Thank you very much, and good morning everyone, particularly those online, but also those in the room.
And as Klaus said, and thank you for the introductory remarks, as you said it is good that we can gather in physical presence but equally we have the opportunity to engage with more people online.
Because the topic we are discussing is really important, so thanks to Yann and indeed Anne-Françoise, who will address us shortly, and indeed colleagues in DG FISMA for all they work they’ve done on this topic for some time.
To you who are here, thank you for your contribution, because I know the engagement has been extremely strong.
And maybe before I start my formal presentation, just to acknowledge the very strong statement from a number of you in the room, including Business Europe and Eurocommerce, calling for a fresh political engagement to renew economic integration in the single market. This also speaks to the agenda we are addressing today.
Let’s say where we are at. Everyone in this room and online shares a key goal – and that is to facilitate investment in the single market – we may differ on how to achieve that goal – but I think we are clear about the target.
Because of current circumstances, the goal is more urgent that ever. We have a very uncertain climate.
Interest rates are rising, inflation is a reality, and indeed the Covid crisis has not gone away.
We also have Russia’s unprovoked and unjustified invasion of Ukraine, which is exacerbating pressure on growth, impacting on commodity prices and of course supply chains remain disrupted.
We are living in very uncertain times, and my engagement, formal and informal, with business across Europe, speaks to that sense of uncertainty and concern, amongst small and large companies.
So our policy priorities are more important than ever.
We, as you know, need to end our dependency on Russian fossil fuels, and speed up the transition to renewable energy. And we really need to accelerate that, removing blockages that exist, and also mobilising private finance to this absolute urgency.
We need to try and work to sustain the post-COVID economic recovery in Europe. In January, we were quite optimistic about the future. I think when the war broke out on February 24th – that optimism is now tinged with huge concern and much less optimism and more uncertainty.
And that’s why we’re here today, to address all of these issues and look at our priorities.
The regulatory environment in the Union should give investors certainty and stability – including when they invest in a member state you’re not based in, so across the single market.
We want the single market to work for investors.
In the past, investors often relied on bilateral investment treaties to protect investments if they faced difficulties in a different EU country.
And the Commission consistently held the view that there is no place for bilateral investment treaties between Member States within the EU legal system and in the single market – these so-called “intra-EU BITs”.
They overlap with EU single market rules and they discriminate among EU investors.
They create out-of-court dispute resolution systems that are incompatible with EU law.
And this was confirmed, as you know, by the Court of Justice in the Achmea case.
Following that judgement, the Commission stepped up our work with all Member States, calling on them to take action to terminate any intra-EU BITs.
And Member States are finalising the termination of those treaties.
Their formal termination clarifies the situation and brings legal certainty for investors.
And it allows us to turn the page and to consider how we can best provide the right regulatory environment for investors.
Fundamentally, EU law and single market rules offer investors an effective and complete system of protection.
We have the four freedoms in the single market – the free movement of capital, services, goods and labour.
Those give you the right to establish a business, to invest in a company or to provide services and goods across the whole of the single market.
EU investors are protected by the rules of the single market.
At the same time, EU law allows for markets to be regulated to pursue legitimate public interests such as security, public health, social rights, consumer protection or protecting the environment.
These legitimate goals may have direct consequences for investors.
But we should not be complacent.
We know that EU law does not always solve all issues and that investors may still face problems when they invest in other EU countries.
And I really want to emphasise that we do take investors’ concerns very seriously.
For example, our 2022 Eurobarometer survey on investment protection shows that only 56 percent of companies are confident that their investments are protected by the law and courts in the country of their investment if something goes wrong.
So clearly there is room for improvement.
For this reason, we announced that we would explore the need to provide some additional guarantees to those who want to invest across the single market, but have some concerns.
In recent years, we carried out an extensive consultation, launched an independent study and built up the evidence base.
So investors reported issues in 4 key areas:

Property protection and compensation for expropriation;
The quality of the law-making process,
Good administration,
And effective courts.

We carefully analysed a range of options to address issues in these areas, including some legislative solutions.
However, the evidence we gathered does not suggest these issues are systematic or sufficiently material to warrant specific legal action at EU level.
We also balanced the perspectives of all stakeholders – not only looking at investor problems.
We acknowledge civil society concerns about avoiding preferential treatment for investors compared to, for example, workers or consumers.
And of course we support the right of governments to regulate in the public interest.
Weighing different options, we have concluded that a legislative response is not justified.
EU law already protects investments in the single market and, in particular, provides for judicial remedies when something goes wrong.
National courts should remain the main forum for investors if they have to seek redress against measures introduced by Member States.
And the European Court of Justice is there to ensure that EU law is correctly applied.
In the Commission, we want to support the enforcement of EU rules.
Ensuring that EU rules are applied in practice also ensures effective protection of investments.
We will not come forward with legislation – but we do intend to take action.
So let me lay out what the Commission plans to do.
The pre-condition for consistent application of EU rules is clarity. Rules should be clear for all actors.
We are ready to communicate more on the existing rules.
And this will help prevent Member States adopting measures that infringe EU rules, and assist investors invoking their rights before public administrations and national courts.
It can also help legal practitioners apply EU rules.
Now beyond providing clarity, we want to maximize the benefits of existing EU tools and mechanisms.
We will call this the ‘toolbox for investment protection and facilitation’.
So first, we want to give some of our existing structural mechanisms an investment protection dimension.
This should address some of the structural problems that investors told us about.
The Rule of Law Report is a yearly report by the Commission that looks at all Member States.
It promotes the rule of law: the goal is to address and prevent any problems, looking at all Member States equally.
It seeks to strengthen the rule of law by stimulating a constructive debate and encouraging all Member States to examine how challenges can be addressed.
The EU Justice Scoreboard presents an annual overview of indicators on the efficiency, quality and independence of judicial systems.
Its purpose is to help Member States improve the effectiveness of their national justice system by providing objective, reliable and comparable data.
And the European Semester is our framework for monitoring and coordinating economic and employment policies across the European Union.
So we plan to give these mechanisms – the Rule of Law report, the EU Justice Scoreboard, and the European Semester – an investment protection dimension.
And that means we will be able to see what the situation is across all Member States when it comes to investment protection.
And the Commission will then be able to work constructively with Member States to address any issues that might be found.
Second, we are looking at existing mechanisms that provide help in individual cases, such as SOLVIT.
We understand that investors do not use SOLVIT to its full potential for various reasons, including lack of awareness or concerns about its suitability to deal with complex investment cases.
So we are reflecting on how SOLVIT could be adapted to investor needs.
Third, we want to hear from investors.
Collecting robust data is vital to inform the tools we can use.
We need and want to improve our understanding of the issues on the ground and practical problems that may affect investments in the single market.
We have many channels for that purpose, including:

