The governor of the Bank of Spain, Pablo Hernández de Cos, highlighted that there must be a quick movement to set regulations on digital assets.
Pablo Hernández de Cos, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, has long expressed himself about the requirements for crypto assets to suffer a stronger regulation.
The governor has also talked about the risks of the banking system being exposed to crypto. And, in fact, for almost two years, this central bank has been closely following the issue of digital assets.
In a new public intervention, he has said that the cryptocurrency and decentralized finance space must get regulated as soon as possible to avoid risks of financial instability. Hernández de Cos also expressed how this quick approach should bring the crypto-financial system within reach of regulation before it expands.
Fast movement
Hernández de Cos, who also plays a role in the Basel Committee on Banking Supervision, explained his thoughts on how he thinks digital asset regulation should get covered.
He explained these thoughts in a keynote speech held at the 36th annual general meeting International Swaps Association and derivatives.
There, Hernández de Cos explained that there must be a fast movement to regulate digital assets and decentralized financial markets before expanding and impacting the economic system’s financial stability.
He stated that despite this phenomenal growth, crypto assets still account for only around 1% of total global financial support, and banks’ direct exposures are relatively limited. However, such markets show enough potential to escalate quickly and risks to individual banks and financial stability.
In addition, the governor suggested a forward-looking regulatory and supervisory approach to the subject, explaining that there may be a balance between welcoming these technologies while also reducing their risks.
The Critics
Hernández de Cos also took the opportunity to criticize the current state of the market, citing the fever caused by meme coins like Dogecoin and the effect that the thoughts of Tesla and SpaceX CEO Elon Musk can have on these markets.
Doubts about Decentralization
He also analyzed decentralization, asking if a genuinely decentralized financial system could ever get achieved during these actions. An expansive literature has highlighted the “paradox” and “illusion” of the current Defi structure. Despite its name, some level of centralization is unavoidable and where structural aspects could lead to a concentration of power.
Such criticism is not limited to vested stakeholders: key proponents of DeFi have also recognized the “trilemma” of having a secure, scalable, and decentralized financial system.
By: Jenson Nuñez
