China lays down challenge to the west on crypto

China lays down challenge to the west on crypto
China lays down challenge to the west on crypto

The writer is the president of Queens’ College in Cambridge and an advisor to Allianz and Gramercy.

It’s time for more Western governments to stop dismissing the crypto revolution as some combination of illegal payment schemes and reckless financial speculation.

Instead, they must be more open to embracing crypto innovation and guiding them in a better direction for finance, the economy, and society as a whole.

At the same time, crypto supporters need to be aware of the increasing systematic consequences of ongoing and future turmoil and become more involved in regulatory and energy issues. They need to shift from a “zero-sum” mindset that can only benefit from the losses of an established financial system.

Overall, the Western policy debate over cryptography is too narrow and overly polarized compared to the importance of the issue, with participants speaking different languages. This has intensified the underlying tug of war between accelerated private sector recruitment and government / central bank discomfort.

As the former grows steadily, things are getting more complicated as the Western world begins to see differences in the cost-benefit of trying to lead the crypto revolution towards improving financial services.

In contrast, China is pushing for a stronger, more unified, top-down vision, setting the stage for transformational dynamics that can extend far beyond the country itself.

What happens next has serious implications for financial services, monetary policy, investment outcomes, payment platforms, and the composition of the world’s reserve currencies. It also affects the management and use of big data and the technical and economic competition in Central America.

Developments at the three sites show how things are shaped.

First, the technology that drives the crypto revolution. For this BlockchainIs becoming more disruptive to the financial industry, which is relatively inefficient and a source of excess profits.

The combination of regulatory moats that have blocked industry entry and traditional customer inertia is no longer strong enough to discourage a wave of technology-driven competition.

Second, despite its instability, cryptocurrencies are gradually becoming the majority of the investor portfolio through allocations to two buckets-an alternative risk of gold and some government bond margins. Mitigated assets. Opportunistic bets on uncorrelated assets.

Third, cryptocurrencies are somewhat prevalent in the payment ecosystem. I’m worried about illegal payments (think of the increasing number of ransomware attacks), but more aggressive about remittance transfers where too many traditional channels remain slow and expensive. However, the broader evolution to global currencies continues to be undermined by price volatility, widespread lack of confidence, and regulatory concerns.

The big question now is whether Western crypto-breakers and regulators will succeed in converging on a more unified approach.

The responsibility here lies primarily in the world of cryptocurrencies, and there is a risk of repeating the mistakes Big Tech made. That is, pursue narrow business goals without realizing that the desired success is systematically important.

They cannot stay away from governments and central banks without adopting stronger anti-money laundering measures. They also have to address concerns about the potential erosion of monetary policy tools.

The need for governments and central banks to be open-minded is becoming more urgent due to what China is doing. Beijing officials understand the transformative power of the crypto revolution and want to adopt it in a holistic and highly directed manner.

In doing so, we face the challenge of developing better payment systems and central bank digital currencies faster than China. All of these can cross national borders. Not only can it cause new problems in the dollar reserve currency situation, but it can also give China more control over sensitive big data and fill the rest of the technical gap. increase.

Without a more collaborative approach, both sides of the western crypto world may find that what fast-moving China is doing and what it is trying to do will determine their future. Hmm.

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