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Deciphering the Crypto Crackdown

Monetary authorities around the world are seeking to rein in fast-growing cryptocurrencies in order to safeguard both the public and the global financial system. But some fear that regulations aimed at bolstering confidence will stifle innovation and efforts to increase financial inclusion.

In this Big Picture, Yale University’s Aleh Tsyvinski argues that, far from spelling disaster for cryptocurrencies, regulation is vital to their long-term prospects of becoming a credible asset class. In that spirit, Ashley Alder of the International Organization of Securities Commissions and Jon Cunliffe, a deputy governor of the Bank of England, propose applying current international payments standards to asset-linked digital stablecoins.

But is it still too soon? Sheila Warren of the World Economic Forum worries that premature regulation of private digital currencies could discourage innovation and thus prevent the emergence of a more open, inclusive financial system.

Others, however, are more concerned about cryptocurrencies’ potential downsides. MIT’s Daron Acemoglu thinks Bitcoin has established itself in the monetary system for all the wrong reasons, and questions whether it has a useful economic role to play. And Harvard University’s Jeffrey Frankel emphasizes the dangers that developing countries like El Salvador confront when they adopt cryptocurrencies as legal tender.

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