Dec 9, 2020
Cryptocurrency, stablecoin and G7: Need for regulation?
G7 and Cryptocurrency: Joint Statement on Digital Payments Released in October
G7, Cryptocurrency and Stablecoin: A Banking License Required
On Monday, December 7, 2020, at the end of a virtual meeting, the U.S. Treasury Department said in a statement that the finance ministers and central banks of the advanced economies of the Group of Seven (G7) strongly supported the need to regulate digital currencies.
G7 and Cryptocurrency: Joint Statement on Digital Payments Released in October
On October 13, 2020, a statement was issued stating that digital payment services ‘should be supervised and regulated appropriately to address the challenges and risks to financial stability’.
The declaration, entitled Declaration of G7 Finance Ministers and Central Bank Governors on Digital Payments, in which the G7 stated about cryptocurrency; which it defines as alternatives to payment systems that manage cash: ‘That they have the potential to make payments easier, faster and cheaper, could be dangerous if risks are not taken into account. »
The G7 does not disagree that the widespread adoption of digital payments could address the frictions in existing payments systems by improving access to financial services, reducing inefficiencies and costs.
However, payment services should be properly supervised and regulated to address financial stability challenges and risks such as:
- Consumer protection,
- Consumer privacy,
- Taxation,
- Cyber security,
- Money laundering,
- The financing of terrorism and its proliferation,
- The integrity of the financial markets and
- Legal security
In this statement, the G7 announced its readiness to support standardization bodies in analyzing the risks associated with the European Union’s policy and determining appropriate measures to address the challenges of digital (and/or digital) payments.
G7: Concerns about the growing wave of ransomware attacks
The Group of Seven also spoke of their concerns about the growing wave of ransom software attacks that fuel the flow of illicit funds through cryptocurrency.
The group stated in the Ransom Annex to the G7 Declaration of October 13, 2020:
‘Of particular concern is the fact that criminals often demand that ransoms be paid in virtual assets.»
Ransom attacks against hospitals, financial institutions, schools and other critical facilities on G7 infrastructure have increased in volume, sophistication and frequency.
Attacks have intensified over the past two years and illicit actors have exploited the pandemic to carry out ransomware-type attacks.
For many companies, ransomware is causing significant economic damage, threatening customer protection and data privacy.
Authors of ransom software demand payments primarily in virtual assets to facilitate money laundering.
According to the group’s statement, the payment of ransoms demanded by these criminals may encourage further cyber-malicious activity, benefit malicious actors, finance illicit activities; present a risk of money laundering, terrorist financing and proliferation
The G7 has therefore called on all countries to effectively implement standards through the Financial Action Task Force on Money Laundering (FATF) to reduce criminals’ access to and exploitation of financial services.
The G7 added that it will strengthen its efforts to provide coordinated responses to ransom demands.
Stablecoin and the G20: Improving International Payments Commissioned by the G20
In a report called ‘Regulation, Supervision and Monitoring of the Global Stablecoin Agreements’ of October 13, 2020, international financial authorities including the International Monetary Fund (IMF), the World Bank, the Bank for International Settlements (BIS) and the Group of Twenty (G20) are already working together to establish formal standards for the regulation and issuance of sovereign digital currencies (CBDCs).
According to the report ‘Regulation, Oversight and Monitoring of Global Stablecoin Arrangements’, the additional measures are a key element of the roadmap for improving international payments commissioned by the G20 and are detailed as follows:
- Completion of international standardization by December 2021.
- Establishment or, where necessary, adjustment of cooperation agreements between authorities by December 2021 (and as required by market developments).
- Domestic regulatory, supervisory and control frameworks are adjusted, where necessary, in accordance with FSB recommendations and international standards and guidelines by July 2022 (and as required by market developments).
- Review of implementation and assessment of the need to refine or adapt international standards by July 2023.
G7, Cryptocurrency and Stablecoin: A Banking License Required
The US Treasury Secretary Steven Mnuchin organized on Monday, December 07, 2020 a virtual discussion with the finance ministers and central bank governors of Canada, France, Germany, Italy, Japan, the United Kingdom, the European Commission and the finance ministers of the euro zone.
This was the 12th meeting of the G7 Finance Leaders in relation to the COVID-19 pandemic. According to the U.S. Treasury statement, the G7 finance officials discussed about:
- Responses to ‘the changing landscape of cryptocurrency.
- Economic responses to achieve a solid recovery in the global economy as a whole.
Cryptocurrency and G7: Coordinating rapid and effective actions in response to the COVID-19 pandemic
G7 finance ministries and central banks remain in regular contact and continue to coordinate rapid and effective actions in response to the COVID-19 pandemic.
Ongoing national and international economic responses and strategies to achieve a robust recovery in the global economy as a whole were at the heart of the meeting.
They also discussed ongoing responses to the changing landscape of cryptos, other digital assets and the work of national authorities to prevent their use for malicious purposes and illicit activities.
The G7 strongly supports the need to regulate digital currencies.
Ministers and Governors reiterated their support for the joint G7 statement on digital payments issued in October.
Stablecoin: G7 ‘stands firm’ on need for regulation
Participants highlighted government efforts to prevent the use of cryptocurrency for illegal purposes.
U.S. Treasury Secretary Spokesman Steven Mnuchin said in a report titled Reading by a Treasury spokesman on Secretary Mnuchin’s discussion with G7 finance ministers and central bank governors:
‘The major developed nations today expressed ‘strong support’ for the ‘need to regulate digital currencies.
According to the statement, the ministers and governors also discussed ongoing national and international economic responses and strategies for achieving a robust recovery in the global economy as a whole.
The G7 officials mainly noted that measures must be taken to address the ever-changing cryptocurrency landscape, especially the stable coins, and added that it is the public sector that is accustomed to controlling the supply of money to ensure ‘the safety and efficiency of payment systems, financial stability and the achievement of macroeconomic objectives’.
The G7 believes that any private stablecoin, such as Tether (USDT) or Diem or Facebook’s Libra, should only begin to operate when it has ‘adequately addressed the concerns of regulators’.
Stable coins represent systemic risks to traditional financial systems; therefore, this bill seeks to require issuers of stable corners to seek federal approval, including the green light from the Federal Reserve and the registration of a banking license, before they can begin to circulate tokens.
G7: Germany not a fan of Libra or Facebook’s Diem
After the meeting, German Finance Minister Olaf Sholz commented on the Libra project, which recently changed its name to Diem, and explained that:
‘A wolf in sheep’s clothing is always a wolf. It is clear to me that Germany and Europe cannot and will not accept its entry into the market until the regulatory risks are properly taken into account. ‘
Mr. Scholz added:
‘We must do everything possible to keep the monopoly on currency in the hands of the states. Don’t make a fuss, Mr. Scholz, tell us how you really feel. ‘
The Libra Association, now called the Diem Association, said last month that Diem could be launched as early as January 2021 as a single stable dollar coin.
The price of Bitcoin is currently hovering around $19,000, while Facebook’s Libra project, now known as Diem, seems to be ready to go to market, and the G7 are studying a bill to regulate cryptocurrency and stablecoins. Wouldn’t it be too late to declare a battle against these digitall currencies?
Written by Laetisia Harson, Project Manager at Magna Numeris
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