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Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

Eight out of 10 central banks surveyed says it is likely to roll out digital currencies within three years. There has been immense scrutiny on the Federal Reserve and central banks around the world over the last 18 months. Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

Central Banks Warm To Issuing Digital Currencies (#GotBitcoin)

 

Central Bank Digital Currency Tracker


Bitcoin: The Central Banker’s Central Bank

Everyone from investors to business owners to retirees are trying to figure out what the central banks will do with interest rates and asset purchases, so they can better prepare their portfolios for the future.

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

Related:

Ultimate Resource On Stablecoins (#GotBitcoin)

 

It is easy to get lost in the day-to-day drama of what the central banks are going to do. Every mainstream media outlet is talking about the various scenarios. Investing forums and Twitter users are speculating on the color of the Fed Chairman’s tie or whether he uses the word “dovish” or not. Some analysts even spend time trying to measure correlations between the length of press conferences and future interest rate decisions.

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

It has become absolute madness. The financial world, and various related aspects of society, all patiently wait for the decisions of a small group of 12 people who emerge from the FOMC meetings. There are other people in the room during the meetings, but ultimately 12 people are deciding what will happen to trillions of dollars in assets and billions of people.  (here is a 2016 FOMC meeting as an example)

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

It doesn’t have to be this way though. The elites who make up the minority don’t have to be the ones to make the decisions. In fact, I would argue that the world would be better off if humans weren’t in charge of making these decisions at all.

We know that human decision-making is flawed. We are emotional animals. We have bias. There is academic study after academic study that shows how humans are experts at poor judgement.

So What Does That Have To Do With Central Banks?

Central banks are supposed to have two core components to them — independence and predictability. José Manuel González-Páramo, a member of the Executive Board of the European Central Bank from 2004 – 2012, gave a speech in June 2007 titled “Inflation Targeting, Central Bank Independence and Transparency.” In that speech, he stated the following:

“Indeed, the principle of central bank independence in the pursuit of the goals of monetary policy has been codified in the legal systems of many countries. Perhaps even more importantly, there is evidence that the importance of this principle seems to be increasingly well understood by society at large.

According to all surveys among euro area citizens, an overwhelming majority of respondents support the pursuit of price stability as a goal of the European Central Bank (ECB) and back the ECB’s independence in order to guarantee the achievement of this goal….

…But I am not here to talk about politics. Indeed, one of the great advantages of central bank independence is precisely that we can ignore the political furor and concentrate on the welfare-enhancing objective of keeping inflation under control. At the same time, I could not agree more with the view that central bankers must strive to fully comply with the standards of transparency and accountability that democratic societies rightly demand from independent public agencies.”

Central Bank Independence Is Absolutely Crucial. Additionally, Jose Went On To Say The Following About A Central Bank’s Predictability:

“Going back to the subject of expectations, I have thus far focused on inflation expectations. Before concluding, however, I should like to mention another type of expectation which is of interest to central banks, namely expectations regarding future monetary policy rates. Such expectations provide benchmarks against which to assess various aspects of crucial importance for a central bank’s success, such as its transparency, its predictability, and the effectiveness of its communication strategy, among others.

As a result, expectations regarding future policy rates, whether taken from surveys or financial market data, are an essential source of information for assessing the degree of understanding of a central bank’s monetary policy strategy and conduct by market participants and external observers.”

These are the words from central bankers themselves — the independence and predictability of a central bank are essential to the organization’s effectiveness.

This Brings Me To A New Type Of Central Bank That Has Been Created. It Is Fully Automated, Completely Independent, And The Most Predictable Organization In The World. What Do I Mean?

A pseudonymous person or group created an automated central bank a little over a decade ago. They ensured that no one person or organization would ever own it or control it. The central bank is decentralized, which gives it complete independence.

This person or group also made sure to write the monetary policy for the central bank into software code and then ensured that no one would be able to change it unilaterally. As if that wasn’t enough, the creator(s) of this digital central bank also open-sourced everything so that it could be audited by anyone, at any time, from anywhere.

This digital central bank structure allows for the most independent and most predictable central bank in the world. In a sense, you can think of this new creation as an automated central bank that is superior to the human-led central banks that have existed for the last few decades.

So What Is This New Central Bank? Bitcoin.

Bitcoin is completely decentralized. It has a programmatic monetary policy. No one owns the network and no one controls it. The system is fully transparent and anyone can audit it. The monetary policy is written into software so you know every future monetary policy decision for the next century. Bitcoin is the most independent and most transparent central bank in the world.

As people begin to understand how this automated central bank works, they will slowly decide to start storing their economic value and personal wealth in the independent and predictable system. This difference is being highlighted even more recently with the undisciplined and variable decision-making that is happening.

Eventually the world won’t hang on every word of a press conference. We won’t rely on 12 people in a room making decisions for billions of people. The system will be more democratic. It will be more accessible. And ultimately, it will lead to a more prosperous world.

Independent. Predictable. Bitcoin

More than one-fifth of the world’s population could have access to digital money issued by central banks to pay for groceries, movie tickets and even homes in the next few years, as these institutions accelerate plans to issue official cryptocurrencies.

 

Central Banks Warm To Issuing Digital Currencies (#GotBitcoin?)

One in 10 central banks surveyed in 2019 said it was likely to offer digital currencies within the next three years, covering about 20% of the world’s population, according to a report from the Bank for International Settlements. The proportion of central banks likely to issue digital money almost doubled when the horizon was stretched to six years, the BIS said.


Federal Reserve Chairman Jerome Powell said in November the U.S. central bank doesn’t currently have plans to launch a digital currency. Doing so would be difficult in the U.S., with Americans remaining more committed to cash than other nations, he said.

The rising popularity of electronic payments, and the boom in private cryptocurrencies like bitcoin, has promoted authorities to pay more attention to digital currencies. The new tools could offer faster settlements of payments and the potential to allow people to bank directly with a central bank.

They may even offer monetary-policy benefits, if central banks could set rates on accounts that directly affect households, rather than using financial markets to transmit changes to borrowing costs for consumer and corporate loans.

Major technology companies, meanwhile, are interested in offering digital currencies. But Facebook Inc.’s plans to launch libra have drawn criticism from regulators and have led early partners to reconsider their support.

Central banks face big hurdles in offering dedicated digital currencies and related bank accounts to the general public, the BIS’s general manager, Agustín Carstens, said in December. Still, policy makers in the Caribbean, including the Central Bank of the Bahamas and the Eastern Caribbean Central Bank, are testing digital money, according to the BIS.

Some 66 central banks, representing 90% of the world’s economic output, took part in the survey in 2019, according to Switzerland-based BIS, which is owned by some of the world’s biggest central banks, including the Fed. A year earlier, only one in 20 monetary authorities were considering rolling out digital money in the short term.

In response to the rapid decline in the use of cash in recent years, Sweden’s Riksbank began working on its e-krona pilot program in 2017. Uruguay’s central bank, which piloted a program between late-2017 and mid-2018 that let individual users hold a maximum of 30,000 e-Pesos ($1,000) in a digital wallet, is considering its next steps.

Central banks in general have been hesitant about creating digital currencies, according to Darrell Duffie, a finance professor at Stanford University. Questions remain on how to monitor transactions to prevent fraud and whether such currencies would be linked to interest rates.

“It’s a responsibility I think central banks don’t want,” Mr. Duffie said.

Updated: 6-5-2020

Fed Paper: Central Bank Digital Currencies Could Replace Commercial Banks – But At A Cost

Central bank digital currencies might one day replace commercial banks. But that comes with risks, according to new research from the Federal Reserve of Philadelphia.

The 32-page research paper – titled “Central Bank Digital Currency: Central Banking for All?” – investigated the implications of an account-based central bank digital currency (CBDC), focusing on its potential competition with the traditional maturity transformation role of commercial banks.

“The introduction of digital currencies may justify a fundamental shift in the architecture of a financial system, a central bank ‘open to all,’” the paper, which was published on June 1, reads.

Questions posed by the research arm of the Fed, which were undertaken in collaboration with the Universities of Pennsylvania and Chicago, examined the ramifications of the introduction of a CBDC and how the opening of central bank facilities might affect financial intermediation.

Specifically, the questions were aimed at exploring the role CBDCs play in “giving consumers the possibility of holding a bank account with the central bank directly,” in essence replacing the role currently performed by commercial banks.

Maturity transformation refers to the practice by financial institutions of borrowing money on shorter timeframes than they lend out. This is often done through deposits from savers by converting that finance into long-term borrowings such as mortgages. It is the role of commercial banks to facilitate the needs of lenders and borrowers.

This process can backfire though, such as if there is a panic or bank run where all savers attempt to withdraw money at once or if the money markets suddenly dry up due to lenders no longer providing short-term loans to one another.

The paper determined the set of allocations achieved with private financial intermediation (commercial banks) could also be achieved with a CBDC, provided competition is allowed with those commercial banks and depositors do not panic. However, the paper also determined an associated cost involved.

“Our equivalence result has a sinister counterpart. If the competition from commercial banks is impaired (for example, through some fiscal subsidization of central bank deposits), the central bank has to be careful in its choices to avoid creating havoc with maturity transformation,” according to the paper.

In other words, if CBDCs did disrupt the role of commercial banks and allowed the borrowing of more money than is lent out, there’s a concern central banks could harm the money markets.

The paper also showed how the “rigidity of the central bank’s contract with investment banks” deterred panic runs and, as such, if depositors started to exclusively deposit with the central bank it could end up becoming a “deposit monopolist,” attracting deposits away from the commercial banking sector.

“This monopoly power eliminates the forces that induce the central bank from delivering the socially optimal amount of maturity transformation,” the Fed paper says.

Updated: 6-8-2020

Central Bank of Saudi Arabia Transfers Funds To Local Banks Over Blockchain

The Saudi Arabian Monetary Authority has transferred funds to local banks using blockchain technology.

The Saudi Arabian Monetary Authority (SAMA), the country’s central bank, announced that it used blockchain technology to deposit funds to local banks.

An official statement published by SAMA said that the funds were a part of the bank’s initiative to enhance its “capabilities to continue its role in providing credit facilities.” The bank did not specify the exact amount of the fund transfer.

SAMA’s Involvement With Blockchain Technology

The Middle East is seeing widespread adoption of blockchain technology in the finance sector. SAMA has performed enormously in terms of using blockchain for remittances for banks located in Saudi and the United Arab Emirates.

In 2018, SAMA also partnered with the UAE’s central bank to develop a digital currency that can be used for cross-border transactions between the two countries.

Reflecting on their recent transaction and active involvement in the blockchain space, SAMA’s recent announcement stated:

“SAMA is one of the pioneer central banks to experiment [with] blockchain technology for money transfers, this move is one of the key innovative initiatives launched by SAMA in its program to enable and develop Fintech in the Kingdom.”

Blockchain In Finance

Increased involvement of governments and central banks in the blockchain sector is playing an important role in the adoption of the technology in finance.

Today, Cointelegraph reported that a major Turkish bank completed its first international trade finance transaction based on blockchain. Another report cited that almost 40% of fintech firms operating in Hong Kong were utilizing distributed ledger technology.

Updated: 6-8-2020

Chinese Bank Issues Commercial Paper Worth $16.9 Billion on Blockchain

A Chinese commercial bank issued China’s first asset-backed commercial paper worth $16.93 billion on a blockchain.

China Zhe­shang Bank, a national commercial bank, used blockchain technology to issue an asset-backed commercial paper, or ABCP. It was issued as a part of the Na­tional As­so­ci­a­tion of Fi­nan­cial Mar­ket In­sti­tu­tional In­vestors’s (NAFMII) pilot project for ABCPs.

An asset-backed commercial paper is a short-term investment issued by financial institutions to help companies meet short-term goals.

Dubbed “Lianxin 2020 Lian­jie First Phase As­set-backed Com­mer­cial Pa­per,” the period of the Lianxin ABCP is six months and the span of the next issuance is yet to be specified.

An official of the NAFMII noted that the use of blockchain technology would provide enterprises a “direct channel to markets, help­ing to greatly in­crease the ac­ces­si­bil­ity of busi­ness fi­nanc­ing.”

Helping Small And Micro Enterprises

Small, medium, and micro-enterprises usually face difficulties with bond issuance as they do not have any connection with open markets.

The launch of Lianxin ABCP will ensure that SMEs can seek easy financial support. The ABCP “increases the ac­ces­si­bil­ity of fi­nanc­ing for SMEs that have dif­fi­culty with fi­nanc­ing via di­rect debt is­suance,” an official stated.

It will also integrate supply chain finance with small, medium, and micro-enterprises to support them with their production.

China, Banks, And Blockchain

The central bank of China along with other major banks is spearheading blockchain innovation in traditional finance. On May 13, the People’s Bank of China’s deputy governor Fan Yifei urged that China needed to accelerate its blockchain adoption strategy. Only a day after that, Cointelegraph reported that the PBoC proposed a blockchain-based trade finance platform for the Guangdong-Hong Kong-Macao Greater Bay Area.

Earlier, in April, the Industrial and Commercial Bank of China released a white paper proposing the applications of blockchain technology in finance.

Updated: 10-11-2020

Central Banks Detail CBDC Expectations In Massive Joint Document

The report is a major step towards pushing central bank digital currencies forward.

With Central Bank Digital Currencies a point of focus across the globe, a number of countries’ banking authorities have jointly produced a document discussing the currency type at length.

The Bank for International Settlements told Cointelgraph in a statement that a group of seven central banks and the BIS had collaborated on the report, “identifying the foundational principles necessary for any publicly available CBDCs to help central banks meet their public policy objectives.” The BIS is a global institution helping out national central banks.

CBDCs have been a hot topic in 2020, with a number of countries expressing interest in the asset type. China has pushed forward with plans for its CBDC, the digital yuan, although China’s central bank did not contribute to the report. China is in the midst of testing its digital asset, and has completed approximately $162 million USD worth of digital yuan transactions.

The Bank of England, the U.S. Federal Reserve and the Bank of Japan sit among the governing bodies involved in crafting the document, titled: Central bank digital currencies: foundational principles and core features. However the statement from the BIS made it clear that the involved parties had not included opinions in the report regarding the launch of such a currency, nor did they specify any firm plans for producing such an asset.

The Report Clarified:

“This report is not about if or when to issue a CBDC. Central banks will make that decision for their jurisdictions (in consultation with governments and stakeholders). None of the central banks contributing to this report have reached a decision on whether or not to issue a CBDC.”

The report listed a trio of necessary fundamental principles upon which a future CDBC, and its related ecosystem, should be founded, if such an asset arises.

“A central bank should not compromise monetary or financial stability by issuing a CBDC; (ii) a CBDC would need to coexist with and complement existing forms of money; and (iii) a CBDC should promote innovation and efficiency.”

The document clarified that vital components of sound CBDCs include convertibility, convenience, security, speed, scalability, legal soundness and several other categories.

Brazil’s central bank has also expressed interest in a CBDC in recent months, although the report also did not list Brazil’s central bank as a contributor. In contrast, the Bank of Japan does grace the list of reported contributors. Japan boasts a team tasked with studying CBDCs.

Updated: 10-12-2020

Central Banks Haven’t Made A Convincing Case For Digital Currencies

It remains unclear what benefits e-money would bring to offset risks to bank funding and financial stability.

Central bankers should avoid getting too drawn into the bitcoin buzz.

On Friday, seven central banks—including the Federal Reserve—and the Bank for International Settlements published a report outlining common principles for issuing digital currencies to the public. Officials and corporations such as Facebook, inspired by cryptocurrencies, have spent years looking into the potential for technology to revolutionize money creation.

In a survey earlier this year, the BIS concluded that 20% of central banks are likely to launch a digital currency within six years. The risks posed by Covid-19 around the exchange of physical cash could heat up the race. China is furthest along and has launched a pilot program. Sweden’s Riksbank is also conducting its own test.

What remains unclear, though, is why this pitfall-ridden shift is necessary.

The most common justification, including in the latest report, is the decline in cash payments, which started well before Covid-19. The Riksbank’s haste to develop an e-krona has been fueled by Sweden becoming an almost cashless society.

But this doesn’t add up: If the shift to digital payments required digital currencies, why is it already happening via cards and mobile applications?

In papers published this year, Riksbank economists also claimed that, in a crisis, a digital currency might give households peace of mind that they could transfer their money into state-issued assets, and therefore be less afraid of leaving it in their bank.

The opposite seems much more likely: If a digital currency offered the advantages of both cash—anonymity and security—and a current account—the ability to transfer large sums with ease—nobody would choose to hold money in a bank deposit. Even outside of crises, this could leave banks without retail depositors, their most stable source of funding.

Indeed, many early supporters of digital currencies, such as the Bank of England’s Michael Kumhof, are also known for wanting to reduce the role of those forms of “money” not issued by governments. This would include deposits, which are issued by banks and used as money.

Reform proposals have so far been rejected by the public in places like Switzerland, but could be achieved in a roundabout manner if digital money issued by central banks ends up competing with bank deposits.

For banks, the funding gap would likely be filled by central banks and wholesale money markets. Far from increasing financial stability, as reformers claim, this would make banks more vulnerable. Lending to the real economy could be affected.

Friday’s report did highlight these risks, and established as a principle the need to “ensure the coexistence and complementarity of public and private forms of money.” Some central banks have floated proposals to cap e-currency holdings, so that bank deposits remain in use.

Yet there are few tangible benefits to weigh up against these risks. Policy makers have an abstract desire to broaden access to public money, but it is unclear why the “unbanked” would find e-money easier to use than a prepaid debit card.

The only real justification for digital currencies is privacy. But central banks don’t want too much privacy, either, given officials’ desire to increase know-your-customer and anti-money-laundering checks. The report said that “full anonymity is not plausible.”

Improving the payments systems that act as the lifeblood of the global economy is a worthy goal. The hype surrounding bitcoin and Facebook’s Libra, however, might be shifting the focus away from real-world problems that need fixing and onto untested solutions looking for a problem to fix.

Updated: 10-18-2020

In Thailand, A Free-Money Program Is Also A Data Experiment

The government is funneling assistance to the poor via cash cards—a convenient way to monitor spending despite privacy concerns.

Like many countries, Thailand is giving citizens cash transfers to help them ride out the coronavirus pandemic. But the military-backed government that rules the country is getting something potentially valuable in return: a huge volume of data on how millions of Thais spend their money.

Since 2017 Thailand has funneled assistance to its poorest citizens via so-called cash cards that are automatically loaded with a small amount of money each month. The cards are a more sophisticated version of the Electronic Benefit Transfer cards used to distribute food aid in the U.S., but linked to a much broader range of activities.

While the government says the information is needed to formulate better policies, privacy advocates are concerned—not least because the number of Thais who use the cards, about 14 million, is set to climb as more people thrown out of work by the Covid-19 pandemic sign up for assistance.

“Any time you’re talking about the government’s collection and use of personal data, particularly a large volume of it, the risks are always higher,” says David Hoffman, a cybersecurity expert at Duke University who also chairs the National Security Agency’s advisory panel on privacy. “The dystopian possibility,” he says, is “that you get a tremendous view into individual citizens that then could be used for a variety of government law enforcement purposes, particularly around the area of silencing social dissent.”

That’s far from a theoretical problem in Thailand. The country has been rocked in recent months by unprecedented protests against Prime Minister Prayut Chan-ocha, a former general who led a 2014 coup d’etat, as well as against the monarchy, which has traditionally been treated as off-limits for criticism.

Some activists calling for greater freedoms have been arrested, and a sweeping cybersecurity law passed in 2019 gives law enforcement agencies the power to collect information or seize equipment to prevent cybersecurity threats. In August, Human Rights Watch warned that Prayut had “adopted a more hostile stance toward pro-democracy activists.”

The card system could become a powerful tool for the government to build loyalty and curb dissent. More than $5.6 billion has been spent through the program, which links transaction data to information about personal finances, education, and biometrics using an open-source analytics software called KNIME.

A range of services are offered through the card and an associated app, including an allowance for travel on public transit and access to job training and health care.

Officials say that strict privacy measures are in place and that data from the cards is being used only to serve their stated purpose: helping the millions of Thais who are poor enough to qualify for one.

“We now have a large enough database to come up with more targeted policies,” says Lavaron Sangsnit, a Finance Ministry official who oversaw the card system until September. “It’s not a one-size fits all approach anymore. All of our efforts will now have a razor sharp focus.”

No-strings-attached cash transfers have become more popular among development economists in recent years, guided by the principle that recipients are better able to decide what they need than bureaucrats. One of the best known is Brazil’s Bolsa Familia, which provides money to families who ensure their children attend school and get necessary vaccinations.

Other countries, meanwhile, have turned to sophisticated digital systems to deliver existing welfare benefits. In India, a biometric identification platform called Aadhaar has enrolled more than one billion people. While an undoubted technological success, Aadhaar has been dogged by problems with security, including data leaks and thefts.

There have also been allegations by privacy activists that it could be used for improper surveillance, which government authorities have disputed.

Heavily dependent on exports and tourism, Thailand’s economy is expected to contract by as much as 8.5% this year, putting some 8 million jobs at risk. That could drive more people’s annual income below 100,000 baht ($3,200), the threshold for receiving a cash card. To cushion the impact of the pandemic on the poor, the government has increased monthly payments by 500 baht for the final quarter of the year.

Members of the ruling Palang Pracharath Party have not been shy about trying to leverage the program for political advantage. During last year’s general election, some voters said they were told at rallies that they needed to elect government-aligned candidates to keep their card benefits, prompting an opposition lawmaker to file a complaint with the elections regulator. (The agency rejected the allegations.)

Since the cards and associated welfare policies are being implemented “at the discretion of the government,” it’s fair to question “whether this could be used for politics,” says Thon Pitidol, an economics professor at Thailand’s Thammasat University who studied the program’s implementation.

Many poor Thais are just happy to have the extra cash—no matter what it might mean for politics or privacy. Liamtong Namwicha, a farmer who lives in the northeastern Sisaket province, says he’s found the card “useful” since getting one more than two years ago.

