial Landscape,” was jointly hosted by the IMF, the Bank of Korea, the Korean Ministry of Economy and Finance, as well as the Korean Financial Services Commission.
The IMF chief cautioned:
The challenge is that high crypto asset adoption could undermine macro-financial stability.
Georgieva then highlighted potential risks of widespread crypto adoption, including weakened monetary policy transmission, disruption of fiscal sustainability due to volatile tax collection, and less effective capital flow management measures.
The IMF managing director clarified that rules are not meant to “return us to a pre-crypto world, nor to squash innovation.” She explained: “Good rules can spur and guide innovation. For instance, banks are exploring new trading infrastructure using blockchain technology refined and popularized by the crypto boom. They hope to cut costs and boost speed for trillions of dollars of daily asset transactions, and to broaden financial access to those currently content with low yielding deposit accounts.”
Regarding crypto regulation, she emphasized:
Our goal is to make a more efficient, interoperable and accessible financial system by providing rules to avoid the risks of crypto, and infrastructure by leveraging some of its technologies.
What do you think about the statements by IMF Managing Director Kristalina Georgieva regarding crypto? Let us know in the comments section below.
Lawmakers Object to Federal Reserve’s Stablecoin Guidelines — Say They Undermine Legislative Progress
Several U.S. lawmakers have objected to the Federal Reserve’s stablecoin regulatory guidelines, which they believe “will undoubtedly deter financial institutions from participating in the digital asset ecosystem.” According to the lawmakers, “The Fed has chosen to effectively prevent banks from issuing payments stablecoins — or engaging in the payment stablecoin ecosystem.”
Fed’s Efforts ‘Subvert Progress Made by Congress’
Three U.S. representatives sent a letter to Federal Reserve Chairman Jerome Powell regarding stablecoin regulation last week. The letter, dated Aug. 23, was signed by Patrick McHenry (R-NC), chairman of the House Financial Services Committee; French Hill (R-AR), chairman of the Subcommittee on Digital Assets, Financial Technology and Inclusion; and Bill Huizenga (R-MI), chairman of the Subcommittee on Oversight and Investigations.
Congressman Hill stated Monday on the social media platform X:
I sent a letter alongside Rep. Patrick McHenry and Rep. Bill Huizenga to the Federal Reserve objecting to their efforts to undermine the Financial Services Committee’s progress on stablecoin legislation. The Fed has chosen to effectively prevent banks from issuing payment stablecoins.
In their letter, the lawmakers expressed concerns regarding “the Federal Reserve Board’s recent Supervision and Regulation Letters titled ‘Creation of Novel Activities Supervision Program’ (SR 23-7) and ‘Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens’ (SR23-8).” Both letters were issued on Aug. 8. The lawmakers stressed:
We are concerned that these actions are being taken to subvert progress made by Congress to establish a payment stablecoin regulatory regime. Moreover, if these letters are left in place, they will undoubtedly deter financial institutions from participating in the digital asset ecosystem.
Noting that the House Committee on Financial Services recently passed a bill titled “Clarity for Payment Stablecoins Act,” which has bipartisan support, the congressmen stated that “instead of working with Congress to establish a workable regime, less than two weeks after the Committee’s action, the Fed released SR 23-7 and SR 23-8.”
The lawmakers explained that the Fed’s Novel Activities Supervision Program “appears designed to impose additional regulatory burdens on banking institutions to engage with crypto assets and to provide the Fed with additional tools to deny crypto asset-related activities.”
Moreover, they pointed out that “SR 23-7 and SR 23-8 were not issued in accordance with the notice and comment process as required under the Administrative Procedure Act. This guidance represents an effort by the Fed to set policy without being held accountable to market participants and the public, which is unacceptable.”
The lawmakers concluded their letter to Chair Powell with a request for written answers to a number of questions pertaining to SR 23-7 and SR 23-8. They include how the Fed intends to “implement a fair and consistent process for determining which banking organizations will be subject to supervisory examinations.” The congressmen also asked the Federal Reserve chairman to provide documents pertaining to SR 23-7 and SR 23-8, including all related records and communications among employees and all related records and communications of Vice Chair for Supervision Michael Barr.
