16 research outputs found

    The Future of Banking: Consumer Protection and Contagion Risks of Cryptocurrency

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    The emergence of digital assets in the financial services industry in the 21st century raised concerns pertaining to consumer protection, regulatory oversight, and the safety and soundness of the United States financial system. In the efforts to foster digital assets in financial markets, lawmakers at both state and federal governments have begun spearheading regulatory initiatives aimed at protecting investors and consumers. This paper considers historical and current issues surrounding cryptocurrency, as well as existing policy and regulatory responses at the federal level. Among a wide array of policy issues regarding digital assets, this paper examines the consumer protection and contagion risks of cryptocurrency and their implications on U.S. financial stability. Employing the case study on the collapse of FTX cryptocurrency exchange in November 2022, this paper conducts a regression analysis between the market capitalization of FTX and other major cryptocurrency exchanges to illustrate their contagious and integrative relationships in the cryptocurrency market

    Central bank digital currencies. A critical assesment of regulations around the world

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    Central bank digital currencies are no longer a matter of “if” but rather a matter of “when”, particularly if one considers their geopolitical implications. The main goal is to effectively assess the motivations, advantages and disadvantages behind the CBDCs initiatives, while also addressing the key concerns emerging from the implementation, regulation and supervision of CDBCs, so that they can turn into the backbone of an efficient, innovative digital payment system. The article focuses on central bank digital currencies (“CBDC”) from a regulatory point of view, critically examining the current progress of CBDCs across the globe, with major focus on eNaira, e-Yuan, Digital Pound, the Digital Dollar and the Digital Euro. The investigation will also highlight the content of the Regulation proposals presented by the European Commission on 28 June 2023

    Fraud in a Land of Plenty

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    This Essay discusses the regulation of fraud in a developed economy and offers some explanations for why fraud appears to be on the increase. Ironically, regulation designed to combat fraud can actually increase fraud by attracting economic activity to fraud-ridden industries. In other words, regulation can create problems of its own by fostering the false perception that fraud is being addressed even when it is not. This analysis is relevant in the context of the current surge in sentiment to regulate cryptocurrencies in the wake of the FTX and Sam Bankman-Fried debacle. Such regulation threatens to attract more resources to cryptocurrency trading, which is a dubious proposition in light of the fact that cryptocurrencies produce little social value and merely transfer wealth rather than create it. The Essay discusses some of the reasons why fraud may be on the increase. First, strong market forces aimed at reducing managerial agency costs have had the unintended consequence of increasing the incentives of top corporate managers to commit fraud. The market forces both richly reward managers for generating strong returns for shareholders and severely punish managers for failing to reach investors’ expectations regarding corporate performance. While these rich rewards and strong punishments serve the interests of shareholders and society, they also enhance executives’ incentives to commit fraud. Another factor in the increase in fraud in financial markets has been the expansion of the concept of fraud. Historically, the term fraud was used to describe conduct that was truly egregious and involved purposeful deceit designed to provide the perpetrator with unlawful gains. As shown here, however, in the financial context the concept of fraud has been expanded to include behavior that is entirely inadvertent and benign. The expansion of the concept of fraud threatens to increase the incidence of traditional fraud by depriving the term “fraud” of its historic capacity for shaming because the prospect of being shamed is a significant deterrent to committing fraud

    Globalize Me: Regulating Distributed Ledger Technology

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    Distributed Ledger Technology (DLT)—the technology underlying cryptocurrencies—has been identified by many as a game-changer for data storage. Although DLT can solve acute problems of trust and coor- dination whenever entities (e.g., firms, traders, or even countries) rely on a shared database, it has mostly failed to reach mass adoption out- side the context of cryptocurrencies. A prime reason for this failure is the extreme state of regulation, which was largely absent for many years but is now pouring down via uncoordinated regulatory initiatives by different countries. Both of these extremes—under-regulation and over-regulation—are consistent with traditional concepts from law and economics. Specifically, when- ever DLT implements a “public blockchain”—where there is no screening of who joins the network—both the technology and its regula- tion constitute what economists call “non-excludable goods.” For these types of goods, two classical incentive problems emerge: (i) over- regulation, due to the “tragedy of the commons,” and (ii) under- regulation, due to the “free-rider problem.” We argue that these problems are best solved using some form of global regulation. Comparing alternative paths to such regulation, including (i) centralized regulation, (ii) decentralized regulation, and (iii) international standards, we analyze how global regulation of DLT could be implemented using a mixture of “on-chain” (embedded in the technology itself) and “off-chain” measures. Our Article is the first to analyze why global regulation of DLT makes sense from a law and economics perspective and is also the first to provide concrete suggestions on how to implement such regulation