questionnaires for stakeholders on the Rule of Law report,
country visits conducted by Commission officials,
formal complaint mechanisms,
and your national representatives in the different Single Market networks, among others.

Now fourth, beyond those specific tools, in its role as guardian of the Treaties, the Commission could address investor protection problems through infringement procedures.
Infringements are a key tool for the Commission to ensure that EU law is correctly implemented.
In 2020, the Commission opened over 900 new infringement cases. Many of these cases are solved through a constructive dialogue with Member States.
Infringements are a step of last resort. We always favour a collective and collaborative approach.
And that’s why we created a high-level forum – the Single Market Enforcement Taskforce – to discuss the most pressing single market barriers.
In this Task Force, the Commission and Member States can identify how to deal with barriers and together devise solutions.
This Task Force is the fifth part of our toolbox that I want to mention.
This toolbox, which I’ve just introduced, and which we will discuss together today, offers effective, flexible and proportionate instruments to tackle various investment protection issues.
We can address problems in a structural way and follow up with targeted action, if and when issues arise.
I believe that our approach will help nurture a positive investment environment within the EU.
And it will be most effective if we work together.
While I have seen a lot of different and divergent views on this file, I believe that all of us support the need for massive private investment.
Geopolitical tensions, macro-economic risks, the climate crisis and the digital transition – for all of these, we need to spend money to address this complex set of challenges.
Private investment requires investor confidence and the right regulatory environment.
It is vital to gather all stakeholders with different views around the same table, and to foster a constructive dialogue.
I want to encourage the search for solutions with a cooperative spirit – at national and EU level.
Your active involvement today and indeed in previous engagement, and your contribution over recent times, is essential for the successful implementation of this approach.
And I really look forward to very fruitful exchanges. I am sure there will be disagreements. But that’s the nature of our job.
But I do think that if we start from the premise of our shared objective, which is to foster investments, to encourage more private investment, not least in the whole renewable energy sector, then I think we will find solutions that work for all.
Thank you.
Compliments of the European Commission.
The post Keynote speech by EU Commissioner McGuinness at the forum on protecting and facilitating investment in the single market first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Council today approved conclusions on EU digital diplomacy.
Digital technologies have brought new opportunities and risks into the lives of EU citizens and people around the globe. They have also become key competitive parameters that can shift the geopolitical balance of power. The EU has a growing web of digital alliances and partnerships around the world. It is increasingly investing in digital infrastructure and, under the Global Gateway strategy, in supporting partners in defining their regulatory approach to technology based on a human-centric approach.
Against this background, the Council invites all relevant parties to ensure that digital diplomacy becomes a core component and an integral part of the EU external action, and is closely coordinated with other EU external policies on cyber and countering hybrid threats, including foreign information manipulation and interference.
In this context, to enhance the EU’s Digital Diplomacy in and with the US, the EU will soon open a dedicated office in San Francisco, a global centre for digital technology and innovation.
The conclusions stress the importance of capacity building and the strategic promotion of technological solutions and regulatory frameworks that respect democratic values and human rights.
For this reason, the EU will actively promote universal human rights and fundamental freedoms, the rule of law and democratic principles in the digital space and advance a human-centric approach to digital technologies in relevant multilateral fora and other platforms, promoting partnerships and coalitions with like-minded countries and strengthening cooperation in and with the UN system, the G7, the OSCE, the OECD, the WTO, NATO, the Council of Europe and other multilateral fora, striving to match the progress achieved with the EU’s Green Diplomacy and Cyber Diplomacy.
Compliments of the Council of the European Union.
The post EU digital diplomacy: Council agrees a more concerted European approach to the challenges posed by new digital technologies first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Network of Transmission System Operators for Electricity announced today that electricity trade between Ukraine and the EU will start this week, on 30 June. I welcome this development that follows the successful emergency synchronisation of the Ukrainian and Moldovan grids with the European Continental Grid in March. This is the next step in integrating the energy systems of these two countries with Europe and has a special significance now that they have received EU candidate country status.
Gradually increasing electricity trade is particularly important in the context of Russia’s continuing aggression against Ukraine. It will allow Ukraine to earn revenues to support its power system in a situation where their domestic income has been reduced by Russia’s attacks. At the same time, it will make additional affordable electricity available for the EU during a time when prices are exceptionally high.
I am grateful to ENTSO-E, the transmission system operators of neighbouring countries and the Energy Community Secretariat for their commitment to supporting Ukraine and want to commend Ukrenergo for swiftly implementing the necessary preconditions for starting commercial exchanges.
Compliments of the European Commission.
The post Statement by EU Commissioner Simson on the start of electricity trade between Ukraine and the EU first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission has today adopted a joint (High Representative-Commission) proposal for a new package of measures to maintain and strengthen the effectiveness of the EU’s six wide-ranging and unprecedented packages of sanctions against Russia.
Today’s “maintenance and alignment” package clarifies a number of provisions to strengthen legal certainty for operators and enforcement by Member States. It also further aligns the EU’s sanctions with those of our allies and partners, in particular in the G7. Importantly, the package reiterates the Commission’s determined stance to protect food security around the globe.
Ursula von der Leyen, President of the European Commission, said: “Russia’s brutal war against Ukraine continues unabated. Therefore, we are proposing today to tighten our hard-hitting EU sanctions against the Kremlin, enforce them more effectively and extend them until January 2023. Moscow must continue to pay a high price for its aggression.”
Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy, said: “The EU’s sanctions are tough and hard-hitting. We continue to target those close to Putin and the Kremlin. Today’s package reflects our coordinated approach with international partners including the G7. In addition to these measures, I will also present proposals to Council for the listing of more individuals and entities, with their assets frozen and ability to travel curtailed.”
In more detail
Today’s package will introduce a new import ban on Russian gold, while reinforcing our dual use and advanced technology export controls. In doing so, it will reinforce the alignment of EU sanctions with those of our G7 partners. It will also strengthen reporting requirements to tighten EU asset freezes.
The package also reiterates that EU sanctions do not target in any way the trade in agricultural products between third countries and Russia. Likewise, the text clarifies the exact scope of some financial and economic sanctions.
Finally, it is proposed to extend the current EU sanctions for six months, until the next review at the end of January 2023.
The package will now be discussed by Member States in the Council in view of its adoption.
Compliments of the European Commission.
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Implementation of the international tax reform agreement to ensure multinational enterprises pay a fair share of tax wherever they operate is progressing, according to an OECD report delivered to G20 finance ministers and central bank governors ahead of their meeting in Indonesia later this week.
According to the OECD Secretary-General Tax Report, Members of the OECD/G20 Inclusive Framework on BEPS have concentrated on the practical implementation of the landmark agreement to reform international tax arrangements reached by over 135 countries and jurisdictions in October 2021.
The report includes a new Progress Report on Pillar One,  presenting  a comprehensive draft of the technical model rules to implement a new taxing right that will allow market jurisdictions to tax profits from some of the largest multinational enterprises (“Pillar One”). This report will now be subject to public consultation through to mid-August. The Inclusive Framework will then aim to finalise a new Multilateral Convention by mid-2023, for entry into force in 2024. This revised timeline, previously flagged by OECD Secretary-General Mathias Cormann and agreed by the Inclusive Framework is designed to allow greater engagement with citizens, business and parliamentary bodies which will ultimately have to ratify the agreement.
“We have made good progress towards implementation of a new taxing right under Pillar One of our international tax agreement. These are complex and very technical negotiations in relation to some new concepts that fundamentally reform international tax arrangements, to make them fairer and work better in an increasingly digitalised, globalised world economy,” OECD Secretary-General Mathias Cormann said. “We will keep working as quickly as possible to get this work finalised, but we will also take as much time as necessary to get the rules right. These rules will shape our international tax arrangements for decades to come. It is important to get them right,” he said.
Technical work under Pillar Two, which introduces a 15% global minimum corporate tax rate, is largely complete, with an Implementation Framework to be released later this year to facilitate implementation and co-ordination between tax administrations and taxpayers. All G7 countries, the European Union, a number of G20 countries and many other economies have now scheduled plans to introduce the global minimum tax rules.
In addition to the update on both Pillars, the Report updates progress in the implementation of the Transparency Agenda. The most recent data gathered by the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes shows that information on at least 111 million financial accounts worldwide was exchanged automatically between administrations around the globe in 2021, covering total assets of nearly EUR 11 trillion. Later this year, the OECD will finalise a new Crypto-Assets Reporting Framework and amendments to the OECD Common Reporting Standard to ensure that countries can continue to benefit from tax transparency standards.
To access the OECD’s Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors, visit www.oecd.org/tax/oecd-secretary-general-tax-report-g20-finance-ministers-indonesia-july-2022.pdf
Further information on the continuing international tax reform negotiations is available at https://oe.cd/bepsaction1.
Contacts:

