This afternoon during the December FMOC meeting, Janet Yellen, Chair of the Federal Reserve was asked by Steve Liesman of CNBC (a popular crypto currency news channel) if the Fed was worried about the stock market going up by triple digits every day. More importantly, Yellen was asked what is, with the ever increasing price and visibility of the most-popular cryptocurrency, the Fed’s policy on Bitcoin.
You can watch her answer below.
Why is this important? It’s just another brick in the wall solidifying the Bitcoin base. And adding layers to Bitcoin’s growing credibility.
Remember, this isn’t the first time that Bitcoin has popped-up at one of the Janet Yellen’s appearances. Back in July, someone held up a ‘buy bitcoin’ sign during Yellen’s testimony to Congress.
If you followed that person’s advice, congratulations. At the time Bitcoin was trading at around $2,400. It’s currently nearer $17,000.
Here’s the full transcript of Janet Yellen’s thoughts on Bitcoin:
You asked about Bitcoin and there I would simply say that Bitcoin at this time plays a very small role in the payment system. It is not a stable source of store of value and it doesn’t constitute legal tender it is a highly speculative asset and the Fed doesn’t really play any, role any regulatory role with respect to Bitcoin other than assuring that banking organizations that we do supervise are attentive. That they’re appropriately managing any interactions they have with participants in that market and appropriately monitoring anti-money laundering Bank Secrecy Act responsibilities that they have. I don’t believe there’s been anything specific about that.
Just generally banks have Bank Secrecy Act anti-money laundering responsibilities and this applies to Bitcoin as it does in if every other realm.
It was a very busy day for the SEC.
Hot on the heels of last week’s news that the SEC had seized the assets of ICO operator PlexCoin, today, California company Munchee refunded the $15 million tokens it sold during its ICO following a cease and desist order from the SEC. The SEC had argued that the “MUN” tokens constituted securities on the basis that “they were investment contracts.” This was regardless of their alleged “utility” when the sale took place.
Not finished there, SEC Chairman Jay Clayton then released a detailed statement on Cryptocurrencies and Initial Coin Offerings.
This is a major development in the crypto-sphere where one of the hottest topics of debate has been how and to what extent US Regulators would police the booming crypto industry.
Clayton’s statement was balanced and fair and showed that the SEC is taking a pragmatic approach to regulation. And it led to this tweet by prominent blockchain lawyer, Marco Santori:
I confess, I doubted I’d see a definitive statement from SEC clarifying that a great swath of potential token sales would not be securities… even giving examples! What a day. ETH has a clear, legal use case.
— Marco Santori (@msantoriESQ) December 11, 2017
The Statement shows that the SEC isn’t being fooled by any attempts to dress up securities as “tokens”. If it wasn’t clear before that you couldn’t just slap a “Utility Token” nametag on your ICO, it is now:
Following the issuance of the 21(a) Report, certain market professionals have attempted to highlight utility characteristics of their proposed initial coin offerings in an effort to claim that their proposed tokens or coins are not securities. Many of these assertions appear to elevate form over substance. Merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law.
Chairman Clayton didn’t want to let trading exchanges feel left out. There was a special mention for them:
Similarly, I also caution those who operate systems and platforms that effect or facilitate transactions in these products that they may be operating unregistered exchanges or broker-dealers that are in violation of the Securities Exchange Act of 1934.
It was not all bad news. There was a clear sign that the SEC is taking a very pragmatic approach to their securities-analysis:
We at the SEC are committed to promoting capital formation. The technology on which cryptocurrencies and ICOs are based may prove to be disruptive, transformative and efficiency enhancing. I am confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike.
As has been widely reported since the SEC published their guidance report in Summer 2017, Clayton emphasized that each case must be judged on its own facts, rather than a one-size-fits-all approach:
It has been asserted that cryptocurrencies are not securities and that the offer and sale of cryptocurrencies are beyond the SEC’s jurisdiction. Whether that assertion proves correct with respect to any digital asset that is labeled as a cryptocurrency will depend on the characteristics and use of that particular asset. “Is the coin or token a security?” As securities law practitioners know well, the answer depends on the facts.
