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Seminar on Digital Assets: Cryptoassets, Stable Currencies and Emerging Prudential Treatment
August 31 to September 1, 2022
Digital Format
The Seminar on Digital Assets: Cryptoassets, StableCoins and Emerging Prudential Treatment was held virtually from August 31 to September 1. The objective of the Seminar was to discuss challenges and opportunities of implementing Cryptocurrencies and Central Bank Digital Currencies (CBDCs), in order to exchange experiences, particularly to know about selected policy aspects of Cryptocurrencies and CBDCs frameworks. In this regard, the event also covered issues related to the design of retail CBDCs scenarios, with a focus on the methodological adjustments for these tests.
The Seminar on Digital Assets: Cryptoassets, StableCoins and Emerging Prudential Treatment featured the welcoming words of Dr. Gerardo Hernández, in charge of the Directorate of Financial Markets Infrastructures of CEMLA, as well as Dr. Johannes Ehrentraud, Senior Advisor at BIS. The need to pay more attention to digital assets and cryptocurrencies was emphasized, highlighting that the international experiences of this seminar would be of great help in identifying the advantages and disadvantages. In addition, they mentioned the concern about risks in financial stability, because while there are benefits such as CBDCs, there are crypto assets, such as Bitcoin, that have lost value or even collapsed.
Day 1
First there was an introduction given by Miguel Díaz, director of the BIS Innovation Centre in Canada. He mentioned that digital assets are digitally safeguarded information with some intrinsic value. The value assigned to it has to do with the trust deposited in the issuer of the securities over those assets.
He mentioned that in 2008 the Bitcoin research paper was launched, where it was possible to use cryptography in conjunction with the distribution of a database to replace trust in institutions (intermediaries), and distribute that trust among all participants in the system; this has 3 problems: scalability, poor customer experience and the need to have extraordinary computing power. Solutions have emerged, but again, they are generated by intermediaries, that is, from intermediaries we go to decentralization, to return to intermediaries. He stressed that this new centralization is disguised as decentralization, and these new intermediaries do not have the adequate regulatory framework to protect end users.
He continued with a definition of crypto-assets, which are units of information, uniquely identifiable, even fractionally, electronically registered, whose emission control is defined by predetermined protocols to which third parties can join. Afterwards, he explained the 4 types of crypto assets, based on their underlying assets.
First are those that do not have any underlying assets, so their value depends on supply and demand. They can be understood as an issue of private money. However, they have problems of volatility (very significant fluctuations, very susceptible to "herd" movements), manipulation and concentration (some participants have a lot of power over prices).
The second type are those that have a partial underlying asset, such as stablecoins, which seek to represent the holding of the underlying asset. They offer a digital representation of the resources given by the interested public.
The third type are those that have a total underlying, that is, the issuer maintains the collateral for the total of the resources issued in its registry. It is similar to e-money issuers with 100% reserve requirements. The cryptographic element does not create value, it only represents one that already exists. The issuer may not have the financial strength to meet its obligations.
Finally, there are crypto assets issued by the monetary authority and central bank digital currencies. It was commented that digital currencies, especially in wholesale, have existed for a long time. Banks should think about moving from an M0 coin to a digital M0.
The first session began with Ana Claudia de los Heros, from the Central Bank of Uruguay, who spoke about the treatment carried out by her central bank on these issues. They assembled an interdisciplinary work team, which began the elaboration of a conceptual framework. This framework is not finished, because as new elements of the market emerge, they will be incorporated. In it they asked themselves what are the risks and benefits of cryptoassets and stablecoins, and how to protect users.
She concluded by mentioning the existing challenges, which are maintaining permanent research, monitoring risks and benefits, having a commensurate regulation, establishing a supervisory model, being open to innovation and taking care of cybersecurity.
The second speaker was Daniel Adolfo Deras, from the Central Reserve Bank of El Salvador, who spoke about the Bitcoin Law. The state provides an alternative measure for transactions with Bitcoin, the chivowallet, for which the central bank issued a regulation to create an environment for conducting transactions in bitcoin, guaranteeing the soundness and integrity of the financial system. He stressed that all bitcoin providers are supervised, and must comply with the money laundering law. Bank customers can pay for their financial services in bitcoins, but the bank automatically changes it and records it in dollars.