Liamtong, who is currently receiving 800 baht a month, has been using it to buy groceries and household necessities from a store in his village, and says he didn’t know data on his habits was being transmitted to policymakers—but that he isn’t worried about it. “I only use the card to buy instant noodles, vegetable oil, and detergent,” he says. “These are necessary things, so I don’t mind if they know.”

Updated: 10-19-2020

Better To Get It Right Than To Be First With CBDC, Says US Fed Chair

The U.S. already has a “safe and active dynamic domestic payment system,” Powell argued.

The United States will not be issuing a digital dollar until the Federal Reserve resolves all questions around a potential central bank digital currency, or CBDC, according to the Fed’s chairman, Jerome Powell.

Powell claimed that he is not worried about other countries having a first-mover advantage when it comes to issuing CBDCs.

Speaking at a Monday panel on cross-border payments hosted by the International Monetary Fund, Powell said:

“We have not made a decision to issue a CBDC, and we think there’s a great deal of work yet to be done. […] In fact, I actually do think that CBDC is one of those issues where it’s more important for the United States to get it right than it is to be first.”

Powell elaborated that “getting it right” means that the U.S. is not only looking at the potential benefits of a CBDC but also the potential risks — particularly given the fact that the U.S. dollar is the world’s reserve currency.

The official noted that countries around the globe will have their own motivations for issuing a CBDC. He contended that the main focus for the U.S. would be determining “whether and how a CBDC could improve an already safe and active dynamic domestic payment system.” Powell continued:

“Unlike some jurisdictions, here in the United States we continue to see strong demand for cash. Moreover, we have robust and mature financial and banking sectors, and we have a highly banked population, so that many, although not all, already have access to the electronic payment system.”

The Fed chair emphasized that the bank will not make a decision on issuing the digital dollar until it resolves CBDC-associated risks involving cyber attacks, financial stability, privacy and security. He stated:

“In addition to assessing the benefits, there are also some quite difficult policy and operational questions. […] Just to mention a few, I would mention the need to protect a CBDC from cyber attacks and fraud; the question of how a CBDC would affect monetary policy and financial stability; and also, how could CBDC prevent illicit activity while also preserving user privacy and security.”

Powell’s remarks come amid a number of global jurisdictions actively exploring and piloting CBDCs. Countries such as Russia and Japan are among the latest countries to jump on the CBDC bandwagon, while jurisdictions such as China and Sweden began testing their forthcoming digital currencies in 2020.

Despite the technology’s growing popularity across the globe, citizens in the U.S. are also skeptical about the idea of the digital dollar. According to a recent survey, more than 50% of Americans are opposed to the U.S. Fed issuing such an asset. In late September, the Federal Reserve Bank of Cleveland revealed details of the Fed’s ongoing research into a potential digital dollar.


95% Of Winners In China’s CBDC Lottery Spent Digital Yuan Prizes

Some winners purchased additional digital yuan during the pilot.

The vast majority of China’s $1.5 million digital yuan lottery winners have received and spent their “red envelopes” of digital yuan.

As of Sunday, a total of 47,573 out of 50,000 lottery winners in China have received their prizes, Shenzhen authorities officially announced.

According to the announcement, the winners conducted a total of 62,788 transactions accounting for 8.8 million yuan ($1.3 million). This amount represents about 88% of the total 10 million yuan ($1.5 million) that was to be distributed in the giveaway pilot in Shenzhen.

Some winners have not only spent their “red envelopes” but also topped up their wallets, having purchased an additional 901,000 yuan ($134,000).

Shenzhen launched a pilot program to promote the digital yuan with a public giveaway on Oct. 9. Lottery organizers said they would take back the unused amount of the digital yuan packets if winners did not spend it by Sunday

As previously reported, a total of 2 million people applied to participate in Shenzhen’s digital yuan giveaway program as of Oct. 12.

China’s central bank digital currency — the digital yuan — began testing in April. Pilots were subsequently expanded to nine cities, including Shenzhen and Guangzhou as well as Hong Kong and Macau.

Leaders of Global CBDC Projects Talk Shop In Panel Today

Central bank digital currency interest continues gaining global traction.

As part of DC Fintech Week, a digital conference on the governmental side of the financial technology sector, several international leaders gathered for an Oct. 19 panel called: Central Banks, CBDCs and Cryptoeconomics. 

“I don’t see technological barriers in this area, but I do see technological challenges,” Cecilia Skingsley, First Deputy Governor of Riksbank, the central bank of Sweden, said on the panel.

“The challenge is not so much technology in itself, but it’s more about — we have to choose what sort of policy objectives do we want to focus on, what is the problem we want to solve,” she explained. “Depending on what that is, and the purposes we want to serve, then you choose the technology after that.”

The panel saw discussion between four separate authorities on various aspects of CBDCs, including the global race toward toward such a currency, as well barriers. In addition to Skingsley, the panel hosted BIS executive committee member Benoit Coeure, Bank of England deputy governor Jon Cunliffe, and former U.S. CFTC chairman J. Christopher Giancarlo.

As far as the Bank of England is concerned, Cunliffe explained cash as a cumbersome part of the economy. “Physical cash is no longer convenient,” he said. “It’s becoming increasingly inconvenient for people to use in their everyday lives, and the COIVD crisis has accelerated that,” he added. “On the other hand, it’s becoming increasingly less acceptable to merchants for some of the same reasons, even merchants that are able to take physical cash.”

Giancarlo specifically pointed out the competitive atmosphere around launching a CBDC, noting that winning the race is not the most important point — sentiment U.S. Federal Reserve chairman Jerome Powell also recently expressed.

“If there’s a winner, I don’t think the winner is necessarily who’s first and the loser is necessarily who’s last,” Giancarlo said during the panel. “What matters is, which central bank successfully incorporates its societal values in a successful development of CBDC,” he explained. “On the other hand, one can’t be too late to the game here,” he added.

Mentioning a report from the BIS from January 2020, Coeure reminded the audience that a large number of the world’s central banks consider CBDCs a worthwhile research effort. China has notably charged forward with its CBDC development in 2020.

Bitcoin Unlikely To Dodge Regulation For Long, Sweden’s Central Bank Says

Bitcoin and other cryptocurrencies are unlikely to escape regulatory oversight as supervisory authorities respond to the sheer popularity of the phenomenon, according to the governor of Sweden’s central bank.

Though monetary policy officials have voiced near universal skepticism toward Bitcoin and its rivals, cryptocurrencies have continued to build an enthusiastic following. That’s prompted some of the biggest names in finance to move in, as Wall Street banks such as Goldman Sachs Group Inc. offer trading services tied to crypto.

“When something gets big enough, things like consumer interests and money laundering come into play,” Riksbank Governor Stefan Ingves said on Monday. “So there’s good reason to believe that [regulation] will happen.” Erik Thedeen, the head of Sweden’s financial regulator, said on Tuesday that “it’s quite evident that some form of regulation is needed.”

Sweden’s financial markets minister, Asa Lindhagen, said the government is already in the process of tightening standards for crypto exchange platforms. But she called it a “work in progress at the international level.” She also said that addressing the risk of money laundering that cryptocurrencies represent is a “very important issue” that will require cross-border work.

It’s far from clear how to regulate a product that’s designed to evade the scrutiny of national authorities. But governments are already trying, with China in particular stepping up pressure on crypto loyalists. The People’s Bank of China recently told financial institutions that they’re not allowed to accept cryptocurrencies for payment, which followed a crackdown on crypto mining. There are signs, though, that traders are still active, underscoring the scale of the challenge.

In the U.S., Federal Reserve officials are in the process of studying “the various ways to address this issue,” Randal Quarles, the Fed’s vice chairman of supervision said in May. But federal agencies need time to ponder the right regulatory approach before they can then create a framework for oversight, he added.

In the European Union, the commission has put the matter to a hearing as it tries to figure out how best to create a regulatory framework for crypto assets. In September, it proposed a pilot regime for market infrastructures interested in trading crypto assets. Thedeen said an EU regulatory framework for cryptocurrencies is now “under way.”

On Tuesday, Riksbank Deputy Governor Per Jansson underscored concerns that Bitcoin and its peers continue to “fluctuate extremely,” with “nothing concrete or substantial” underpinning their actual value.

Sweden, like China, is one of the more advanced countries in its efforts to develop a central bank digital currency. That’s as monetary authorities try to prepare for the disappearance of cash as a payment form, and try to ensure that cryptocurrencies don’t fill the void. Ingves has previously estimated Sweden might have its own central bank e-krona in about five years.

Regulation of cryptocurrencies “will probably come at different times in different areas,” Ingves said.

What Bloomberg Economics Says…

“Fears of a ‘digital dollarization’ with a gradual loss of control over monetary conditions is one reason for central banks to introduce digital currencies of their own (as an alternative to private cryptocurrencies). As central banks accelerate moves toward a public digital payments option, it’s also likely that they will step up efforts to keep the volatile cryptocurrencies in check.”

 

Updated: 10-20-2020

The Bahamas Launches World’s First CBDC, The ‘Sand Dollar’

This makes The Bahamas one of the first countries in the world to officially launch a CBDC beyond a pilot program.

The Central Bank of the Bahamas has announced the country’s “Sand Dollar” — a state-backed virtual currency — is now available nationwide.

According to an Oct. 20 Facebook post from Project Sand Dollar, the central bank digital currency (CBDC) became available to all 393,000 residents of The Bahamas from roughly 10:00 PM UTC. This makes The Bahamas the first country in the world to officially roll out a CBDC.

China is currently testing a pilot program for its digital yuan with a $1.5 million giveaway, and Cambodia’s “Bakong” digital currency is expected to become operational in the coming months following its pilot launch in July 2019.

Sand Dollar transfers are made by mobile phone, with roughly 90% of the Bahamian population using mobile phones as of 2017.

According to the Sand Dollar website, residents of The Bahamas can use the digital currency at any merchant “with a Central Bank approved e-Wallet on their mobile device” and transaction fees are “negligible.” The central bank selected transaction provider NZIA as its technology solutions provider for the rollout of the digital currency.

The central bank of the Bahamas has been preparing for the launch of the CBDC for a few years. In 2019, it started a pilot program using 48,000 digital Sand Dollars on the islands of Exuma and Abaco, which have a combined population of fewer than 25,000 people. Each Sand Dollar is pegged to the Bahamian dollar, which is in turn pegged to the U.S. dollar.

The Sand Dollar is intended to drive greater financial inclusion within the archipelago nation of more than 700 islands, about 30 of which are inhabited. Cointelegraph reported in September that Chaozhen Chen, the assistant manager of eSolutions at the Central Bank of The Bahamas, said the CBDC would help provide “access to digital payment infrastructure or banking infrastructure” for underbanked and unbanked residents.

Updated: 10-26-2020

Bahamas Strikes First With Sand Dollar Amid US–China CBDC Faceoff

Fed Chairman Powell sees no urgency to develop a CBDC, but eventually, the world’s top central bank must act, say experts.

The Bahamas, an island nation in the West Indies, made digital currency history on Oct. 20 with the official launch of a new central bank digital currency, the so-called Sand Dollar.

It became the first country to roll out a CBDC available to all residents, and while the Bahamas is a small nation — with only 393,000 people — it appears to be an event of some global financial significance.

Or is it? “It could be if it succeeds,” Ross Buckley, KPMG-KWM professor of disruptive innovation at University of New South Wales, Sydney, told Cointelegraph. “Other small island nations — as in my backyard in the Pacific — are watching it carefully and could well follow suit.”

James Barth, a finance professor at Auburn University, placed the event in the context of a series of CBDC milestones, beginning with the launch of Bitcoin (BTC) in 2009 and including Facebook’s Libra announcement in 2019, China’s CBDC trials in April, and the European Central Bank’s statement about the possible issuance of a digital euro in October.

“These developments and the COVID-19 pandemic made it virtually certain that a country — most likely a small country — would go live with a central bank digital currency,” he said.

Some, however, said it was too early to tell. Hans Gersbach, an economics professor at ETH Zurich in Switzerland, told Cointelegraph: “First, we have to see whether it will function well in practice.”

Jay Joe, CEO of Nzia Limited — the technology solutions provider for the Bahamas rollout — told Cointelegraph that the Sand Dollar was introduced in the Bahamas to help facilitate financial inclusion across the nation:

“The Bahamas as a vast archipelago spreading across over 100,000 square miles of ocean, has many remote islands and communities where residents do not have access to formal financial services.”

Because of population sparsity, it often isn’t economically viable for banks to build branches and sustain infrastructure. The new CBDC “enables the people of The Bahamas universal access to digital payments and extends the reach of financial services to all corners of the nation,” Joe told Cointelegraph.

Among the key questions the nation’s central bank and others were looking to answer with the rollout, Joe said, were “how existing regulations and policies will be shaped, and, eventually, how the CBDC will be embraced by the people to some day become as ubiquitous as cash.”

A Sense of Urgency?

The global demand for online services has accelerated dramatically with the COVID-19 pandemic, and this is arguably driving the development of CBDCs around the world. As the deputy governor of the Central Bank of Canada, Timothy Lane, said recently.

“If we want to be ready to develop any kind of digital central bank product, we need to move faster than we thought was going to be necessary.” Barth further explained:

“The virus has shifted behavior in favor of more social distancing and therefore greater use of online communication and transactions, both domestically and globally. This certainly makes digital currencies more relevant as money and for payments.”

But this sense of urgency isn’t universal, as Jerome Powell, chairman of the United States Federal Reserve, said on Oct. 19 at an International Monetary Fund event. He believes that CBDCs face many critical challenges, such as preventing fraud and cyber attacks, ensuring financial stability, and protecting privacy, saying:

“There’s a great deal of work yet to be done. […] In fact, I actually do think that CBDC is one of those issues where it’s more important for the United States to get it right than it is to be first.”

The U.S. needn’t worry about losing the “first-mover” advantage with regard to a digital currency, Powell implied. Was he right?

“Probably in the immediate sense, yes,” according to Buckley, who added: “Longer term though if China or another nation allows its CBDC to be used in international trade, the U.S. will have to respond and quickly.”

The U.S. draws extraordinary benefits from minting the world’s reserve currency, and the loss of exclusivity in that regard could cost the U.S. economy dearly. It would also have political consequences — for instance, placing many countries outside the scope of U.S. financial sanctions. Buckley believes that China’s “long game” is, arguably, to upend the U.S. dollar as the world’s reserve currency.

“It [China] hates that the global economic system is built upon the U.S. dollar, and it aims to build a parallel system that it controls,” he said, further adding: “This was the impetus behind the denomination of trade contracts of other country’s exporters and importers with China in renminbi.”

It was also a motivation behind the New Development Bank established by the BRICS states — Brazil, Russia, India, China and South Africa — and also for the Asian Infrastructure Investment Bank, continued Buckley, referencing another multilateral development bank whose creation was proposed by China in 2009 to make better use of Chinese foreign currency reserves amid a global financial crisis.

“A [Chinese] CBDC will interact really well with dematerialized digital trade documentation so if China allows DC/EP offshore it will be a total game changer. In time I think they will.”

Barth, for his part, agreed that the U.S. didn’t have to hurry to bring a CBDC to market, as the U.S is the world’s largest economy, accounting for 20% of global gross domestic product, and the U.S. dollar remains the world’s dominant currency.

“Chairman Powell is right that the U.S. does not have to worry about losing any ‘first mover’ advantage by rushing to issue a central bank digital currency.”

On the other hand, Sidharth Sogani, founder and CEO of analytics firm Crebaco Global, told Cointelegraph that being first to market among large economies does matter. “China is already testing its CBDC. They have integrated POS machines, mobile apps and many other source codes to develop apps on their CBDC.”

He further opined: “First mover advantage is crucial in this case — especially when you are competing with China.” Financially, the U.S. is still dominant, but with regard to CBDC technology, it trails — “And here China is going to lead for sure as they are ready with their CBDC and are the second biggest economy globally.”

Sogani explained this from the point of view of a bank customer: “If you are already having a great experience with Bank A,” which uses a Chinese CBDC, “will you open an account or download an app with Bank B — which does business with a U.S. dollar CBDC?” If/when China launches its CBDC, it will attract large numbers of global customers very quickly. “It will be difficult to catch them.”

The U.S. should have a CBDC ready to go — just in case — suggested Gersbach. “Preparation should be stepped up in order to follow fast if successful models of CBCDs are introduced.” But according to Barth, the big question is how the “CBDCs will affect money and payments, particularly the role of the government.”

Gersbach also outlined several other factors: “Preventing cyber attacks, privacy issues, and financial stability. Security of all kinds and financial stability are the two most important issues to be resolved.”

Sogani, assuming that CBDCs would be built on a blockchain platform, questioned how CBDCs would relate to Bitcoin and other cryptocurrencies. “It’s [a CBDC] a completely different thing, with different fundamentals and uses. Understanding the nitty gritty is the biggest challenge.”

How Close Is The First Mass CBDC?

It seems that the development of CBDCs around the world has picked up in 2020, and if this is the case, when might one see the first massive-scale CBDC? According to Barth: “Most of the major countries have been studying CBDCs for some time now.” He added:

“China, of course, has been engaged in trials but with no information provided about a nationwide adoption date. Nevertheless, it is likely to be the first major country to issue a CBDC, and if so, it is likely to trigger other major countries to follow suit.”

Regarding China, Sogani said: “Their legal framework seems to be in the making. It will launch it for the masses in a few months. I don’t see any other country as close to China’s development stage.”

Meanwhile, according to Buckley: “China intends clearly its digital currency/electronic payment project to dominate payments and money within China domestically, and they’ve been working on it for five to seven years.”

As long as the project remains domestic, there is no real challenge to the United States. But if China takes it global, “It will take the U.S. years of work to respond with a CBDC of its own, the so-called digital dollar,” said Buckley.

Meanwhile, Sogani sees big benefits, even for small countries — like the Bahamas — that take the digital path. “A CBDC enables a country’s currency to go global which the current financial ecosystem doesn’t offer.” To make an international transfer, ample paperwork needs to be signed and fees paid. “This is expensive. It takes up to two days and is complicated,” commented Sogani, adding:

“But if it is a CBDC, it can go directly to the mobile apps, and it can be tracked. Yes, there will be compliance but the SWIFT method, which involves nostro and vostro accounts, will be eliminated — making life simpler.”

Joe called the Bahamas’ rollout “the world’s first production-grade live implementation of a retail CBDC.” Asked if there were lessons here for other nations, the NZIA CEO told Cointelegraph that there were many, “including the importance of grassroots engagement and understanding of CBDC and its effects on the intermediated financial system,” further adding:

“A CBDC is more than elaborate software and mobile wallet systems. It needs to be designed from the ground up and built as part of a national payments infrastructure that addresses the needs of everyday people.”

In sum, there appears to be a certain global logic to recent events. Because the U.S. dollar, the incumbent global currency reserve, has much to lose by coming to market with a flawed CBDC, it appears to be moving cautiously, content to let smaller players such as the Bahamas do its beta testing.

Meanwhile, China, the challenger, is moving fast, but its DC/EP project is focused on the nation’s mass market for now. A truly global digital yuan may still be some years away.

“A CBDC is a total game changer that raises a host of tough issues,” concluded Buckley. “This is why no one country has yet done it. Central banks never like stepping into the unknown — it’s not in their DNA for good reasons. But I think China will force other nations’ hands.”

 

Updated: 10-21-2020

Brazil’s Central Bank Just Revolutionized Instant Payments

Its new digital app turns free money transfers into a public good.

Earlier this year, my kitchen sink sprang a leak. With Brazil bracing for coronavirus, how to find a repairman willing to risk Rio de Janeiro’s pathogen-friendly public transit for a one-off job in a stranger’s home? Lucky for me, Antonio was game.

A freelance plumber, Antonio is part of Latin America’s vast shadow economy, where today’s gig is tonight’s meal. Unfortunately, most Brazilian handymen prefer cash, just the sort of high-touch tender I had foresworn in times of Covid-19.

We settled on a bank transfer, and a few pecks at my phone app and a hefty transfer fee later, I’d whisked the money from my account to his. Or so I thought. Two days, four phone calls and several worried text messages from Antonio later, the funds finally landed.

Fortunately, those anxious days may be numbered. Next month, the Central Bank of Brazil will debut a new instant payments tool. Called PIX, it promises hassle-free transactions within seconds for anyone with a mobile phone and a bank account.

And it comes free of charge. The bank has already logged more than 39 million requests by prospective PIX clients, both corporate and individual, eager to lock in access “keys” to the service.

Brazilian banking was long due for a shakeup. Latin America’s signature economy boasts some of the world’s biggest and most lucrative banks, where dexterous moneymen finessed hyperinflation and the shell game of serial government stabilization plans through market acumen and innovation.

Yet these sophisticated brand banks still deliver many of their headline services on last century’s clock — Monday to Friday from 10-to-4, and 10-to-2 during the pandemic — and often at bruising lending rates and fees.

No wonder some 45 million Brazilians have no bank account, and 71% still prefer to do business in cash.

“Brazilian banking has long been dominated by a few big players who enjoy a practically captive clientele,” said Paulo Bilyk, chief executive of Rio Bravo Investimentos, a Sao Paulo asset management firm.

Reinforcing this sweetheart market is the cozy system that deposits the paychecks of 11.4 million relatively well-paid public employees in banks they did not even choose. “The new system facilitates exchanges by making it simpler, faster and cheaper to pay bills. That’s a win for the economy and for social inclusion,” Bilyk said.

Sensing the opportunity, regulators began preparing early last decade to disrupt the financial monopoly by greenlighting virtual banks, which peddle checking and savings accounts, credit and debit cards exclusively online and at considerable discounts. Investment in Brazilian fintech has since soared, from $52 million in 2015 to $1.6 billion last year.

Brazil is now home to the world’s largest digital-only bank, Nubank, with 20 million clients nationally and operations in Argentina, Colombia and Mexico.

Brazil is actually a relative latecomer to instant digital payments. Kenya launched its M-Pesa system (42 million subscribers) via mobile phone in 2007; India’s four-year-old Unified Payments Interface clocked 1.62 billion transactions in June; China’s two biggest digital wallet competitors, Alipay and WeChat Pay, have more than 2.2 billion active users.