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration | Pascal.Saint-Amans@oecd.org

Lawrence Speer, OECD Media Office | Lawrence.Speer@oecd.org

Working with over 100 countries, the OECD is a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world.
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Speech by Vice Chair Lael Brainard at Bank of England Conference, London, United Kingdom on July 08, 2022 |

Recent volatility has exposed serious vulnerabilities in the crypto financial system.1 While touted as a fundamental break from traditional finance, the crypto financial system turns out to be susceptible to the same risks that are all too familiar from traditional finance, such as leverage, settlement, opacity, and maturity and liquidity transformation. As we work to future-proof our financial stability agenda, it is important to ensure the regulatory perimeter encompasses crypto finance.
Distinguishing Responsible Innovation from Regulatory Evasion
New technology often holds the promise of increasing competition in the financial system, reducing transaction costs and settlement times, and channeling investment to productive new uses. But early on, new products and platforms are often fraught with risks, including fraud and manipulation, and it is important and sometimes difficult to distinguish between hype and value. If past innovation cycles are any guide, in order for distributed ledgers, smart contracts, programmability, and digital assets to fulfill their potential to bring competition, efficiency, and speed, it will be essential to address the basic risks that beset all forms of finance. These risks include runs, fire sales, deleveraging, interconnectedness, and contagion, along with fraud, manipulation, and evasion. In addition, it is important to be on the lookout for the possibility of new forms of risks, since many of the technological innovations underpinning the crypto ecosystem are relatively novel.
Far from stifling innovation, strong regulatory guardrails will help enable investors and developers to build a resilient digital native financial infrastructure. Strong regulatory guardrails will help banks, payments providers, and financial technology companies (FinTechs) improve the customer experience, make settlement faster, reduce costs, and allow for rapid product improvement and customization.
We are closely monitoring recent events where risks in the system have crystallized and many crypto investors have suffered losses. Despite significant investor losses, the crypto financial system does not yet appear to be so large or so interconnected with the traditional financial system as to pose a systemic risk. So this is the right time to ensure that like risks are subject to like regulatory outcomes and like disclosure so as to help investors distinguish between genuine, responsible innovation and the false allure of seemingly easy returns that obscures significant risk. This is the right time to establish which crypto activities are permissible for regulated entities and under what constraints so that spillovers to the core financial system remain well contained.
Insights from Recent Turbulence
Several important insights have emerged from the recent turbulence in the crypto-finance ecosystem. First, volatility in financial markets has provided important information about crypto’s performance as an asset class. It was already clear that crypto-assets are volatile, and we continue to see wild swings in crypto-asset values. The price of Bitcoin has dropped by as much as 75 percent from its all-time high over the past seven months, and it has declined almost 60 percent in the three months from April through June. Most other prominent crypto-assets have experienced even steeper declines over the same period. Contrary to claims that crypto-assets are a hedge to inflation or an uncorrelated asset class, crypto-assets have plummeted in value and have proven to be highly correlated with riskier equities and with risk appetite more generally.2
Second, the Terra crash reminds us how quickly an asset that purports to maintain a stable value relative to fiat currency can become subject to a run. The collapse of Terra and the previous failures of several other unbacked algorithmic stablecoins are reminiscent of classic runs throughout history. New technology and financial engineering cannot by themselves convert risky assets into safe ones.
Third, crypto platforms are highly vulnerable to deleveraging, fire sales, and contagion—risks that are well known from traditional finance—as illustrated by the freeze on withdrawals at some crypto lending platforms and exchanges and the bankruptcy of a prominent crypto hedge fund. Some retail investors have found their accounts frozen and suffered large losses. Large crypto players that used leverage to boost returns are scrambling to monetize their holdings, missing margin calls, and facing possible insolvency. As their distress intensifies, it has become clear that the crypto ecosystem is tightly interconnected, as many smaller traders, lenders, and DeFi (decentralized finance) protocols have concentrated exposures to these big players.
Finally, we have seen how decentralized lending, which relies on overcollateralization to substitute for intermediation, can serve as a stress amplifier by creating waves of liquidations as prices fall.3
Same Risk, Same Regulatory Outcome
The recent turbulence and losses among retail investors in crypto highlight the urgent need to ensure compliance with existing regulations and to fill any gaps where regulations or enforcement may need to be tailored—for instance, for decentralized protocols and platforms. As we consider how to address the potential future financial stability risks of the evolving crypto financial system, it is important to start with strong basic regulatory foundations. A good macroprudential framework builds on a solid foundation of microprudential regulation. Future financial resilience will be greatly enhanced if we ensure the regulatory perimeter encompasses the crypto financial system and reflects the principle of same risk, same disclosure, same regulatory outcome. By extending the perimeter and applying like regulatory outcomes and like transparency to like risks, it will enable regulators to more effectively address risks within crypto markets and potential risks posed by crypto markets to the broader financial system. Strong guardrails for safety and soundness, market integrity, and investor and consumer protection will help ensure that new digital finance products, platforms, and activities are based on genuine economic value and not on regulatory evasion, which ultimately leaves investors more exposed than they may appreciate.
Due to the cross-sectoral and cross-border scope of crypto platforms, exchanges, and activities, it is important that regulators work together domestically and internationally to maintain a stable financial system and address regulatory evasion. The same-risk-same-regulatory-outcome principle guides the Financial Stability Board’s work on stablecoins, crypto-assets, and DeFi; the Basel consultation on the prudential treatment of crypto-assets; the work by the International Organization of Securities Commissions’ FinTech network; the work by federal bank regulatory agencies on the appropriate treatment of crypto activities at U.S. banks; and a host of other international and domestic work.4
In implementing a same-risk-same-regulatory-outcome principle, we should start by ensuring basic protections are in place for consumers and investors. Retail users should be protected against exploitation, undisclosed conflicts of interest, and market manipulation—risks to which they are particularly vulnerable, according to a host of research.5 If investors lack these basic protections, these markets will be vulnerable to runs.