Finally, came the warning that demonstrates the SEC is taking an ‘investor protection first’ approach:
By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws. Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved. I have asked the SEC’s Division of Enforcement to continue to police this area vigorously and recommend enforcement actions against those that conduct initial coin offerings in violation of the federal securities laws.
Chairman Clayton’s statement demonstrates that, while the SEC isn’t launching itself into a regulatory blitzkreig, it sees what is developing and is wise to attempts by bad actors to circumvent existing regulation in attempts to defraud the public. The recent examples of PlexCoin and Munchee are surely just the tip of the enforcement iceberg. Act accordingly.
The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coin offerings” (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, “this time is different.”
The cryptocurrency and ICO markets have grown rapidly. These markets are local, national and international and include an ever-broadening range of products and participants. They also present investors and other market participants with many questions, some new and some old (but in a new form), including, to list just a few:
The answers to these and other important questions often require an in-depth analysis, and the answers will differ depending on many factors. This statement provides my general views on the cryptocurrency and ICO markets and is directed principally to two groups:
Considerations for Main Street Investors
A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.
Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If any person today tells you otherwise, be especially wary.
We have issued investor alerts, bulletins and statements on initial coin offerings and cryptocurrency-related investments, including with respect to the marketing of certain offerings and investments by celebrities and others. Please take a moment to read them. If you choose to invest in these products, please ask questions and demand clear answers. A list of sample questions that may be helpful is attached.
As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.
Please also recognize that these markets span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.
To learn more about these markets and their regulation, please read the “Additional Discussion of Cryptocurrencies, ICOs and Securities Regulation” section below.
Considerations for Market Professionals
I believe that initial coin offerings – whether they represent offerings of securities or not – can be effective ways for entrepreneurs and others to raise funding, including for innovative projects. However, any such activity that involves an offering of securities must be accompanied by the important disclosures, processes and other investor protections that our securities laws require. A change in the structure of a securities offering does not change the fundamental point that when a security is being offered, our securities laws must be followed. Said another way, replacing a traditional corporate interest recorded in a central ledger with an enterprise interest recorded through a blockchain entry on a distributed ledger may change the form of the transaction, but it does not change the substance.
I urge market professionals, including securities lawyers, accountants and consultants, to read closely the investigative report we released earlier this year (the “21(a) Report”) and review our subsequent enforcement actions. In the 21(a) Report, the Commission applied longstanding securities law principles to demonstrate that a particular token constituted an investment contract and therefore was a security under our federal securities laws. Specifically, we concluded that the token offering represented an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.
Following the issuance of the 21(a) Report, certain market professionals have attempted to highlight utility characteristics of their proposed initial coin offerings in an effort to claim that their proposed tokens or coins are not securities. Many of these assertions appear to elevate form over substance. Merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law. On this and other points where the application of expertise and judgment is expected, I believe that gatekeepers and others, including securities lawyers, accountants and consultants, need to focus on their responsibilities. I urge you to be guided by the principal motivation for our registration, offering process and disclosure requirements: investor protection and, in particular, the protection of our Main Street investors.
I also caution market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions. Selling securities generally requires a license, and experience shows that excessive touting in thinly traded and volatile markets can be an indicator of “scalping,” “pump and dump” and other manipulations and frauds. Similarly, I also caution those who operate systems and platforms that effect or facilitate transactions in these products that they may be operating unregistered exchanges or broker-dealers that are in violation of the Securities Exchange Act of 1934.
On cryptocurrencies, I want to emphasize two points. First, while there are cryptocurrencies that do not appear to be securities, simply calling something a “currency” or a currency-based product does not mean that it is not a security. Before launching a cryptocurrency or a product with its value tied to one or more cryptocurrencies, its promoters must either (1) be able to demonstrate that the currency or product is not a security or (2) comply with applicable registration and other requirements under our securities laws. Second, brokers, dealers and other market participants that allow for payments in cryptocurrencies, allow customers to purchase cryptocurrencies on margin, or otherwise use cryptocurrencies to facilitate securities transactions should exercise particular caution, including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations. As I have stated previously, these market participants should treat payments and other transactions made in cryptocurrency as if cash were being handed from one party to the other.