Yet those are competitive businesses, each of which takes a cut per transaction. PIX, by contrast, is a public good, launched by the Central Bank and free of charge. The initiative was an attempt to lay the ground rules — and perhaps get a jump on the competition — in the relatively cloistered Brazilian economy for an aggressive frontier business dominated by international giants.

Tellingly, the Central Bank in June withdrew authorization for WhatsApp Payments, the Facebook-owned phone-based payment tool, a week after its Brazilian rollout.

A rare oasis of institutional continuity in the Brazilian policy desert, the Central Bank has already helped promote a more inclusive financial market by eschewing the monetary populism that has kept inflation high and lending dear.

Brazil’s interest rates hit record lows this year. The surging digital culture — 150 million internet users and 205 million mobile phones in a country of 212 million people — has only sharpened the public appetite for innovation.

“Brazilian society is much closer to China than to the U.S. or Europe,” said Claudio Lucena, technical director for the National Data Protection Institute. “We have millions of low-income people with limited access to market information, but who have mobile phones. For them, reducing the cost of banking could be a major incentive.”

Legacy banks, understandably, are less enthusiastic. They stand to forfeit a bundle in fees for moving money. The bank transfers nest egg has grown 31% since 2017, according to Moody’s Investors Service, which says banks could forfeit as much as 8% of their annual winnings in traditional transfers to PIX users.

The Sao Paulo market research company Eleven Financial Research projects a much smaller hit of around 1% of their yearly fee income. “Traditional banks might have wished that PIX had never come along,” said Bilyk.

Indeed, they had no choice. The Central Bank has ordered all financial institutions with more than 500,000 clients to offer account holders the option to sign up for the no-charge pay app. Lenders have joined the October scramble to lock up PIX accounts.

Brazil’s enterprising bandits have been right behind them, hoping to lure unwitting early adopters to divulge their identities and banking information on fake websites. “The rollout for PIX will probably be gradual,” said Eleven Financial’s head of equity research Carlos Daltozo. “Security and fraud are key concerns.”

Instant payments won’t revolutionize Brazilian productivity, stanch fiscal incontinence or fix the regressive and enterprise-choking tax system.

“We basically know what we have to do put the economy right,” Bloomberg Economics analyst Adriana Dupita told me. “But by making it easier and more affordable to pay bills and transfer money, you invite more people into the system and make financial transactions more accessible.”

At a time when Brazilian politics has devolved into a contest over how to spend more, a tool allowing individuals to spend better is already a blessing.

 

Updated: 10-21-2020

Brazil’s Central Bank Just Revolutionized Instant Payments

Its new digital app turns free money transfers into a public good.

Earlier this year, my kitchen sink sprang a leak. With Brazil bracing for coronavirus, how to find a repairman willing to risk Rio de Janeiro’s pathogen-friendly public transit for a one-off job in a stranger’s home? Lucky for me, Antonio was game.

A freelance plumber, Antonio is part of Latin America’s vast shadow economy, where today’s gig is tonight’s meal. Unfortunately, most Brazilian handymen prefer cash, just the sort of high-touch tender I had foresworn in times of Covid-19.

We settled on a bank transfer, and a few pecks at my phone app and a hefty transfer fee later, I’d whisked the money from my account to his. Or so I thought. Two days, four phone calls and several worried text messages from Antonio later, the funds finally landed.

Fortunately, those anxious days may be numbered. Next month, the Central Bank of Brazil will debut a new instant payments tool. Called PIX, it promises hassle-free transactions within seconds for anyone with a mobile phone and a bank account. And it comes free of charge.

The bank has already logged more than 39 million requests by prospective PIX clients, both corporate and individual, eager to lock in access “keys” to the service.

Brazilian banking was long due for a shakeup. Latin America’s signature economy boasts some of the world’s biggest and most lucrative banks, where dexterous moneymen finessed hyperinflation and the shell game of serial government stabilization plans through market acumen and innovation.

Yet these sophisticated brand banks still deliver many of their headline services on last century’s clock — Monday to Friday from 10-to-4, and 10-to-2 during the pandemic — and often at bruising lending rates and fees.

No wonder some 45 million Brazilians have no bank account, and 71% still prefer to do business in cash.

“Brazilian banking has long been dominated by a few big players who enjoy a practically captive clientele,” said Paulo Bilyk, chief executive of Rio Bravo Investimentos, a Sao Paulo asset management firm.

Reinforcing this sweetheart market is the cozy system that deposits the paychecks of 11.4 million relatively well-paid public employees in banks they did not even choose. “The new system facilitates exchanges by making it simpler, faster and cheaper to pay bills. That’s a win for the economy and for social inclusion,” Bilyk said.

Sensing the opportunity, regulators began preparing early last decade to disrupt the financial monopoly by greenlighting virtual banks, which peddle checking and savings accounts, credit and debit cards exclusively online and at considerable discounts. Investment in Brazilian fintech has since soared, from $52 million in 2015 to $1.6 billion last year.

Brazil is now home to the world’s largest digital-only bank, Nubank, with 20 million clients nationally and operations in Argentina, Colombia and Mexico.

Brazil is actually a relative latecomer to instant digital payments. Kenya launched its M-Pesa system (42 million subscribers) via mobile phone in 2007; India’s four-year-old Unified Payments Interface clocked 1.62 billion transactions in June; China’s two biggest digital wallet competitors, Alipay and WeChat Pay, have more than 2.2 billion active users.

Yet those are competitive businesses, each of which takes a cut per transaction. PIX, by contrast, is a public good, launched by the Central Bank and free of charge.

The initiative was an attempt to lay the ground rules — and perhaps get a jump on the competition — in the relatively cloistered Brazilian economy for an aggressive frontier business dominated by international giants. Tellingly, the Central Bank in June withdrew authorization for WhatsApp Payments, the Facebook-owned phone-based payment tool, a week after its Brazilian rollout.

A rare oasis of institutional continuity in the Brazilian policy desert, the Central Bank has already helped promote a more inclusive financial market by eschewing the monetary populism that has kept inflation high and lending dear.

Brazil’s interest rates hit record lows this year. The surging digital culture — 150 million internet users and 205 million mobile phones in a country of 212 million people — has only sharpened the public appetite for innovation.

“Brazilian society is much closer to China than to the U.S. or Europe,” said Claudio Lucena, technical director for the National Data Protection Institute. “We have millions of low-income people with limited access to market information, but who have mobile phones. For them, reducing the cost of banking could be a major incentive.”

Legacy banks, understandably, are less enthusiastic. They stand to forfeit a bundle in fees for moving money. The bank transfers nest egg has grown 31% since 2017, according to Moody’s Investors Service, which says banks could forfeit as much as 8% of their annual winnings in traditional transfers to PIX users.

The Sao Paulo market research company Eleven Financial Research projects a much smaller hit of around 1% of their yearly fee income. “Traditional banks might have wished that PIX had never come along,” said Bilyk.

Indeed, they had no choice. The Central Bank has ordered all financial institutions with more than 500,000 clients to offer account holders the option to sign up for the no-charge pay app. Lenders have joined the October scramble to lock up PIX accounts.

Brazil’s enterprising bandits have been right behind them, hoping to lure unwitting early adopters to divulge their identities and banking information on fake websites. “The rollout for PIX will probably be gradual,” said Eleven Financial’s head of equity research Carlos Daltozo. “Security and fraud are key concerns.”

Instant payments won’t revolutionize Brazilian productivity, stanch fiscal incontinence or fix the regressive and enterprise-choking tax system. “We basically know what we have to do put the economy right,” Bloomberg Economics analyst Adriana Dupita told me. “But by making it easier and more affordable to pay bills and transfer money, you invite more people into the system and make financial transactions more accessible.”

At a time when Brazilian politics has devolved into a contest over how to spend more, a tool allowing individuals to spend better is already a blessing.

Updated: 10-26-2020

Digital Yuan Will Work With WeChat And Alipay, Says Bank Exec

Details regarding the digital yuan’s characteristics are taking shape.

The forthcoming digital yuan will reportedly be compatible with major payment networks within the country.

Mu Changchun, the head of the People’s Bank of China’s digital currency research institute, said that the central bank-backed digital yuan will be compatible with major mobile payment wallets like WeChat Pay and Alipay.

According to a report from South China Morning Post, Mu said during a conference that the digital yuan will not compete with WeChat Pay and Alipay:

“They don’t belong to the same dimension. WeChat and Alipay are wallets, while the digital yuan is the money in the wallet.”

These recent statements would appear to contradict earlier reports from local sources suggesting that China may launch its digital currency as an alternative to the two payment giants.

The digital yuan is currently accessible to limited users through an exclusive mobile wallet application. At the conference, Mu said that the mobile wallets for digital yuan face the age-old problem of counterfeiting, stating that there were multiple fake digital yuan wallets in the market.

Mu said it would only be possible to reduce the impact of counterfeit wallets if all parties involved, from the central bank to the users, take necessary cautions.

On a different note, Mu said that the digital yuan operates on a centralized infrastructure, differentiating it from private currencies like Facebook’s Libra and Bitcoin (BTC).

China has progressed rapidly with its central bank digital currency initiative. Last week, it published a draft law to provide a regulatory framework and legitimacy for its digital yuan. At present, the central bank is conducting pilot tests across the country for its CBDC.

In one of the largest pilot tests, local authorities distributed $1.5 million worth of digital yuan to 50,000 of the 1.9 million people who signed up for a giveaway.

Updated: 11-2-2020

China’s Digital Yuan Pilots Have Processed $300M So Far, Says PBoC Head

China’s digital yuan pilot program is picking up speed.

The governor of China’s central bank has given more details about the country’s ongoing digital currency pilot.

Yi Gang, governor of the People’s Bank of China, said that the digital yuan pilots have processed over four million transactions to date, totaling more than 2 billion yuan ($299 million). The official delivered his latest remarks at the Hong Kong Fintech Week conference on Nov. 2, Bloomberg reported.

According to Yi, the pilots have been going smoothly so far, having rolled out for extended testing in four cities.

Growth in demand for digital and contactless payment methods amid the coronavirus pandemic have posed major challenges for central banks, as they try to juggle user security with convenience, Yi said.

The official noted that fintech companies have some key advantages over commercial banks in terms of building a customer base and managing risks.

The PBoC launched the first pilots for its forthcoming digital yuan in April 2020. The initial trial reportedly included four major cities: Shenzhen, Chengdu, Suzhou and Xiongan. The program was reportedly expanded to nine cities, including Guangzhou, Hong Kong and Macau.

In early October, the PBoC officially announced that the digital yuan wallets processed $162 million in transactions between April and August 2020.

Major tech companies have already begun preparing for the seemingly inevitable launch of the digital yuan. Huawei recently announced that its newest smartphone, Mate40, will feature a wallet for the currency and allow users to transact with it, even when they are offline.

Reserve Bank of Australia Forms Partnerships To Research CBDC

The project will “explore if there is a future role for a wholesale CBDC in the Australian payments system,” according to the RBA.

According to a Nov. 2 announcement from The Reserve Bank of Australia, or RBA, the financial institution will be partnering with the Commonwealth Bank, National Australia Bank, the financial services company Perpetual, and software company ConsenSys on a project to explore the potential use of a wholesale central bank digital currency in the country using “Ethereum-based distributed ledger technology.”

The RBA stated it would be researching the development of a proof-of-concept for “the issuance of a tokenized form of CBDC.” It specifically mentioned wholesale market participants potentially using the digital currency for tokenized syndicated loans on an DLT platform and exploring the implications of delivery-versus-payment security settlements with cross-chain atomic swaps.

“With this project we are aiming to explore the implications of a CBDC for efficiency, risk management and innovation in wholesale financial market transactions,” stated Reserve Bank of Australia Assistant Governor Michele Bullock.

“While the case for the use of a CBDC in these markets remains an open question, we are pleased to be collaborating with industry partners to explore if there is a future role for a wholesale CBDC in the Australian payments system,” he added.

The move is part of an ongoing about-face for the RBA when it comes to CBDC policy. On Oct. 14, the head of payments policy at the RBA said the bank would continue to research CBDCs despite the financial institution stating there was not a strong policy case for issuing one in September.

As alternatives to issuing a CBDC, the bank has pointed to the success of the country’s efficient, real-time New Payments Platform, and stated it is willing to provide access to fiat banknotes “for as long as Australians wish to keep using them.”

The central bank said the project will be finished by the end of the year and it will issue a report in 2021.

Updated: 11-9-2020

US Fed Economists Are Exploring The “Intrinsic” Value Drivers Of CBDCs

Fed economists are beginning their deep dive into CBDC research, hoping to identify the “intrinsic” value drivers of a digital dollar.

The United States Federal Reserve has broadened its research on central bank digital currencies, or CBDCs, in a new review that was posted to its website Monday.

In a report titled “Central Bank Digital Currency: A Literature Review,” Fed economists Francesca Carapella and Jean Flemming compile research exploring the potential impact of a digital dollar on commercial banking and monetary policy. The review provides a theoretical underpinning for understanding how CBDCs could influence consumer adoption and financial stability.

The Authors Write:

“From a theoretical standpoint, the introduction of a central bank digital currency (CBDC) raises long-standing questions relating to the provision of public and private money […] and the ability of the central bank to use CBDC as a means for transmitting monetary policy directly to households.”

A literature review is essentially an environmental scan on a particular topic that is used to justify the need for additional research. The Fed’s report identified the “intrinsic features of CBDC” as the most important research question to tackle moving forward:

“As with any new literature, many questions remain. We believe the most crucial question is which intrinsic features of CBDC as a means of payment and a store of value are important for households’ portfolio choices as to which monies to use.”

On Aug. 13, the Fed released an original research paper comparing CBDCs with other payment methods. Authors Paul Wong and Jesse Leigh Maniff concluded that a CBDC would “never be able to fully replicate” all the features of cash and real-time gross settlement services but that it could enhance both modes of payment.

Although CBDCs have been described as the central bank “arms race” of the decade, the Fed is in no rush to adopt the so-called digital dollar. Fed Chair Jerome Powell said last month that a CBDC is unlikely to be rolled out anytime soon because the U.S. already has a “safe and active dynamic domestic payment system.”

Powell emphasized that resolving risks to privacy and security is more important than having a first-mover advantage in this space.

China, meanwhile, is taking a far more active approach in rolling out its digital currency. Last month, the People’s Bank of China concluded its largest pilot project on the digital yuan by distributing online wallets to 50,000 randomly selected consumers.

Updated: 11-10-2020

Lebanon To Launch Digital Currency In Face Of Economic And Financial Turmoil

Lebanon’s central bank governor says the country, whose lira has been in freefall, is preparing to launch a digital currency in 2021.

Lebanon’s central bank plans to launch a new digital currency in 2021 as part of a broader effort to combat a parallel economic and financial crisis that has engulfed the country.

Central bank governor Riad Salameh told a gathering of officials Monday that “We must prepare a Lebanese digital currency project” as a way to shore up confidence in the banking system.

“As for the monetary supply in the Lebanese market, it is estimated that there are $10 billion stored inside homes,” Salameh said, according to the state-run National News Agency.

The central banker added that a digital currency project launched in 2021 will help implement a cashless financial system to enhance the flow of money locally and abroad.

Lebanon relies heavily on remittances from its vast global diaspora. In 2019, personal remittances represented nearly 14% of Lebanese gross domestic product, according to the World Bank. That figure was as high as 26.4% in 2004.

Salameh says Lebanon will maintain its gold reserves as a hedge against a wider market crisis. If such a crisis occurs, the central bank can liquidate its bullion on foreign markets for immediate relief.

Banque Du Liban, the country’s central bank, has been kicking around the idea of a state-run digital currency since at least 2018. Efforts appear to have accelerated earlier this year after violent protests and silent bank runs brought Lebanon’s financial system to a halt.

Faced with a dollar crisis, banks tightened restrictions on foreign currency transactions, with at least one major institution limiting withdrawals to just $400 a month. A plunging Lebanese lira made it almost impossible to transact in the local currency.

In June, protestors set fire to the central bank in Tripoli in a show of anger over the collapse of the lira, which had long been pegged at 1,500 per U.S. dollar. The lira would eventually plunge to more than 5,000 per dollar before restabilizing.

The growing confusion over Lebanese fiat triggered a wave of Bitcoin buying among locals, with peer-to-peer marketplaces like Localbitcoins seeing a sharp rise in activity.

Political chaos is nothing new for Lebanon. The tiny Mediterranean country has struggled to form an identity following its 15-year-long civil war. A sectarian power-sharing system ruled by feudal elites has made governing the country extremely difficult, even during periods of relative calm.

Updated: 11-10-2020

US Central Banker Urges Digital Dollar Development

FOMC member Robert Kaplan believes the Fed should prioritize creating a digital dollar.

President of the Dallas Federal Reserve Robert Kaplan believes the US central bank should begin work on a digital currency immediately, a clear indicator that some policymakers view this as an urgent matter.

Speaking Tuesday at a virtual conference hosted by Bloomberg, Kaplan reportedly said:

“It is critical that the Fed focuses on developing a digital currency in the coming months and years.”

The central banker’s remarks were part of a broader discussion on the economy and fiscal policy.

Kaplan is a member of this year’s Federal Open Market Committee (FOMC), the organization tasked with setting monetary policy. The 2020 Committee slashed interest rates to record lows in March as part of a synchronized policy response to Covid-19.

Kaplan and the rest of the FOMC have been instrumental in flooding the market with liquidity since Sept 2019, when irregularities in the overnight repo market caused short-term interest rates to spike.

Blockchain technology is certainly on policymakers’ radar. Last month, Fed Chairman Jerome Powell said that 80% of central banks around the world are exploring the potential utility of a CBDC.

While the Fed has given no indication of whether it will pursue a digital dollar, it has deployed economists to explore the subject in greater detail.

On Monday, the Fed released a literature review of central bank digital currencies, or CBDCs, to explore the impact of a digital dollar on commercial banking and monetary policy. The review concluded by recommending additional research be devoted to exploring the “intrinsic” value drivers of a government digital currency.

Back in August, the central bank released a full-length research report comparing a digital dollar with other payment methods.

Although the idea of a CBDC is scoffed at by proponents of truly decentralized digital currencies like Bitcoin, the digital dollar is believed by some to be the natural progression of a cashless society.

It may assist governments in supporting financial innovation, boosting payment functionalities and supporting greater financial integration worldwide.

Updated: 11-25-2020

US intelligence Is Looking At Chinese CBDC As A National Security Threat

The Director of National Intelligence wants to have the SEC’s leader briefed on the dangers of the U.S. falling behind in crypto.

The United States national security apparatus is warning other agencies about China’s upcoming digital currency.

On Wednesday, news outlet the Washington Examiner reported on a letter that National Intelligence Director John Ratcliffe had sent Securities and Exchange Commission Chairman Jay Clayton earlier in the month.

According to the report, Ratcliffe offered to have staff brief Clayton on the security issues that derive from China’s dominance in crypto mining as well as the country’s progress in digitizing the yuan. Ratcliffe’s letter also apparently pushed Clayton to ensure that U.S. crypto firms remain competitive.

Cointelegraph has reported extensively on the race for a central bank digital currency, or CBDC. Among major economies, China seems to be closest to launch.

Since Bretton Woods in 1944, the U.S. has enjoyed a privileged status as the issuer of the world’s reserve currency, the U.S. dollar. To this day, almost all international trade is settled in dollars, though that is changing for countries like Russia and China, which are subject to extensive U.S. sanctions.

The dollar’s special status affords the Federal Reserve extra flexibility in printing more dollars without running into hyperinflation, as there is huge demand beyond U.S. shores. It is also this special status that allows U.S. sanctions to be such useful instruments of international influence.

A successful digital yuan could challenge the status of the dollar in international trade. The flip side, however, is that many see a digital yuan as a tool of surveillance for the Chinese Communist Party. While that might reduce demand, the upgraded access to information may be another factor that Ratcliffe is worried about.

Updated: 12-04-2020

China’s Central Bank Plans Digital Yuan Pilot For Payments To Hong Kong

Preliminary talks are underway to begin testing the e-CNY in the special administrative region of Hong Kong.

China’s central bank and the Hong Kong Monetary Authority, or HKMA, are in the preliminary stages of piloting the digital yuan for cross-border payments — underscoring another key development in the rollout of a central bank digital currency, or CBDC.

In a media release that appeared on the HKMA website on Friday, chief executive Eddie Yue provided an update on the ongoing work surrounding cross-border payments. He indicated that HKMA is in dialogue with the People’s Bank of China, or PBOC, to begin pilot testing the e-CNY.

Yue Said:

“The HKMA and the Digital Currency Institute of People’s Bank of China are discussing the technical pilot testing of using e-CNY, the digital renminbi issued by the PBoC, for making cross-border payments, and are making the corresponding technical preparations.”

Hong Kong and Mainland Chinese tourists could greatly benefit from e-CNY, Yue says, because it represents the same value as cash already in circulation. And because the yuan is already used in Hong Kong, a digital equivalent would be a matter of convenience.

China continues to be at the forefront of CBDC development, with its digital yuan pilots processing $300 million worth of transactions as of early November. The first pilot projects were rolled out across four major cities in April before expanding to nine metropolitan areas.

As for Hong Kong, the Special Administrative Region has been exploring potential use cases for CBDCs for at least the past three years. As Yue noted, HKMA launched a joint research project with the Bank of Thailand in 2019 to address various concerns related to cross-border payments and digital currencies. Yue said this project has entered its “second stage,” which looks at operability and scalability of cross-border CBDC participation.

Long-Term, Yue Says The Goal Is To Build An Integrated Cross-Border Payment Platform For The Region:

“From a longer-term perspective, we have a good chance of building a regional cross-border payment platform by riding on the global trend of strengthening cooperation in cross-border payment.”

Updated: 12-14-2020

China Has No Plan To Replace USD With Digital Yuan, Former PBoC Head Says

A former PBoC official says that his country has taken a cautious approach with the digital yuan.