Second, since trading platforms play a critical role in crypto-asset markets, it is important to address noncompliance and any gaps that may exist. We have seen crypto-trading platforms and crypto-lending firms not only engage in activities similar to those in traditional finance without comparable regulatory compliance, but also combine activities that are required to be separated in traditional financial markets. For example, some platforms combine market infrastructure and client facilitation with risk-taking businesses like asset creation, proprietary trading, venture capital, and lending.
Third, all financial institutions, whether in traditional finance or crypto finance, must comply with the rules designed to combat money laundering and financing of terrorism and to support economic sanctions. Platforms and exchanges should be designed in a manner that facilitates and supports compliance with these laws. The permissionless exchange of assets and tools that obscure the source of funds not only facilitate evasion, but also increase the risk of theft, hacks, and ransom attacks. These risks are particularly prominent in decentralized exchanges that are designed to avoid the use of intermediaries responsible for know-your-customer identification and that may require adaptations to ensure compliance at this most foundational layer.6
Finally, it is important to address any regulatory gaps and to adapt existing approaches to novel technologies. While regulatory frameworks clearly apply to DeFi activities no less than to centralized crypto activities and traditional finance, DeFi protocols may present novel challenges that may require adapting existing approaches.7 The peer-to-peer nature of these activities, their automated nature, the immutability of code once deployed to the blockchain, the exercise of governance functions through tokens in decentralized autonomous organizations, the absence of validated identities, and the dispersion or obfuscation of control may make it challenging to hold intermediaries accountable. It is not yet clear that digital native approaches, such as building in automated incentives for undertaking governance responsibilities, are adequate alternatives.
Connections to the Core Financial Institutions
There are two specific areas that merit heightened attention because of heightened risks of spillovers to the core financial system: bank involvement in crypto activities and stablecoins. To date, crypto has not become sufficiently interconnected with the core financial system to pose broad systemic risk. But it is likely regulators will continue to face calls for supervised banking institutions to play a role in these markets.
Bank regulators will need to weigh competing considerations in assessing bank involvement in crypto activities ranging from custody to issuance to customer facilitation. Bank involvement provides an interface where regulators have strong sightlines and can help ensure strong protections. Similarly, regulators are drawn to approaches that effectively subject the crypto intermediaries that resemble complex bank organizations to bank-like regulation. But bringing risks from crypto into the heart of the financial system without the appropriate guardrails could increase the potential for spillovers and has uncertain implications for the stability of the system. It is important for banks to engage with beneficial innovation and upgrade capabilities in digital finance, but until there is a strong regulatory framework for crypto finance, bank involvement might further entrench a riskier and less compliant ecosystem.
Private Digital Currencies and Central Bank Digital Currencies
Stablecoins represent a second area with a heightened risk of spillovers. Currently, stablecoins are positioned as the digital native asset that bridges from the crypto financial system to fiat. This role is important because fiat currency is referenced as the unit of account for the crypto financial system.8 Stablecoins are currently the settlement asset of choice on and across crypto platforms, often serving as collateral for lending and trading activity. As highlighted by large recent outflows from the largest stablecoin, stablecoins pegged to fiat currency are highly vulnerable to runs. For these reasons, it is vital that stablecoins that purport to be redeemable at par in fiat currency on demand are subject to the types of prudential regulation that limit the risk of runs and payment system vulnerabilities that such private monies have exhibited historically.
Well-regulated stablecoins might bring additional competition to payments, but they introduce other risks. There is a risk of fragmentation of stablecoin networks into walled gardens. Conversely, there is a risk that a single dominant stablecoin might emerge, given the winner-takes-all dynamics in such activities. Indeed, the market is currently highly concentrated among three dominant stablecoins, and it risks becoming even more concentrated in the future. The top three stablecoins account for almost 90 percent of transactions, and the top two of these account for 80 percent of market capitalization.9
Given the foundational role of fiat currency, there may be an advantage for future financial stability to having a digital native form of safe central bank money—a central bank digital currency. A digital native form of safe central bank money could enhance stability by providing the neutral trusted settlement layer in the future crypto financial system.10 A settlement layer with a digital native central bank money could, for instance, facilitate interoperability among well-regulated stablecoins designed for a variety of use cases and enable private-sector provision of decentralized, customized, and automated financial products. This development would be a natural evolution of the complementarity between the public and private sectors in payments, ensuring strong public trust in the one-for-one redeemability of commercial bank money and stablecoins for safe central bank money.11
Building in Risk Management and Compliance
Crypto and fintech have introduced competition and put the focus on how innovation can help increase inclusion and address other vexing problems in finance today. Slow and costly payments particularly affect lower-income households with precarious cash flows who rely on remittances or miss bills waiting on paychecks. Many hard-working individuals cannot obtain credit to start businesses or to respond to an emergency.
But while innovation and competition can reduce costs in finance, some costs are necessary to keep the system safe.12 Intermediaries earn revenues in exchange for safely providing important services. Someone must bear the costs of evaluating risk, maintaining resources to support those risks through good times and bad, complying with laws that prevent crime and terrorism, and serving less sophisticated customers fairly and without exploitation. In the current crypto ecosystem, often no one is bearing these costs. So when a service appears cheaper or more efficient, it is important to understand whether this benefit is due to genuine innovation or regulatory noncompliance.
So as these activities evolve, it is worth considering whether there are new ways to achieve regulatory objectives in the context of new technology. Distributed ledgers, smart contracts, and digital identities may allow new forms of risk management that shift the distribution of costs. Perhaps in a more decentralized financial system, new approaches can be designed to make protocol developers and transaction validators accountable for ensuring financial products are safe and compliant.
Conclusion
Innovation has the potential to make financial services faster, cheaper, and more inclusive and to do so in ways that are native to the digital ecosystem. Enabling responsible innovation to flourish will require that the regulatory perimeter encompass the crypto financial system according to the principle of like risk, like regulatory outcome, and that novel risks associated with the new technologies be appropriately addressed. It is important that the foundations for sound regulation of the crypto financial system be established now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system.
Compliments of the U.S. Federal Reserve.

