Central banks across the globe should start regulating cryptocurrencies and dismiss fears that digital assets will replace fiat currency, said Piyush Gupta, CEO of DBS Bank Group, one of Singapore’s largest investment banks.
“Regulating it out of the formal banking system is an unwise thing to do, as you wish to push it out into the unregulated space. You have no way of creating any guard rails,” he said during the Global Business Summit sponsored by The Economic Times. “Nobody knows who owns private money, so it is subject to misuse. That is what the RBI governor is so concerned about, monetary systems across the world have flagged off AML and KYC issues pertaining to crypto.”
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Gupta’s suggestion came after the Monetary Authority of Singapore announced it is looking for ways to regulate cryptocurrencies in the city-state properly.
The DBS chief also dismissed fears cryptocurrencies and non-fungible tokens (NFT), or stable coins, will supplant fiat money. He explained the wholesale use of cross-border central bank digital currencies (CBDC) could have better uses cases.
He told participants in one of the discussions, “I don’t think that cryptocurrencies will become money as we know it, but it can be an alternative to gold and its value. The other big challenge is volatility in value. If you want to use this to pay for something, you don’t know what it’s costing you. Today cryptos are a potential source of speculated value, it’s unlikely that this is a source of money as we know it.”
CBDC use case
According to Gupta, one of the use cases of a CBDC is the disintermediation in the banking sector. However, he added that CBDCs also have their challenges, “but if you go direct, every citizen opens a direct account with the central bank, and it disburses the CBDC directly.”
“The downside of this is it will disintermediate the existing banking system. Therefore, you make the credit creation the onus and responsibility of the central bank alone, and they don’t want that,” Gupta stated.
Eventually, when most global central banks introduced their respective CBDCs as a form of fiat currency, this added another use case for the digital assets. He went on to say, “Digital money will come, some geographies will try retail CBDC, but I feel there is a far greater use case of wholesale CBDCs, especially cross-border.”
Financial institutions and monetary regulators should look at ways to explore and harness the potential of blockchain technology, he said.
“At the root of crypto or CBDC is blockchain, which lets you establish trust without a hub in the middle. Recognizing that the technology has the power to change the notion of a hub and spoke model to a distributed model, that’s a very important concept,” he said.
MAS Ponders Crypto Rules
Last week, the MAS said it would announce new oversight and guidelines in cryptocurrency trading.
“MAS has consistently warned the public that investing in cryptocurrencies is highly risky as investment products and not suitable for the general public. Singapore is not alone in holding this view — some jurisdictions have also taken measures concerning advertising by crypto firms,” a spokesman said in an interview.
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