The Chinese government is not seeking to replace existing fiat currencies with its own digital currency, according to a former governor of the People’s Bank of China, or PBoC.

Zhou Xiaochuan, the president of the Chinese Finance Association and former PBoC governor, claimed that China’s digital yuan is not intended to replace global fiat currencies like the United States dollar and the euro, the South China Morning Post reported on Dec. 14.

Also known as a digital currency electronic payment, or DCEP, China’s digital yuan is purely designed to transform cross-border trade and investment, Zhou said. Zhou contrasted China’s digital currency to Facebook-backed cryptocurrency project, formerly known as Libra:

“If you are willing to use it, the yuan can be used for trade and investment […] But we are not like Libra and we don’t have an ambition to replace existing currencies.”

Zhou went on to say that China learned a lesson from global regulatory pushback to the Libra project, with regulators fearing that it would disrupt financial systems and monetary sovereignty. Zhou said that China took a more cautious approach:

“Some countries are worried about the internationalization of yuan […] We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great-power chauvinism.”

Zhou noted that one of the major benefits of DCEP is that it enables both payments and currency conversions in real time. “If the currency exchange is realized at the moment of a retail transaction, and there is oversight of that exchange […] it brings new possibilities for interconnection,” he said.

Zhou also emphasized that most retail cross-border payments involving Chinese consumers are already cashless and settled via credit cards or payment services like Alipay and WeChat Pay, but a digital yuan has additional benefits like real-time processing and transparency.

As China actively progresses with its digital currency pilots, some financial experts in other countries have voiced concerns that they are lagging behind in developing their own central bank digital currencies. In October 2020, Japan’s vice-finance minister for international affairs warned the global community of the potential risks of China’s digital yuan, mentioning the potential threat of China getting a first-mover advantage.

Updated: 12-14-2020

Chinese Residents Make 20K Transactions In Digital Yuan Trial Event

The numbers come following the Suzhou municipal government giving away roughly $3 million in a digital yuan lottery for residents.

People in China have conducted roughly 20,000 transactions through e-commerce company JD.com in a trial of the country’s digital yuan.

According to local media outlet Global Times, JD.com reported that 80% of participants born in the 1980s and 1990s used the platform to conduct transactions in the digital currency starting on Friday evening, with at least one transaction larger than $1,527.

The e-commerce site also reported the numbers as the city of Suzhou conducted a real-world trial for digital yuan at the “Double Twelve” shopping festival, in which 10,000 physical storefront locations participated.

The trial in Suzhou is one of many that may be conducted across China to test use cases for the central bank digital currency.

The city’s municipal government reportedly gave away roughly 100,000 “red envelopes” — a traditional method of presenting gifts in China — containing $3 million in digital yuan in a lottery for residents. In October, the city of Shenzhen launched a similar pilot program to promote the digital currency with a public giveaway of $1.5 million to 50,000 lottery winners.

“In 2021, China will continue to look for more scenarios to test the digital yuan, but an extensive launch is still unlikely,” said Cao Yin, managing director of the Digital Renaissance Foundation in Shanghai. He added that the Chinese government would likely continue controlled trials until officials are certain the digital currency can be safely issued:

“We have only ourselves to compete with on this matter, and there’s no need to rush it.”

The People’s Bank of China launched the pilot programs for its digital yuan in April in Shenzhen, Chengdu, Suzhou and Xiongan. As of November, the programs had reportedly processed more than 4 million transactions, totaling roughly $300 million.

Since launching the digital yuan trials, the central bank has announced it would expand the number of testing cities to include Beijing and Tianjin as well as the surrounding province of Hebei. Cointelegraph reported in August that the bank may launch the digital currency before the 2022 Winter Olympic Games, scheduled to be held in Beijing that February.

Updated: 1-13-2021

Bitcoin In Race For Adoption Before Central Banks Launch Digital Currencies: Australia’s Macquarie

With a runway of a year or more before the Federal Reserve and other major central banks can launch digital currencies, bitcoin and other private cryptocurrencies could gain a foothold in electronic commerce.

Central banks like the Federal Reserve and European Central Bank risk losing the digital-currency race if private cryptocurrencies like bitcoin become too entrenched in electronic commerce, according to a new research note from the Australian investment bank Macquarie.

* “The central bank digital currency (CBDC) landscape in free markets is lagging the pace of crypto adoption – it is still unclear how entrenched private cryptos will become before CBDCs become a viable alternative for more efficient transactions,” the report reads.

* “We think the use cases for private crypto could come to fruition if commerce becomes too accustomed to private crypto use prior to a CBDC alternative launching as a stable, legitimate alternative. And fiat debasing could also in fact help demand stick.”

* “In the interim (1-2 years), absent structural regulatory changes that inhibit its potential utility, we expect private cryptos, particularly those with an upper limit like bitcoin (BTC, +12.18%), to continue rising in fiat-equivalent value.”

* “If central banks work expeditiously and deliberately with private partners as we outline above, delivering on reliability, security, and functionality, we think government-promoted CBDCs more likely than not could displace private cryptos (and conventional fiat for that matter) in legitimate commerce, reducing the aggregate demand for private coins, limiting the demand-side factors to ‘store-of-value’ speculation and illicit dealings.”

* China’s central bank could launch a digital currency as soon as this year, but the Fed and ECB aren’t likely to have their versions ready until at least 2022, according to the report.

* “Central banks face difficult tasks in not just deciding how CBDCs will operate, but also building the infrastructure to get them up and running.”

* “U.S. regulatory officials wield quite a bit of power over how cryptos function and how their ecosystems develop. This becomes less meaningful as the network effect of cryptos grows, utility and acceptance broaden, and fiat potentially loses some demand for commerce.”

Updated: 1-15-2021

US Fed: CBDC A ‘Very High Priority’ To Combat Bad Private Sector Money

The United States Federal Reserve needs its own digital currency to protect against a possible overnight proliferation of stablecoin technology, says Fed chairman Jerome Powell.

Cryptocurrency stablecoins could become systemically important overnight, says United States Federal Reserve Chairman Jerome Powell, and that’s why the Fed is determined to get its own central bank digital currency right.

CBDCs are the banking industry’s answer to cryptocurrency stablecoins. While they are often hosted on the blockchain, they share little in the way of philosophical parity with their decentralized counterparts.

CBDCs will be overseen by the banks that issue them and will be regulated under the laws of their respective jurisdictions.

Speaking in an interview with Yahoo Finance, Powell said advances in technology had enabled private entities to create their own money — and that history had shown this was something to be avoided:

“Technology has made this possible and effectively private sector actors can create the equivalent of digital money. We know in the past with private sector money, the public sometimes just thinks of it as money, and then at some point they find out it’s not money. That’s a very bad thing we need to avoid.”

Powell can envision a scenario where stablecoins are suddenly relevant to a large enough number of people to become “systemically important” overnight. He said the Fed still doesn’t know how it might respond to such an occurrence, and admitted that it isn’t even close to understanding the risks:

“[Stablecoins] could become systemically important overnight and we don’t begin to have our arms around the potential risks, how to manage those risks — and the public will expect that we do, and has every right to expect that […] It’s a very high priority.”

As high a priority as launching a CBDC may be, the Fed won’t fall into the trap of trying to be the first.

Russia, China, Sweden, Australia and the European central bank have all taken steps towards launching a CBDC (some are further along than others), but according to Powell, the U.S is always going to have first-mover advantage because of the dollar’s status as the world’s reserve currency:

“Since we are the world’s reserve currency, we actually think we need to get this right and we don’t feel an urge or a need to be first. Effectively it means we already have a first-mover advantage because we’re the reserve currency.”

Powell’s laid back approach to the prospect of a “CBDC gap” emerging between world superpowers isn’t shared by everyone. In October a senior Japanese finance minister warned that China’s digital currency could eclipse the fiat monies of world nations if the digital yuan gets first-mover advantage.

The president of the Chinese Finance Association dismissed this notion, adding that the digital yuan was not like Libra, and that it had no intention of replacing international currencies.

Any prospective “Fedcoin” is still years away, according to Powell, who is determined to do it right, rather than fast — even if it means losing ground to private sector money in the meantime.

“We’re determined to do this right rather than quickly, and it’ll take some time […] Measured in years rather than months.”

Updated: 1-17-2021

Decred Co-Founder Explains The Possible Effects Of A CBDC Takeover

How would mass-scale CBDC issuance impact the crypto space?

Over the course of 2020, numerous countries across the globe raced toward their own digital versions of their currencies, known as central bank digital currencies, or CBDCs. The crypto industry still has its selling points, however, even if most countries launched CBDCs, according to Jake Yocom-Piatt, co-founder of crypto project Decred.

“I expect many nation states will create their own CBDCs in the not-so-distant future, but there is a key differentiator between CBDCs and cryptocurrencies,” Yocom-Piatt told Cointelegraph. “Cryptocurrencies, e.g. Bitcoin and Decred, are fundamentally fairer systems than fiat currencies, so while CBDCs may adopt many cryptocurrency features, they cannot compete on fairness.”

Last year, China led the way in terms of CBDC development pace, while the United States took a slower approach. Recent developments indicate an increased sense of importance around CBDC development in the U.S.

CBDCs will likely represent digital versions of countries’ dollars, although many details remain in flux at this stage.

As mentioned by Yocom-Piatt, crypto assets pose different core frameworks, depending on the asset and its makeup. Bitcoin (BTC), for example, remains untied to national currencies and borders, run by computer code and miners.

“Based on cryptocurrencies being demonstrably fairer with deterministic issuance schedules and self-custodied assets, I expect them to be relatively unaffected by CBDCs, which are just digital fiat,” Yocom-Piatt said.

Stablecoins, on the other hand, might logically feel more effect from a CBDC-run world, as their main purpose is to represent fiat in digital form, on the blockchain, pegged to specific value. The future of crypto-native stablecoins could still depend on the upcoming specifications of CBDCs though.

“Depending on what actions you can perform with your CBDC assets, it could make stablecoins mostly obsolete,” the Decred co-founder noted. “If there are too many restrictions on CBDC assets, stablecoins may compete on a flexibility front.”

Stablecoins, such as USDT and USDC, function on the blockchain and allow for a bevvy of transactions and storage accommodations. USDC in particular saw a notable amount of usage within the decentralized finance, or DeFi sector of crypto in 2020.

Updated: 1-19-2021

French Central Bank Trials Digital Currency For Interbank Settlement

The pilot involved the settlement on a private blockchain of around €2 million.

Banque de France has successfully conducted a central bank digital currency (CBDC) experiment using a blockchain platform for interbank settlement.

* According to a Banque de France statement, the pilot involved the settlement on a private blockchain, provided by U.K. blockchain startup SETL, of around €2 million (US$2.43 million).

* The French bank used SETL’s fund management platform Iznes, along with Citi, CACEIS, Groupama AM, OFI AM, and DXC, as part of the process for the first settlement of funds using CBDC.

* More experiments of the pilot program are underway through mid-year and the process will be an important contribution to research around the interest of a CBDC, said the bank.

* Francois Villeroy de Galhau, governor of the Banque de France, has spoken openly of the potential benefits in the development and issuance of the CBDC.

* In 2020, the French bank published a request for proposals for CBDC “experiment” applications. The project’s aim was to help France’s central bank understand the risks and mechanisms of CBDCs and also contribute to the eurozone’s digital cash conversation.

Updated: 1-27-2021

Central Banks Representing A Fifth Of World’s Population Likely To Issue CBDC In 3 Years: BIS

Many nations are moving to advanced stages of CBDC engagement, according to the Bank for International Settlements.

Central bank digital currencies, or CBDCs, are entering the “advanced stages” of engagement as nations around the world look to capitalize on blockchain technology, according to a new report by the Bank for International Settlements.

In its latest survey of CBDC development, the BIS shows that central banks representing roughly a fifth of the world’s population are set to introduce a “general purpose CBDC in the next three years.”

The 23-page document is based on primary consultations with more than 60 monetary authorities conducted in late 2020.

The survey indicates that 86% of global central banks are actively exploring CBDCs. While the majority remain unlikely to issue a digital currency in the foreseeable future, a sizable minority are moving ahead.

Roughly 60% of central banks are experimenting with digital currencies, while 14% are moving forward with development and pilot programs.

“Around the globe, interest in CBDCs continues to be shaped by local circumstances,” said authors Codruta Boar and Andreas Wherli. “In emerging market and developing economies, where central banks report relatively stronger motivations, financial inclusion and payments efficiency objectives drive general purpose CBDC work.”

The United States Federal Reserve is one of the monetary authorities actively researching CBDCs. Fed economists are exploring the so-called “intrinsic value” of the digital dollar and have issued several research papers on the subject.

The BIS Authors Conclude:

“Most central banks are now exploring the case for CBDCs in some way and, overall, the survey indicates a continuous move from purely conceptual research to experimentation and pilot projects. Yet despite these developments, a widespread roll out of CBDCs still seems some way off.”

In prepared remarks released alongside the report, BIS general manager Agustin Carstens said CBDCs can “serve as the basis for well functioning payments,” but only when accompanied with “good law enforcement.” Anonymous tokens “will not fly,” he said.

Carsten explained that CBDCs without attached identity would elevate money laundering concerns, undermine efforts to boost financial inclusion and contribute to cross-border instability.

He Continued:

“If they are properly designed and widely adopted, CBDCs could become a complementary means of payment that addresses specific use cases and market failures. They could act as a catalyst for continued innovation and competition in payments, finance and commerce at large.”

Commonly referred to as the “bank for central banks,” the BIS promotes monetary and financial stability and international cooperation among global central banks. Founded in 1930 and headquartered in Basel, Switzerland, the organization’s mandate has expanded over the decades to include emergency funding for troubled governments.

As Cointelegraph reported last week, the BIS is currently working on a CBDC settlement platform. Early-stage trials are set to begin later this year.

Updated: 2-8-2021

Hardware Wallet For Digital Yuan Debuts In Xiong’an New Area

China’s first hardware wallet for the digital yuan supports dual offline payments without an internet connection.

A Chinese banking institution has completed the development of a hardware wallet for the country’s central bank digital currency, the digital yuan

According to a Feb. 7 announcement by Xiong’an authorities, the Xiong’an branch of the Agricultural Bank of China in Hebei has produced the first hardware wallet designed for the digital yuan. The product was developed by the Party Working Committee of the Xiongan New Area and the People’s Bank of China branch in Shijiazhuang.

New areas in China are urban districts that are provided special economic support by the central government. They are divided into state, provincial and prefecture levels. Xiong’an is a state-level new area.

According to the announcement, the new hardware wallet supports dual offline payments without an internet connection. The digital yuan wallet also features payments without the use of mobile phones.

The new hardware wallet for the digital yuan comes in conjunction with the upcoming New Year holidays in China, providing an extra opportunity for local residents. The new hardware wallet reportedly allows users to send gifts to their family members and friends to express their New Year’s wishes.

The wallet marks another milestone in the adoption of the digital yuan adoption in China. As previously reported, Xiong’an was one of the first four regions to pilot China’s CBDC in April 2020. The wallet’s launch in the Xiong’an New Area comes in accordance with China’s plan to accelerate the construction of a smart new city in Xiong’an New District in 2021.

In late 2020, local tech giant Huawei announced that its upcoming Mate40 smartphone series will feature an integrated hardware wallet for the digital yuan.

Updated: 2-9-2021

ECB Leader Floats 3K Threshold For Digital Euro Holdings

The central bank said it will reach a decision on releasing a digital euro “towards the middle of 2021.”

In an interview today, Fabio Panetta, executive member of the European Central Bank said the ECB may only allow digital euro holdings “up to a certain threshold” but added that the rollout of the central bank digital currency was unlikely to cause banks to lose deposits.

Specifically, Panetta said that this threshold “could be around €3,000” — worth roughly $3,600 — which he said would still meet most people’s cash needs.

He added that these figures were ”still under discussion” and that the ECB had also not yet decided on a cap for digital euro payments. Panetta emphasized that the ECB would not be competing with commercial banks, but rather just offer financial services with “one more digital option.”

“The digital euro won’t destabilise the financial system and the banks,” said Panetta. “If people decide to turn some of their cash into digital euros, the banks won’t lose any deposits. And as I said, we will discourage large holdings of digital euro. If banks do in fact lose deposits, then we can make more liquidity available to them.”

Panetta added the results of the consultation the ECB launched in October on a digital euro showed that the first concern for many was privacy:

“We received 8,000 responses during the consultation phase. What people are most concerned about is data protection. They consider it important that no improper use is made of their personal data, which is something that can be guaranteed by the central bank.”

The ECB has already pushed back the timeline proposed by President Christine Lagarde of when it should reach a decision on releasing a digital euro. According to its website, the central bank will decide “towards the middle of 2021.”

From that point, according to Panetta, the ECB could launch a digital euro in “four or five years” following consultations with lawmakers and deciding on technical solutions.

A member of the executive board of the European Central Bank said the institution would attempt to discourage people from holding large sums in digital euros after the currency is released in the next five years.

Authorities in China have already begun trials of a digital yuan in select cities across the country, resulting in thousands of residents receiving free money as part of a lottery. Panetta said that trialing a CBDC in different European cities would also “probably be a wise move” as part of the rollout.

Former British MP Says Central Banks Should Ban Bitcoin

Nick Boles, who served as a Member of Parliament from 2010 to 2019, believes the world would be better off without Bitcoin.

Nick Boles, a former Member of Parliament for Grantham and Stamford from 2010 to 2019, took to Twitter Tuesday to criticize Bitcoin over its negative environmental impact.

He retweeted a post from BBC correspondent Rory Cellan-Jones showing that Bitcoin has overtaken Argentina in annual energy consumption. The data was compiled by the University of Cambridge and presented in the Cambridge Bitcoin Electricity Consumption Index.

Boles Commented:

“Central banks should ban the trading of it, and force anyone who holds Bitcoin and wants to use it in any transaction, to exchange it for another currency that does not have such a damaging side effect.”

“There are other cyber currencies that do no harm in the real world at all,” he added, likely in reference to more environmentally-friendly proof-of-stake-networks.

The surge in Bitcoin’s energy consumption has sparked an internal debate within the crypto industry about how to offset the ecological impact of mining. The flagship digital currency is now estimated to consume 77.9 TWh per year, with annual greenhouse gas emissions from mining reportedly reaching levels comparable to the whole of New Zealand.

Boles doesn’t appear to have much commentary on Bitcoin aside from his recent tweet. Currently, there are no strict regulations on Bitcoin in the U.K., though it is commonly treated as a foreign currency for most purposes.

A United Kingdom lawmaker who quit the Conservative Party in 2019 over Brexit believes governments should ban the use of Bitcoin (BTC), offering further evidence that the digital currency still has its fair share of detractors.

Updated: 2-17-2021

Chinese Bank Tests Biometric Hardware Wallet For Digital Yuan Payments

Another Chinese banking institution has created a hardware wallet for the country’s central bank digital currency.

China’s large-scale digital yuan testing across several cities continues to gather pace with some financial institution leading the development of hardware wallets for the central bank digital currency.

According to news agency Xinhua, the Postal Savings Bank of China has created a biometric hardware wallet for the project.

The biometric hardware wallet enables easy identity verification for users via fingerprint sensors on the card.

Consumers participating in the CBDC trials in Beijing are also able to use the card to access healthcare services.

Indeed, the Postal Savings Bank of China said the hardware wallet, which is still in the testing stage, was designed to provide easier access to the CBDC and healthcare services for the elderly without needing to use smartphones, adding:

“With this card, it is much more convenient to enter and exit public places, and you can pay with just one touch. It is especially suitable for the elderly who have difficulty using smartphones.”

As previously reported by Cointelegraph, the Postal Savings Bank of China first began to develop physical wallet cards back in January.

The biometric card is part of a growing list of hardware wallets for the digital yuan. Earlier in February, the Xiong’an branch of the Agricultural Bank of China also developed a hardware wallet for the digital yuan.

Chinese banks and financial institutions have been at the heart of CBDC-linked developments. Apart from creating hardware wallets, the Agricultural Bank of China also launched an ATM pilot program allowing citizens to convert cash to the digital yuan.

Several municipal authorities have also utilized airdrops and lotteries as means of bootstrapping early adoption of the Digital Currency Electronic Payment.

Sweden Extends Digital Krona Digital Currency Pilot Until 2022

Sweden’s exploration into CBDCs will continue until 2022 as the nation’s central bank seeks to construct a digital version of the krona.

Sweden’s central bank, the Riksbank, recently announced that it has extended an ongoing pilot aimed at creating a digital version of the Swedish krona until 2022.

In combination with professional services firm Accenture, the “e-krona” pilot program was created to address what the Riksbank sees as “the marginalization of cash”:

“The Riksbank sees potential problems with the marginalisation of cash and has therefore initiated a pilot project to develop a proposal for a technical solution for a central bank digital currency, an e-krona that can work as a complement to cash.”

The recent announcement states that no decision has been made on how, or even if, the e-krona will be issued. But a brief whitepaper from 2020 details the use of R3’s Corda blockchain — a private distributed ledger created for business and enterprise. Unlike public blockchains such as Bitcoin and Ethereum, projects built on Corda will be accessible via invite only.

Central bank digital currencies, or CBDCs, are digital currencies issued and overseen solely by the central bank of a given country. Unlike coins on open-source, decentralized, public blockchains, CBDCs don’t pretend to be alternatives to the current fiat system. Rather, they are being devised as a possible safeguard against the spread of digital currencies, acting as a mere digital version of existing national monies.

The pilot program will continue over the course of the coming year and is set to end in February 2022. The recent announcement notes that the testing of offline functionality and onboarding of external participants will be prioritized in the coming months:

“The main aim of the pilot is for the Riksbank to increase its knowledge of a central bank-issued digital krona. The project is now being extended to the end of February 2022. The aim for the coming year is to continue developing the technical solution, with the focus on performance, scalability, testing of off-line functions and bringing external participants into the test environment.”

The Bahamas Gets A Card For Its Sand Dollar National Digital Currency

The Central Bank of the Bahamas partnered with Mastercard and digital payment startup Island Pay to launch a card for its central bank digital currency.