1. I am grateful to Joseph Cox and Molly Mahar of the Federal Reserve Board for their assistance in preparing this text. The views expressed here address broad principles from a financial stability perspective across the financial system and not specific regulations. These views are my own and do not necessarily reflect those of the Federal Reserve Board or the Federal Open Market Committee. Return to text

2. See, for example, the discussion in section 2 of Financial Stability Board (2022), Assessment of Risks to Financial Stability from Crypto-assets (PDF) (Basel, Switzerland: FSB, February). Return to text

3. Most decentralized lending protocols require loans to remain overcollateralized, with loans that fall below specific thresholds subject to automatic liquidations. These liquidations can have a persistent effect on asset prices, which often triggers further liquidations. See preliminary research in Alfred Lehar and Christine A. Parlour (2022), “Systemic Fragility in Decentralized Markets (PDF),” unpublished paper, June 13. Return to text

4. See, for example, Financial Stability Board (2022), Assessment of Risks to Financial Stability from Crypto-assets (Basel, Switzerland: FSB, February); Financial Stability Board (2020), Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements (PDF) (Basel, Switzerland: FSB, October); Basel Committee on Banking Supervision (2022), “Consultative Document: Second Consultation on the Prudential Treatment of Cryptoasset Exposures (PDF)” (Basel, Switzerland: Bank for International Settlements, June); and Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (2021), “Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps,” joint press release, November 23. Return to text

