Central banks and regulators are finding it a challenge to regulate cryptocurrencies, but they must be careful that innovation is not stifled in their eagerness to rein in these new tokens, Monetary Authority of Singapore Managing Director Ravi Menon said.
“The challenge for central banks and regulators is this: how can we harness the potentially transformative benefits of blockchain technology and crypto tokens while containing some of their risks?,” Menon said in a speech in Singapore.
While the MAS has thus far chosen not to regulate cryptocurrencies directly, Menon said it is watching the activities associated with crypto tokens and evaluating the different risks these entail.
The de-facto central bank is also considering the appropriate regulatory responses, “all the while, seeking to ensure that we do not stifle innovation,” he added.
Menon chose to use the term “crypto tokens” than cryptocurrencies as he said they do not serve the functions of fiat currencies. They cannot be a store of value due to high price fluctuations and they also fail as a unit of account, he said.
However, he was not ready to rule out a future for cryptocurrencies as money.
“A second generation of crypto tokens is emerging, to address some of the current challenges related to network congestion, transaction time, energy costs, money laundering risks, and importantly, price stability,” the banker said.
“Some of the best minds in the field are applying their creative energies to make crypto tokens mainstream.”
The MAS Chief said blockchain is more significant than the cryptocurrencies such as Bitcoin it underlies.
Blockchain and crypto tokens have strong potential to facilitate cross-border payments in traditional currencies, Menon said.
The MAS’s Project Ubin is exploring the use blockchain technology to enable entities across jurisdictions to make payments to one another without intermediaries, with greater speed and efficiency; and at lower risk and cost.
After two successful proofs-of-concept domestically, MAS has entered a collaboration with the Bank of Canada to test and develop a cross-border solution using crypto tokens issued by the two central banks, Menon said.