The Bahamas is moving to make its national digital currency more accessible by launching a prepaid card for the “sand dollar.”

The Central Bank of The Bahamas has partnered with global payment giant Mastercard and local payment startup Island Pay to create a card that supports the sand dollar central bank digital currency.

According to a Wednesday announcement, the card is running under a new program from Mastercard and Island Pay, allowing users to convert the digital currency to traditional Bahamian dollars and pay for goods and services. The new card will be accepted for payments across the Caribbean region and other locations supporting Mastercard, the companies said.

The new solution is based on technology from Island Pay, a digital payment startup mainly operating across the Caribbean region. The company holds a license from the Central Bank of The Bahamas to operate as a payment service provider and electronic money institution.

“Island Pay is the issuer of the Sand Dollar Mastercard. The card is integrated into our mobile wallet so that customers can view their balance and transaction information, enable/disable the card and check their PIN,” a spokesperson for Island Pay said.

The representative said that the card is now in private beta, while the full launch is scheduled for March 2021. Once launched, the card would be linkable with mobile payment services like Google Pay and Samsung Pay.

The announcement does not provide more details on how exactly Mastercard’s CBDC technology works. As previously reported, the company has been actively engaged with several major central banks around the world to support CBDC initiatives.

The Bahamas is known as one of the first countries in the world to ever launch a CBDC. The sand dollar launched in pilot mode in late 2019 and became available across its entire archipelago in October 2020.

Central Bank Digital Currencies May Drive Cash ‘Shadow Economy’ To Crypto

“Shadow economy” participants, those who use deal mostly in hard cash for anonymity’s sake, are unlikely to be drawn to using a CBDC, according to a Reuters column.

Central bank digital currencies (CBDCs) may signal the end of physical cash and thus propel interest in cryptocurrency from the darker side of society, according to Mike Dolan, editor-at-large for finance and markets at Reuters.

“Shadow economy” participants, those who use deal mostly in hard cash, are unlikely to be drawn to using a CBDC, which may make it harder to stay anonymous, Dolan argues in his column for the news agency.

Dolan suggests that even bitcoin cannot guarantee completely anonymity as coins can be traced from wallet to wallet, so it is unlikely that “legal tender tokens” could be relied on either.

The “shadow economy,” as described by the International Monetary Fund (IMF), is an ecosystem of consumers and business owners who rely mostly on cash to avoid taxation and regulatory oversight.

This can include everything from sole traders to organized crime, and could be worth more than €2 trillion (US$2.4 trillion) in the eurozone, nearly twice the €1.2 trillion worth of banknotes currently in circulation.

Economists argue that a CBDC should closely replicate cash, whereby digital tokens are held in private digital wallets, in order to avoid driving some users towards crypto. That option may not sit well with anti-money laundering rules, however, they noted.

Dolan further suggests that crypto’s recent explosion is partly due to an expected surge in adoption in the shadow economy, as CBDCs are developed and the decline of cash accelerates.

Updated: 2-21-2021

Morocco Considers Launching A Central Bank Digital Currency

Although bitcoin was banned for use in Morocco four years ago, the cryptocurrency continues to thrive there.

Morocco’s central bank, Bank-Al-Maghrib (BAM), is investigating the benefits of launching a central bank digital currency (CBDC).

* BAM has launched an exploratory committee to investigate the pros and cons of a CBDC four years after banning cryptocurrencies, according to a Morocco World News report.

* Morocco’s central bank is continuing to take a cautious approach due to the “speculative nature” of cryptocurrencies, the report said.

* BAM’s new committee will seek to identify and analyze the advantages and drawbacks of CDBCs for the Moroccan economy, said the report.

* Previously Morocco has expressed concern around the lack of regulation around cryptocurrencies and warned the use of virtual currencies entails significant risk for users.

* Although bitcoin (BTC, +2.04%) was banned for use in Morocco four years ago, the cryptocurrency continues to thrive in the country, with Nigeria, South Africa and Kenya being the only African countries with more trading volume.

Updated: 2-24-2021

Fed Chair Says It’s Up To Congress To Bring A Digital Dollar To Market

Jerome Powell added that the Federal Reserve needs to consider the health of other markets when creating a digital currency.

Federal Reserve hair Jerome Powell said 2021 will likely have the central bank engaging with the public and lawmakers regarding the digital dollar.

In a House Financial Services Committee hearing today, Powell responded to questions from Rep. Patrick McHenry, who said the digital dollar would likely face national and economic security issues for the United States. Powell said there were many concerns surrounding the project and the Fed intended to reach out to the public.

“This is going to be the year in which we engage with the public pretty actively, including some public events that we’re working on,” he said. “In the meantime, we’re working on the technical challenges and also collaborating and sharing work with the other central banks around the world that are doing this.”

Powell added that the Fed needed to consider the health of other markets when creating a digital dollar, adding that the project may need to go to lawmakers first:

“We could well need legislative authorization for such a thing. It isn’t clear until we see which way we’re going.”

The Fed chair’s remarks come on the heels of his appearance before the Senate Banking Committee yesterday, in which he said the Fed was “looking carefully” at whether the U.S. should roll out a digital dollar, but also that it was unlikely for stablecoins and digital currencies to affect monetary policy transmission. Powell has previously said that it is “critical that the Fed focuses on developing a digital currency.”

In the meantime, the Federal Reserve faced another technical challenge today, as nearly all of the services it provides through its online portal went offline for more than an hour. At the time of publication, all Federal Reserve Bank Services with the exception of Account Services are now back online.

Updated: 2-25-2021

Fed’s Digital Dollar Would Look Nothing Like Bitcoin

Fedcoin wouldn’t need the massive computations of cryptocurrencies, but it would effectively nationalize the payment industry, competing with banks, credit cards and Venmo.

Treasury Secretary Janet Yellen recently mentioned the idea of creating a so-called digital dollar — a new form of electronic currency that would make the payment system easier for Americans and presumably compete with Bitcoin and other cryptocurrencies.

But there’s little rationale for a government-managed online dollar that looks anything like Bitcoin. There are probably better ways for the Federal Reserve to make it easier and cheaper for Americans to pay for things.

Yellen is not the first to suggest the idea of a digital dollar — or “Fedcoin,” as some call it. Fed Governor Lael Brainard contemplated the concept last year. And David Andolfatto, a senior vice president at the Federal Reserve Bank of St. Louis, has been investigating the possibility for a number of years now. In 2015 he wrote about it on his personal blog, noting several potential benefits.

A Fedcoin, Andolfatto notes, would allow people to make transactions without opening a bank account — like physical cash, but using an app on your phone instead of your physical wallet. He argues it would also be harder to steal than a bank account that can be hacked. In addition, it would leave an electronic trail that would let the government track down criminals if necessary .

These are all advantages of an electronic currency run by the central bank. But it’s crucial to note that none of these features need to employ the kind of decentralized process that enables Bitcoin. (Full disclosure: I own Bitcoin and other cryptocurrencies.)

Bitcoin is designed to operate without the need for a trusted intermediary, such as a bank. When two people make a transaction in dollars, a bank verifies and logs the transaction, and makes sure that the money is debited from one account and credited to another.

With Bitcoin, that verification is instead done by a distributed network of computers, called “miners.” The economics of the system by which the miners compete to verify the transaction — and are rewarded with bitcoins for doing so — keeps the whole system honest.

But it also requires enormous resources. The mining process — called a “proof-of-work” system — involves solving very hard math problems, which takes a lot of computing power, which in turn requires a huge amount of energy — about as much as the entire country of Argentina, by a recent estimate. Whether that energy use will ultimately hold back Bitcoin as a monetary system is a question that remains to be answered.

What’s clear, however, is that there’s no need for the Fed to create its own proof-of-work system for Fedcoin. Proof of work is an expensive way to establish trust in a decentralized world; the Fed, which is a centralized and already trusted entity, doesn’t need to spend massive amounts of electricity reestablishing trust every time someone wants to spend a digital dollar.

Instead, it could just clear the transaction like any bank does, cheaply and easily. As long as people trust the Fed not to steal their money (and why would it, when it can print as much as it likes?), a Fed payments system could be incredibly cheap without relying on any cryptocurrency technology at all.

So a Fedcoin shouldn’t look anything like Bitcoin. But that doesn’t mean the central bank can’t get involved in processing payments. The Fed could absolutely create an app by which people could cheaply send digital dollars to each other in a peer-to-peer way, without a bank account.

Instead of being stored on a distributed ledger like a cryptocurrency, these dollars would simply exist on the Fed’s own centralized database, which people could access through their phones — much as they currently use phones to access their Venmo accounts.

A Fed-run electronic payment system would compete with existing payment applications, such as PayPal, Venmo, Stripe, Visa and MasterCard. That would put those companies at an inherent disadvantage, since they all require banks to operate, and the Fed is its own bank. And because the Fed is part of the government, it doesn’t even need to turn a profit, so its payment service could be very cheap indeed. Fee-charging payment services might be put out of business.

In fact, since the digital dollars that people held at the Fed would be an alternative to keeping those dollars in a checking account, the Fed would also be competing with private banks and credit unions. Many checking accounts are already free, but as Andolfatto notes, simply downloading a Fed-made app would be easier than applying for a bank account, and you probably wouldn’t have to worry about any hidden or surprise fees.

So the Fed could create its own distributed, peer-to-peer payments and cash storage system, and do it much more cheaply than Bitcoin. But by doing so, it would be directly competing with much of the world’s existing financial and payments infrastructure.

Maybe that’s a good thing — maybe payment and cash storage is simply such a mature and commodified product now that there’s no reason to have profit-making companies doing it, and government can safely muscle them out. But that would in effect be nationalizing an industry, which is always a risky move. Yellen is correct to promise only to do more research into the idea.

Updated: 3-7-2021

Sen. Sherrod Brown Says US Should ‘Lead The Way’ On CBDCs, Disses Diem And Bitcoin

“We cannot be left behind,” Brown wrote about other nations’ central bank digital currency efforts.

The Federal Reserve should “lead the way” on a central bank digital currency (CBDC), said Sen. Sherrod Brown (D-Ohio).

The Chairman of the Senate Committee on Banking, Housing and Urban Affairs endorsed the idea of a U.S. central bank–issued digital currency in a letter to Fed Chair Jerome Powell and Lael Brainard, who runs the Boston branch of the Fed.

“Some of our international counterparts are moving quickly to determine whether to implement a central bank digital currency,” Brown wrote, linking to a press release about a digital euro. “The United States must do the same. We cannot be left behind.”

Importantly, Brown specified that the Fed should work both on token-based digital dollars as well as account-based efforts. Last year, he introduced a bill to the Senate Banking committee that would create a digitized version of the existing U.S. dollar and grant every U.S. resident financial access through so-called FedAccounts.

In this week’s letter, dated March 1 but shared on Friday, Brown suggested that a token-based dollar based on a blockchain could complement the FedAccount version.

“Both are intended to ensure that working families have the same access to the payments system as Wall Street banks and wealthy corporations,” he wrote. “The Federal Reserve’s recent publication outlining the goals for a central bank digital currency is a step in the right direction.”

He went further, writing that the Fed and the Treasury Department should “establish a concrete timetable in deciding whether to implement a CBDC.”

However, any digital dollar should address consumer protection, financial access, security and individual privacy concerns, he said.

He referenced private efforts, like the Facebook-initiated Diem stablecoin project, warning that efforts by technology companies could exploit the very people they claim to want to help.

“The Fed must not stop at regulating a privately-issued digital currency. It must go further and explore a publicly-issued digital dollar,” Brown wrote.

The digital dollar debate exploded into the Congressional scene last year, when various bills introduced to both the Senate and the U.S. House of Representatives sought to find more efficient ways of sending funds to U.S. residents.

None of these efforts went anywhere, but research by the U.S. central bank expanded last year. Brainard announced that the Boston Fed was looking into a digital dollar through a joint research project with the MIT Digital Currency Initiative.

More recently, Consumer Financial Protection Bureau Director Nominee Rohit Chopra said the Fed should accelerate its efforts to build a modernized real-time payments system, though he didn’t specifically reference CBDCs.

In his letter, Brown warned that private efforts like bitcoin could undermine the dollar.

“The potential for non-sovereign crypto-assets, like Bitcoin, to become more widely-used as a payment mechanism, poses significant monetary policy and financial stability risks, including risk to our climate,” he wrote. “They are highly volatile and speculative, can be used for illegal activity, and consume incredible amounts of energy, driving up electricity use rates, and putting the resilience of local grids at risk.”

Inside Bakong: How Cambodia Hopes To Leapfrog Into the Future With Digital Currency

In this week’s “Money Reimagined” podcast episode, we take the discussion around central bank digital currencies (CBDCs) down from the high-level geopolitical themes we’ve addressed previously and into what the technology can do for people at the grassroots level.

To do so, Sheila Warren and I talked to Serey Chea, director general at National Bank of Cambodia, and Makoto Takemiya, co-CEO of Tokyo-based blockchain technology provider Soramitsu, about Cambodia’s new “bakong” central bank digital currency and payments system.

They provide a thought-provoking look at how small economies can use CBDCs to leapfrog their otherwise underdeveloped financial systems into something far more advanced.

With the financial world obsessing about China’s launch of its new digital yuan and the competitive threat that poses to the U.S, which is now accelerating its work on a digital dollar, this is a reminder that there is real potential to do good with this technology in the realm of financial inclusion.

However, there are real challenges – the impact on the banking system, privacy and security, to name a few. We address all of those and explore where this is going in this far-reaching conversation.

China’s Plan For Digital Yuan Imperils Bitcoin’s Biggest Markets

Trouble may be brewing in China for Bitcoin’s raucous and divisive rally as the nation pushes ahead with a world-leading effort to create a digital version of its currency.

That’s because the eventual rollout of the virtual yuan could roil cryptocurrency markets if Chinese officials tighten regulations at the same time, according to Phillip Gillespie, chief executive of crypto market maker and liquidity provider B2C2 Japan, which mainly works with institutional investors.

“Once a digital yuan is introduced, that’s going to be one of the biggest risks in crypto,” Gillespie, who previously worked in currency markets for Goldman Sachs Group Inc., said in an interview. “Panic selling” is possible if the new rules end up sucking liquidity from trading platforms for digital coins, he said.

Central banks’ power to issue virtual money and proscribe rivals is one of the key risks for the crypto sector.

Chinese citizens are already banned from converting yuan to tokens but the practice continues under the table using Tether, a digital coin that claims a stable value pegged to the dollar. The money parked in Tether then gets routed to Bitcoin and other tokens.

Tokyo-based Gillespie sees potential for an outright ban on Tether, which could raise the stakes for anyone minded to continue using it.

A draft People’s Bank of China law setting the stage for a virtual yuan includes a provision prohibiting individuals and entities from making and selling tokens. In recent days, China’s Inner Mongolia banned the power-hungry practice of cryptocurrency mining.

Representatives of the People’s Bank of China didn’t reply to a fax seeking comment on the prospect of regulatory changes. While there’s no launch date yet, the PBOC is likely to be the first major central bank to issue a virtual currency after years of work on the project.

Tether officials have downplayed the concern, saying that central bank digital currencies won’t mean the end of stablecoins.

“Tether’s success has provided a blueprint for how a CBDC could work,” said Paolo Ardoino, chief technology officer for Tether and Bitfinex, an affiliated exchange. “Furthermore, CBDC’s are unlikely to be available on public blockchains such as Ethereum or Bitcoin. This last mile may be left to privately-issued stablecoins.”

Still, Gillespie points out that Tether is “this massive amount of fuel for Bitcoin purchases” and few people realize the potential for disruption. A “tremendous amount of liquidity” is coming from exchanges tapping Chinese demand, he added.

Tether Questions

Bitcoin surged fivefold in the past year and hit a record above $58,000 last month before dropping back about $10,000. The rally has split opinion, with some arguing a new asset class is emerging and others seeing pure gambling by retail investors and speculative pros in the Wild West of finance.

Tether is an equally controversial token deep in the plumbing of the nascent cryptocurrency market. Traders use it to park money as they shift from virtual to fiat cash.

More than $18 billion of Tether moved overseas from East Asian addresses over a one-year period, including spikes suggesting Chinese origin, according to an August report from Chainalysis, which analyzes the blockchain network technology underlying tokens. The report indicated citizens may be using Tether to dodge rules that limit capital transfers abroad.

Questions about Tether continue to swirl. The companies behind it were banned from doing business in New York last month as part of a settlement with state officials who found that they hid losses and lied about reserves.

‘Liquidity Shock’

A recent report from JPMorgan Chase & Co. said there’d likely be “a severe liquidity shock to the broader cryptocurrency market” if issues arose that affected the “willingness or ability of both domestic and foreign investors to use Tether.”

“All the volume goes through Tether,” said Todd Morakis, co-founder of digital-finance product and service provider JST Capital. “As regulators become more and more restrictive on stablecoins, that could be very negative for the market because that could mean less liquidity.”

B2C2 Japan’s Gillespie said Tether is “such a risky asset” and a “massive liquidity shock” is possible if China does ban it. “What would happen is there’s going to be massive panic selling,” he said.

Updated: 3-12-2021

Chinese Banks Pilot Digital Yuan At Shanghai Department Stores

The Bank of Communications and China Construction Bank conducted digital yuan trials at two major department stores in Shanghai.

Shanghai’s New World City and New World Daimaru Department Store, and food caterer Taikang Food Store handled thousands of digital yuan transactions over the past weekend, Shanghai Daily reports.

As part of the trial, the retailers featured digital yuan payments as part of a sales campaign in conjunction with International Women’s Day. Brand director of Shanghai New World Li Wei said that the firm reached out to commercial banks to offer discounts as part of the campaign.

“We have worked to upgrade the digital payment module ahead of the trial program, and we believe it offered extra stimulus for shoppers on top of the existing sales campaign,” Li said.

Major Chinese banks including the Bank of Communications and China Construction Bank participated in the trial by providing retailers with virtual coupons to reward customers paying with the digital yuan. Specifically, the Bank of Communications gave 100 yuan ($15) coupons to 6,500 local shoppers, while China Construction Bank offered 150 yuan ($23) coupons to 2,000 individuals when they made purchases of over 380 yuan ($58).

Participants were reportedly required to visit pre-selected local branches of the bank in order to apply for the trial and add a digital yuan application on their smartphones.

As Shanghai continues to accelerate its digital yuan pilots, the city will likely feature the new payment option at all merchants on Nanjing Pedestrian Road Mall during the upcoming shopping season in early May, the report states.

China initially launched CBDC trials in four regions — Shenzhen, Suzhou, Xiong’an and Chengdu — in April 2020, and subsequently extended the pilot to Shanghai, Hainan, Changsha, Qingdao, Dalian and Xi’an as part of the 2021 agenda.

Updated: 3-16-2021

Bank Of Japan Governor Says CBDC Preparation Can’t Wait Until Hour Of Need

In fresh remarks, Bank of Japan Governor Kuroda Haruhiko said that experiments with a domestic central bank digital currency will begin in spring 2021.

Japan is taking a measured but attentive approach to global interest in central bank digital currency issuance. In his latest remarks published on Tuesday, Bank of Japan Governor Kuroda Haruhiko noted that the institution has not changed its stance and still does not currently have a concrete plan to issue a CBDC.

However, this non-commitment does not mean inactivity on the CBDC research and development front by any means. In October 2020, Japan’s central bank pledged to begin the first of several testing phases for its own CBDC proof-of-concept.

Haruhiko has now confirmed that these are due to begin this spring.

The governor underscored that, as per a Bank of International Settlements report, 86% of central banks globally are currently exploring the benefits and downsides of CBDCs. Of these, 60% are already at an experimental or proof-of-concept stage of development. Haruhiko noted:

“Central banks share the view that it is not an appropriate policy response to start considering CBDC only when the need to issue CBDC arises in the future.”

Haruhiko said that “From the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, we consider it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner.”

Taking into consideration the “significant changes” that are underway in an increasingly digital society, he signaled that the bank is taking the opportunity to carefully weigh the various approaches to potential changes in central bank money provision.

Haruhiko went so far as to group these emergent approaches under the theme of “Central Banking-as-a-Service.” In his wider account of these trends, he argued that “as-a-service” is an emerging tendency in finance more broadly, transposed from earlier developments in the corporate and software spheres.

This implies a move toward constructing business models that hinge on providing services on customer demand, rather than taking a traditional sales approach centered on products.

“Everything as a Service,” as Haruhiko noted, now spans phenomena such as mobility-as-a-service (purchasing a mobility service rather than a car) and infrastructure-as-a-service, which increasingly makes it redundant for firms to own certain hardware. In the framework of finance, he summarized:

“There is also a recent trend toward unbundling financial services that financial institutions used to provide as tightly coupled, thereby enabling componentized financial services to be combined with services of non-financial firms. This is referred to as ‘Banking as a Service’ […] also known as embedded finance.”

The Bank of Japan has been tracking innovations across public and private finance closely, cooperating with the Bank for International Settlements and five other major global banks on CBDC research since January 2020 and devoting attention to issues such as offline availability when it comes to supporting a digital currency.

Updated: 3-19-2021

How China’s Digital Yuan Could Go Global

China has been quietly testing platforms where the digital yuan can be freely traded with other fiat currencies.

China aims to be a global blockchain superpower, and its national digital currency is part of that plan. But if China really wants to achieve its global ambitions it will need help from other countries.

To that end, China has been quietly testing pilot digital currency trading platforms in different nations as well as setting up a legal framework for CBDCs with global financial regulators.

“You have central bank digital currencies (CBDC) developed on various platforms such as enterprise blockchain Corda or Hyperledger, and the digital yuan is technically not even on a blockchain,” Michael Sung, co-director of the Fintech Research Center at Fudan University, said. “That is a very balkanized ecosystem.”

For the digital yuan to achieve global adoption, China would thus need to work with trading partners or regional financial hubs to have a platform where the digital yuan is technically, legally and financially interoperable with other countries’ digital currencies.