5. See, for example, Philip Daian, Steven Goldfeder, Tyler Kell, Yunqi Li, Xueyuan Zhao, Iddo Bentov, Lorenz Breidenbach, and Ari Juels (2019), “Flash Boys 2.0: Frontrunning, Transaction Reordering, and Consensus Instability in Decentralized Exchanges (PDF),” unpublished paper, Cornell University, arXiv, April; Raphael Auer, Jon Frost, and Jose María Vidal Pastor (2022), “Miners as Intermediaries: Extractable Value and Market Manipulation in Crypto and DeFi (PDF),” BIS Bulletin 58 (Basel, Switzerland: Bank for International Settlements, June); Paul Barnes (2018), “Crypto Currency and Its Susceptibility to Speculative Bubbles Manipulation, Scams and Fraud,” Journal of Advanced Studies in Finance, vol. 9 (Winter), pp. 60–77; and Felix Eigelshoven, André Ullrich, and Douglas Parry (2021), “Cryptocurrency Market Manipulation—A Systematic Literature Review,” in ICIS 2021 Proceedings on “Building Sustainability and Resilience with IS: A Call for Action” (Austin, Tex.: International Conference on Information Systems, Dec. 12–15). Return to text

6. The Russian invasion of Ukraine has raised questions about the use of crypto-asset markets for sanctions evasion. See, for example, comments by Carol House, the director of cybersecurity for the National Security Council: “The scale that the Russian state would need to successfully circumvent all U.S. and partners’ financial sanctions would almost certainly render cryptocurrency as an ineffective primary tool for the state” (as quoted in Hannah Lang (2022), “U.S. Lawmakers Push Treasury to Ensure Russia Cannot Use Cryptocurrency to Avoid Sanctions,” Reuters, March 2, para. 7). Return to text

7. See Board of the International Organization of Securities Commissions (2022), IOSCO Decentralized Finance Report: Public Report (PDF) (Madrid: OICV-IOSCO, March). Return to text

8. See Bank for International Settlements (2022), “The Future Monetary System,” in Annual Economic Report 2022 (Basel, Switzerland: BIS, June). Return to text

9. See The Block (2022), “Share of Trade Volume by Pair Denomination,” data as of June from CryptoCompare, https://www.theblock.co/data/crypto-markets/spot/share-of-trade-volume-by-pair-denomination; Martin Young (2022), “Circle‘s USDC Stablecoin Gobbles Tether‘s Market Share with 50B Milestone,” Cointelegraph, February 1, https://cointelegraph.com/news/circle-s-usdc-stablecoin-gobbles-tether-s-market-share-with-50b-milestone; and Brian Newar (2022), “USDC’s ‘Real Volume’ Flips Tether on Ethereum as Total Supply Hits 55.9B,” Cointelegraph, June 22, https://cointelegraph.com/news/usdc-s-real-volume-flips-tether-on-ethereum-as-total-supply-hits-55-9b. Return to text

10. See Lael Brainard (2022), “Digital Assets and the Future of Finance: Examining the Benefits and Risks of a U.S. Central Bank Digital Currency,” statement before the Committee on Financial Services, U.S. House of Representatives, May 26. Return to text

11. With respect to the United States, no decision has been made about whether or not a central bank digital currency will be issued. Return to text

12. See Igor Makarov and Antoinette Schoar (2022), “Cryptocurrencies and Decentralized Finance (DeFi) (PDF),” Brookings Papers on Economic Activity, BPEA Conference Draft, March 24–25. Return to text

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Russia’s invasion of Ukraine highlights the crisis and opportunity of the energy transition
It is hard to look at a crisis like Russia’s invasion of Ukraine and see a moment of opportunity. We—to say nothing of Ukrainians—are still very much in a crisis, and a compounding one at that, with potential long-lasting economic and political consequences.
It is similarly clear that talk of “opportunity” cuts both ways. Vested interests are often the ones that benefit the most from swift political action, further cementing the status quo. Witness many lawmakers’ tendency to respond to high energy prices with misguided attempts to lower them directly, dampening any incentives to cut fossil fuel use that high prices might provide.
Affordable energy
One big difference between the present energy price surge and previous such episodes is the availability of cheap and accessible alternatives to the current, largely fossil-fueled, infrastructure. The International Energy Agency was right to declare in 2020 that “for projects with low-cost financing that tap high-quality resources, solar [photovoltaic (PV)] is now the cheapest source of electricity in history.” That is still the case.
Solar PV prices have risen in the past two years, leading to “greenflation” entering the financial lexicon. Yet “fossilflation” dominates the picture. Prices for fossil-based power sources have risen by more than the relatively small price increases in solar PV, in turn further lowering relative solar prices per kilowatt of capacity and actual electricity produced. Overall, systems prices have come down dramatically over the years, declining by a factor of two within a decade, three within four. And solar PV, of course, is not alone.
Crucially, batteries and electric vehicle (EV) prices have similarly declined fast, leading to rapid increases in adoption. In 2016, the BP Energy Outlook projected that the world would surpass 70 million plug-in vehicles globally by 2035. That number now looks achievable for 2025, 10 years earlier than expected on a 20-year time horizon. Of course, any such numbers show how far there is still to go. Global PV market share stands at about 3 percent; for EVs it’s not yet 2 percent. Even 70 million EVs would be less than 6 percent of today’s global vehicle fleet of some 1.2 billion cars.

“No serious analysis published before Vladimir Putin’s invasion of Ukraine even imagined that Russia would cut off gas deliveries to the European Union altogether.”

