Crypto regulation and US inflation

The headlines explained.
Blockchain technology has the potential to upend the entire industry – a change of immense magnitude, says the author. Image: Tiffany Hagler-Geard/Bloomberg

In an interesting interview, South African Reserve Bank (Sarb) deputy governor Kuben Naidoo provided some more guidance about cryptocurrency regulations in SA.

We have long  held that more regulation is necessary in the cryptocurrency environment – but more of the right type of regulation.

Regulation should protect consumers against scandals like Mirror Trading International (MTI), which scammed thousands of people worldwide out of billions of rands.

Read: US charges Johann Steynberg and MTI with defrauding 23 000 US investors

But regulations should not infringe on people’s freedom, for example, by telling them what they may or may not invest in. Regulations should also not suppress innovation as happens in many countries, especially in Europe’s financial industry.

Usually, regulators get it wrong and impose unnecessary regulations that benefit only a handful of companies, or even individuals, at the expense of the majority.

According to Naidoo, cryptocurrency regulations could be implemented in the next 12 to 18 months, and will be aimed at protecting investors, securing cryptocurrency platforms, and identifying criminal activities, among others.

If the Sarb can move so rapidly and with such efficiency, it will undoubtedly be a boon to the industry and will place SA well ahead of the curve.

Shortcomings in traditional finance

A lack of sufficient regulation globally has to a large extent prevented the mass adoption of this superior technology that can address many of the shortcomings in the traditional financial sector, but also in other sectors.

Shortcomings like the extraordinary layers of fees associated with financial transactions or even investments. Shortcomings like the delay in receiving money – why must it take more than two days for me to receive money from someone who sent it to me from another bank? Another shortcoming is only being able to trade financial instruments between 09:00 and 17:00, and only during the work week.

What blockchain technology, like smart contracts, can also do is to bring full transparency to finances: imagine being able to see where every single rand of every single government tender went! Blockchain technology can make this possible.

If you really think about it, the benefits that blockchain technologies can hold for the traditional financial sector, and beyond, seem endless. But regulation has been slow. Mostly because of the nature of the technology.

There is no single champion that can innovate, lead, and set the standard like we see in the broader technology sector.

When Facebook, Google, Amazon, Uber and the like disrupted their markets, the motto was often to ‘move fast and break things’. But a similar approach simply will not do in the financial industry where people’s livelihoods depend on it.

Also, most of the cryptocurrency world is decentralised, which is a completely foreign concept to the centralised world we live in, and which the masses have come to rely on.

But regulation has also been slow because of reluctance to adopt the technology in the traditional financial sector.

Blockchain technology has the potential to upend the entire industry – a change of this magnitude scares those who are still living off the rents of the prehistoric era.

US inflation

In other news, inflation once again reached a new 40-year high of 9.1% in the US. This surprised investors who were expecting a much more moderate reading.

Read: Hot inflation fuels bets on supersized Fed rate hike
Listen/read: Citadel’s Maarten Ackerman shares his US inflation expectations

Many were expecting the Federal Reserve’s recent interest rate increases to start reining in surging prices in the US. Even though higher fuel prices, driven by the war in Ukraine, are the main culprit for the persistent increase in US inflation, many now expect that the Fed will continue to increase interest rates at a rapid pace. As a result, the US dollar reached parity against the euro, strengthening to a 20-year high against the Eurozone’s currency.

For this reason, the rand has also been under tremendous strain, remaining at levels above R17 against the dollar.

Read:
Rand hits R17 to the US dollar
There is a bear hiding on the JSE

Listen to Yellow Card’s Keletso Thophego explain why Botswana is among the first countries in Africa to embrace crypto regulation (or read the transcript here):

Dr Francois Stofberg is senior economist and head of sales at Efficient Group.

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