The explosive growth of cryptocurrencies and digital assets has left financial authorities scrambling to figure out what is going on. But while this booming sector is known for its pioneering spirit and commitment to innovation, many of the risks it poses should already be familiar to regulators.

A well-functioning financial system is a key component of any successful economy. Without efficient payments and widely accessible financial services, people cannot easily engage in trade, save for bad weather, invest in new innovations and business models, or insure themselves against risk. But precisely because the financial sector is so central, developments within it are very important. If the digital revolution has shown us anything, it’s that a seemingly small innovation can disrupt or even wipe out entire industries.

The promise of financial technology (fintech) is that it will enable even faster and cheaper trade (including across international borders), improve the allocation of capital to productive investments and make financial services even more efficient and accessible, especially for the whole world. 1.7 billion people unbanked or underbanked. But technological innovation is not inherently “good” or “bad”. Some changes provide broad benefits to society, but others may benefit the few at the expense of the many, and most will entail a mixture of benefits, costs and complications.

The rapid growth of digital assets is a good example. While there are many scams, there are also many opportunities, and countries that can effectively exploit these new technologies can gain a competitive advantage. How should governments – and democratic voters – weigh the risks and benefits? Raghuram G. Rajan, former Governor of the Reserve Bank of India, recently shared his views on this and related issues for Syndicate ProjectFinance 3.0” Event.

To continue reading, register now.

As a registered user, you can enjoy more PS content every month – free.

Register

or

Subscribe now for unlimited access to everything PS has to offer.