Neither PV nor EVs will make much of a difference in addressing the challenges posed by the current fossil-fueled war. Short-term measures to disentangle EU dependence on Russian oil and gas ought to focus on decreasing demand and finding alternatives to Russian supplies. That implies increasing the production of both oil and gas elsewhere. It also means short-term measures, such as avoiding the German nuclear exit scheduled for December 2022, and some other hard trade-offs—a short-term increase in European coal power production, for example.  (Ironically, a good portion of coal used in the European Union also comes from Russia, compounding the challenge.)
Assessing risk
Russia’s unprovoked war, and the world’s reaction to it, also lays bare another, much more fundamental, issue: economic and broader energy policy analyses’ inherent limited ability to inform policymakers’ decisions in tackling crises such as those we now face, especially crises that overlap.
To begin with, no serious analysis published before Russian President Vladimir Putin’s invasion of Ukraine even imagined that Russia would cut off gas deliveries to the European Union altogether. A deliberate EU break from Russian gas imports was considered all but impossible. For example, the European Network of Transmission System Operators for Gas (ENTSOG), charged with stress-testing the European gas network, never even considered the possibility. ENTSOG’s latest stress test imagines what might happen if no Russian gas flowed through Belarus or none through Ukraine. No Russian gas at all was not part of the set of modeled scenarios. The very idea was apparently unimaginable, or so radical that it belied any stress test. The stress on the system would simply be too large.
Economic models at the time were similarly limited. A widely cited analysis by European Central Bank economists has the promising title “Natural Gas Dependence and Risks to Euro Area Activity.” Its headline conclusion: a 10 percent gas supply shock would cut euro area GDP by 0.7 percent. The hardest-hit sector? Electricity, gas, steam, and air-conditioning supply, the sector most dependent on gas as a direct input. The sector’s output, thus, would fall by almost 10 percent due to a 10 percent gas supply shock. That conclusion seems reasonable at first blush. The methodology, relying on standard input-output methods, is well-established. The problem is the static nature of the analysis and the resulting status quo bias.
Benefits and costs
Heat pumps represent one of the most promising low-carbon energy technologies. They replace oil and gas furnaces and do so much more efficiently. In fact, heat pumps are so efficient that even if all electricity comes from natural gas, the resulting emissions are still lower than if natural gas were burned directly in a home’s gas furnace. Heat pumps are also essentially air-conditioners run in reverse. Why then would the air-conditioning sector suffer in a scenario with less gas? Demand for heat pumps would skyrocket, something apparent all over Europe right now, with a clogged supply chain adding to inflation pressure.
That does not mean that cutting off Russian gas somehow portends an economic boom. To the contrary, there are real costs. Change is hard. But costs also imply opportunity. McKinsey’s report on the net-zero transition has the promising subtitle “What It Would Cost, What It Could Bring.” In short, its analysis shows costs of about $25 trillion over 30 years to convert the world economy from its current path to one that achieves net-zero carbon emissions by midcentury.

“Politicians are often more interested in cementing the status quo than in bringing about necessary changes.”

Establishing who should pay for these $25 trillion investments will engender some difficult political fights. But there will indeed be plenty of winners from these additional investments, including in purely economic terms. Measured from a societal perspective, these investments pay for themselves many times over, given that fossil energy use costs more in external damages than it adds value to GDP.
Policy, thus, is key. The most important aspect: a true net-zero transition implies both the rapid deployment of new low-carbon technologies and more significant systemic changes. The war in Ukraine has already revealed lots of missed opportunities on the policy front. Politicians are often more interested in cementing the status quo than in bringing about necessary changes, for the same reason that Niccolò Machiavelli wrote five centuries ago: “The innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.”
Authors:

GERNOT WAGNER is currently visiting associate professor at Columbia Business School, on leave from New York University, where he teaches climate economics and policy

