• Sat. May 21st, 2022

Goldman Sachs demands a level playing field for digital currency – Ledger Insights

Goldman Sachs board member Beth Hammack raised the issue of the different rules applied to incumbent banks compared to digital currency startups and repeatedly called for a level playing field for banks. She was speaking during a panel at the Institute of International Finance.

“Right now we’re almost in a worst-case scenario. We have a lot of innovation, a lot of ideas, a lot of enthusiasm for the possibilities. But we don’t have rules, ”she said, mentioning the need for guardrails. “We need to understand how we can really operate in this system. “

While the roundtable focused on retail central bank (CBDC) digital currency, many of its comments appeared to refer to cryptocurrencies and stablecoins.

John Cunliffe, Deputy Governor of the Bank of England, was on the same panel. The day before, he highlighted the growing risks of cryptocurrencies for financial stability. And he raised a point similar to Hammack’s, that banking industry associations say it is undesirable to prevent banks from getting involved in cryptocurrencies.

The role of banks in a retail CBDC

One of the questions is what role banks will play in a future retail CBDC. Some deposit amounts will inevitably move away from banks. It will be a matter of degree.

“One of the things we need to think carefully about is that when this activity leaves the banking sector it can move into areas that become more difficult for central banks and regulators to track, identify, manage and supervise,” he said. Hammack said.

She went on to point out that banks have been subject to improved capital standards and liquidity regulations since the financial crisis.

“It has created a pretty big regulatory gap around certain types of activities,” she said. By the way, the current Basel III proposals will treat any cryptocurrency on a bank’s balance sheet as the highest risk with a 1250% weight.

The great unbundling

Neha Narula of MIT, who works on CBDC research with the Boston Federal Reserve, explained how a CBDC could fragment payment functionality.

Hammack replied that the decoupling of roles and responsibilities is an interesting concept without mentioning that this division of roles already occurs with stable parts. For example, one group could deal with identity and anti-money laundering, another with processing and yet another with holding deposits.

“I can see how it could work really well,” she said. “But I think what’s going to be important is making sure that every link in this chain, every supplier who has a role in the process, does so with a level of resilience, security, safety and skill. To keep the whole thing as resilient and productive as possible.

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