Additional Discussion of Cryptocurrencies, ICOs and Securities Regulation
Cryptocurrencies. Speaking broadly, cryptocurrencies purport to be items of inherent value (similar, for instance, to cash or gold) that are designed to enable purchases, sales and other financial transactions. They are intended to provide many of the same functions as long-established currencies such as the U.S. dollar, euro or Japanese yen but do not have the backing of a government or other body. Although the design and maintenance of cryptocurrencies differ, proponents of cryptocurrencies highlight various potential benefits and features of them, including (1) the ability to make transfers without an intermediary and without geographic limitation, (2) finality of settlement, (3) lower transaction costs compared to other forms of payment and (4) the ability to publicly verify transactions. Other often-touted features of cryptocurrencies include personal anonymity and the absence of government regulation or oversight. Critics of cryptocurrencies note that these features may facilitate illicit trading and financial transactions, and that some of the purported beneficial features may not prove to be available in practice.
It has been asserted that cryptocurrencies are not securities and that the offer and sale of cryptocurrencies are beyond the SEC’s jurisdiction. Whether that assertion proves correct with respect to any digital asset that is labeled as a cryptocurrency will depend on the characteristics and use of that particular asset. In any event, it is clear that, just as the SEC has a sharp focus on how U.S. dollar, euro and Japanese yen transactions affect our securities markets, we have the same interests and responsibilities with respect to cryptocurrencies. This extends, for example, to securities firms and other market participants that allow payments to be made in cryptocurrencies, set up structures to invest in or hold cryptocurrencies, or extend credit to customers to purchase or hold cryptocurrencies.
Initial Coin Offerings. Coinciding with the substantial growth in cryptocurrencies, companies and individuals increasingly have been using initial coin offerings to raise capital for their businesses and projects. Typically these offerings involve the opportunity for individual investors to exchange currency such as U.S. dollars or cryptocurrencies in return for a digital asset labeled as a coin or token.
These offerings can take many different forms, and the rights and interests a coin is purported to provide the holder can vary widely. A key question for all ICO market participants: “Is the coin or token a security?” As securities law practitioners know well, the answer depends on the facts. For example, a token that represents a participation interest in a book-of-the-month club may not implicate our securities laws, and may well be an efficient way for the club’s operators to fund the future acquisition of books and facilitate the distribution of those books to token holders. In contrast, many token offerings appear to have gone beyond this construct and are more analogous to interests in a yet-to-be-built publishing house with the authors, books and distribution networks all to come. It is especially troubling when the promoters of these offerings emphasize the secondary market trading potential of these tokens. Prospective purchasers are being sold on the potential for tokens to increase in value – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering.
By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws. Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved.
I have asked the SEC’s Division of Enforcement to continue to police this area vigorously and recommend enforcement actions against those that conduct initial coin offerings in violation of the federal securities laws.
We at the SEC are committed to promoting capital formation. The technology on which cryptocurrencies and ICOs are based may prove to be disruptive, transformative and efficiency enhancing. I am confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike.
I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so. When advising clients, designing products and engaging in transactions, market participants and their advisers should thoughtfully consider our laws, regulations and guidance, as well as our principles-based securities law framework, which has served us well in the face of new developments for more than 80 years. I also encourage market participants and their advisers to engage with the SEC staff to aid in their analysis under the securities laws. Staff providing assistance on these matters remain available at [email protected] .
Sample Questions for Investors Considering a Cryptocurrency or ICO
 This statement is my own and does not reflect the views of any other Commissioner or the Commission. This statement is not, and should not be taken as, a definitive discussion of applicable law, all the relevant risks with respect to these products, or a statement of my position on any particular product. Additionally, this statement is not a comment on any particular submission, in the form of a proposed rule change or otherwise, pending before the Commission.