Compliments of the IMF.
Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.
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The European Commission welcomes the decision by Canada to return a natural gas pipeline turbine to Germany after its repair, for use in the Nord Stream 1 pipeline. With the return of this part, one of the excuses being used by Russia for reduced gas flows has been removed. The Commission has been in close contact with both Germany and Canada on this issue, and with Siemens, to ensure that we were well informed of the situation.
The Commission continues to work closely with its international partners, including Canada and the United States, to ensure the energy security of Europe for the coming winter. We are pursuing the target of filling 80% of Europe’s gas storage by 1 November in line with the new Regulation which was proposed by the Commission in March, and agreed by the European Parliament and Member States in June. We also continue the work under our REPowerEU Plan to diversify our energy supplies, accelerate deployment of renewable energy sources, and to strengthen our energy efficiency and energy savings efforts.
Compliments of the European Commission.
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Among the most sensitive categories of data collected by connected devices are a person’s precise location and information about their health. Smartphones, connected cars, wearable fitness trackers, “smart home” products, and even the browser you’re reading this on are capable of directly observing or deriving sensitive information about users. Standing alone, these data points may pose an incalculable risk to personal privacy. Now consider the unprecedented intrusion when these connected devices and technology companies collect that data combine it, and sell or monetize it. This isn’t the stuff of dystopian fiction. It’s a question consumers are asking right now.
The conversation about technology tends to focus on benefits. But there is a behind-the-scenes irony that needs to be examined in the open: the extent to which highly personal information that people choose not to disclose even to family, friends, or colleagues is actually shared with complete strangers. These strangers participate in the often shadowy ad tech and data broker ecosystem where companies have a profit motive to share data at an unprecedented scale and granularity.
When consumers use their connected devices – and sometimes even when they don’t – these devices may be regularly pinging cell towers, interacting with WiFi networks, capturing GPS signals, and otherwise creating a comprehensive record of their whereabouts. This location data can reveal a lot about people, including where we work, sleep, socialize, worship, and seek medical treatment. While many consumers may happily offer their location data in exchange for real-time crowd-sourced advice on the fastest route home, they likely think differently about having their thinly-disguised online identity associated with the frequency of their visits to a therapist or cancer doctor.
Beyond location information generated automatically by consumers’ connected devices, millions of people also actively generate their own sensitive data, including by using apps to test their blood sugar, record their sleep patterns, monitor their blood pressure, or track their fitness, or sharing face and other biometric information to use app or device features. The potent combination of location data and user-generated health data creates a new frontier of potential harms to consumers.
The marketplace for this information is opaque and once a company has collected it, consumers often have no idea who has it or what’s being done with it. After it’s collected from a consumer, data enters a vast and intricate sales floor frequented by numerous buyers, sellers, and sharers. There are the mobile operating systems that provide the mechanisms for collecting the data. Then there are app publishers and software development kit (SDK) developers that embed tools in mobile apps to collect location information and provide the data to third parties.
The next stop in the murky marketplace may be data aggregators and brokers – companies that collect information from multiple sources and then sell access to it (or analyses derived from it) to marketers, researchers, and even government agencies. These companies often build profiles about consumers and draw inferences about them based on the places they have visited. The amount of information they collect is staggering. For example, in a 2014 study, the FTC reported that data brokers use data to make sensitive inferences, such as categorizing a consumer as “Expectant Parent.” According to the report, one data broker bragged to shareholders in a 2013 annual report that it had 3,000 points of data for nearly every consumer in the United States. In many instances, data aggregators and brokers have no interaction with consumers or the apps they’re using. So people are left in the dark about how companies are profiting from their personal information.
Now let’s consider a particularly sensitive subset at the intersection of location and health: information related to personal reproductive matters – for example, products that track women’s periods, monitor their fertility, oversee their contraceptive use, or even target women considering abortion.
The concerns many have expressed about the risk of misuse are more than just theoretical. In 2017, for example, the Massachusetts Attorney General reached a settlement with marketing company Copley Advertising, LLC, and its principal for using location technology to identify when people crossed a secret digital “fence” near a clinic offering abortion services. Based on that data, the company sent targeted ads to their phones with links to websites with information about alternatives to abortion. The Massachusetts AG asserted that the practice violated state consumer protection law.
And just recently, the FTC reached a settlement with Flo Health, alleging the company shared with third parties – including Google and Facebook – sensitive health information about women collected from its period and fertility-tracking app, despite promising to keep this information private.
The misuse of mobile location and health information – including reproductive health data – exposes consumers to significant harm. Criminals can use location or health data to facilitate phishing scams or commit identity theft. Stalkers and other criminals can use location or health data to inflict physical and emotional injury. The exposure of health information and medical conditions, especially data related to sexual activity or reproductive health, may subject people to discrimination, stigma, mental anguish, or other serious harms. Those are just a few of the potential injuries – harms that are exacerbated by the exploitation of information gleaned through commercial surveillance.
The Commission is committed to using the full scope of its legal authorities to protect consumers’ privacy. We will vigorously enforce the law if we uncover illegal conduct that exploits Americans’ location, health, or other sensitive data. The FTC’s past enforcement actions provide a roadmap for firms seeking to comply with the law.
What should companies consider when thinking about the collection of confidential consumer information, including location and health data?
Sensitive data is protected by numerous federal and state laws. There are numerous state and federal laws that govern the collection, use, and sharing of sensitive consumer data, including many enforced by the Commission. The FTC has brought hundreds of cases to protect the security and privacy of consumers’ personal information, some of which have included substantial civil penalties. In addition to Section 5 of the FTC Act, which broadly prohibits unfair and deceptive trade practices, the Commission also enforces the Safeguards Rule, the Health Breach Notification Rule, and the Children’s Online Privacy Protection Rule.
Claims that data is “anonymous” or “has been anonymized” are often deceptive. Companies may try to placate consumers’ privacy concerns by claiming they anonymize or aggregate data. Firms making claims about anonymization should be on guard that these claims can be a deceptive trade practice and violate the FTC Act when untrue. Significant research has shown that “anonymized” data can often be re-identified, especially in the context of location data. One set of researchers demonstrated that, in some instances, it was possible to uniquely identify 95% of a dataset of 1.5 million individuals using four location points with timestamps. Companies that make false claims about anonymization can expect to hear from the FTC.
The FTC cracks down on companies that misuse consumers’ data. As recent cases have shown, the FTC does not tolerate companies that over-collect, indefinitely retain, or misuse consumer data. Ad exchange OpenX recently paid $2 million for collecting children’s location data without parental consent. The Commission also took action against Kurbo/Weight Watchers for, among other things, indefinitely retaining sensitive consumer data. The settlement requires the company to pay a $1.5 million fine for violating COPPA, delete all illegally collected data, and also delete any work product algorithms created using that data. Just a few weeks ago, the Commission entered a final order requiring CafePress to pay redress and minimize its data collection because, according to the Commission’s complaint, it improperly collected and retained consumer data, and failed to respect consumers’ deletion requests, among other things.
Compliments of the U.S. Federal Trade Commission.
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Crypto-assets and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international level.
In February 2022, the FSB published a risk assessment on crypto-assets, which outlined its concerns over the rapid growth in crypto-assets. The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and increasing interconnectedness with the traditional financial system. In addition to imposing potentially large losses on investors and threatening market confidence arising from crystallisation of conduct risks, the failure of a market player can also quickly transmit risks to other parts of the crypto-asset ecosystem. It may have spill-over effects on important parts of traditional finance such as short-term funding markets. An effective regulatory framework must ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes, while taking account of novel features of crypto-assets and harnessing their benefits.
The statement notes that crypto-assets and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international level. It calls for adherence by so-called stablecoins and crypto-assets to relevant existing requirements where regulations apply to address the risks these assets pose. It also calls for crypto-asset service providers to ensure compliance with existing legal obligations in the jurisdictions in which they operate at all times.
This statement outlines the work the FSB is taking forward, in collaboration with standard-setting bodies, including the Financial Action Task Force, on the regulation and supervision of ‘unbacked’ crypto-assets and ‘stablecoins’, as well as on analysing the financial stability implications of Decentralised Finance. This work should provide a solid basis for a consistent and comprehensive regulation of crypto assets.
Compliments of the Financial Stability Board.
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