One such platform is Inthanon-LionRock (Note), which is a central bank digital currency project for cross-border payments initiated by the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT).

Eight Thai banks and two Hong Kong banks, including HSBC, participated in the Note project and tested the feasibility of digital currency-based transactions between Thailand and Hong Kong, according to its white paper.

According to a Feb. 23 statement by HKMA, the digital currency arm of People’s Bank of China and the Central Bank of the United Arab Emirates (UAE) have joined the second phase of this project and it has been renamed as the Multiple Central Bank Digital Currency (m-CBDC) Bridge.

The project aims to help central banks with cross-border fund transfers, international trade settlement and capital market transactions. The idea is to alleviate regulatory, cost and inefficiency pain points in cross-border fund transfers, the statement said.

“The Note project is very emblematic of China’s approach to internationalize the digital yuan,” Tavni Ratna, CEO and founder of blockchain and digital currency think tank Policy 4.0, said. “China might want to negotiate with one central bank at a time and come up with a mechanism for everything ranging from a legal framework to exchange rate between the two currencies.”

The Wholesale Shift

Two elements have set the project apart from other digital yuan projects in China so far. While such projects are usually only between two countries through a bilateral collaboration, the Bridge appears to have a third country – the UAE – involved in the CBDC trading platform, Ratna said.

The other element is the project is wholesale-oriented, which is a shift from China’s focus on retail use cases. The project will continue to explore other potential business cases such as cross-border funds transfers between institutions such as companies, banks rather than individual users, according to the white paper. In October 2020, the Hong Kong Treasury Secretary Christopher Hui also said the city is interested in these transactions.

The project will act as a cross-border corridor network for big financial institutions. It would entice more central banks to join the network by offering a more competitive foreign exchange rate than the open market, where each country has to buy other local currencies from intermediaries at a premium. It would also allow countries to borrow more other currencies in the short term to increase their liquidity to settle transactions in real time.

Indonesia and China also signed a memorandum of understanding to promote local currencies in the two countries in September 2020. The partnership would allow the direct exchange rate quotations and interbank trading between the Chinese yuan and the Indonesian rupiah.This process, which could enable real-time transactions and avoid using the U.S. dollar as a reserve currency to settle and clear transactions, is crucial for a CBDC-trading platform to work.

As of January, China is Indonesia’s biggest trade partner and an important source of investment. The largest economy in Southeast Asia, like many other major countries in the region, has seen a fast growing deficit to China in recent years.

The Hub

Some countries might be reluctant to trade central bank digital currencies on a platform designed by China due to privacy concerns, said Paul Triolo, head of the geo-technology practice at risk consultancy Eurasia Group.

To that end, China’s central bank could also join an inclusive digital currency platform, where it can trade the digital yuan with other digital currencies freely. As the largest offshore center for RMB deposits, Singapore’s blockchain project Ubin would be one possibility.

The Monetary Authority of Singapore (MAS) has worked with JPMorgan and state-backed conglomerate Tamasek to use CBDCs and other digital currencies, including the tokenized dollar JPM coin, on the Ubin platform.

Founded in 2016 by MAS, ConsenSys and JPMorgan’s Quorum, which was acquired by ConsenSys in August 2020, the Ubin project aims to settle inter-bank transactions, cross-border remittances and tokenized securities through distributed ledger technology.

In contrast to a platform that is controlled by China, a more neutral and inclusive platform by MAS could be more acceptable for many other countries.

The Ubin project envisions having a common messaging platform to coordinate different settlement systems and establishing a common messaging standard to ease communications between the systems, according to the report, which cites the Society for Worldwide Interbank Financial Telecommunication (SWIFT) as an example for such coordination.

In June 2020, Ravi Menon, the managing director of MAS, said Singapore welcomes collaboration with China’s central bank on digital currency in a speech about financial cooperation between Singapore and Shanghai.

“With Temasek and JPMorgan in the project, the whole point was this financial hub pushing for more efficient and less-costly cross-border settlements,” Sung said. “While Hong Kong is obviously the place for China to start internationalizing the digital rmb, Singapore is a nice cross-border settlement point.”

Team Player

The world has shown wariness of overly ambitious digital currencies. Given the political pressure on the Facebook-led diem (formerly libra) project, Beijing might have a hard time positioning China’s digital yuan as the national digital currency to dominate the global financial system, Triolo said.

Perhaps learning from this, China has tried to be more proactive and collaborative in setting an international legal framework for CBDCs. Chinese President Xi Jinping said the country should proactively participate in creating the international regulatory framework on digital currency and digital tax, according to an Oct. 31 essay he published in Chinese state media.

HKMA also emphasized the m-CBDC project has been supported by the Bank for International Settlements Innovation Hub Centre in Hong Kong. PBOC subsidiaries, including its digital currency unit, have set up the second joint venture with SWIFT in Beijing in February but the new group’s mission remains unclear.

China’s motivations for internationalizing the digital yuan rang from curbing Chinese fintech giants, weakening SWIFT to countering the U.S. dollar dominance over the global financial system, Ratna said.

“But one thing is for sure, China does not want to antagonize anyone along the way,” she said.

Updated: 3-22-2021

China’s Digital Yuan Will Offer Best Privacy Protection, Says Official

The People’s Bank of China intends to enable anonymous digital yuan transactions of small amounts in order to protect “reasonable” anonymity needs.

Chinese authorities are willing to ensure maximum user privacy for the country’s central bank digital currency, or CBDC, according to an official at the People’s Bank of China.

Mu Changchun, head of the People’s Bank of China’s digital currency research institute, spoke of China’s digital yuan privacy capabilities at the 2021 China Development Forum on Sunday, local news agency Sina Finance reported.

Mu stated that a completely anonymous CBDC “is not feasible” because a national digital currency must meet requirements related to Anti-Money Laundering, Counter-Terrorist Financing and anti-tax evasion. However, that doesn’t mean that China’s digital yuan lacks user privacy, he assured.

The so-called “controllable anonymity” approach is a key feature of China’s digital yuan, meaning that the government is providing certain tools to ensure maximum user privacy and financial security in conjunction with AML measures, Mu said. He stressed that telecom operators — which are involved in the research and development of the digital yuan — are not allowed to disclose personal data and phone numbers of users to third parties, including the central bank.

Third parties like e-commerce platforms are also not able to access the personal data of digital yuan users, as customer payment information is encrypted in the form of a sub-wallet, Mu explained. Additionally, the digital yuan features a wide number of technical capabilities to ensure privacy, including ID anonymization technology and a personal data protection system and internal control management mechanism in accordance with relevant Chinese laws, the executive noted.

In order to protect “reasonable” anonymity needs, the PBoC is also planning to adopt a CBDC design that enables anonymous digital yuan transactions in small amounts, Mu reportedly claimed. “The digital renminbi adopts a design of small amounts anonymous, keeping large amounts traceable,” he said.

“In short, the protection of user privacy by digital renminbi is the highest among the current payment tools,” Mu concluded.

As previously reported by Cointelegraph, many global jurisdictions like the United States have considered user privacy issues as one of the biggest problems of a CBDC. According to the European Central Bank’s digital euro public consultation, user privacy is the top requested feature for a European CBDC, followed by security and pan-European reach.

People’s Bank of China Official Says Fully Anonymous Digital Yuan ‘Not Feasible’

The central bank needs to balance privacy for users with “international consensus” on risk control, the director of the PBoC’s Digital Currency Research Institute said.

The director of the People’s Bank of China’s (PBoC) Digital Currency Research Institute says designing its digital currency to be fully anonymous isn’t “feasible.”

Mu Changchun said the bank needs to balance privacy for users with “international consensus” on risk control, according to a report from STCN, a state-owned daily newspaper.

“The anonymity of the central bank’s digital currency is limited under the premise of controllable risks,” Mu said at the China Development Forum in Beijing on Saturday. “A completely anonymous central bank digital currency is not feasible” as it would would violate anti-money laundering, anti-terrorist financing and anti-tax evasion regulations, he said.

However, Mu argued the digital yuan would provide more privacy than commercial payments products like bank cards, WeChat or Alipay, which are tied more closely to the banking system.

The most anonymous digital yuan wallet would be linked to a cellphone number and allow users to make small payments.

Those wishing to transact larger amounts would need to upgrade to one with more know-your-customer verification procedures, according to Mu.

China is leading major nations in the development and piloting of a central bank digital currency (CBDC), but the project has raised concerns around the amount of insight it would give authorities into users’ financial data and behavior.

Its planned “controllable anonymity” will mean the central bank could observe and monitor transactions taking place while the transacting parties would remain private. But it still allows the PBoC to analyze transactions to monitor “crimes.”

Mu said digital yuan wallets use “ID anonymization technology” meaning personal information is concealed from “counterparties, operating agencies and other commercial institutions.” However, too great an emphasis on anonymity raises the cost of fighting crime, and could bring severe consequences, he said.

Central Banks Are Getting Serious About Digital Money

The rise of Bitcoin and other cryptocurrencies has prompted the greatest push yet among central banks to develop their own digital currencies. In 2020, the Bahamas launched its sand dollar to make payments more efficient across the archipelago’s 700 islands, and China is likely to be one of the next to follow suit after numerous consumer pilot tests. The topic will be a key focus at a Bank for International Settlements event this week, where central bank officials are set to discuss the future of digital money.

Here’s How A Central Bank Digital Currency Could Work

Central Banks Warm To Issuing Digital Currencies (#GotBitcoin?)

Most of global payments are already digital, yet a central bank digital currency would provide risk-free, central-bank backed money denominated in a national unit of account — like cash, though updated to the demands of a digital financial system. The motivations for issuing CBDC vary across countries and regions, and the policy approach and technical designs will also differ, according to research by Bloomberg Economics. Based on BIS terminology and what’s known from China and Sweden on CBDC infrastructure and access, a hybrid between light-touch and a full version looks like the most likely solution for a digital krona or a digital yuan.

Federal Reserve’s Digital Dollar Push Worries Wall Street

Central Banks Warm To Issuing Digital Currencies (#GotBitcoin?)

The financial services industry, braced for what could be its biggest disruption in decades, is about to get an early glimpse at the Federal Reserve’s work on a new digital currency.

Wall Street is not thrilled.

Banks, credit card companies and digital payments processors are nervously watching the push to create an electronic alternative to the paper bills Americans carry in their wallets, or what some call a digital dollar and others call a Fedcoin.

As soon as July, officials at the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology, which have been developing prototypes for a digital dollar platform, plan to unveil their research, said James Cunha, who leads the project for the Boston Fed.

A digital currency could fundamentally change the way Americans use money, leading some financial firms to lobby the Fed and Congress to slow its creation — or at least ensure they’re not cut out.

Seeing the threat to their profits, the banks’ main trade group has told Congress a digital dollar isn’t needed, while payment companies like Visa Inc. and Mastercard Inc. are trying to work with central banks to make sure the new currencies can be used on their networks.

“Everyone is afraid that you could disrupt all the incumbent players with a whole new form of payment,” said Michael Del Grosso, an analyst for Compass Point Research & Trading LLC.

Lawmakers, U.S. Treasury Department officials and the Fed haven’t yet approved the rollout of a U.S. virtual currency, which could still be years away. Nor have they decided how a digital dollar would interact with the existing global payments network.

Still, the U.S. and other countries seem committed enough to digitizing their currencies that it’s making financial industry executives nervous.

“The fire has been lit,” said Josh Lipsky, who has helped convene government officials from the U.S. and other countries working on digital currencies as director of the GeoEconomics Center at the Atlantic Council. “The world is moving very quickly on these projects.”

At issue are forms of digital cash being considered by the U.S. and other governments. The growing popularity of Bitcoin, Ethereum and other cryptocurrencies, whose market value has grown to more than $1 trillion, inspired the projects. Unlike those privately created tokens, the new currencies would be issued by central banks as an alternative to paper bills. Cash wouldn’t go away, but its use would likely decline.

Central Banks Warm To Issuing Digital Currencies (#GotBitcoin?)

Using the currencies could be as simple as holding up the screen of a mobile phone to be scanned. Behind the scenes, the digital cash would move from one account to another.

This is similar to how most money already works — the majority of U.S. dollars are just digital entries in bank accounts — but the new currency could potentially avoid the go-between of a commercial bank or credit-card network. For vendors, settlement would happen almost immediately, without having to wait for the money or worry about fraud.

The U.S. effort got an extra push last month, when Treasury Secretary Janet Yellen said such a project could help Americans who don’t have access to the banking system.

In video remarks last week to a payments conference in Basel, Switzerland, Federal Reserve Chair Jerome Powell may have eased some of the banks’ concerns when he said “digital currencies would need to be integrated into existing payment systems alongside cash and other forms of money.”

Powell in a Bank for International Settlements panel on Monday said the Fed has “an obligation to be on the cutting edge of understanding the technological challenges” and the costs and benefits of a digital dollar but wouldn’t rush the project. Powell also said the Fed wouldn’t proceed without support from Congress, ideally in the form of legislation.

Cunha said the Boston Fed and MIT hope to unveil some of their work in the third quarter, including at least two prototype software platforms that could move, store and settle transactions made with digital dollars. He wouldn’t say if either platform uses the blockchain technology that underlies Bitcoin and other cryptocurrencies. Once the prototypes are released, Cunha said, others will be able to see and build on the code.

The Fed’s work is meant to show what’s possible without taking a stand on major issues that the central bank, Treasury and Congress must address, Cunha said. These include whether the Fed itself should host customer accounts, whether to allow anonymity, and what protections consumers would have in case of a cyber-breach or mistaken transaction.

“We think it’s important that we not wait for the policy debate because then we’ll be a year or so behind,” Cunha said. “This will take significant outreach to the industry and serious debate.”

The potential that the central bank could cut banks out of their middleman role in the lucrative U.S. payments system is causing angst among banks.

So is the push coming from Ohio Democratic Senator Sherrod Brown, the new chairman of the Senate Banking Committee.

Brown is urging the Fed to move quickly to create digital-currency accounts for Americans who can’t easily access the financial system and have been forced to deal with payday lenders who charge higher fees and interest rates. Brown’s plan could threaten the deposits that commercial banks rely on to make mortgages and other loans.

“Rushing anything of this potential magnitude could introduce unintended consequences that threaten the stability of the banking system without contributing meaningfully to economic inclusion,” said Steve Kenneally, senior vice president of payments at the American Bankers Association.

The ABA, which says it’s lobbying Congress on the issue, last year in written testimony called the digital dollar a costly solution in search of a nonexistent problem.

Two lobbyists for a large bank said they’re in contact with lawmakers to keep track of the issue. They expect lobbying to pick up once banks can actually see the Fed’s work and how it might affect them, said the lobbyists, who requested anonymity to discuss internal conversations.

Interest in a digital currency has gathered momentum in part because many banks take days to give consumers access to checks deposited in their accounts and some charge stiff overdraft fees. Those without bank accounts sometimes must pay high fees to cash paychecks or transmit money to relatives.

Some of the profits of credit-card companies, such as Visa and Mastercard, could be at risk if the new currencies let Americans more easily make transactions without their involvement and fees.

Spokespeople from both companies say their firms are working with central banks to ensure the new currencies can run over their networks. Mastercard in February began to issue pre-paid debit cards loaded with the “Sand Dollar,” a digital currency issued by the Bahamas.

“We’re increasingly having conversations with central banks as they think about designing potential central bank digital currency, CBDC, and we’re talking to them about how they think about design,” said Visa’s North America president Oliver Jenkyn, at a Morgan Stanley conference earlier this month. “So there’s a lot of talking, but there’s actually a lot of action alongside it as well.”

Other countries are further along. China is currently piloting a digital yuan in several cities. Lipsky said there’s a chance its currency could be ready for a broader debut at the 2022 Winter Olympics in Beijing, which he said could cause tensions if American athletes are asked to use a currency that the Chinese government can completely track.

Brown earlier this month sent a letter to Powell urging him to speed up the research. “We cannot be left behind,” Brown wrote.

Among other threats, Brown pointed to the development by Facebook Inc. and other companies of their own cryptocurrency, once called Libra. That currency, since renamed Diem, was slated to launch in 2020 but has struggled to win regulatory approval.

Advocates of existing cryptocurrencies, like Bitcoin, have mixed feelings about the Federal Reserve muscling into the industry.

A Fedcoin could acclimate Americans to purchasing Bitcoin, said Jerry Brito, who heads Coin Center, a cryptocurrency advocacy group. But depending on the government’s direction, such a currency could be used to track Americans’ spending, destroying the partial anonymity that was once the promise of crypto, he said.

A U.S. digital dollar could also put the final nail in the coffin for Bitcoin as a means of exchange, Brito said. Crypto enthusiasts have already started to acknowledge that’s happening anyway, and instead tout the currency as a store of value or “digital gold.”

Updated: 5-18-2021

Chinese Trade Associations Sound Crypto Investment Warning

Three associations outlined four issues related to crypto investment, beginning with a call for their members to understand the nature of digital currencies.

The China Internet Finance Association has signed a joint statement with the China Banking Association and China Payment and Clearing Association, warning the public about the risks of investing in cryptocurrencies.

According to a report by Shanghai Securities News on Tuesday, the aforementioned trade association under the People’s Bank of China issued a communique titled “Preventing the risk of virtual currency transaction speculation.”

The joint statement is reportedly an extension of previous releases from the PBoC about Bitcoin (BTC) and crypto risks.

As part of the communique, the three associations outlined four issues related to crypto investment, beginning with a call for their members to understand the nature of digital currencies.

According to the release, cryptocurrencies are not “real currency” and should not be used as a medium of exchange for goods and services.

Back in July, the Beijing Arbitration Commission issued a ruling declaring Bitcoin to be a virtual commodity.

For its second point, the trade associations warned financial institutions and other member organizations not to engage in crypto business transactions. An excerpt of the document specifically addressing internet platforms reads:

“Internet platform corporate member units shall not provide services such as online business premises, commercial displays, marketing promotion, paid diversion, etc. for virtual currency-related business activities.

If clues or related problems are found, they shall promptly report to relevant departments and provide technical support for related investigations and assistance.”

The trade associations also warned retail traders to be wary of the risks involved in crypto investments while also calling on member institutions to abide by existing regulatory provisions regarding digital currencies.

China banned token issuance and crypto trading back in 2017, forcing major exchanges to move their operations out of the country. This action has been followed by a host of often conflicting statements on crypto, with the government seeming to favor the “blockchain, not Bitcoin” narrative.

Updated: 3-24-2021

Fed Chair Powell: Digital Dollar Would Need Stronger Privacy Than Digital Yuan

“The lack of privacy in the Chinese system is just not something we could do here,” Powell told a House committee.

China’s central bank and the U.S. Federal Reserve agree that a fully anonymous national digital currency is not feasible. But Fed Chair Jerome Powell believes when a digital dollar is developed it must provide users with more privacy than the People’s Bank of China’s (PBOC) planned digital yuan.

“The lack of privacy in the Chinese system is just not something we could do here,” Powell said while testifying before the House Committee on Financial Services on Tuesday. “We’re only beginning to think carefully about these things and it’s going to be a careful, detailed and probably lengthy process of consideration.”

Powell’s comments came after Changchun Mu, the head of PBOC’s digital currency arm, was reported as claiming the digital yuan will offer greater privacy protection than any other digital payment system.

The Chinese official said the digital yuan will have “controllable anonymity,” in which the most private account would only require a cell phone number. However, people need to register with a phone service carrier with their ID to have a phone number. Users would also have to disclose more personal information if their deposit amount hits a certain threshold.

The Fed has not specified how much anonymity any digital dollar would allow users to have, in part because there is no concrete timetable for a digital dollar. While there will be detailed research on the proposed stablecoin coming out as early as July, Fed officials have yet to disclose whether the central bank would host customer accounts or enlist a trusted third party, and what privacy protections users would have in case of a breach.

Powell said he agreed with Rep. Bill Foster (D-Ill.), who said during the hearing an anonymous, untraceable digital dollar “is not a viable option for our country or free world” because of the potential for money laundering or funding terrorism.

Powell and Treasury Secretary Janet Yellen, who also testified before the committee, have voiced their concerns in recent months about how cryptocurrencies could be used for such illicit transactions because of their anonymous nature.

Updated: 3-25-2021

German Federal Bank Runs Successful Blockchain System Without A CBDC

Executives at the Deutsche Bundesbank are eager to launch a blockchain-based system without the need for a CBDC — and they just might succeed.

Germany’s federal bank, the Deutsche Bundesbank, has run successful tests on a project which bridges the traditional finance infrastructure with blockchain technology.

Despite the current global rush by central banks to familiarise themselves with central bank digital currency technology, the testing carried out by the Bundesbank, in conjunction with the Deutsche Börse Group and the German Finance Agency, required the issuance of no CB, or any tokenized money at all.

The system reportedly relies on two software modules which form a connection between the Bundesbank’s internal system and distributed ledger technology. Instead of creating a token-based system, the bank simply created an interface that initiates a “trigger,” signifying that a transaction has been settled and that money can safely change hands.

Germany has made no secret of the fact that it isn’t too keen on a CBDC. That may be because the Bundesbank’s position as the most powerful member of the European System of Central Banks makes it the organization with the most influence to lose. That’s a sentiment that was echoed by German politician Burkhard Balz himself in 2020.

Following the announcement of the Bundesbank’s recent tests, Balz, who is also a member of the Bundesbank executive board, suggested the entire Eurosystem could adopt the technology in a much quicker fashion than it could launch a CBDC.

“Following successful testing, the Eurosystem should be able to implement such a solution in a relatively short space of time — at least in far less time than it would take to issue central bank digital currency, for instance,” said Balz.

As part of the testing, the German Finance Agency issued a 10-year federal bond via the DLT trigger system, while also testing securities trading on primary and secondary markets. The testing included participants from Citibank, Barclays, Goldman Sachs, Commerzbank, DZ Bank and Société Générale.

Microsoft President Smith Is No Fan of Private Digital Currency

Microsoft Corp. President Brad Smith cast doubt on whether financial technology companies should issue currencies, saying governments are still best-placed to play that role.