 The CFTC has designated bitcoin as a commodity. Fraud and manipulation involving bitcoin traded in interstate commerce are appropriately within the purview of the CFTC, as is the regulation of commodity futures tied directly to bitcoin. That said, products linked to the value of underlying digital assets, including bitcoin and other cryptocurrencies, may be structured as securities products subject to registration under the Securities Act of 1933 or the Investment Company Act of 1940.
 Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others (Nov. 1, 2017), available at https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos; Investor Alert: Public Companies Making ICO-Related Claims (Aug. 28, 2017), available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims; Investor Bulletin: Initial Coin Offerings (July 25, 2017), available athttps://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings; Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014), available athttps://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-bitcoin-other-virtual-currency; Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013), available at https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf.
 It is possible to conduct an ICO without triggering the SEC’s registration requirements. For example, just as with a Regulation D exempt offering to raise capital for the manufacturing of a physical product, an initial coin offering that is a security can be structured so that it qualifies for an applicable exemption from the registration requirements.
 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (July 25, 2017), available at https://www.sec.gov/litigation/investreport/34-81207.pdf.
 Press Release, Company Halts ICO After SEC Raises Registration Concerns (Dec. 11, 2017), available at https://www.sec.gov/news/press-release/2017-227; Press Release, SEC Emergency Action Halts ICO Scam (Dec. 4, 2017), available at https://www.sec.gov/news/press-release/2017-219; Press Release, SEC Exposes Two Initial Coin Offerings Purportedly Backed by Real Estate and Diamonds (Sept. 29, 2017), available at https://www.sec.gov/news/press-release/2017-185-0.
 I am particularly concerned about market participants who extend to customers credit in U.S. dollars – a relatively stable asset – to enable the purchase of cryptocurrencies, which, in recent experience, have proven to be a more volatile asset.
 This is not intended to represent an exhaustive list. Please also see the SEC investor bulletins, alerts and statements referenced in note 3 of this statement.
Today the US SEC announced that it halted a proposed ICO and froze it’s assets.
The proposed PlexCoin ICO had raised $15 million since its launch in August. The SEC was correctly alarmed by promises that PlexCorps made regarding a 13x profit in 30 days.
ICO scammers take note – the SEC is onto and is coming for your ill-gotten gains.
Remember, back in August, the SEC’s Office of Investor Education and Advocacy issued an Investor Alert warning investors about scams of companies claiming to be engaging in initial coin offerings.
You can read the full Press Release on the SEC website.
Washington D.C., Dec. 4, 2017 —
The Securities and Exchange Commission today announced it obtained an emergency asset freeze to halt a fast-moving Initial Coin Offering (ICO) fraud that raised up to $15 million from thousands of investors since August by falsely promising a 13-fold profit in less than a month.
The SEC filed charges against a recidivist Quebec securities law violator, Dominic Lacroix, and his company, PlexCorps. The Commission’s complaint, filed in federal court in Brooklyn, New York, alleges that Lacroix and PlexCorps marketed and sold securities called PlexCoin on the internet to investors in the U.S. and elsewhere, claiming that investments in PlexCoin would yield a 1,354 percent profit in less than 29 days. The SEC also charged Lacroix’s partner, Sabrina Paradis-Royer, in connection with the scheme.
Today’s charges are the first filed by the SEC’s new Cyber Unit. The unit was created in September to focus the Enforcement Division’s cyber-related expertise on misconduct involving distributed ledger technology and initial coin offerings, the spread of false information through electronic and social media, hacking and threats to trading platforms.
“This first Cyber Unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing,” said Robert Cohen, Chief of the Cyber Unit. “We acted quickly to protect retail investors from this initial coin offering’s false promises.”
Based on its filing, the SEC obtained an emergency court order to freeze the assets of PlexCorps, Lacroix, and Paradis-Royer.
The SEC’s complaint charges Lacroix, Paradis-Royer and PlexCorps with violating the anti-fraud provisions, and Lacroix and PlexCorps with violating the registration provision, of the U.S. federal securities laws. The complaint seeks permanent injunctions, disgorgement plus interest and penalties. For Lacroix, the SEC also seeks an officer-and-director bar and a bar from offering digital securities against Lacroix and Paradis-Royer.
