An Evolving Regulatory Dialogue: Protect Consumers, Enable Innovation

In the last year, interest in digital assets went mainstream and new promising use cases emerged. Appropriately, it spurred a global conversation on the type of regulations needed to ensure markets and consumers remain safe. This rose to the highest levels, including the G20 and Financial Stability Board. This week, I continued Ripple’s dialogue with regulators and politicians and appeared before the UK Parliament.

Until now, most conversations have hinged on the notion that “blockchain is good” and “digital assets are bad.” Yet, as policy makers took a close and thoughtful look at the technology, this view appears to be fading. The conversation today seems focused on real-world applications for both blockchain and digital assets.

There’s recognition that digital assets are tools. If they are good or bad depends entirely on how they are used. Consider a hammer. You can use it to build a house, but you can also use it as a weapon, a use case for which we have laws and punishments. A hammer is only deemed good or bad by its application.

The same is true for digital assets. There is great potential for this technology to serve many positive use cases. Ripple’s work exploring how digital assets can connect fiat currencies more efficiently is one example.

Last week, the UK’s Financial Conduct Authority highlighted this broad trend:

“More positively, we see firms using cryptocurrency for international money remittance, lowering the cost and time of sending money overseas. So there are legitimate and economically significant use cases.”

Christine Lagarde of the IMF recently stated that digital assets won’t eliminate the need for traditional financial institutions, but instead “will lead to a diversification of the financial landscape” and create a “financial ecosystem that is more efficient and potentially more robust in resisting threats.”

We agree.

The focal point now should be how best to address risk in the market today, while preserving the potential for new use cases to emerge.

While the technology is new, when considering policy, the risks are not. The Financial Stability Board, which is comprised of central banks, stated clearly in March that no systemic financial stability risk from digital assets exists at this time. And, concerns around consumer and investor protection, money laundering, and cyber security – none of which are new – can be effectively addressed with these three policy recommendations.

We believe digital assets can improve how money moves around the globe, not replace it. Working closely with the global financial system, from central banks to regulators, we want to help enhance existing systems and processes with new technology and tools to address real market needs.

For example, migrant workers sent $466 billion to developing countries in 2017. This is despite high fees typically associated with retail remittances which tend to be lower value payments sent at a higher frequency. Consistent and high fees means less money in the pockets of working families.

The cost of sending cross-border payments is high for financial institutions as well, due to the billions of dollars that sit dormant in nostro accounts around the world. Utilizing XRP as a bridge currency can dramatically reduce the cost associated with these cross-border payments and can empower both consumers and businesses in the retail remittance space.

For this type of innovation to flourish, balanced rules are needed. We’re optimistic that the broader conversation is evolving – that many believe an even-handed approach to digital asset regulation is best. This approach can enable the next era of global commerce and financial inclusion, while ensuring market safety and consumer protection.