Stournaras: The four challenges from the rapid evolution of cryptocurrencies

The evolution of digital finance is continuous and rapid, and keeping up with it involves four challenges, stated, among others, the governor of the Bank of Greece, Yannis Stournaras, speaking at the 7th Annual Conference of Central Banks of Mediterranean Countries held in Istanbul.

These challenges concern:

First, understanding the basics of digital finance. In order for Central Banks to shape their policy and fulfill our supervisory and regulatory responsibilities, they need to fully and deeply understand digital finance and how it affects business models and risk profiles.

This requires knowledge, experience and talent. Innovation facilitation mechanisms, such as innovation hubs and regulatory sandboxes, help develop the necessary capabilities. It is important to promote cooperation between these mechanisms in order to maximize the benefits, emphasized the commander of the CoE. Two typical examples are the European Forum for Innovation Facilitators (EFIF) and the Global Financial Innovation Network (GFIN), which contribute to mutual information on the regulatory treatment of digital finance innovations and have established frameworks for cross-border testing of related services.

• Secondly, we need to fill regulatory gaps. Cryptocurrencies and decentralized finance, artificial intelligence, as well as cyber threats, have highlighted the limitations of the existing regulatory framework. In some cases the legislation is fragmented. In other cases it is literally regulatory loopholes. For example, stable cryptocurrencies, which could play an important role in the economy in the future, may prove to be anything but “stable” in the absence of proper regulation. To overcome the above challenges, we need to adapt our supervisory and regulatory approach. The European Commission’s initiatives with the proposal for a Regulation on the Digital Operational Resilience of the Financial Sector (DORA) and a Regulation on Cryptocurrency Markets (MICA) are representative examples of reforming the institutional framework aimed at addressing this issue. Similar initiatives have been taken in other territories. Oversight of cross-border entities will require enhanced monitoring and cooperation at the international level. Allocating resources to this effort is vital.

• Third, obstacles to the development of financial markets must be eased. Facilitating the creation of FinTech ecosystems nationally and internationally is key. Some authorities are already pursuing this goal, particularly in Asia. This will create network effects and encourage investment and successful partnerships. Removing barriers to cross-border payments, as highlighted by the Financial Stability Board (FSB), promoting targeted actions by national governments and promoting the transition to “green” digital services will play a decisive role in addressing this challenge.

• Finally, the technological footprint of Central banks must be increased and their infrastructures must be strengthened. Central bank digital currencies (CBDCs) will potentially enable secure wholesale and retail payments, thus impacting citizens within and across borders. Furthermore, as stated in a recent report by the Bank for International Settlements (BIS), liquidity bridges for cross-border payments between central banks can improve the efficiency of the global liquidity stock of banking groups operating in various currencies and reduce the costs associated with maintaining liquidity reserves in multiple currencies. Upgrading the market infrastructures managed by central banks, possibly in the form of interoperability with distributed ledger solutions, can also boost the adoption of digital finance in regulated crypto services. The adoption of supervisory technology (SupTech) will help us modernize our interaction with supervised entities and fundamentally change our audit capabilities, whether on-site or off-site.

RES-EMP

Read the News today and get the latest news.
Follow Skai.gr on Google News and be the first to know all the news.