“The money supply almost uniquely needs to be managed by an entity that is responsible to the public and thinks really only about the public interest, and that means governments,” Smith said on Wednesday at an online conference hosted by the Bank for International Settlements. “I’m not a big fan myself of encouraging or asking or wanting us to participate in the issuing of currency.”

The pandemic has accelerated the shift to digital payments, while the massive injection of money into the financial system to shield the economy has fueled interest in cryptocurrencies such as Bitcoin. Even before the crisis, Facebook Inc. launched plans to build a cryptocurrency and payment network known as Libra, since renamed to Diem.

Such trends have raised concerns among policy makers worldwide, with politicians and regulators fretting about privacy, money laundering and loss of control over the monetary system.

“I think the world has been better served by what has been a movement over centuries to put that in the hands of governments,” Smith said. “We’re not a bank and we don’t want to become a bank and we don’t want to compete with our customers who are banks.”

Central banks including the U.S. Federal Reserve are studying whether to implement their own digital currencies, though Fed Chair Jerome Powell and European Central Bank Governing Council member Jens Weidmann said at the same conference this week that they’re in no rush.

China Digital Yuan Will Co-Exist With Alipay, WeChat, PBOC Says

China’s central bank said its planned digital currency will co-exist with technology platforms like Ant Group Co.’s Alipay and Tencent Holdings Ltd.’s WeChat Pay, which currently dominate the online payments market.

Mu Changchun, director of the People’s Bank of China’s digital currency research institute, outlined four reasons for the central bank’s development of its own electronic yuan:

* Safeguard Monetary Sovereignty. Bitcoin’s Popularity In The Past Posed A Threat To Capital Account Management
* As A Back-Up To Alipay And Tencent Pay, In Case They Experience Problems, Either Financially Or Technically. The Two Together Make Up 98% Of The Mobile Payment Market And If They Had A Setback, It Could Negatively Affect China’s Financial Stability
* Improve Efficiency Of Payments System
* Promote Financial Inclusion

Mu was speaking Thursday during a panel discussion organized by the Bank for International Settlements.

Regarding potential cross-border applications, Mu said digital currency supplied by one central bank shouldn’t impede other central banks’ ability to carry out their mandates for monetary and financial stability.

He also called on other central banks to protect their monetary sovereignty and avoid the “dollarization” of digital currency.

The PBOC is already trialing its digital yuan in some parts of the country and could be the first major central bank to issue a virtual currency.

Speaking at a conference on the weekend, Mu tried to allay concerns around privacy, saying the electronic yuan has the “highest level of privacy protection” compared with existing payment methods. Users’ personal information will not be available to vendors, unlike with other digital payment platforms, he said.

European Central Bank Tries To Quell Germans’ Doubts About Digital Euro

A future digital euro wouldn’t be a threat to savers, say officials from the European Central Bank.

The European Central Bank, or ECB, has been investigating the possibility of launching a digital euro project within five years to complement existing central bank money. But whereas high-profile leaders such as ECB president Christine Lagarde have been largely positive about the prospect, officials from Germany’s Bundesbank have remained unconvinced.

In a new op-ed for the Frankfurter Allgemeine Zeitung, ECB board member Fabio Panetta and fellow official Ulrich Bindseil attempted to tackle some of the Germans’ misgivings head on:

“The ECB is by no means planning to use a digital euro to enforce interest rates that are significantly more negative. As long as there is cash, it will always be able to be held at an interest rate of zero percent.”

Panetta and Bindseil’s comments picked up directly on the Bundesbank’s previous suggestions that a digital euro could be “catastrophic for savers,” and economist Richard Werner’s opinion that the ECB’s interest in a digital euro would wrest crucial deposit-taking business away from commercial banks.

Yet Panetta and Bindseil argued that the digital euro’s design could ensure that it would not compete with bank deposits, in reference to earlier proposals for caps on digital euro holdings for citizens. Most crucially, they stressed the project’s importance for securing the Eurozone’s financial autonomy and resilience against overseas corporations and other regional actors:

“We have to prevent European payment transactions from being dominated by providers outside Europe, such as global technology giants who will offer art currencies in the future. […] By preparing for a digital euro, we are also securing the autonomy of Europe. It is a safeguard in the event that undesirable scenarios occur.”

Panetta and Bindseil’s emphasis clearly alludes to Facebook’s longstanding attempts to launch a stablecoin backed by fiat currency. Meanwhile, ascendant economic powers such as China are already well ahead of the game with their own central bank digital currency.

German Finance Minister Olaf Scholz has recently critiqued Facebook’s Diem stablecoin proposal, rebranded from its former name, Libra, as being a “a wolf in sheep’s clothing.” He reiterated that the German government would “not accept its entry into the market,” citing inadequately addressed regulatory risks.

Updated: 3-26-2021

China’s Digital Yuan Is Backup To AliPay And WeChat Pay, Says Official

Alibaba’s Alipay and Tencent’s WeChat Pay reportedly account for 98% of the mobile payment market in China.

China’s central bank digital currency, or CBDC, will provide backup for major retail payment services like AliPay and WeChat Pay as its key objective, according to an official at the People’s Bank of China.

Mu Changchun, head of the People’s Bank of China’s digital currency research institute, claimed that China’s digital yuan is needed to ensure financial stability in case “something happens” to AliPay or WeChat Pay, the South China Morning Post reports.

Speaking at an online panel discussion on Thursday, Mu stated that Alibaba’s Alipay and Tencent’s WeChat Pay account for 98% of the mobile payment market in China, which poses certain risks should they experience any issues.

“If something happens to them, financially or technically, that would definitely bring a negative impact to the financial stability of China. In order to provide a backup for the retail payment system, the central bank has to step up and provide a central bank digital currency service,” Mu said.

Mu’s latest remarks come amid a government crackdown on monopolistic practices by the private sector in China as Ant Group and Tencent dominate the nation’s digital payment market. In early March, China’s antitrust regulator fined Tencent for failing to disclose their acquisitions to the state. Previously, Chinese authorities red-flagged a $37 billion initial public offering by Ant Group amid concerns about the company’s size.

During the online panel, Mu also urged global central banks to cooperate to ensure that national digital currencies are compatible with each other. “Central bank digital currency supplied by one central bank should not impede another central bank’s ability to carry out its mandate for monetary and financial stability,” Mu noted.

As previously reported by Cointelegraph, China has been actively expanding its CBDC expertise jurisdiction. In February, the PBoC joined Hong Kong, Thailand and the United Arab Emirates to explore a cross-border CBDC. Previously, an official at the Hong Kong Monetary Authority announced that the regulator and the PBoC were at the preliminary stages of piloting the digital yuan for cross-border payments.

Updated: 3-26-2021

Jamaica’s Central Bank Taps Irish Tech Outfit For CBDC Project

The Bank of Jamaica has partnered with an Ireland-based tech firm for its central bank digital currency project scheduled to begin in May.

Jamaica is the latest country making concrete efforts towards issuing its own sovereign digital currency.

According to a press release by the Bank of Jamaica on Tuesday, eCurrency Mint, a cryptography security company specializing in central bank digital currency issuance has been selected as the technology provider for the sovereign digital currency project.

As previously reported by Cointelegraph, Jamaica’s central bank invited technology solution providers to submit applications for its CBDC project back in July 2020. At the time, the BoJ clarified that its planned sovereign digital currency would not be based on crypto technology.

Based in Ireland, eCurrency Mint is reportedly working with central banks and other international finance organizations to develop protocols for CBDC design and implementation.

As part of the announcement, Jamaica’s central bank revealed that the CBDC pilot will commence in May under the aegis of the BoJ’s Fintech Regulatory Sandbox. ECurrency Mint will support the central bank in testing protocols during the pilot stage scheduled to be completed by December.

The Ireland-based tech outfit will also serve as Jamaica’s CBDC provider when the full national roll-out commences in early 2022. According to previous statements by the BoJ, the CBDC will be available for both individuals and businesses as a payment means similar to cash.

Like many countries in the Caribbean, Jamaica has somewhat liberal crypto and blockchain laws with regulated entities like the nation’s Stock Exchange participating in cryptocurrency trading.

The BoJ is one of the Caribbean central banks currently working on CBDCs. Back in October 2020, The Bahamas became one of the first countries to officially launch a sovereign digital currency.

Regional CBDC efforts are also ongoing with the Eastern Caribbean Currency Union working on a blockchain-based sovereign digital currency project.

Outside the Caribbean, Asia’s largest economies are accelerating their CBDC development projects. Multiple banks in China have issued digital wallets for the country’s digital currency electronic payment project.

In Japan, the central bank is leading a public-private partnership to examine proof-of-concept protocols for a possible digital yen. Earlier in March, Kuroda Haruhiko, governor of the Bank of Japan, said that the country must work out modalities for issuing a CBDC.

Updated: 6-2-2021

Irish MEP Calls For Stringent Crypto Regulations In Europe

One Irish MEP wants even stricter stablecoin and crypto regulations in Europe.

Chris MacManus, a Member of the European Parliament (MEP) representing Midland Northwest, Ireland, has called for strict crypto regulations in Europe.

According to a report on Wednesday, the MEP from Sinn Féin wants wholesale changes to the European Union’s proposed cryptocurrency changes.

MacManus has submitted 45 amendments to the EU aimed at toughening crypto laws in the region. Detailing his proposed crypto regulations, the Irish MEP stated:

“Under my proposals, all new and existing crypto-assets will require authorisation by a ‘competent authority’ like the Central Bank. Currently, currency founders simply have to deposit a white paper that outlines the cryptos’ purpose and technology, with no scrutiny whatsoever. These white papers, under my amendments, would also require a lot more detail and transparency.”

MacManus is also going after mining and with the MEP stating that state authorities would have to examine the potential environmental impact of crypto activities before granting authorization to any project.

The Irish MEP’s recommendation also includes regulations for stablecoin issuers and virtual asset service providers (VASPs). On stablecoins, MacManus called for issuers to hold sufficient capital to back the value of their tokens in circulation.

Such a provision would mean that stablecoin holders will be able to redeem the value of their “coins” based on the fiat currency backing. For VASPs like exchanges, wallets, and third-party custodians, MacManus wants the EU’s crypto laws to mandate customer protection policies.

According to MacManus, his proposals would help to improve the transparency and security of the crypto market while combating the use of virtual currencies for criminal activities.

Back in May, Derville Rowland, financial conduct director at the Central Bank of Ireland, warned that Bitcoin was of great concern to regulators.

In September 2020, the European Commission published a regulatory proposal titled Markets in Crypto Assets (MiCA) as part of efforts to introduce region-wide cryptocurrency regulations.

MiCA has been the subject of significant debate among industry stakeholders with the International Association for Trusted Blockchain Applications (INATBA) warning that the proposed crypto rules will hamper the development of emerging crypto and blockchain startups.

China And Japan Go Full Steam Ahead With CBDC Pilots

Asia’s largest economies are pushing forward with their respective CBDC trials, with six Chinese banks offering digital wallets and Japan establishing a new committee.

China and Japan are pushing forward with their respective pilots for central bank-issued digital currencies, or CBDCs.

On March 26, Bank of Japan announced it had established the Liaison and Coordination Committee on Central Bank Digital Currency to convene with both the private sector on the banks upcoming CBDC proof-of-concept, or PoC, stating:

“The Bank, through this committee, will share details of, and provide updates on the PoC with the private sector and the government and will seek consultation on future steps to facilitate smooth implementation of the PoC.”

The announcement also noted the bank has been preparing to conduct a pilot CBDC since October 2020, and will formally commence Phase 1 of its CBDC pilot next month.

On March 23, Chinese state media outlet Sina reported that six major government-owned banks have begun testing wallet services for the digital renminbi. Customers can apply for the banks’ whitelists to participate in the trial, and if approved, will be issued sub-wallets connected to the central bank’s digital RMB application.

The central bank will review applications on a case-by-case basis.

Approved applicants are sent text messages containing instructions on downloading and setting up the digital wallets by scanning a QR code. Sub-wallets are initially set with a payment limit of 1,000 yuan daily, but users can apply to raise the limit in future. Wallets can optionally be linked to existing bank cards issued by the participating institutions.

The six banks participating are the Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, Postal Savings Bank of China, and The Industrial and Commercial Bank of China.

China has also been piloting its CBDC in the metropolitan centres of Beijing, Shenzhen, Suzhou, and Chengdu since October.

Updated: 3-29-2021

Bahamas’ Sand Dollar Nears Commercial Rollout As Interoperability Completed

Following cybersecurity assessments, commercial institutions are being cleared to issue the world’s first CBDC: the Bahamas’ Sand Dollar.

The Central Bank of the Bahamas has announced that its central bank digital currency, the Sand Dollar, is expected to achieve full interoperability between its various wallet providers within the week.

A recent statement released by the CBoB revealed that authorized financial institutions, or AFIs, such as payments service providers are expected to be finalized within the coming days.

Essentially acting as wallet providers and prospective issuers of the Sand Dollar, the AFIs in question have been subject to rigorous cybersecurity assessments, the bank stated.

The institutions that adopted the bank’s own app have already been cleared to participate, while those that intend to use their own proprietary apps are still being processed. A deadline of Wednesday is expected to be met.

In October 2020, the Sand Dollar became the first CBDC in the world to go beyond the pilot stage and achieve an official launch. The centrally issued digital currency became available for use by all Bahamian citizens upon release, while integration with the commercial banking system has been subject to a gradual rollout. The completion of that integration is now imminent, according to the bank.

“The Central Bank expects to imminently complete the technical integration of the digital infrastructure with the commercial banking system. This will establish links between wallets and bank deposit accounts, through the Bahamas Automated Clearing House (the ACH), and allow transfer of funds in both directions,” the bank stated.

Nine institutions have been cleared to operate as CBDC issuers to date, consisting of four money transmission businesses, three payment services institutions, one credit union and one commercial bank.

Interoperability between these entities would allow for the Sand Dollar to be distributed and used more efficiently across a range of different applications. Each Sand Dollar is pegged to the value of the Bahamian dollar, which in turn is pegged to the value of the U.S. dollar.

The CBoB also released new draft regulations aimed specifically at the way payment services providers interact with the Sand Dollar, with a purported focus on consumer protection. The regulation is expected to be finalized by May 1.

“The draft Regulations are intended to enhance the existing legislative framework governing Payment Services Providers (PSPs), specific to their provision of central bank digital currency (CBDC) linked services,” the statement said.

Updated: 3-31-2021

Digital Euro Could Take Four Years, Says ECB President Christine Lagarde

The ECB will decide whether to proceed with digital euro pilots by mid-2021, Lagarde said.

It could be a while before European Union gets a central bank digital currency, if it gets one at all.

In a Wednesday interview with Bloomberg Television, European Central Bank President Christine Lagarde laid out the complex decision-making process with which the bank will determine the future of a digital euro.

The ECB will soon release its analysis of eight thousand responses received from its digital euro consultation process. “That will be communicated to the European Parliament which is one of the key players as well as the Commission and the Council with which we operate,” she stated.

Based on that consultation, alongside the parliamentary work, the ECB’s Governing Council will decide whether the institution will begin experimenting with a CBDC by mid-2021.

Following an initial experimentation phase, the council would then hold a six-month or a one-year assessment on whether to roll out the digital euro, Lagarde stated.

“The whole process — let’s be realistic about it — will in my view take another four years, maybe a little more. But I would hope we can keep it within four years,” she said, adding:

“Because it’s a technical endeavor as well as a fundamental change because we need to make sure that we do it right. We owe it to Europeans, they need to feel safe and secure. They need to know that they are holding a central bank-backed […] equivalent of a digital banknote. […] We need to make sure that we’re not going to break any system, but enhance the system.”

Lagarde also mentioned that some financial intermediaries have expressed concerns about the ECB launching a CBDC. She said that these intermediaries will continue to co-exist with the new ecosystem as well as cash, which “will also continue to be available.”

As previously reported by Cointelegraph, the ECB launched a public consultation on a potential digital euro in October 2020.

Updated: 4-1-2021

Eastern Caribbean Central Bank’s DCash Digital Currency Goes Live

The ECCB has launched a regional central bank digital currency in partnership with Caribbean fintech outfit Bitt.

The Eastern Caribbean Central Bank, the main financial institution of the Eastern Caribbean Currency Union, has launched DCash.

The ECCB announced the launch of its CBDC for the region via a media event held on Wednesday.

DCash is the digital version of the Eastern Caribbean dollar — the official currency of the eight countries in the union.

However, as announced during the launch, DCash is only available in four of the currency union’s member states: Grenada, St. Kitts and Nevis, Antigua and Barbuda, and Saint Lucia.

Wednesday’s launch marked a culmination of the project over two years in development with the ECCB first announcing its plans for a CBDC back in March 2019.

As part of the launch, ECCB governor Timothy Antoine performed the first-ever live DCash cross-border transaction. Governor Antoine reportedly sent 100 DCash dollars from the ECCB headquarters in St. Kitts to DCash wallet holders in the three other countries involved in the launch.

Using Bitt’s CBDC management protocols, the ECCB will reportedly be able to mint and issue DCash. The ECCB will also be able to redeem and burn the DCash CBDC.

As part of the rollout, the ECCB state that DCash will support both business and private transactions with vendors and merchants signing up for the DCash Merchant App. Users will also be able to transfer DCash to residents within the currency union.

Speaking during the launch on Wednesday, the ECCB governor commented on the central bank’s decision to partner with Bitt for the CBDC project, adding:

“The ECCB chose to partner with Bitt because of the company’s shared values of citizen empowerment through financial inclusion and its respect and understanding of the unique needs of emerging economies. These past two years have been an intensely collaborative journey, and both Bitt and the ECCB have learnt many transferable lessons along the way.”

For Bitt CEO Brian Popelka, DCash is a “game-changer” for the currency union adding that the CBDC was designed to be interoperable with digital currencies around the world.

Following the public rollout, both the ECCB and Bitt say the next step is to work towards full incorporation of DCash into the financial infrastructure of the four nations participating in the initial launch over the next year.

Beyond this point, both partners are also looking to extend DCash to the remaining four countries in the currency union: Montserrat, Commonwealth of Dominica, Anguilla, and Saint Vincent and the Grenadines.

In other Caribbean-related CBDC news, Jamaica’s central bank recently partnered with Ireland-based tech firm eCurrency Mint to develop its own sovereign digital currency.

Updated: 4-28-2021

Residents Of Caribbean Island Can Conduct Local Transactions Using Bitcoin

“The adoption of cryptocurrencies is far from being a gimmick,” said one of the entrepreneurs behind a project developing property on the island.

The more than 5,000 residents of an island that forms a part of St. Vincent and the Grenadines can use crypto as a means of payment.

According to a report from Euronews, both residents and visitors to the island of Bequia can use Bitcoin (BTC) to pay for goods and services ranging from property to food at one of the local eateries. The One Bequia project, backed by entrepreneur Storm Gonsalves, is building luxury villas on the island for sale in BTC. Gonsalves said the move to accept crypto was aimed at solving the issue of traditional financial systems abandoning Caribbean islands.

“The adoption of cryptocurrencies is far from being a gimmick,” said Gonsalves. “It’s a response to the very real challenges faced by island communities increasingly cut-off from mainstream banking facilities.”

He Clarified:

“Residents of small island nations are finding it increasingly difficult to send and receive money internationally because of ‘derisking’ by large international banks. Derisking is when these large institutions remove their intermediary banking services from smaller island-based community banks. This prevents the island-based banks from transacting internationally.”

The island is currently home to one branch of the Bank of Saint Vincent and the Grenadines and also accepts the Eastern Caribbean dollar for fiat transactions. Gonsalves cited Grenada, St. Kitts and Nevis, Antigua and Barbuda, and Saint Lucia recently adopting DCash as examples of island nations in the Caribbean pushing back to seemingly being slowly cut off from international commerce. The Bahamas has also issued its own central bank digital currency, the Sand Dollar.

Though the entrepreneur claims that many people are “still skeptical” of crypto, the technology could provide an attractive investment for island dwellers. Some are already calling Bequia “Bitcoin Island,” given the opportunity for residents to use the crypto asset as a medium of exchange.

“The Caribbean is known for its laidback island atmosphere,” said Gonsalves. “It’s not exactly the place you would expect a groundbreaking property development on global proportions to take place. I wanted to break out of this mould and surprise the world by pioneering a new way of project financing, such as the use of alternative payment methods such as Bitcoin.”

 

Hong Kong And China Test Cross-Border Digital Yuan, Says PBoC Official

The digital yuan continues to develop apace.

China has completed its first cross-border pilots of the digital yuan with Hong Kong.

Wang Xin, director of the People’s Bank of China research bureau, said that the Hong Kong Monetary Authority and the PBoC have conducted technical tests on the cross-border use of China’s central bank digital currency.

The official announced the news at a Thursday press conference hosted by the State Council Information Office of China, local news agency Sina Finance reports.

The news comes shortly after Mu Changchun, head of the PBoC’s digital currency research institute, proposed a set of global CBDC rules last week. Speaking at a Bank for International Settlements seminar, Mu called on global financial institutions to ensure the global interoperability of national digital currencies.

“Interoperability should be enabled between CBDC systems of different jurisdictions and exchange. The PBoC had shared the proposals with other central banks and monetary authorities,” the official said.

The latest news brings a significant update to China’s aggressive CBDC development. After debuting internal digital yuan pilots in April 2020, the Chinese central bank has been actively pursuing to move its CBDC expertise beyond its own jurisdiction.

As such, the PBoC joined central bank authorities in Hong Kong, Thailand and the United Arab Emirates to explore a cross-border CBDC in February 2021. In late 2020, an official at the HKMA claimed that the regulator and the PBoC were at the preliminary stages of piloting the digital yuan for cross-border payments.

Updated: 4-2-2021

Bitcoin Surge Could Be Driving Digital Yuan Interest, Says People’s Bank of China

The central bank says strong interest in its CBDC project is partly being driven by Bitcoin’s recent surge, despite cryptocurrency still being banned in China.