The last speaker of the session was Fabiola Herrera, from the Central Bank of the Dominican Republic (BCRD). She explained that, when fraudulent schemes were created with bitcoin, the central bank issued a statement warning that any investment from the public in this cryptocurrency (Bitcoin is not considered a currency) was not backed.
She mentioned that the market is changing rapidly in: speed, personalization, cybersecurity, alternatives to banking, and balance between innovation and regulation. In this context, many central banks are getting into CBDC analysis without needing them. First, a series of risks and responsibilities towards the financial system and towards citizens must be assessed. She noted that, according to a paper by the Central Bank of Canada, the motivations of a CBDC respond to making an economy cashless, or to deal with cryptoassets.
She asked whether central banks innovate to regulate, or regulate to innovate.
The session concluded with their regulatory lessons: a CBDC with the same tax requirements as an electronic deposit would not be more demanded than cash; a CBDC has a heterogeneous impact on entities, as it affects less EIFs with a perceived default rate similar to the BCRD and vice versa; a CBDC impacts most strongly the types of entities with deposits close to a CBDC; and, an optimal design for adopting a CBDC without much deposit substitution is to have no tax costs on it, in addition to having storage and transaction limits.
Day 2
The first participant of the day was Eva Hupkes, from the BIS, who commented on the advances in cryptoassets that have been made in the Financial Stability Board (FSB), as well as in the international standard-setting organizations. It was commented that countries like the United States use their current tools to regulate crypto assets, while countries like Japan are preparing specific rules.
She mentioned the key aspects and messages: cryptoassets do not operate in a space free of regulations; regulation and supervision should not be based on the principle of "same activity, same risk, same regulation"; regulation should capture the novel capabilities of cryptoassets; cryptoassets require comprehensive regulation; cryptoassets that claim to have a stable value must be held to high regulatory standards; and cross-border cooperation is essential given the global nature of cryptoassets.
The second speaker was Noel Reynolds, Senior Fellow of the BCBS Secretariat, who began by pointing out the growth of the cryptoasset market, particularly in the last year. He explained that the risks associated with DLTs are difficult to see.
He then commented on the conditions under which stablecoins are classified, as well as the tests that are done, such as verifying that the reserve assets are sufficient to allow their exchange at all times, or ensuring that the bearer of a crypto asset can sell it in the market for a value close to PEG.
He concluded by explaining the requirements and classifications that the FSI has made to crypto assets.
In the second session of the day Peter Grills, Deputy Director of the Office of International Financial Markets of the Department of the Treasury of the United States, commented that his body is leading 3 reports, one to protect and expand financial services, another to assess the risks of digital assets and decide if the regulatory framework is sufficient, and a final one to assess risks to national security. He stressed the importance of international cooperation on the issue.
In 2020 the FSB published a series of high-level recommendations. He concluded by talking about the possibility of the United States joining projects and experiments in new technologies, especially in CBDCs.
The session was closed by Elisabeth Noble, Senior Policy Expert at the European Banking Authority, who spoke about the current treatment of crypto assets in the European Union, highlighting that they require a case-by-case analysis, and that in most cases they do not fall into current regulations, which carries various risks.
In September 2020 the European Community published its legal proposal for a regulation of cryptoasset markets (MiCA). It seeks to supervise, at the national level, service providers (such as digital wallets), issuers of e-money tokens and other issuers of cryptoassets. It is expected to take effect by the second quarter of 2023.
Gerardo Hernández-del-Valle
Encargado de la Dirección de Infraestructuras de Mercados Financieros Centro de Estudios Monetarios Latinoamericanos
El Dr. Gerardo Hernández del Valle es ingeniero eléctrico de profesión, con estudios de posgrado en Probabilidad y Estadística. Al terminar su doctorado en la Universidad de Columbia, en la ciudad de Nueva York, fue profesor de la misma institución, así como consultor en la empresa financiera Algorithmic Trading Management. Al regresar a México en el 2012 se incorporó a la Dirección General de Investigación Económica en donde trabajo en temas de economía y sus interacciones con agentes y activos financieros. Posteriormente trabajó durante varios años como Portafolio Manager y Analista Cuantitativo en la Casa de Bolsa de Actinver, en la Ciudad de México. En mes de enero del presente año, se incorporó al CEMLA.
