Blog Post

The Bretton Woods Institutions in a Changing World: A Call for Increased EMDC Involvement in Global Crypto Governance

Bretton Woods Committee  | Tue, May 9, 2023

by Starla Griffin and Ussal Sahbaz

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The world has changed dramatically since the Bretton Woods institutions were created in the wake of WWII to promote international cooperation and multilateralism in a bid to ward off future conflicts.  The institutions created at this historic gathering ushered in an era of unprecedented peace and security, and global economic growth for 60+ years.  They have adapted well over the decades to meet ever more complex challenges, including launching annual G20 meetings with significant emerging markets participation, following the 2008 financial crisis.  

The time has come for more policy-making weight to shift towards the G20 and emerging markets and developing countries (EMDCs), particularly in terms of climate change policy, and global governance of crypto assets.  EMDCs are at the forefront of the most significant negative outcomes, and greatest opportunities, presented by these two challenges.  In the case of crypto – ideologically conceived to operate outside any centralised government control, and therefore elude traditional financial guardrails – EMDCs with less developed traditional financial systems are poised to leap-frog developed nations in their adoption or use. 

Indeed, crypto asset use is rapidly growing in EMDCs. According to a 2022 Chainalysis report, crypto asset adoption/ownership has grown most significantly in markets such as Thailand, Turkey, Indonesia, Malaysia, Brazil, and Nigeria (despite a ban). 

Crypto assets can be mainly categorized into two: (1) stablecoins, which are backed by reserve assets (predominantly hard currencies) and (2) unbacked crypto assets, which provide no direct claims on the issuer (most popular are Bitcoin and Ethereum).  Crypto assets in both categories have a number of positive use-cases in EMDCs. 

For remittances, crypto assets (mainly stablecoins but also unbacked crypto assets) may be cheaper and faster than traditional financial routes.   According to the IMF (Box 2, pages 9-10), crypto assets may provide a lower-cost channel for remittances for certain remittance corridors, depending on the cost structure of the traditional channels. Mexico’s largest crypto asset exchange, Bitso, processed 4% of Mexican remittances in 2022.

Stablecoins may also provide a more constant store of value for people in EMDCs who may not have access to foreign exchange markets due to capital controls and as such, can serve as an important inflation hedge.  One third of crypto asset transactions in Venezuela and Argentina, two Latin American countries with chronic inflation and capital controls, are in stablecoins.  During the exchange rate turmoil in early 2011 in Turkey, the stablecoin transaction volumes in major exchanges in the country increased more than 100%.  

Likewise, Bitcoin and other unbacked crypto assets can serve as a hedge against local economic instability or political risk, particularly where traditional financial systems are underdeveloped and there is a concern about government intervention in the local banking or capital market.  Brazil’s largest digital bank Nubank’s crypto trading platform reached 1 million users in a month, demonstrating the enthusiasm for crypto assets with bank clients there.   

Finally, access to crypto assets provides opportunity, particularly for young people in EMDCs, to engage in emerging technologies, international commerce, and global trends. Properly regulated, global crypto asset markets could offer a route to wealth creation in developing countries that has previously been unimaginable.  It is important that the interests of these young people are considered as domestic regulatory regimes are implemented. 

Despite these use-cases for crypto assets in EMDCs, most of the regulatory discussions around crypto assets are centred in advanced economies such as the USA, the EU, the UK and Japan, as well as high-income financial hubs including Dubai, Singapore and Hong Kong. If the global crypto asset regulatory standards are set by these jurisdictions, this may hinder EMDCs from reaping the most benefits from this emerging technology. Given that crypto assets are global in nature and regulations are national, lack of consensus in global standards may also result in gaps and regulatory arbitrage seeking.  This is where the Bretton Woods institutions, embracing a larger policy-making role for EMDCs, can establish minimum standards for regulation that prevent harm while encouraging innovation and participation.

We propose a G20+ Task Force take the lead in developing these minimum standards to guide national legislation in this area to ensure that nefarious use is minimised, beneficial use-cases are optimised, and gaps between national regulation are filled.  This group should include additional non-G20 countries where cryptocurrency regulation is more developed, or crypto adoption more widespread, and would benefit from regular input from industry representatives, particularly the large exchanges and trade bodies, on technological innovation and market trends.  

Starla Griffin, Bretton Woods Committee Member, is a Managing Director at Slaney Advisors, Ltd., where she specialises in emerging markets financial issues and climate finance.

Ussal Sahbaz is a managing partner at Ussal Consultancy, a boutique government affairs firm focused on tech businesses in Turkey.
 

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