klaas knot : the need for regulating crypto - assets - a global effort speech ( virtually ) by mr klaas knot, president of the netherlands bank and chair of the financial stability board, at the asia securities industry & financial markets association ( asifma ) annual conference, hong kong, 29 february 2024. * * * thank you for inviting me to speak today. i am sorry that i cannot be there with you in person. but nevertheless, i am grateful for the chance to speak about a topic that is not for the faint - hearted : crypto - assets. as some of you who've invested in bitcoin know, the price curve has gone through some steep inclines and quick descents the past couple of years. and it is not just the price of bitcoin that resembles a rollercoaster. the crypto - ecosystem itself also continues to evolve rapidly and in different directions. it is not just some retail investors that are'dipping their toes'into crypto – large institutional parties continue to show serious interest in crypto - assets and its underlying technologies. in its role as'guardian'of global financial stability, the fsb has been closely monitoring crypto - asset markets since 2018. while we have been working hard to address crypto's potentially systemic implications, we do recognize the possible benefits of this innovation. in our opinion, effective regulation should create the right conditions for innovation to unfold in a responsible manner. being technology neutral forms a guiding principle of the fsb's recommendations. in recent years we have for example seen the potential benefits of distributed ledger technology. we have also seen that these benefits will not be realized without the comprehensive regulation of financial activities built on top of this technology. for the fsb, supporting effective regulation of crypto - assets has so far meant addressing the risks related to it. since 2018 we have repeatedly expressed concern about the risks associated with crypto's fast evolving nature and its growing interconnectedness with traditional finance. as an example, some of crypto's inherent financial vulnerabilities became painfully apparent during the crypto - winter of 2022 and 2023. think only of the spectacular rise and fall of ftx. the authorities represented at the fsb have taken important steps to effectively regulate crypto - related activities – either through the introduction of new rules or through the enhanced enforcement of existing rules & regulations. in recent years we have also seen that those national initiatives were

a range of new and 1 / 5 bis - central bankers'speeches unconventional measures – like large - scale asset purchases and targeted lending programmes. these new measures provided central banks with policy options to pursue their price stability objective, at a time when interest rates were at their lower bound. but these new tools – as has become apparent – have a flipside. they come with a price tag in terms of increased risks that may lead to substantial losses. while quantitative easing did help to stave off deflation risk, it also reshaped central bank balance sheets. because, essentially, qe locked in low returns on a significant portion of central banks'assets – the so - called'buy high'strategy. in the final phase of qe in particular, we bought vast quantities of bonds at relatively high prices, with very low and often negative yields. as rates on our liabilities could eventually go up, this strategy would then generate some losses. what materialised, though, was the worst case scenario. namely, a sudden and massive spike in inflation leading to an increase in policy rates. leading to the current huge losses. and so, as the profitability of these new, riskier, and by now conventional monetary policy tools has proved to be lower than the profitability of traditional instruments, central banks should critically asses their capital levels. they should be forward - looking and build up their capital accordingly. in short, more risk means more capital. especially since central banks are not expected to return to their lean balance sheets of the pre - qe era any time soon – which means that they will face heightened financial risks for quite some time to come. so, as we shift from a decade dominated by unconventional monetary policy to a phase of normalisation, it is imperative to consider a few key factors that influence central bank capital. first, with its recent review of the operational framework, the eurosystem aims to maintain structural liquidity in the financial system. besides weekly refinancing operations, part of this liquidity provisioning will be established through long term refinancing operations as well as a structural portfolio of securities. in implementing these operations, it is crucial for the eurosystem to consider its capital position in relation to these structural operations. second, in its strategy review, the ecb categorised qe as a monetary policy instrument near the effective lower bound. this necessitates proactive risk assessment for potential future use of qe ( note 1