David Hargreaves tries to make sense of the latest official global moves on cryptocurrencies - and concludes there's still a fair chance we'll end up with a dominant global cryptocurrency 'by accident'

David Hargreaves tries to make sense of the latest official global moves on cryptocurrencies - and concludes there's still a fair chance we'll end up with a dominant global cryptocurrency 'by accident'
Choose your weapons: The world's got a long way to go before any sort of consensus is reached on broad application and usage of cryptocurrencies.

As a general rule of thumb, I would say human beings are pretty good at deciding what they don't like and don't want. 

As for deciding and agreeing on what they like and want, however, well...not so much. Not at all.

I'm getting the increasing impression this little rule of thumb can be applied to the subject of cryptocurrencies - and more to the point of getting agreement (or not) on how these might be implemented and used on a truly global scale.

It seemed to me that the financial powers-that-be were happy to put cryptocurrencies in the 'too hard' basket.

Yes, we already had cryptocurrencies, most (in)famously through Bitcoin, but they were operating outside of regulation and in comparative terms were not widely used.

All that changed of course in the middle of this year when Facebook announced its Libra project.  

That got everybody's attention.

It's different

The proposed Libra is different to Bitcoin in that it would be a 'Global Stablecoin' (GSC). A stablecoin is backed by a basket of assets and theoretically should not be as volatile in value as the likes of Bitcoin have been. There are a number of existing cryptocurrencies that do answer to the stablecoin description, with perhaps the best known of these being Tether

The fact that Facebook and partners were aiming to get Libra up and running as soon as next year was a game changer in terms of forcing the world's financial authorities to sit up and pay attention.

In the wake of the Libra announcement the G7 group of developed economies established a working group to look at stablecoins. The working group has now issued a report, which is well worth a read

The report comes even as the Libra project appears to be struggling - probably in no small part because of the attention it has received from the authorities.

Cherry-picking

Ever the helpful one, I have cherry-picked some of what I think are the more interesting bits in the G7 working group report.

The first thing to note is that the report's pretty dismissive of the cryptocurrencies as we have known them (yes, Bitcoin et al), saying:

The first wave of cryptoassets, of which Bitcoin is the best known, have so far failed to provide a reliable and attractive means of payment or store of value. They have suffered from highly volatile prices, limits to scalability, complicated user interfaces and issues in governance and regulation, among other challenges. Thus, cryptoassets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments..

That is pretty dismissive and suggests the working group don't see much future for the above-mentioned type of cryptocurrency. It may not have been coincidence that the prices of the cryptocurrencies slid after the report came out - although trying to pick why the cryptocurrencies go up and down in price and with the speed they do is a recipe for insanity.

So, anyway, then the report moves on to discuss stablecoins (and sorry readers, no chocolate fish for guessing who the 'large technology' firm referred to here might be) :

Recently, a number of stablecoin initiatives have emerged, some of which are sponsored by large technology or financial firms. With their existing large customer base, which additionally may be cross-border, these new stablecoins have the potential to scale rapidly to achieve a global or other substantial footprint. These are referred to as “global stablecoins” (GSCs).

Due to their potentially large size and reach, GSCs could additionally pose challenges to fair competition, financial stability, monetary policy and, in the extreme, the international monetary system. They may also impact the safety and efficiency of the overall payment system. These challenges stem, in part, from the fact that GSCs may transform from a cross-border payment solution to assets with money-like features.

The report goes on to say that the G7 believes that no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed, "through appropriate designs and by adhering to regulation that is clear and proportional".

That said, depending on the unique design and details of each stablecoin arrangement, approval may be contingent on additional regulatory requirements and adherence to core public policy goals. 

However, for stablecoins to meet the needs of the unbanked and underserved, they must first prove to be a safe store of value, ensure high levels of protection and legal certainty for their users, and be compliant with relevant regulations. Furthermore, they would have to overcome the barriers that currently restrict access to and use of transaction accounts.

And it goes on to describe how  the appropriate regulatory approach is likely to require both cross-border and cross-agency collaboration.

Beyond the regulation of the individual components, the GSC ecosystem as a whole could potentially become systemically important. If so, it will be important to consider how regulatory frameworks can be applied to the ecosystem as a whole. For example, the entirety of a GSC arrangement may constitute a payment system, critical infrastructure or financial service provider coupled with additional regulated services, necessitating oversight or supervision by central banks and other public authorities in different jurisdictions.

The report then says that the "recent GSC initiatives" have highlighted the shortcomings in cross-border payments and access to transaction accounts, and the importance of improving access to financial services and cross-border retail payments.

However, the report says it remains to be seen whether GSCs will indeed be able to overcome the shortcomings of existing payment systems.

Moreover, their adoption is, as yet, uncertain as they face significant legal, regulatory, supervisory and operational challenges. Stablecoins, regardless of size, pose challenges and risks to AML/CFT efforts across jurisdictions, as well as operational resilience (including for cyber security), consumer/investor and data protection, and tax compliance. GSCs, by nature of their potential scale, may amplify those challenges and could also pose challenges to competition policy, financial stability, monetary policy and, in the extreme, the international monetary system.