    Globalize Me: Regulating Distributed Ledger Technology

    Get PDF
    Distributed Ledger Technology (DLT)—the technology underlying cryptocurrencies—has been identified by many as a game-changer for data storage. Although DLT can solve acute problems of trust and coor- dination whenever entities (e.g., firms, traders, or even countries) rely on a shared database, it has mostly failed to reach mass adoption outside the context of cryptocurrencies. A prime reason for this failure is the extreme state of regulation, which was largely absent for many years but is now pouring down via uncoordinated regulatory initiatives by different countries. Both of these extremes-—under-regulation and over-regulation—-are consistent with traditional concepts from law and economics. Specifically, when- ever DLT implements a “public blockchain”-—where there is no screening of who joins the network-—both the technology and its regulation constitute what economists call “non-excludable goods.” For these types of goods, two classical incentive problems emerge: (i) over-regulation, due to the “tragedy of the commons,” and (ii) under-regulation, due to the “free-rider problem.” We argue that these problems are best solved using some form of global regulation. Comparing alternative paths to such regulation, including (i) centralized regulation, (ii) decentralized regulation, and (iii) international standards, we analyze how global regulation of DLT could be implemented using a mixture of “on-chain” (embedded in the technology itself) and “off-chain” measures. Our Article is the first to analyze why global regulation of DLT makes sense from a law and economics perspective and is also the first to provide concrete suggestions on how to implement such regulation

    VIRTUAL CURRENCIES: TOOLS OF STATECRAFT

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    Virtual currencies have been the objects of interest and intrigue. Media headlines abound with the latest criminal crypto heist, market plunge or spike. These headlines have fueled discussions around the viability of virtual currencies as investment vehicles. Important scholarship is developing on non-state actors’, to include criminal and terrorist organizations, usage of virtual currencies. These topics enjoy varied and growing literature supporting them, and for good reason. They attempt to answer urgent questions surrounding law enforcement and national security needs. The urgency to solve short-term criminal needs, however, has left an area of research understudied. There is a dearth of academic inquiry into the strategic, medium to long-term implications of virtual currencies. Specifically, the need to comprehend how nation-states are applying virtual currencies to gain advantages and expand their power is overdue and growing increasingly important. This thesis attempts to understand the benefits and limitations of virtual currencies on nations’ domestic and global influence through empirical data over the last 10 years, with particular attention paid to U.S. opponents. Virtual currencies are a tool that can be leveraged in diverse ways, and as such, have the potential to impact a variety of political arenas in sustained and durable ways. Through analyzing various applications in the monetary, economic and warfare domains, the thesis argues that virtual currencies are tools of statecraft

    Central Bank Digital Currencies : Status quo, evolutions and possible variants of implementation

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    The development in payment behavior, especially the steady growth of electronic payments, by all economic actors as well as the emergence of alternative payment methods has pushed policy makers and central banks to react to this development. CBDCs are currently being conceptually developed in all major economies and the individual design options are being discussed. This paper presents the current status quo, possible forms of development and the possibilities of implementation

    Lackluster Adoption of Cryptocurrencies as a Consumer Payment Method in the United States—Hypothesis: Is This Independent Technology in Need of a Brand, and What Kind?

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    Cryptocurrencies were supposed to replace traditional payment methods when they were invented over 13 years ago, but adoption by the general consumer is still lacking, at least in the United States. Instead, crypto is often used as a speculative investment, by illicit actors, or for use cases unrelated to everyday purchases. A literature review on general adoption barriers and interviews with experts has only unearthed factors like usability, performance, and political drivers, among other barriers. Brand as an adoption barrier is mostly missing from literature, at least for cryptocurrencies. This led to the formation of a hypothesis related to crypto’s lack of adoption as a payment method. A framework is being designed based on the technology adoption model to find out if “brand” has an impact on cryptocurrency adoption, which was paradoxically designed to be brandless and not needing any institutional trust. The intent is to focus on what “Bitcoin 2.0” might look like, and to also delve further and gauge perceptions about various types of brands getting involved in the next generation of cryptocurrencies, including traditional banks, governments, technology companies, and also some of the decentralized and hybrid consortia currently vying to get consumers to use stablecoins, nation-issued cryptocurrencies, and other forms of digital instruments. While other studies had focused on trust, early adopter usability, or performance of blockchain networks, this work intends to focus on the general consumer’s perceptions about digital money, and the types of brands and evolution of this instrument liable to increase uptak

    OS DESAFIOS PARA A REGULAÇÃO FINANCEIRA COM O ADVENTO DE NOVAS TECNOLOGIAS E NOVOS MODELOS DE NEGÓCIO: FINTECHS, BIG TECHS E CRIPTOATIVOS

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    As inovaçÔes tecnolĂłgicas e os novos modelos de negĂłcio tĂȘm causado grandes impactos no sistema financeiro. A entrada de Fintechs e de Big Techs e o surgimento dos criptoativos alteraram a maneira de analisar determinados riscos tradicionais e trouxeram novos riscos. As autoridades reguladoras enfrentam grande desafio para entender as novas tecnologias e os novos modelos de negĂłcio. A regulação financeira tem sido contestada e se faz necessĂĄrio avaliar as melhores maneiras de tratamento regulatĂłrio para questĂ”es envolvendo Fintechs, Big Techs e criptoativos. As diversas jurisdiçÔes foram afetadas e tiveram que adaptar seu arcabouço legal e regulatĂłrio para incorporar os novos avanços, mas ainda nĂŁo existe consenso a respeito de alguns dos desafios. Algumas jurisdiçÔes jĂĄ estĂŁo mais avançadas em algumas discussĂ”es e os organismos internacionais vĂȘm desempenhando papel importante na padronização de algumas respostas regulatĂłrias. O Brasil tambĂ©m jĂĄ avançou em alguns pontos, porĂ©m entende-se que ainda hĂĄ muito a ser feito, principalmente em relação Ă s Big Techs e aos criptoativos
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