Cryptocurrencies, Savona’s alarm: “Digitization advantages at risk”

According to the president of Consob, the calls of the control authorities on virtual currencies remain in vain. It is necessary to create an ad hoc framework integrated with existing legislation to avoid repercussions worldwide

03 Jun 2022

Domenico Aliperto

"If you allow private individuals to print money, as is happening with bitcoins in the United States, the system becomes increasingly complex, and the benefits of digitization are lost, not to mention the difficulties that supervisory institutions and regulatory bodies would experience." Speaking is Paolo Savona, president of Consob, who during a meeting on cryptocurrencies that was held today at the Trento Economics Festival addressed the issue in the round.

Index of topics

• A potential financial atomic bomb

• The need to develop ad hoc legislation

• The future of the digital euro

A potential financial atomic bomb

With cryptocurrencies we are facing "a virtual world that we can no longer control" and "the atomic bomb is the risk of a breakdown of the international money and banking market". Savona then proposed a major international conference that, as happened after the Second World War with the Bretton Woods conference, sets the rules for the definition of crypto assets. The initiative could start from the OECD, where the former Consob Commissioner Carmine Di Noia, quoted by Savona, took the lead in the direction of financial affairs. According to the president of Consob, it is necessary to choose the simplest solution: "The currency remains public and in the hands of the central bank also because private money is a huge disturbance for monetary policy" which must be able to transmit its impulses to the economic system. The condition of the cryptocurrency market is that of its substantial self-government of quantities through prices, which imposes its own regulation to ensure financial stability". A regulation, Savona added, "can perhaps be reached after November 2022, when the 18 + 8 American institutions involved with the ordinance signed by the President of the United States will respond to the questions he posed, from the birth and circulation of criprovalute and their hybridization of traditional tools, going so far as to consider the geopolitical and geostrategic implications of their development".

The need to develop ad hoc legislation

The problem, according to Savona, is that "the use of cryptocurrencies has affected the functioning of the money and financial market at a global level and has led the authorities of many countries to study and propose an integration of current legislation. We are well aware of the market's ability to find ways around existing rules and, in this case, to quickly reap the benefits of the absence of public regulation."

On the other hand, "the expansion of the quantities and different forms of the so-called cryptocurrencies has been such that the integration of this new reality of the market into the existing legislation is imposed; in order for it to be done on a rational basis, it is necessary that the operation of the set of these virtual instruments be placed in the known economic theory. This is not an intellectual quirk, but a necessity that, for any monetary and financial phenomenon, has historically required the development of an explanatory theory of how the relative market works," Savona said.

"Interest in all forms of cryptocurrency," he added, "has increased as a result of the close connection that has been created between traditional money and finance to face the global financial crisis of 2008 and has increased following the increased use of computers induced by the lockdown for health reasons. However, the real boost came from the expectations of gain that cryptocurrencies showed to have or only promised, with bitcoins playing the role of 'coachman fly' of the well-known fairy tale of La Fontaine", continued Savona who added: "Some aspects of this new economics have already been highlighted, but not framed in an overall vision of national and global money and financial markets; it was mainly discussed whether cryptocurrencies have the nature of money or a financial instrument, without reaching a common conclusion, neither at a private nor official level".

On cryptocurrencies "the calls for attention of the supervisory authorities, replacing the necessary regulatory rules, have proved to be poorly effective, as evidenced by the recent events of fall in the values of cryptocurrencies. Massive sales of Bitcoin-backed stablecoins created difficulties for some industry intermediaries who reacted by warning customers that if they caused their collapse by accelerating sales, they would lose their savings. I don't think we can be clearer than this on the consequences of the absence of regulated legal protection in this market", relaunched the president of Consob. On the theoretical level, Savona recalled, "the effect is similar to that which is determined on bank deposits in the event of their flight, if there is no lender of last resort or an institution that performs such a function".

The future of the digital euro

Savona then finally has the theme of the digital euro. "For some years there has been debate about whether the solution of the problem that has arisen with the developments of cryptocurrencies can and should come with their replacement, it is not yet clear whether total or partial, with a public 'digital' currency; however, even this solution raises problems of an institutional and technological nature", said Paolo Savona. "If digitalization consisted in expanding and perfecting this form already widely used in current payments to create a cashless society, only the problem would arise of indicating which distributed ledger accounting  will be used and of drawing up a program of regulatory-technological transition towards the new monetary regime. If, on the other hand, the public digital currency were a currency that competes with cryptocurrencies, the main problem would be to guarantee the authorities access to the information accounted for on The Blockchain". Finally, if public digital currencies "were to replace cryptocurrencies in full, problems of reorganization of the current banking regime would arise, as deposits would leave the monetary circuit. This change would limit the activity of the banks in the financial circuit, that of the mere management of savings and payments, raising problems of defining the common rules of government".

Ultimately, "it is not enough to know that the euro will be digitized, we need to know how it will be. For example, we must ask ourselves about the future of bank deposits, which would risk losing their money nature. In this case, the banks would leave the monetary circuit, entering the financial one, and here a small institutional revolution would be born”.                 

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