Crypto currencies are currently too volatile to be considered an accepted means of payment

Trends and innovations around payments are happening at lightning speed. New parties have emerged in the payment chain, including FinTechs and BigTechs. At the same time, one crypto currency after another is entering the market, while central banks around the world are working on their own digital currencies. The Centrale Bank van Cura?ao en Sint Maarten (CBCS) welcomes digitization and innovation and keeps a close eye on new developments. Where possible, the CBCS will facilitate innovations in the market and encourage instant payments use cases. Payments are becoming more user-friendly for a large part of society, but at the same time the crypto ecosystem is raising risks for which there are currently not enough mitigating measures in place.

Crypto currencies are digital assets or rights that can be electronically transferred and stored using Distributed Ledger Technology (DLT) or similar technology. With crypto currencies, value can be transferred without the intervention of third parties such as banks or clearing and settlement companies. However, the value of crypto currencies is not guaranteed, and they are mainly used as a means of speculation. The CBCS does currently not supervise (providers of) crypto currencies, meaning that there are currently no consumer protection regulations in place aiding consumers in recognizing and mitigating the possibility of (financial) losses if a platform that exchanges or holds virtual currencies fails or become victims of cybercrime. The volatility of crypto currencies makes them for now unsuitable as a widely accepted means of payment.

Stablecoins (cryptocurrency pegged to a reserve asset like a fiat currency, commodity, or other cryptocurrencies) could contribute to faster, cheaper and more inclusive cross-border payments, but also entail their own inherent risks. For example, the value of stablecoins is not as stable as the name suggests, since the value of stablecoins can fluctuate. The linking of stablecoins with existing currencies is not automatically maintained. Issuers of stablecoins can hold reserves of the currency to which the stablecoin is linked to achieve a stable value. Stablecoins are mainly used to facilitate trading in more volatile cryptos. The International Monetary Fund (IMF) does not see systemic risk for financial stability from crypto currencies as the market capitalization is, although rapidly growing, still relatively small. However, the IMF does call for regulation to correspond to the risks stable coins pose when they continue to grow.

The CBCS has been following developments around Central Bank Digital Currencies (CBDC) and the crypto ecosystem for a couple of years. The CBCS is closely following developments in the region regarding CBDC, such as the pilot project of the Eastern Caribbean Central Bank and the now live CBDC in the Bahamas. While CBDC is a popular theme in the last years, especially as a response to widely accepted stablecoin proposals, the number of live CBDCs worldwide is still limited. This illustrates the complexity of CBDC projects and the hesitation by central banks regarding the maturity of the systems needed to support CBDC initiatives. For 2022, the CBCS intends to issue a position paper on the potential contribution of CBDC to financial inclusion in Cura?ao and Sint Maarten.

In response to these exciting new developments the CBCS has proposed a package of 4 legislations that are in the legislative process and should aid new technologies and enhance the efficiency of the payment system. These legislations impose requirements on the oversight of electronic payment infrastructure and institutions, as well as set rules and frameworks for digital assets. This will ensure that companies that offer services for the exchange between virtual money (cryptos) and ordinary money (fiduciary money) and companies that offer crypto custodial wallets, will come under the conduct and integrity supervision of the CBCS.

Consumers should be cognizant of the highly risky and speculative nature of crypto currencies, misleading advertisements and influence campaigns on social media. The CBCS aims to protect consumers through the aforementioned draft legislations, by requiring that any information provided by any prospective service provider (also those dealing in virtual assets) are correct, clear, and not misleading. Any service provider should handle in the best interests of its clients and consumers by refraining from conduct detrimental to the confidence in the service provider itself, the payment system, and the integrity of the financial system of Cura?ao and Sint Maarten.

Ultimately, the CBCS is mandated to ensure a safe and accessible payment system. The CBCS aims to develop policies that support innovation whilst ensuring compliance with international standards that also support important policy objectives such as market protection, resiliency, financial stability, and market integrity. As a result, the CBCS will keep monitoring the developments in the crypto ecosystem and will re-assess this subject periodically.

E. Cova Head Governance, Compliance & Conduct Supervision