Cash and crypto - Do you prefer not to regulate?
Cryptocurrencies give access to 2 billion unbanked individuals who have been unable to open a bank account the meet their daily financial needs. In Venezuela, hyperinflation and US sanctions are boosting cryptocurrencies to provide people with the banking system they need. The heart of cryptos lies in their unregulated and decentralized nature. The question is when moving away from failing financial infrastructures and weak local currencies, will they work?
When comparing cryptocurrencies and traditional banking services, some basic principles sometimes seem to be forgotten. For example, when you put money on your current or savings account, you probably think you are giving it to the bank for safekeeping. And, in many respects, this is correct, but in reality, what has happened is that you have just lent your money to the bank (following certain terms and conditions). In this transaction, the bank will use the money it has lent to create more money. As a result, you have become a lender to the bank, a facilitator of money creation, and have relevant rights secured by law.
The traditional banking system is among the most regulated industries in the world. Those who still remember the 2008 financial crisis might agree that regulation has an important role in keeping our global economy safe. A heavy regulation aims to safeguard the rights of those lenders, in addition to the stability and safety of the financial system. This means capital adequacy requirements, mandatory deposit schemes and last resort lender intervention frameworks, to name a few.
At the moment, cryptocurrencies provide transfer of money globally faster than any bank can do. When considering the aspect of cryptocurrencies replacing traditional banking services, it should be kept in mind that cryptos are highly volatile, and, currently, unregulated. In jurisdictions with effective traditional banking industry, they are mainly used for speculative purposes.
There are up to 12.000 different cryptocurrencies valued around at $3 trillion. Sounds like a lot of money not to be regulated. It is no wonder that such numbers have risen concerns regarding its impact on the financial stability that is so interconnected globally. Eventhough, Sir Jon Cunliffe from the Bank of England says that financial stability risks at the moment are relatively low, it seems that arguments against regulating are weakening. Scott Duke Kominers thinks the real question is not if the field should or should not be regulated but how heavy the regulatory burden should be.
"I donât think itâs a question of âno regulationâ versus âa lot.â The real question is the extent to which regulators understand that crypto is a different type of product and tech infrastructure from anything theyâve regulated before." - Scott Duke Kominers (Harward Gazette, 29 September 2021, interviewed by Christina Pazzanese)
'If you cannot fight them join them', is the mentality taken by those who have accepted that cryptocurrencies are here to stay. "55% of the worlds top 100 banks are already investing in the crypto and blockchain space", announces Carla MozĂŠe (Market Insider, 15 August 2021). The more money is involved, the more interest there is to regulate, and thus, protect the rights of those putting their money into circulation (and not into grandmother's knitted sock) to benefit the society as a whole.
Read more:
"Future of Moneyâ economist says the end of cash is comingâhereâs what could replace it" by Taylor Locke (CNBC make it, 29 November 2021)
"How Cryptocurrencies Affect the Global Market" by Justin Kuepper (the balance, 29 October 2021)













