This February 2023, the International Monetary Fund released its position on what it feels should be reflected in global attempts to regulate crypto. The IMF mentioned nine key points which they feel should be the unifying theme for all crypto regulation and legislation. The nine IMF points are:
- Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.
- Guard against excessive capital flow volatility and maintain effectiveness of capital flow management measures.
- Analyze and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets.
- Establish legal certainty of crypto assets and address legal risks.
- Develop and enforce prudential, conduct, and oversight requirements to all crypto market actors.
- Establish a joint monitoring framework across different domestic agencies and authorities.
- Establish international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations.
- Monitor the impact of crypto assets on the stability of the international monetary system.
- Strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.
Some of the Directors felt that a crypto ban should not be ruled out, though some did recognize the advantages of blockchain technology in reducing cost and improving the speed of remittances globally.
The first point is already concerning to them as countries like El Salvador have already adopted Bitcoin as legal tender, or are looking to have a similar arrangement. The last point (#9) does recognize blockchain’s advantages, but it appears that this would be through a Central Bank Digital Currency (CBDC) and not through private blockchains like Bitcoin or Ethereum.
One danger though from a CBDC is that technically speaking, governments worldwide can now track how their citizens spend their money. This is very difficult to do with currency since paper bills and coins do not leave an electronic trail. So to planners, politicians, and policy makers, this is an attractive option. However this feature is a nightmare for individual rights and policy advocates, who feel that what one does with their own money is their business, especially if they are not doing anything illegal.
It should also be pointed out that the volatility of the crypto markets is not really an inherent property of crypto. Rather it is due to the fact that the buyers are mostly retail buyers who may panic at the smallest price drop. There are also some tokens that have not been decentralized enough which results in “whales” with large holdings being able to manipulate the market price.
The resistance to crypto and blockchain reminds me of the early days of the Internet. For example, newspaper editors and reporters felt that their digital websites and writers were simply window dressing for the real journalists whose hands were dirty with newsprint and ink. Nowadays the situation is reversed. There are hardly any print journalists left. Most are now writing for digital publications. Some have even left to successfully start their own publications outside of the old newspaper setup.
Similarly, as the old grizzled hands of traditional finance hem and haw about the lost glory days of finance, their gold and silver, their bonds, and cushy Wall Street offices, some young software developers are working on new Web 3 decentralized finance (DeFi) distributed apps (“dapps”) that do away with the need for bankers and hedge fund managers.
The market worth of crypto as of late February 2023 was around $1T counting Bitcoin, Ethereum, and the other altcoins. But Apple alone is twice that at $2.34T. Gold is worth around $12T. The global stock markets are collectively worth around $95T. Global debt is around $300T.
Now think about it. That huge amount of money employs hundreds of thousands globally in financial services. Do you think they’ll just lay down and accept that their cushy bonuses, corner offices, and perks will be gone in a few years, all because of something called the “blockchain?” Thus they throw all sorts of roadblocks against this new technology.
This scares the hell out of people like Warren Buffett and Charlie Munger and the traditional finance oldtimers. They have no problem firing workers if needed. But if their financial wizardry is the one being displaced by AI and blockchain, then expect them to fight like dogs cornered on the street.
But given the history of technology innovation and change, that’s like trying to stop a wave from the ocean with your bare hands. No matter how much they want to believe otherwise, there’s nothing they can do about it.
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