Cryptocurrencies: A ‘Sandbox for Regulators’?

By thinking loudly about putting the regulation of cryptocurrencies on the agenda of the G20, governments seem to have managed to keep the Bitcoin bubble from inflating into a systemic risk, so far. In a tongue-in-cheek sense, this behavior of supervisory and regulatory authorities can be described as the distributed ledger technology of financial supervision. It is distributed because it does not have a clear center. The G20 seems to be the common reference point for many actors, but it does not speak itself. It is like a shared code

Bond trustees and debt sustainability in sovereign debt restructuring

The expansion of actors and instruments in sovereign debt markets through bond financing generated a coordination problem among bondholders during the debt restructuring process. There is a risk that an individual bondholder will be passive or act against the restructuring slowing down or even precluding the process of restructuring even though it is in the general interest of bondholders as a group, not to mention the population of the country experiencing the shortage of funds for public welfare. In particular, the disruptions to sovereign debt restructuring by frivolous litigation is considered as one of the main threats. This dissertation is the first major study devoted to sovereign bonds structured through a trust arrangement and the promising features that such a legal structure possesses for an effective and efficient sovereign debt restructuring. It provides a comprehensive inquiry into the evolution of the mechanisms to coordinate creditors, with a focus on bondholders and institutional frameworks which facilitated this coordination. It examines intriguing primary sources from League of Nations archives and provides in-depth case studies on the functionality of the trustees in sovereign bond restructurings performed by Argentina in 2016 and Ecuador in 2008. Assessing the utility of trust arrangements to address coordination problems, this thesis is driven by the puzzle: How to better balance (i) the need for smooth sovereign debt restructurings, which by definition entails some losses for creditors, with (ii) bondholders’ legitimate interests? What approach can be used in constructing a legal and institutional framework for trustees to promote the best interest of the bondholders in sovereign debt restructuring? As a solution, it seems that incentives for bond trustees to pursue debt sustainability will achieve both goals. In this regard, recognition of the concept of debt sustainability, being in substance the IMF and WB debt sustainability assessment, as the best interest of bondholders in sovereign debt restructuring is beneficial from multiple aspects. It enables a bond trustee to excel in its role as a guardian of bondholders by following the best interest of bondholders in exercising its discretion. Moreover, it fosters an equilibrium between the interests of private creditors and a state taking into account its socio-political aspects

Back to the future: a sovereign debt standstill mechanism IMF article VIII, section 2 (b)

This article provides a proposal to use IMF Article VIII, Section 2 (b) to establish a binding mechanism on private creditors for a sovereign debt standstill. The proposal builds on the original idea by Whitney Deveboise (1984). Using arguments brought forward by confidential IMF staff papers (1988, 1996) and the IMF General Counsel (1988), this paper shows how an authoritative interpretation of Article VIII, Section 2 (b) can provide protection from litigation to countries at risk of debt distress. The envisaged mechanism presents several advantages over recent proposals for a binding standstill mechanism, such as the International Developing Country Debt Authority (IDCDA) by UNCTAD and a Central Credit Facility (CFF) by the Bolton Committee. First, this approach would not require the creation of new intergovernmental mechanisms or facilities. Second, the activation of the standstill mechanism can be set in motion by any IMF member country and does not require a modification of its Articles of Agreement. Third, debtor countries acting in good faith under an IMF program would be protected from aggressive litigation strategies from holdout creditors in numerous jurisdictions, including the US and the UK. Fourth, courts in key jurisdictions would avoid becoming overburdened by a cascade of sovereign debt litigation covering creditors and debtors across the globe. Fifth, private creditors would receive uniform treatment and ensure intercreditor equality. Sixth and last, the mechanism would provide additional safeguards to protect emergency multilateral financing provided to tackle Covid-19

Governing cryptocurrencies through forward guidance

Matthias Goldmann and Grygoriy Pustovit: Adopting a ‘sandbox approach’ for regulators could be a beginning

Kryptowährungen durch „Forward Guidance" steuern

Matthias Goldmann und Grygoriy Pustovit: Ein „Sandbox"-Ansatz für die Finan.zaufsicht könnte ein Anfang sei

Cryptocurrencies: A ‘Sandbox for Regulators’?

By thinking loudly about putting the regulation of cryptocurrencies on the agenda of the G20, governments seem to have managed to keep the Bitcoin bubble from inflating into a systemic risk, so far. In a tongue-in-cheek sense, this behavior of supervisory and regulatory authorities can be described as the distributed ledger technology of financial supervision. It is distributed because it does not have a clear center. The G20 seems to be the common reference point for many actors, but it does not speak itself. It is like a shared code. </p