The lawmakers emphasized:
By issuing the letters, the Fed has chosen to effectively prevent banks from issuing payments stablecoins — or engaging in the payment stablecoin ecosystem.
What do you think about the lawmakers opposing the Federal Reserve’s stablecoin regulatory guidelines? Let us know in the comments section below.
Expert Claims Proposed BRICS Common Currency Poised to Undermine US Dollar Dominance
A recent report from China’s Global Times reveals that Zhou Yu, an international finance research director at the Shanghai Academy of Social Sciences, believes that the proposed BRICS cross-border currency is a significant step in challenging the dominance of the U.S. dollar. Zhou asserts that the recent initiatives to promote local currency settlement have provided BRICS countries with a competitive advantage in diminishing the influence of the greenback in global trade.
Shanghai Academy Research Director Says BRICS Common Currency Is a ‘Plausible Alternative’ to the Dominant Greenback
The BRICS nations, encompassing Brazil, Russia, India, China, and South Africa, have been actively engaged in discussions concerning the establishment of a cross-border currency. This newly proposed topic will be a focal point of the upcoming leaders’ summit, scheduled to take place in Johannesburg, South Africa, on August 22, 2023.
In an eventful second week of May, Naledi Pandor, the South African minister of international relations, cautioned against hastening the development of a BRICS cross-border currency. Simultaneously, Zhou Yu, a director at the Research Center of International Finance in the Shanghai Academy of Social Sciences, shared insights on the feasibility of the proposed common currency in an interview with the CCP-supported Global Times.
“Despite the daunting difficulties such an effort faces, it is not entirely impossible for these nations to have such a currency unit,” Zhou said in the interview. “However, currently the effort by BRICS nations seems to be focused on devising a currency unit used specifically to settle cross-border trade, rather than a currency unit to replace other local currencies, which reduces the difficulty of such efforts and increases its plausibility,” Zhou added.
The effort to settle trade in local currencies has been a focus in recent months. For instance, South Africa’s BRICS Sherpa opined that member nations need to “strengthen economic cooperation.” Zhou explained that a common BRICS currency would take a long time like the creation of the euro, because the proposed BRICS currency is not competition for local fiat; it should be quicker to craft and roll out to members.
U.S. Experts Dismiss De-Dollarization Fears
In recent months, there has been a notable emphasis on settling trade transactions using local currencies. A prime example of this focus is South Africa’s BRICS Sherpa, who expressed the need for member nations to “enhance economic cooperation.” Shedding light on the matter, Zhou stressed that the establishment of a unified currency among the BRICS countries would require a substantial amount of time, drawing parallels to the creation of the euro.
However, Zhou clarified that unlike local fiat currencies, the proposed BRICS currency is not intended to compete but rather aims to be developed and implemented among local fiat currencies. According to Zhou, the accelerated growth of local currency settlement represents the most tangible and momentous stride undertaken by BRICS nations to diminish the alleged hegemony of the dollar in trade settlements.
Although the BRICS common currency is hailed as a means to diminish the supremacy of the US dollar in worldwide trade, certain skeptics remain unconvinced of its potential success. Renowned finance expert and author Dave Ramsey recently dismissed worries about de-dollarization, while American political scientist Ian Bremmer asserted that proclamations of the greenback’s demise are exaggerated. In a recent op-ed, Keynesian economist Paul Krugman attributed the de-dollarization trend to individuals who are “always predicting hyperinflation.”
What do you think about Zhou’s opinion shared with the Global Times? Do you think a BRICS common currency can undermine the dominant greenback? Let us know what you think about this subject in the comments section below.
The Stablecoin Issue: Should Stability Undermine Scalability
The current cryptocurrency landscape, although fast-growing, is still noticeably far from being the inadvertent choice in finance for the average Jane and Joe.
Among the few barriers to entry that linger in the crypto space for newbies, price fluctuation (volatility) is a key hurdle to overcome. To put this in perspective, cryptocurrencies can fluctuate in price by upwards of 16% in a single day!