Johannes Ehrentraud
Senior Advisor FSI, BIS
Johannes joined the FSI in 2018, where he contributes to the FSI outreach programme, FSI Connect tutorial development and FSI publications, especially on fintech and big tech. He currently represents the FSI in the Basel Committee working group on operational resilience and the IAIS Macroprudential Committee. Previously, Johannes worked as a regulator at the Hong Kong Monetary Authority and the Austrian Financial Market Authority, and as a Financial Sector Expert in the Monetary and Capital Markets Department of the IMF. He holds two master's degrees (Economics and Business Administration) from the Vienna University of Economics and Business and a postgraduate diploma in Financial Market Supervision from the WU Executive Academy. In 2021, Johannes was selected as one of the 45 leading next generation banking regulation specialists under 45 by Global Banking Regulation Review.
Fields of interest:
- Financial stability and macro-prudential issues
- Financial institutions and micro-prudential issues
- International finance
Miguel Diaz
Centre Head BIS Innovation Hub Canada
Head of the Toronto Innovation Hub Centre within the Bank for International settlements, his role is to contribute to the creation of digital financial public goods such as settlement systems, identity solutions and open finance environments. Before this position he was the head of Payment Systems and Financial Market infrastructures at the central Bank of Mexico where he guided the development, operation, analysis, and regulation of financial market infrastructures. He oversaw the modernization of the payment systems in Mexico, directed the creation of a fast payment system denominated in dollars, and was deeply involved in the development of the operational and regulatory strategy of the Central Bank regarding financial market infrastructures, including CBDC and the inclusion of new market participants in the ecosystem and the opening of the market to open finance solutions. In his previous roles he directed strategic planning and managed macro-financial analysis for the Bank of Mexico, and he is an Economist with a Ph.D. from the University of Chicago.
Ana Cludia de los Heros Méndez
Manager of the Payment System Area, Economic Policy and Markets Division Central Bank of Uruguay
Licenciada en Economía egresada de la Facultad de Ciencias Económicas y Administración de la Universidad de la República en el año 1999. Obtuvo el Diploma de Posgrado en Economía en el año 2005 otorgado por la misma casa de estudios y el grado de Magister en Macroeconomía Aplicada en el año 2007 en la Pontificia Universidad Católica de Chile.
Gerenta del Área Sistema de Pagos, perteneciente a la División Política Económica y Mercados del Banco Central del Uruguay desde el 1° de diciembre de 2018.
Fue funcionaria del Banco de la República Oriental del Uruguay desde 1985 hasta el año 1999 que ingresó al Banco Central del Uruguay. Desde ese momento se desempeñó como Analista Económico en el Área de Estadísticas Económicas, ocupando el cargo de Jefa del Departamento de Oferta, Modelos y Predicciones desde junio de 2016.
Daniel Adolfo Deras Valle
Financial System Regulation Manager Central Reserve Bank of El Salvador
Estudios: Licenciado en Ciencias Jurídicas, Máster en Administración de Empresas y Derecho de la Empresa.
Actualmente coordina la función de regulación del Sistema Financiero en El Salvador, así como impulsar las acciones necesarias para la implementación de estándares internacionales en el Sistema Financiero.
Fabiola Herrera de Valdez
Deputy Manager of Systems and Technological Innovation Central Bank of the Dominican Republic
Ms. Herrera current work areas include Payment Systems, IT, Cybersecurity, and innovation, and because of this, also Fintech, Financial Inclusion and Financial Education.
After 14 years in the private banking sector, she joined the Central Bank in 1996, in the IT Department. From 2006, she was for 12 years Director of Payment Systems, and the project manager for the National Payment System Reform. She currently oversees the Departments of Payment Systems, IT, and Cyber Security. As such, recently promoted the national legal framework for cybersecurity in the financial sector, and the creation of a cyber-incident response center for this sector. Currently, is supporting the implementation of an Innovation HUB for the financial system, with the assistance of the IDB.