The Commission’s investigation was conducted by Daphna A. Waxman, David H. Tutor, and Jorge G. Tenreiro of the New York Regional Office and the Cyber Unit, with assistance from the agency’s Office of International Affairs. The case is being supervised by Valerie A. Szczepanik and Mr. Cohen. The Commission appreciates the assistance of Quebec’s Autorité Des Marchés Financiers.
September 29, 2017
Governor, Distinguished Guests, Ladies and Gentlemen—Good morning!
Thank you, Mark [Carney], for that kind introduction, and thank you to the Bank of England for inviting me to this wonderful event.
This is a moment to celebrate 20 years of independence during which the Bank of England has been a stabilizing force for the U.K. economy, inspiring others in the world of central banking—not least because of your guidance, Mark.
This is also a moment to learn from our experiences, build on the progress made so far, and look into the future—to the next 20 years—as our journey continues.
This morning, I came up Fleet Street, which always feels like a journey through history. In the Middle Ages, that street was an important center of commerce, much of which has now moved online. By the 19thcentury, the street was home to ticker machines and reporters racing each other to make the evening papers. That world, too, has largely moved online.
And much has changed for the bankers and policymakers here in the City of London. But that is only the beginning. Let us spin the hands ofBig Ben forward to 2040 to catch a glimpse of their world. We might see that:
· Cars have disappeared, because people are moving about in hovering drones, or “pods,” which elegantly avoid each other in the morning rush hour.
· One of those pods carries the central bank governor, who recently started her second term. As part of her morning routine, she swipes through a hologram of news videos curated by a digital assistant, before arriving at Threadneedle Street.
· The governor disembarks, walks up to the columned façade, opens the door and…
Who will she encounter inside the building? Are there economists sitting at desks, debating policy choices around a table? Or is there an intelligent machine making decisions, setting rates, and issuing money?
In other words, how will fintech change central banking over the next generation?That is the focus of my remarks today.
I would like to consider the possible impact of three innovations—virtual currencies,new models of financial intermediation, and artificial intelligence.
Some of these innovations have already found their way into our wallets, smartphones, and financial systems. But that is only the beginning.
Are you ready to jump on my pod and explore the future together? As one of your fellow Londoners—Mary Poppins—might have said: bring along a pinch of imagination!
1. Virtual currencies
Let us start with virtual currencies. To be clear, this is not about digital payments in existing currencies—through Paypal and other “e-money” providers such as Alipay in China, or M-Pesa in Kenya.
Virtual currencies are in a different category, because they provide their own unit of account and payment systems. These systems allow for peer-to-peer transactions without central clearinghouses, without central banks.
For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks. Why? Because they are too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable. Many are too opaque for regulators; and some have been hacked.
But many of these are technologicalchallenges that could be addressed over time. Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies.
Better value for money?
For instance, think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country—such as the U.S. dollar—some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0.
IMF experience shows that there is a tipping point beyond which coordination around a new currency is exponential. In the Seychelles, for example, dollarization jumped from 20 percent in 2006 to 60 percent in 2008.
And yet, why might citizens hold virtual currencies rather than physical dollars, euros, or sterling? Because it may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable.
For instance, they could be issued one-for-one for dollars, or a stable basket of currencies. Issuance could be fully transparent, governed by a credible, pre-defined rule, an algorithm that can be monitored…or even a “smart rule” that might reflect changing macroeconomic circumstances.
So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.
Better payment services?
For example, consider the growing demand for new payment services in countries where the shared, decentralized service economy is taking off.
This is an economy rooted in peer-to-peer transactions, in frequent, small-value payments, often across borders.
Four dollars for gardening tips from a lady in New Zealand, three euros for an expert translation of a Japanese poem, and 80 pence for a virtual rendering of historic Fleet Street: these payments can be made with credit cards and other forms of e-money. But the charges are relatively high for small-value transactions, especially across borders.
