One of the world’s biggest financial institutions is scrambling to deal with a fast-approaching truth in the world of cryptocurrency.
The International Monetary Fund (IMF) has made a new push for world governments to regulate cryptocurrency as the technological tidal wave takes hold.
The volatility that comes with such a new technology has left a number of traditional economists and existing banks worried. Several over-eager investors have learned the hard way how quickly online markets can change – sometimes on the back of something as innocuous as a tweet – and have lost thousands in cash.
The argument for regulation centres around a bid to protect vulnerable investors. However the most staunch free-market advocates in the crypto sphere believe it is the lack of policy which gives the phenomenon so much potential.
The IMF is most definitely in the former camp, as it calls on governments to work together on widespread regulations as banks face an increased push to adopt cryptocurrency.
“There is an urgent need for cross-border collaboration and co-operation to address the technological, legal, regulatory and supervisory challenges,” the organisation said in a statement on Friday.
The IMF is wary of the ability cryptocurrency has to bypass traditional constraints between countries, warning the “borderless” payment system could soon become a problem for those in power with the responsibility to manage economic systems.
“Crypto’s cross-sector and cross-border remit limits the effectiveness of national approaches,” the statement continued. “Countries are taking very different strategies, and existing laws and regulations may not allow for national approaches that comprehensively cover all elements of these assets.
“Importantly, many crypto service providers operate across borders, making the task for supervision and enforcement more difficult. Uncoordinated regulatory measures may facilitate potentially destabilising capital flows.”
Now, after years of stifling cryptocurrency, banks and government have begun to accept the undeniable juggernaut. According to the Sydney Morning Herald, the Reserve Bank of Australia (RBA) is “tempering calls to adopt its own electronic asset”, in response to what has been the biggest year in cryptocurrency growth to date.
RBA Governor Philip Lowe has remained a staunch skeptic and an advocate of strong regulation, warning the public of the “uncertainty about the long-term usefulness of these assets”.
Dr Lowe is also skeptical consumers will ever replace using fiat currency with crypto assets for day-to-day payments, again questioning the volatility and overall value of new technologies.
It is worth noting that at the time of writing, bitcoin is sitting at more than triple its year-on-year value at $A67,104 per coin.
“To date, we have not seen a strong public policy case to move in this direction, especially given Australia’s efficient, fast and convenient electronic payments system,” Dr Lowe said this week.
“Relevant considerations here include the usefulness to end users of the underlying payments functionality, the security of the funds invested, price volatility, the stability of the intermediaries used and the ultimate backing of the asset – not to mention the significant energy consumption that is required to make a transaction using some of these crypto assets.
“It is possible, however, that the public policy case could emerge quite quickly as technology evolves and consumer preferences change. It is also possible that these tokens could offer a lower-cost solution for some types of payments than provided by the existing technologies.”
Treasurer Josh Frydenberg is slated to announce a series of regulatory and tax proposals covering digital wallets in coming weeks.
The move reportedly includes the introduction of a central bank digital currency, which the Treasurer says will put Australia at the cutting edge of the global fintech economy.
“For consumers, these changes will establish a regulatory framework to underpin their growing use of crypto assets and clarify the treatment of new payment methods,” he said. “As more Australians utilise these technologies and invest in these digital assets, it is important that a robust regulatory regime underpins their interactions.”
However, the ongoing attempt from existing financial institutions to squeeze the crypto genie back into the bottle has attracted heavy criticism from blockchain advocates, who believe the revolutionary technology can provide a more efficient and ethical platform for individuals to control their wealth.
For many, cryptocurrency is still in its very early infancy and attempts to centralise it will only tarnish its potential as a game-changing platform for commerce in decades to come.
Former IMF chief Simon Johnson said the “jury is still out” in regards to cryptocurrency, which has only really existed as a payment system for a decade.
“I think we’re all still waiting for a defining event that really draws the lines of what people think,” he said.