One of the main reasons bitcoin is often met with skepticism is because it’s thought to be popular among thieves and criminals. Government regulators are typically the strongest proponents of this view, but now International Monetary Fund chief Christine Lagarde says the technology behind cryptocurrency can be used to turn the tide on those who would use it for malicious activity.
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Regulation – Does It Need to Happen?
Lagarde has remained a strong advocate for cryptocurrency regulation, and has even “warned” in the past that regulation was inevitable. In a recent IMF blog, Lagarde wrote:
“The same innovations that power crypto-assets can also help us regulate them. To put it another way, we can fight fire with fire. Regulatory technology and supervisory technology can help shut criminals out of the crypto world.”
While initially a fan of blockchain technology and the advancements it offers to banking and finance, she also feels it has led to an atmosphere of peril and uncertainty. Additionally, cryptocurrency’s hard-striking volatility and rapid price swings have ultimately left the global financial community “vulnerable.”
In response, Lagarde is now proposing several regulatory tactics that would ultimately place cryptocurrency under similar laws one sees with fiat or national currencies.
Some of these methods include using artificial intelligence to “flag suspicious transactions,” in an attempt to stop terrorist funding. She said the Financial Action Task Force (FATF), which sets current standards for fighting terrorist funding and money laundering, has already been working with neighboring countries to help them deal with virtual assets and digital currencies so they don’t fall into the wrong hands.
“Based on the standards set by FATF, we have conducted 65 assessments of countries’ regulatory frameworks and provided capacity development assistance to 120 countries. Our efforts have focused on helping our member countries grapple with the specter of illicit financial flows.”
A Global Boost to Regulation
She also feels that distributed ledger technology (DLT) can be used to hasten information-sharing “between market participants and regulators,” ensuring that transactions occur faster and that blockchain distribution of funds runs fewer risks.
Despite her confidence, Lagarde said nothing different will occur unless multiple nations get behind regulation. Digital currency is used and traded all around the world, and if the necessary changes are to be implemented, each nation must also take the necessary time to study cryptocurrency and the hazards they often present.
“To be truly effective, all these efforts require close international cooperation,” she stated. “Since crypto-assets know no borders, the framework to regulate them must be global as well.”
What Does the Cryptocurrency Industry Think?
Kevin Murcko, CEO of cryptocurrency exchange CoinMetro, agreed that regulation requires international cooperation — but it shouldn’t be so heavy as to stifle progress, and it’s also necessary for regulators to consult the industry itself. He said:
“Cryptocurrencies are already a fundamental part of the financial industry, with a market cap of over $350 billion USD. The influence and significance of crypto can no longer be ignored by governments and financial authorities.”
“Lagarde is absolutely correct to say that, as with traditional fiat currency, consumers in the space deserve protection for their assets. Governments should treat digital assets with the same principles as standard securities. Regulation has the potential to be a positive force: it brings stability to markets derided as ‘too volatile’, and quells capabilities for money laundering and the financing of terrorism.”
However, future regulation also requires input from the cryptocurrency community, he added. Law-makers shouldn’t draft regulation in seclusion from the very sector they intend to legislate over.
The crypto-sector is only in its infancy, and has huge potential for global financial services — it’s better to allow each field to assist the other.
Do you think cryptocurrency regulation is ultimately a good thing? Post your thoughts below.
Images via Indian Express, Pixabay