Instead, citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities. If privately issued virtual currencies remain risky and unstable, citizens may even call on central banks to provide digital forms of legal tender.
So, when the new service economy comes knocking on the Bank of England’s door, will you welcome it inside? Offer it tea—and financial liquidity?
2. New models of financial intermediation
This brings us to the second leg of our pod journey—new models of financial intermediation.
One possibility is the break-up, or unbundling, of banking services. In the future, we might keep minimal balances for payment services on electronic wallets.
The remaining balances may be kept in mutual funds, or invested in peer-to-peer lending platforms with an edge in big data and artificial intelligence for automatic credit scoring.
This is a world of six-month product development cycles and constant updates, primarily of software, with a huge premium on simple user-interfaces and trusted security. A world where data is king. A world of many new players without imposing branch offices.
Some would argue that this puts a question mark on the fractional banking model we know today, if there are fewer bank deposits and money flows into the economy through new channels.
How would monetary policy be set in this context?
Today’s central banks typically affect asset prices through primary dealers, or big banks, to which they provide liquidity at fixed prices—so-called open-market operations. But if these banks were to become less relevant in the new financial world, and demand for central bank balances were to diminish, could monetary policy transmission remain as effective?
If anything, central banks may well have to increase the number of counterparties to their operations. The Bank of England is already leading the way by including large broker-dealers and central counterparty clearing houses.
All this, of course, has regulatory implications. More counterparties imply more firms falling under the central bank’s regulatory umbrella—which is the price to pay for liquidity on a rainy day. Whether the future holds more or less rain is an open question. Still, better regulating shadow banks looks all the more pressing. The FSB has already made progress in this area under your leadership, Mark.
The remit of central banks will grow, and with it, perhaps, public scrutiny and political pressures. Independence—at least to set monetary policy—will need further defenses and require even clearer communication.
We may also see a shift in regulatory practices. Traditionally, regulators have focused on overseeing well-defined entities. But as new service providers come on stream in new shapes and forms, fitting these into buckets may not be so easy. Think of a social media company that is offering payments services without managing an active balance sheet. What label should we stick on that?
All this is good for lawyers, but not so good for regulators. The regulators will likely have to further expand their focus, from financialentities to financial activities—while possibly also becoming experts in assessing the soundness and security of algorithms. Easier said than done.
Cooperation is key
To make things smoother—at least a bit—we need dialogue. Between experienced regulators and those regulators that are just beginning to tackle fintech. Between policymakers, investors, and financial services firms. And between countries.
Reaching across borders will be critical as the focus of regulation widens—from national entities to borderless activities, from your local bank branch to quantum-encrypted global transactions.
Because of our global membership of 189 countries, the IMF is an ideal platform for these discussions. Technology knows no borders: what is home, what is host? How can we avoid regulatory arbitrage and a race to the bottom? This is about the IMF’s mandate for economic and financial stability, and the safety of our global payments and financial infrastructure.
The stakes—and gains—from cooperation are high. We want no holes in the global financial safety net, however much it gets stretched and reshaped.
I am convinced that the IMF has a strong role to play in this respect. But the Fund will also have to be open to change, from bringing new parties to the table, to considering a role for a digital version of the SDR.
In other words, the IMF is in for the pod-ride.
3. Artificial intelligence
Which brings us to the third and final leg—the transformative effect of artificial intelligence.
Will our governor in 2040 walk into the Bank to polish a monetary policy-setting machine? Will your prediction, Andy [Haldane], of 15 million jobs being automated in the U.K., affect the Bank and its world-class staff?
One thing is clear: we always have more data. Some estimates suggest that 90 percent of the data available today was generated in the past two years.  This is not just information on output, unemployment and prices, but also behavioral data on the quirks and irrationalities of the homo economicus.
Thanks to smartphones and the internet, this data is now abundant, ubiquitous, and increasingly valuable as we pair it with artificial intelligence.
