As the value of Bitcoin goes up and down, the same question is being asked by people around the world: What exactly is the potential of crypto-assets?
The technology behind these assets—the blockchain—is an exciting advancement that could in addition to finance, help revolutionise various aspects of our lives. The anonymity element of the crypto-assets is because the digital offerings are typically built in a decentralised way and without the need for a central bank. This increases its potential as major new vehicle for money laundering and the financing of terrorism. Christine Lagarde suggests ways of ‘Addressing the Dark Side of the Crypto World’.
Though crypto-assets—or crypto-currencies are appealing, what makes them appealing is also what makes them dangerous. Therefore, a crackdown on crypto-currencies would involve fighting fire with fire – using the same innovations that power crypto-assets to help us regulate them.
Consumers in the crypto world need protection just as we have in the traditional financial sector. Regulators can protect consumers by using the same rules to ‘protect consumers in both digital and non-digital transactions’. They should also ensure policies focus on ensuring financial integrity and protecting consumers.
Regulating the crypto-world
Criminals can be shut out of the crypto world through the help of regulatory technology and supervisory technology. For instance, in some countries, crypto-asset exchanges are subject to know-your-customer requirements.
Indispensable international cooperation
Collective decisions among countries about crypto-currencies is a path worth pursuing. For example, Group of Twenty (G-20) would have crypto-assets on the agenda in its November 2018 summit in Argentina. Close international cooperation and global regulatory framework are required in order to effectively, regulate crypto-assets since they know no borders. For example, the successful closure of AlphaBay, involved the cooperation of Europol and law enforcement agencies in the United States, Thailand, the Netherlands, Lithuania, Canada, the United Kingdom, and France.
The IMF will play its part in the effort.
With the near-universal membership and expertise – in battling money-laundering and terrorist financing, the IMF is uniquely situated to be a forum for helping develop answers in the evolving crypto-asset space.
Crypto-assets are volatile and continue to prompt intense debate about whether they are a bubble, another fad, or a revolution comparable to the advent of the internet – which the potential of disrupting the financial sector and eventually replacing fiat currencies.
Though the truth is obviously somewhere in between these extremes. It would be unwise to dismiss crypto-assets, rather, we must welcome their potential but also recognise their risks.