From 2005 to 2018, she represented the Central Bank of the Dominican Republic before the Payment Systems Technical Committee of the Central American Monetary Council (CMCA), a committee that promotes the operation of SIPA, a system that interconnects the payment systems of the countries that belong to the CMCA. In addition, she was Vice Chairman of the Working Group on Payment Systems Issues in Latin America and the Caribbean (GTSP - LAC) of the Payment and Securities Settlement Forum of the Western Hemisphere. Currently, she represents the Central Bank of the Dominican Republic before the Fintech Forum coordinated by the CEMLA (Center for Latin American Monetary Studies). Locally, is a member of the National Table for Digital Economy, hosted by the Presidency and represents the Central Bank at the National Cybersecurity Council.
Eva Hüpkes
Head of Regulatory and Supervisory Policies Financial Stability Board (FSB)
Eva Hüpkes oversees the FSB Secretariat support on regulatory and supervisory policy cooperation and resolution policies. Since she joined the FSB in 2009 she has contributed substantially to the development of the FSB/G20 post-crisis policy reforms, in particular the framework for addressing threats to financial stability posed by systemically important financial institutions and global standards for resolution. More recently, she has been involved in a broad range of issues associated with technological innovation, including the the regulation, supervision and oversight of crypto-assets and markets.
Prior to joining the FSB, she served as Head of Regulation at the Swiss Financial Market Supervisory Authority (FINMA). During 1997-1999 she worked at the International Monetary Fund )IMF..
Eva Hüpkes is a member of the New York Bar and holds degrees in law and international relations from the University of Geneva, the Graduate Institute of International Studies, Geneva, and Georgetown University, and a PhD in law from the University of Berne.
Noel Reynolds
Senior Member of Secretariat Basel Committee on Banking Supervision (BCBS)
Noel Reynolds is a senior member of the secretariat of the Basel Committee on Banking Supervision (BCBS). At the secretariat he currently provides support to the Policy and Standards Group (PSG), which oversees the policy design work of the BCBS and its implementation monitoring. A significant focus of this work at present is the development to the prudential requirements for banks’ exposures to cryptoassets. Since joining the secretariat Noel has played a key role in the development of various elements of the Basel III reforms, including the revised definition of capital, the capital buffers, the frameworks for global- and domestic systemically important banks and the revised credit risk framework. Before moving to Basel, Noel worked for the Prudential Regulatory Authority of the Bank of England (formerly the UK Financial Services Authority) and as an equities analyst at Commerzbank Securities covering the UK banking sector. He is a CFA charter holder and holds a degree in Mathematics and Economics from the University of Durham.
Peter Grills
Deputy Director Office of International Financial Markets, US Department of the Treasury
Deputy Director
jun. de 2022 – actualidad - 3 meses
Office of International Financial Markets
International Economist
ago. de 2020 - jun. de 20221 año 11 meses
Washington, District of Columbia, United States
Office of International Financial Markets
Elisabeth Noble
Senior Policy Advisor and Team Leader European Banking Authority
Elisabeth Noble is a Senior Policy Advisor and Team Leader at the European Banking Authority. She leads the EBA’s work on crypto-assets, DLT, MiCA implementation, the platformisation of financial services and structural change in the EU financial sector.
She represents the EBA in EU and international standard-setter policy work streams relating to FinTech, market-based finance, financial system interconnectedness, market access and the regulatory perimeter. She is contributing to the delivery of the EU Digital Finance Strategy and was a member of the European Commission’s Expert Group on Regulatory Obstacles to Financial Innovation (now disbanded).
Prior to joining the EBA, Elisabeth spent 7 years at the UK’s finance ministry advising primarily on the response to the financial crisis and the post-crisis domestic and EU regulatory reforms (2008-14), including the reforms to the regulatory architecture in the EU (Banking Union). Elisabeth has also spent some time in the private sector.