Artificial intelligence is taking immense strides. Over the past year, some of the world’s best players of Go, the ancient board game, have lost to a self-learning computer. For many, that day of reckoning was supposed to be decades away. The machine learned tactics, recognized patterns, and optimized its game—better than we could.
Clearly, the economy is vastly more complex than a game of Go. But over the next generation, machines will almost certainly play a larger role—in assisting policy-makers, offering real-time forecasts, spotting bubbles, and uncovering complex macro-financial links.
But let me reassure you, humans will still be needed.
For one, there is immense uncertainty about the economy. Changes in basic economic relationships need to be spotted, and risks evaluated. Judgment and constant questioning by peers, diversity of opinions, and even a few maverick spirits, will remain essential to good policy. But what if the machine could do that too?
Next is the question of communication. Good monetary policy, as we know, is about story telling. Policy is effective if it can be explained clearly so the public can form expectations about future policy. Could machines really explain their decisions in plain English?
Even if that hurdle could be overcome, a last one remains. Even with the best algorithms and machines, targets will be missed, crises will occur, mistakes will be made. But can machines really be held accountable—to the young couple unable to buy a house, to the working mother finding herself unemployed?
Accountability is key. Without it, we cannot have independence; how else to bestow so much power in a technocratic organization? And without independence, policy is bound to go astray, as this conference reminds us loud and clear.
So no, I do not see machines taking over monetary policy. In 2040, the governor walking into the Bank will be of flesh and bones, and behind the front door she will find people, at least a few.
So there will always be an Old Lady living in Threadneedle Street.  And I hope you agree that it is often enlightening to speak to a lady of a certain age!
As our pod journey comes to an end, some of you may wonder about my upbeat tone. For many, this new world of central banking is less Mary Poppins, and more Aldous Huxley: a “brave new world,” much like the one described in Huxley’s famous novel.
I believe that we—as individuals and communities—have the capacity to shape a technological and economic future that works for all. We have a responsibility to make this work.
That is why I prefer Shakespeare’s evocation of the brave new world in The Tempest: “ O wonder! How many goodly creatures are there here! How beauteous mankind is! O brave new world .”
Floyd is back!
As we reported back in August, Floyd Mayweather is fast becoming the (well paid, we assume) voice of ICOs.
Hot on the heels of his Stox and Hubii promotions, Floyd is now endorsing the Centra ICO.
On a side note: this comes just days after the FTC apparently sent warning letters to Instagram influencers reminding them to disclose business relationships for products they promote.
What is Centra?
We have no idea to be honest.
Looking at their site they are apparently “a Crypto debit card for Bitcoin, Ethereum & more.” Their Debit Card “enables users to spend their cryptocurrency in real time with a 0% exchange, spend, & withdraw fees”.
That’s all well and good. But we’re left here wondering:
Is there an ICO that Floyd Mayweather doesn’t promote?
In our post last week, we saw two countries pressing ahead with crytpocurrency plans. Estonia is planning to hold it’s own Initial Coin Offering while Russia announced it’s goal of a digital currency on the blockchain platform.
But not all countries are jumping on the ICO bandwagon.
According to financial magazine Caixin, Chinese regulators are working on new regulations to govern coin offerings and may issue an outright ban on them until the new regulations are finalized.
This more closely tracks the approach that Singapore regulators and the US Securities and Exchange Commission has taken. In July the SEC concluded that certain tokens would constitute securities and therefore be subject to the onerous securities laws requirements.
The battle lines are being drawn. With so much at stake it will fascinating to see how this struggle develop
On July 24, 2017 the US Commodity Futures Trading Commission granted LedgerX the first license to clear and settle derivative contracts for digital currencies.
New York based LedgerX becomes the first regulated bitcoin options exchange and is permitted to clear fully collateralized digital currency swaps. This follows the exchange’s recent authorization by the CFTC as a swap execution facility.
This is big news for digital currency traders who will now be able to hedge the often volatile price movements in the underlying assets.
It also represents the next step in the journey towards regulatory acceptance of digital currencies.
LedgerX’s chief executive, Paul Chou, described it as “an important milestone” for the wider digital currency market. We agree.