Digital Currencies Choices: Challenges for Financial Supervision and Monetary System

Abstract

With the emergence of multiple design alternatives, digital currencies are seen as new force disrupting the traditional financial markets, which would also have an impact on how these markets are currently being supervised. The paper examines the impact of digital currency choices, along with various possible scenarios, including the ones based on emergence on central bank digital currencies (CBDCs) that will influence the allocation of supervisory resources, in one-way or the other. It may be too early to predict the final outcome, however, various possible alternatives, like creation of a global governance standard are already taking shape even though it may not be an easy task to arrive at a consensus due to frictions in international monetary systems. While ‘same-risk, same activity, same treatment’, would make prudential regulation and supervision entity-neutral, it needs to be further debated whether the supervisory approach should also be tech-neutral, considering that differences in the design features in technology can be an independent source of risk (just like any business- risk) and hence should not be treated as merely a part of operational risk.

Keywords: Digital Currencies, Central Bank Digital Currencies (CBDC), Financial Supervision, Cryptocurrencies, Stable-Coins, Payment Systems

JEL Classification: E58, G21, G28, O33