Consequently, it is important that the private and public sectors continue to explore innovative ways to make payments better, reduce inefficiencies and be more inclusive. In particular, the public sector should redouble its efforts to reduce frictions in international payments and support measures to improve financial inclusion.  It is critical that such work be completed in a timely manner and in a way that is best able to support efficient transactions and innovation going forward.

To that end, the G7 working group has recommended that "relevant public stakeholders" (finance ministries, central banks and standard-setting bodies such as the Committee on Payments and Market Infrastructures), in collaboration with relevant international organisations, develop "road maps" for supporting and scaling up ongoing efforts to improve the efficiency and inclusiveness of payment and financial services.

It says these "road maps" could include recommendations to:

(a) Support initiatives to improve cross-border payments. This could include fostering standardisation of payment processes, promoting direct or indirect interlinking of payment infrastructures, considering whether applicable legal frameworks provide a sufficient foundation of certainty for emerging payment products and services, and facilitating useful and responsible innovation and competition.

(b) Promote financial inclusion by reviewing and updating the call for action by all relevant stakeholders and boosting support programmes for less developed countries.

(c) Improve coordination between authorities, both domestically and across borders, including through strong regulatory cooperation and harmonised standards, where practicable, and establishing information-sharing and cooperative oversight arrangements between relevant authorities.

The working group has now handed on the issue to the Financial Stability Board (FSB), the international body that monitors and makes recommendations about the global financial system.

The FSB submitted an issues note on global stablecoins to the October 2019 G20 Finance Ministers and Central Bank Governors meeting at the end of last week and it will be submitting a consultative report to the G20 Finance Ministers and Central Bank Governors in April 2020, and a final report in July 2020.

So, that's where we are up to.

A long way from decisive moves

What this tells me is that we are a long way away from anybody making a substantive and decisive call on this subject. The report is big on saying what's potentially wrong with stablecoins but doesn't offer much in the way of opinions on how such coins might be correctly designed and implemented.

Indeed, I get the distinct impression (and I could be wrong) that there is still a fair degree of resistance to the idea of having global stablecoins at all.

Libra was jumped on by the authorities because it was backed by Facebook - and therefore clearly carried the 'threat' (as far as the authorities would have seen it) of immediate consumer acceptance and usage. And it would have been too big to stop almost straight away. 

I really do not think though that the global authorities have got the time they would like to have (and possibly still think they have) to slowly work through every single issue. I don't think they have got time to decide in every detail just exactly what they want. If they dither too long the decision will be taken out of their hands.

The reality is that someone somewhere will push for and likely start getting traction with a broadly-based cryptocurrency, whether the authorities are ready or not. And  there will be immediate public demand for it.

It's inevitable

Some sort of globally used and accepted cryptocurrency seems inevitable. 

The only real question is whether we end up with cryptocurrency designed and regulated by the global authorities - or we end up with one pushed on us (as would be the case with Libra) and then have the authorities desperately trying to play catch up.

After reading that working group report I still do not have real confidence that there is widespread acceptance by those in power (as I think there needs to be) that the world will go crypto. 

And therefore I think the risk remains that we will see a very fractured and disorderly development of global cryptocurrencies.

In a world that doesn't look particularly financially stable, that's just another risk we don't need. Our unstable world needs a stablecoin that really is stable.

*This article was first published in our email for paying subscribers early on Tuesday morning. See here for more details and how to subscribe.

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The only crypto I might consider is one backed by physical gold. There are a few out there, anyone got anything to share on these?

begs the question why you would pay 2000 dollars for a token representing an ounce of gold you think exists in a bank vault overseas when you can buy one and keep it at home.

How you going to pay for something in a millisec on the other side of the world with that ounce at home?

how are you going to pay for the token in the first place,with your credit card?I thought the idea of cryptocurrency was to speculate on its value.dont think I could buy on ebay instantly with crypto.

Credit card will work, why not?

A crypto backed by actual gold that can be redeemed at anytime in gold by the crypto holder or used as a medium of exchange would be the most sound currency you could ever hope to hold (on the basis security issues resolved)

You are confusing speculated crypto like Bitcoin etc . This stuff is backed by nothing...zilch and relies on the next fool. Given time, it will end with zero value. And that is because it represents nothing.

And if you haven't noticed, the value of fiat money is being reduced by the day - so the faith is draining.

Have a google. Gold cyrpto does exist. Here is an example of just one, plenty are popping up -

https://www.coindesk.com/australias-gold-mint-is-backing-a-crypto-token-...

You are confusing speculated crypto like Bitcoin etc . This stuff is backed by nothing...zilch and relies on the next fool. Given time, it will end with zero value. And that is because it represents nothing.

That's a fairly long bow you're drawing. Bitcoin is backed by "proof of work." Now whether or not you think that represents value is beside the point.

Too funny.