What if there was a form of money that was as stable as regular fiat currency but can still be used as a cryptocurrency? This would solve several challenges like not having to liquidate all holdings to your bank account and possibly being liable to pay a higher short-term gain tax.
For those reasons, and more, “stablecoins” came into existence.
What Are Stablecoins?
Stablecoin is very much like a regular cryptocurrency but with a stable value. That means while a stablecoin lives on a blockchain, can be decentralized, and functions in a peer-to-peer ecosystem, its price is theoretically resistant to the crypto market volatility. That’s why the collective market capitalization of all stablecoins has quickly grown to a whopping USD 180 billion.
Now, a stablecoin may derive its price stability using different approaches. Some of them are pegged to a basket of fiat currencies and commodities like the US dollar and gold while others are pegged to a mix of crypto, fiat, and commodities. These stablecoins are together termed collateralized stablecoins.
Further, there are stablecoins that rely solely on an automated smart contract to maintain their price stability, and they are dubbed algorithmic stablecoins.
However, the stablecoin market is mostly dominated by collateralized stablecoins such as USDT, BUSD, and USDC.
The Limit of Collateralized Stablecoins
Collateralized stablecoins were the first form of stablecoins and are all the rage for the most part. These stablecoins, like USDT and USDC are able to maintain a near-constant ratio of 1:1 with the US dollar with their protocol that “claims” to physically hold one US dollar for every token in the circulating supply.
This fiat-backed model of stablecoins has rapidly garnered the trust of investors and governments. While investors are more confident in these coins due to their reliance on fiat currencies, governments have supported the concept as it promotes cryptos without posing any threat to government-backed currencies.
While there’s no doubt that the concept is novel and game-changing in many aspects, it also has a few significant shortcomings. Among those, a major limitation is the inability of stablecoins to scale to meet rapidly growing demand.
Stablecoin issuers have so far been able to deposit the required fiat currency collateral to mint more coins and meet the rapidly growing demand. But the question arises, how long can they keep on locking more fiat currencies to mint more stable cryptocurrencies? It is obvious that there has to be an upper limit and it will curb the scalability of this otherwise extraordinarily useful digital asset.
While regulators and investors strongly support fully collateralized stablecoins over all else, these limitations are factors that we have to take into consideration on priority.
To push beyond the apparent scalability limitation and to come up with a truly “working” stablecoin, a new generation of stablecoins is emerging. Enter Beanstalk.
Beanstalk: A Credit-Based Stablecoin Protocol
Beanstalk solves the challenge of meeting dynamic demands through a unique burning and minting mechanism. Crudely put, Beanstalk’s native token, $BEAN, is able to constantly maintain the price of USD 1.00 by dynamically adjusting the token supply as per demand.
For instance, when the price of the token falls below USD 1.00, it is an indicator of low demand. To counter that, holders receive incentives in the form of a higher interest rate to lend $BEAN back to the protocol – and some $BEAN tokens are burned in the process. Similarly, when the price of the token goes above USD 1.00, it indicates a higher market demand, and the protocol mints more $BEAN.
More experienced DeFi users may have experienced first-hand the disastrous consequences of failed uncollateralized stablecoins in the past. Once a de-pegging event occurs and stablecoin value falls, many investors risk losing their savings forever. Beanstalk, on the other hand, continues to show by example that its credit-based protocol works: it has so far returned to its USD 1.00 peg 4,700 times, and does so more and more frequently.
As the global cryptocurrency market continues its growth, the stablecoin market will surely follow. In order to meet the growing demand, it is imperative that more innovative tools become available. In order to deliver on its promise of stability, many stablecoin projects have deferred to the vital role of collateral while ignoring the unmet demand. However, Beanstalk’s protocol shows that stability does not have to undermine scalability and vice versa. As such, the protocol is a welcoming step towards a more decentralized future with less volatility and more utility in the world of stablecoins.
BIS General Manager Says Central Bank-Issued Crypto Could Undermine Financial Stability
The post BIS General Manager Says Central Bank-Issued Crypto Could Undermine Financial Stability appeared first on DCEBrief.