The only crypto I might consider is one backed by physical gold. There are a few out there, anyone got anything to share on these?

Perth Mint gold cryptocurrency launched, backed by government-guaranteed gold

https://www.finder.com.au/perth-mint-launches-worlds-first-government-gu...

nothing wrong with the perth mint crypto as it has credible backing,never seen it before so have to take back my previous rubbishing of the idea.

..ta..saw this after i had posted same!

A comedian once described crypto like this - "everything we don't understand about computers and everything we don't understand about money put together".

Wait till China gets into th act with a super crypto backed by yuan. That will blow every one off.

KFC . . the new super crypto currency . . Kiwi Fonterrible Coins . .

... oh yeah ... that'll fix the hole in Fonterribles balance sheet .... super MOOOOO !

To answer the captioned question. Pa won’t but Ma might.

..getting close...or yuan back by gold perhaps?

China has added almost 100 tons of gold to its reserves since it resumed buying in December, with the consistent run of accumulation coming amid a rally in prices and the drag of the trade war with Washington.

https://www.bloomberg.com/news/articles/2019-09-09/china-s-gold-buying-s...

The key point about cryptocurrencies is the technology of blockchain. It is a decentralised system, which may not mean much to many people, and yet a moments thought about this, will have many people understand in an instant that cryptocurrencies are in fact exactly what they may have been secretly wishing for. Perthmint gold, through infinigold, are offering a cryptocoin that is not just backed by gold, but guaranteed by the govt. The blockchain holds the certificate number of the gold, and holding the cryptocurrency gives the holder the ownership rights to that gold, which if you so choose, you can go and redeem for the actual gold. Think about that, you can hold your wealth not in a central bank, not in a fiat world where the corporates that control your govt decide how much your money should be worth. You can store it "cold", on a memory stick, keep it on your laptop or ph. You can transfer it in seconds, no swift involved, no heavy handed bank fees, you don't have to be concerned about recession, or financial crises "forcing your bank to lock you in, and introduce negative interest rates", you dont have to be concerned any longer about the local bank, the national bank, or the central bank and their actions. Doesn't that sound good?Crypto currencies are just a part of the picture. How to buy them, how to store them, and use them is the initial resistance point most people meet when thinking about partaking in the crypto world. Yet things are changing fast, and as the entry points to purchasing crypto become more user friendly, the actual possibilities of the crypto world begin to appear. Cryptocurrencies and it's related technologies are already global, because they are decentralised, the control, for perhaps the first time in an awful long time, is with the people that use it. The list is fairly long, in terms of it's advantages, and benefits, it is not, in reality, any more daunting than an online bank account, and who would have thought that was a realistic idea 20 years ago. The central governments have been merrily walking us towards a cashless society, and now they can have it, just not as they wished for, it's more along the lines of how a dissatisfied customer of a big bank, or a disgruntled member of society with regards to the careless actions of central bankers may have wished for. The old financial world, of central control has already come to pass, those that are involved in it's creation & maintenance just don't know it yet, in fact, they will be the last to know. Start researching, start finding out how to partake, research more, and start very small. There are over 2000 cryptocurrencies out there, something for everyone, you can even buy into the value of sports stars image rights, and much much more. I'm of the gold backed mind myself, but that's just me. It's whole new world, give yourself sometime to get an understanding, then give yourself sometime to gain some confidence.

Well I've had ups and downs with bitcoin which will always be somewhere on the leader board due to the head start on the rest
The best cryptocurrency i can see is one under development by super IT nerds and professors etc from top universities. It is called Tixl and is currently available on the DEX (binance decentralized exchange) with a BNB (binance coin) pairing.
To buy simply install trust wallet, then buy BNB with visa/mastercard etc then you can trade those for MTIXL (a unit holding 1,000,000 Tixl.
If bitcoin was crytpo 1.0 then Tixl is crytpo 2.0
TIXL is..... completely private, quantum secure, pre-mined, no fee, instantaneous... this being the goldilocks combination of the best - and the only way to do that is building from scratch, not on top of other protocols
It has a great white paper, timeline on github, regular updates on progress.
This is like buying bitcoin in 2012... aint going to get much cheaper than this if at all... the only direction for the price really is TO THE MOON
Check it out - https://tixl.me/?referralId=tJRZTt2W1
President of Property

What you say is relevant to the point that BTC is technology/software and as such can always be improved upon. Thus the value remains zilch long term until the cypto represents something of value - of which gold is the stand out.

"Bitcoin ... [has] so far failed to provide a reliable and attractive means of payment or store of value."

Right on the fist count, wildly and inexplicably wrong on the second. The price today is 8033 USD. Unless you're a degenerate day trader with a time horizon of weeks or months, Bitcoin has been a wildly successful store of value. There is no counter argument.

No one buys an asset as a store of value with the expectation of selling it in a matter of months. You buy it for 5+ years, at the very least.

..entirely based on the next fool. It is backed by thin air. But good luck, you may well make some trades, but beware of being the last man standing.