The cryptocurrency space may be helping to spawn its own competitors after a representative of the People’s Bank of China said Bitcoin’s (BTC) recent surge had caused renewed interest in the nation’s digital yuan project.

The digital yuan is China’s central bank digital currency, and like all CBDCs its foundational principles are completely antithetical to those of the cryptocurrency space.

Core crypto concepts of decentralization and autonomy are dispensed with in favor of centralization and oversight, in an effort by government authorities to more easily control the flow of money. The digital yuan is also expected to be central to China’s smart city ambitions, which would see entire cities made cashless in the coming years.

But the PBoC believes the “very strong” interest that the digital yuan is receiving is a result of Bitcoin’s recent ascension to new all-time highs, despite cryptocurrency still being banned in China.

PBoC research bureau director Wang Xin said interest in the digital yuan was driven in part by the ambitions of other countries to follow suit, and also by Bitcoin’s price hike. According to CNBC’s mandarin translation of his comments, Xin said:

“On one hand, this is related to more and more central banks in the world participating in the development of domestic digital currencies. On the other hand, this (interest) may also be related to the large increase in the price of bitcoin.”

China has run numerous pilot tests of the digital yuan in the past couple of years, with its experimentation extending to biometric hardware wallets, on-street ATMs, national lottery draws, and more.

 

Thai Central Bank To Pilot Its Retail Central Bank Digital Currency In 2022: Report

Thailand’s central bank is open to accepting public feedback on its retail CBDCs by 15 June this year.

The Bank of Thailand (BoT) will begin piloting its retail central bank digital currency (CBDC) in the second quarter of 2022, according to a published report.

* Thailand’s central bank assistant governor announced Friday it is open to accepting public feedback on its retail CBDCs by 15 June this year.

* BoT said the main objective of the currency is to provide citizens with access to more convenient and secure financial services.

* The bank is planning to fully implement the currency over the next 3-5 years, according to a Reuters report.

* The CBDCs will be aimed at providing access to convenient and secure financial services and, “it will not affect the Thai financial system,” Vachira Arromdee, the assistant governor of the financial markets operations group, Bank of Thailand, said at a briefing, according to Reuters.

* In March, BoT said it will issue regulations on asset-backed stablecoins later this year after warning against the illegal use of a baht-denominated stablecoin that was created outside the country.

Updated: 4-2-2021

Central Bank ‘Money Drops’ With Digital Currencies Could Fuel Inflation: Bank of America

CBDCs could facilitate central bank stimulus in the form of money drops, and lead to higher inflation, says BofA.

Central bank digital currencies (CBDCs) could potentially facilitate powerful, directed “money drops” and raise inflation expectations, according to a March 31 report by Bank of America.

“CBDCs could boost the future transmission of monetary and fiscal stimulus,” the bank’s analysts wrote.

While the report doesn’t mention bitcoin (BTC), the analysis might show how countries’ adoption of CBDCs might indirectly create extra demand for the largest cryptocurrency as an investment hedge against inflation.

The Bank of America report, titled “Digital Love: Central Bank Digital Currencies,” explained the benefits of CBDCs, including the potential to increase the speed of domestic and international payment systems, while lowering costs.

Those advantages could make it easier for governments and central banks to distribute stimulus money, according to the report.

* “CBDCs represent the next frontier for central bank stimulus, potentially acting as a potent conduit for policies such as stimulus checks, emergency lending programs, UBI (universal basic income), inducing a more powerful, directed ‘money drop.’ The evolution of central bank digital currencies is likely to increase inflation expectations, boosting the case for inflation assets in the 2020s.”

* “Disruption from cryptocurrencies is prodding central banks to secure their role as the dominant means for settlement of payments, and their ability to supervise banks and conduct monetary policy,” wrote Bank of America.

* Digital currencies issued by central banks could provide disadvantaged populations with greater access to financial services without bank intermediation, according to the report.

* “CBDCs could also speed the delivery of directed stimulus or helicopter drops. For example, many of the Fed’s recent pandemic credit programs were hampered by legal and logistical issues,” including the Main Street Lending Program, which has extended only $31 billion of its $600 billion authorization.

* “The existence of a CBDC would likely have allowed simpler designs and facilitated the targeted extension of credit. In cooperation with fiscal authorities, stimulus could be surgically tailored. In contrast to broad fiscal measures like the recent $1,400 stimulus checks issued by the U.S. Treasury, governments could credit smaller amounts to specific populations or industries to achieve their policy aims.”

* However, the report also lists potential drawbacks. Governments could obtain access to private individual spending data.

* There’s also a crowding-out effect: “CBDCs could compete with banks and money funds by providing another option to store value, curtailing cheap deposit funding for banks and reducing margins on money funds.”

* Bank of America expects the evolution of CBDCs to increase inflation expectations, boosting the case for inflation assets over the next few years.

Updated: 4-7-2021

China using Bitcoin As ‘Financial Weapon’ Against United States: Peter Thiel

Peter Thiel has urged the U.S. government to reappraise China’s relationship with Bitcoin from a geopolitical perspective.

PayPal co-founder and venture capitalist, Peter Thiel, has warned that the Chinese central government may be supporting Bitcoin as a means to undermine the foreign and monetary policy of the United States.

But, he added, it has tried to use the Euro the same way.

Speaking at a virtual event hosted by conservative non-profit, the Richard Nixon Foundation, Thiel was commenting on whether China’s central bank-issued digital currency, or CBDC, could threaten the U.S. dollar’s status as a global reserve currency.

While Thiel, who is known to be pro-Bitcoin, suggested an “internal stablecoin in China” will amount to little more than “some sort of totalitarian measuring device,” he added that China may view Bitcoin as a tool to erode the dollar’s hegemony:

“From China’s point of view, they don’t like the U.S. having this reserve currency, because it gives a lot of leverage over oil supply chains and all sorts of things like that,” he said, adding:

“Even though I’m a pro-crypto, pro-Bitcoin maximalist person, I do wonder whether if at this point, Bitcoin should also be thought of in part as a Chinese financial weapon against the U.S. where it threatens fiat money, but it especially threatens the U.S. dollar.”

Thiel alluded to Chinese efforts to denominate oil trades in Euros during recent years in a bid to undermine the global standing of the dollar, stating: “I think the Euro, you can think of as part of a Chinese weapon against the dollar — the last decade didn’t really work that way, but China would have liked to see two reserve currencies, like the Euro.”

The venture capitalist speculated China does not actually want its renminbi to become the global reserve currency, noting the government would have to “open their capital accounts” among other measures “they really don’t want to do.”

As such, Thiel concludes that supporting Bitcoin offers China an elegant means to weaken the dollar’s standing internationally:

“China wants to do things to weaken [the dollar] — China’s long Bitcoin, and perhaps, from a geopolitical perspective, the U.S. should be asking some tougher questions about exactly how that works.”

Updated: 4-8-2021

US Must Embrace Bitcoin To Counter Chinese ‘Financial Attack’ — Pomp

Without suitable allowances from lawmakers, Bitcoin, like the internet, can be used in ways that could compromise U.S. prowess, says Anthony Pompliano.

Bitcoin can undermine the U.S. dollar if the United States does not take a lead role in accepting it, argued Anthony Pompliano.

Speaking to CNBC on April 8, the Morgan Creek Digital co-founder followed up on a warning from investor Peter Thiel that China could use Bitcoin (BTC) to destabilize U.S. dollar hegemony.

Thiel Cautions Over Bitcoin Threat

“I do wonder at this point whether Bitcoin is to be thought of, in part, as a Chinese financial weapon against the U.S. It threatens fiat money, but it especially threatens the U.S. dollar,” Thiel had said in an appearance at the Nixon Seminar.

Asked whether this was a potential problem, Pompliano was quick to point out that Thiel was not an opponent of Bitcoin but rather that it, like the internet, could have both positive and negative consequences for Washington should policymakers make ill-thought-out decisions.

“I think what we’ve got to understand is that Bitcoin is an open, decentralized protocol,” he explained to CNBC’s “Squawk Box” segment.

“Everyone in the world has an opportunity to use this, just like the internet. And so, just because other countries, maybe adversarial or not to the United States, are going to use it, it doesn’t mean [Thiel] is taking an anti-Bitcoin stance. Actually, it’s quite the contrary.”

The legal landscape surrounding Bitcoin in the U.S. remains a patchwork one, despite certain states, notably Wyoming and Florida, actively seeking to become a haven for its adoption.

“I think what [Thiel] is doing here is he’s saying, ‘Look, there’s a global competition happening here, and there are other countries who are going to try to use this to try to destabilize or financially attack the United States,'” Pompliano continued.

“What we need is for the United States to be the leader here. We need to embrace this, so we need to make sure that we use this technology to continue to be a leader on the global stage.”

A Familiar Headache

Institutional and retail investor interest in cryptocurrency as a whole remains prominent thanks to higher prices this year.

Beneath those movements, however, a separate narrative continues to play out — one involving state-focused power struggles for a piece of, specifically, the Bitcoin network’s power.

This so-called “hash war” could yet affect any state, including those targeted by U.S. sanctions in recent years, such as Iran and Venezuela.

China’s place in the Bitcoin mining game, meanwhile, has been well known for years, despite a ban on transacting and its central bank’s digital yuan project.

Updated: 4-9-2021

Pakistan’s Central Bank Is ‘Carefully Studying’ CBDCs, Says Governor

State Bank of Pakistan governor Reza Baqir says the country is “waiting to burst as far as digitization is concerned.”

The governor of the State Bank of Pakistan, Reza Baqir, has indicated that the institution is carefully studying the possibilities opened by central bank digital currencies.

In an interview with CNN reporter Julia Chatterley on Thursday, Baqir noted that countries, such as China, are “already showing the way” when it comes to CBDC issuance, further outlining the motivations behind the central bank’s interest in CBDCs:

“The benefit for us is twofold: Not only does [potential CBDC issuance] give another boost to our efforts for financial inclusion but, second, if the central bank issues a digital currency, it allows us to make further progress in our fight towards Anti-Money Laundering, towards countering terrorism financing. So, we are at a stage where we are studying it. We hope to be able to make an announcement on that in the coming months.”

Baqir added that the central bank has already given the green light for a framework, within which digital banks can begin to operate in Pakistan — among them, challenger or neobanks that don’t necessarily have a brick-and-mortar presence.

In response to a question regarding Stripe, the world’s largest fintech, and its reported interest in the Pakistani market, Baqir said that the company would be “very welcome.” He emphasized that Pakistan is a market that is home to the fifth-largest concentration of people worldwide, with high levels of tech literacy and a relatively young population. The country, in his view, is “waiting to burst as far as digitization is concerned.”

Baqir also noted that during the coronavirus pandemic, the central bank had moved to eliminate fees on interbank transfers, which led to a 150%–200% growth in mobile banking transactions for the quarter ending in December 2020 as compared with the previous year.

The State Bank of Pakistan had announced back in spring 2019 that it aims to have issued a CBDC by 2025. As reported, regional Pakistani legislators, meanwhile, have been advocating for more movement on the decentralized digital currency front, with a resolution passed recently in the northwest of the country calling on the government to legalize cryptocurrency mining in the country.

Can A Digital Pound CBDC Retake London’s Financial Hub Status Post-Brexit?

Could a digital pound accelerate Britain’s growth post-Brexit and retake London’s status as the European financial hub?

A financial think tank has suggested that Britain should adopt a digital pound in an effort to strengthen London’s status as a global trade center in the wake of Brexit. Previously the gravitational center-point of Europe’s financial sector, London saw much of its influence lost at the end of 2020 when Britain’s exit from the European Union was finalized.

The United Kingdom’s Finance Ministry will now take proposals on how to make the City of London more attractive to global traders and pull activity back from Amsterdam, which emerged as the new EU trading hub post-Brexit.

Euro-skeptic politicians and London finance veterans have formed CityUnited, a think-tank that is proposing ideas on how to foster growth in an independent Britain. CityUnited chairman Daniel Hodson told Reuters that the Bank of England’s consideration of a central bank digital currency was commendable but that the process should be accelerated.

“The Bank of England is talking about a CBDC but it ought to be a greater priority as this form of technology is the future, and would bring other benefits like real-time regulation to cut costs,” said Hodson.

The progress made by China in launching a CBDC should worry British finance authorities, said Hodson, who warned that such technology could “steal a long march” on the United Kingdom. Hodson said:

“A central bank digital currency (CBDC) should be a fundamental foundation for a competitive City after Brexit, otherwise China will steal a long march on us.”

China’s progress in creating a CBDC has seen the issuance of biometric passports linked to digital yuan wallets, along with numerous similar pilot projects, as the nation edges closer to issuing its CBDC. Although not the first country to issue a CBDC — that honor goes to the Bahamas — the global economic impact of a Chinese CBDC could stand to be much greater.

Expected to power China’s digital, cashless cities at some point in the near future, the digital yuan will also reportedly be used as part of the Beijing Winter Olympic Games in 2022.

Sweden’s Central Bank Completes First Phase Of Digital Currency Pilot

The Sveriges Riksbank said that CBDC technology still requires further investigation.

After completing the first phase of its digital currency pilot project, Sveriges Riksbank has found some critical issues that must be addressed before Stockholmers can buy coffee and kanelbullar with e-krona.

In a recent study, Sweden’s central bank presented the first results of its central bank digital currency pilot on a network based on R3’s Corda blockchain.

The Riksbank simulated core aspects of a potential CBDC system, including liquidity supply via the Riksbank’s settlement system, RIX, and network members serving as e-kronor distributors. The central bank also simulated participants, end-users and payment instruments like mobile apps.

The Riksbank said that the new CBDC technology needs further investigation, with scalability presenting a major bottleneck.

“The solution tested in phase one of the e-krona pilot has met the performance requirements made in the public procurement. But this has taken place in a limited test environment and the new technology’s capacity to manage retail payments on a large scale needs to be investigated and tested further,” the report noted.

The central bank also noted some privacy challenges, stressing that the information contained in an e-krona transaction must be protected to uphold banking secrecy laws and avoid revealing personal data.

“The Riksbank is currently analysing to what extent the information stored in the transaction history can be regarded as information covered by banking secrecy and whether it comprises personal data,” the bank stated.

Mithra Sundberg, head of Riksbank’s e-krona pilot division in Stockholm, said that Sweden’s CBDC could probably require a new legal framework before it can be used. Given the scope of issues that need to be addressed before an e-krona can be seriously developed, Riksbank may continue its blockchain pilots until 2026.

Riksbank stated that it will extend its agreement with accounting giant Accenture as a technical supplier to continue e-krona testing. The focus for the second phase will include potential distributors of the e-krona, CBDC performance in retail payments, as well as storage methods. The new phase will also test offline e-krona functionality and integration with existing point-of-sale terminals.

As previously reported, Sweden has emerged as one of the world’s earliest CBDC explorers, announcing a pilot platform for the e-krona in late 2019.

Updated: 4-11-2021

The Future of Digital Currency And Electronic Payments May Be Chinese

China has led the world in electronic payments, and its central bank is pushing forward with its digital-currency plan. The U.S. needs to pay attention.

Will China Mint the Money of the Future?

Last year, the People’s Bank of China seized the opportunity presented by the pandemic to rush its central bank digital currency into the hands of Chinese consumers, conducting trials in three cities — Shenzhen, Suzhou and Chengdu — as well as the Xiong’an New Area near Beijing.

Crucially, its design is two-tier, with the PBOC dealing with the existing state-owned commercial banks and other entities (including telecom and tech companies), not directly with households and firms. The abbreviation “DC/EP” (with the slash) captures this dual structure.

The central bank controls the digital currency, but the electronic payment platforms can participate in the system, alongside the banks, as intermediaries to consumers and businesses.

However, the easiest option for consumers will clearly be to withdraw “e-CNY” from bank ATM machines onto their smartphones’ e-wallets. The system even allows transactions to happen in the absence of an internet connection via “dual offline technology.” In 2018, I predicted there would soon be “bityuan.” I only got the name wrong.

How The Digital Yuan Stablecoin Impacts Crypto In China: Experts Answer

Here’s what crypto and blockchain industry experts from China think about the digital yuan and how it has affected the blockchain space.

China has been discussing the possibilities of national digital currency for half a decade, and the Chinese digital yuan project — referred to as the Digital Currency Electronic Payment, or DCEP — has years of history. Back in 2014, the People’s Bank of China set up a research group “to study digital currencies and application scenarios.”

The research team was conducting a digital currency study and reportedly considering issuing its own digital currency. In 2016, the PBoC announced plans to de­velop a digital cur­rency of its own and started to hire blockchain experts. The same year, Chi­na’s State Coun­cil included blockchain technology in its 13th Five-Year Plan.

In 2017, the PBoC launched the Digital Currency Research Institute, which focused on the development and research of digital currencies. According to China’s National Intellectual Property Administration (formally known as the State Intellectual Property Office), the institute filed more than 63 patent applications related to blockchain and crypto during its first year of existence alone.

In 2018, a report — released by the Chinese Institute of International Finance, operated under the People’s Bank of China — indicated that the central bank would institute a regulatory crackdown on all types of digital currencies.

Back in July 2019, Wang Xin, director of the PBoC’s research bureau, stated that Facebook’s plan to launch its own stablecoin, Libra (now known as Diem), had influenced China’s plans to launch a digital form of the Chinese yuan. Back then, some experts predicted that the Chinese government-backed digital currency aimed to be rolled out earlier than the official launch of Libra.

Last year, the DCEP project made significant progress; meanwhile, the details of the project remained limited. While the question of whether being the first in launching a CBDC will be enough to win global reserve currency status remains open, China is clearly moving toward leading the charge into the digital economy.

This year alone, China started testing infrastructure for the digital yuan prior to its official launch and the Chinese city of Shenzhen provided a chance for its citizens to participate in a lottery event that aimed to encourage the adoption of the country’s new central bank digital currency.

Also this year, China completed the development of hardware wallets for the digital yuan project; the first one was produced by the Xiong’an branch of the Agricultural Bank of China in Hebei and the second by the Postal Savings Bank of China. And earlier in March, the Bank of Communications and China Construction Bank conducted digital yuan trials at two major department stores in Shanghai.

Digital Yuan vs. Cryptocurrency

A major concern among experts is that China’s CBDC is unlikely to be a cryptocurrency. As was underlined by Bloomberg in 2019: “The PBOC will, of course, back the digital yuan, making it the opposite of decentralized.” China’s new digital currency will most likely be a centralized digital currency rather than a true cryptocurrency.

As Shao Fujun, chairman of China UnionPay and a former PBoC official, said back in August 2019, China’s state-owned digital currency “will have lots of positive impacts, including tracking the money flow in economic activities and supporting making monetary policy.”

Mu Changchun, deputy director of the Chinese central bank’s payments department, said back in 2019 that the forthcoming digital yuan would strike the balance between facilitating anonymous payments and preventing money laundering.

He repeated the statement earlier this month, saying that a completely anonymous CBDC “is not feasible” because a national digital currency must meet requirements related to Anti-Money Laundering, Counter-Terrorist Financing and anti-tax evasion.

Meanwhile, Chinese authorities are willing to ensure maximum user privacy for the country’s central bank digital currency, according to Mu’s recent statement.

The question of whether the PBoC’s currency will be like decentralized blockchain-based cryptocurrencies or if it will give Beijing more control over its financial system is an important one. Nonetheless, the development of the digital yuan has undoubtedly influenced the development of the digital economy both within and outside of China.

Cointelegraph reached out to experts in the blockchain and crypto space from China for their opinions on the following questions: How has the development of the digital yuan affected the entire crypto and blockchain industry in China? Will the Chinese CBDC stay centralized or gradually become decentralized over time?

Chang Jia, Founder of Bytom And 8btc:

“The Chinese digital yuan is designed and launched by the PBoC (China’s central bank). It is based on the construction of China’s basic financial network for decades, and it is endorsed by state credit.

Therefore, its birth undoubtedly encourages China’s whole blockchain industry, especially those corporations that have been persisting in the underlying technology of blockchain, digital currency infrastructure construction, and industrial blockchain solutions for several years to see their future use, and even realize the great vision of listing on the STAR Market.

At the beginning, the Chinese digital yuan DCEP focused on a trial operation in the CCB (China Construction Bank). After proving its basic operation, it will also get basic feedback from all walks of life and urban people’s livelihood in China.

With the gradual clarification and strengthening of DCEP in the national economy and the people’s livelihood, such a huge digital currency system like DCEP certainly needs the joint construction of the state and the people in many aspects to create a new digital yuan network and to actively explore internationalization.”

Daniel Lv, Co-Founder Of Nervos:

“The fact that China is working on a digital yuan is proof that there’s value in digital assets and the underlying blockchain technology. The primary purpose of introducing a central bank digital currency is to protect monetary sovereignty out of concern that Bitcoin and other cryptocurrencies will have an impact. The DCEP will also improve the efficiency of payment systems and enhance the convenience of yuan payments.

Blockchain itself is a combination of many existing mature technologies, such as asymmetric cryptography, consensus algorithm, time-stamping, etc. As seen from its latest disclosed patent, DCEP is integrated with asymmetric cryptography, unspent transaction output (UTXO), and smart contracts.

The digital yuan adopts a two-layered system for issuance and distribution — the central bank issues DCEP to banks or other financial institutions, and then these institutions further distribute the digital currency to the public. While the issuance of DCEP is centralized, the circulation could be based on traditional financial account systems or blockchains.

If DCEP transactions happen on a public blockchain, I assume it will probably help the yuan to internationalize. China’s central bank had previously announced that the DCEP pilot scenario included Winter Olympics venues. Foreign entities can simply open a DCEP wallet to conduct the cross-border transaction, as the requirements to open a DCEP wallet are much lower than those to open a yuan deposit account. Peer-to-peer transactions can be initiated between any two DCEP wallets.”

Discus Fish, co-founder of F2Pool And Cobo:

“Essentially, the central bank digital currency is completely different from Bitcoin and other cryptocurrencies because it is still the centralized fiat currency in essence. However, the CBDC may strengthen the public’s perception of blockchain and cryptocurrency.

In the long run, under the education of the central bank, the blockchain industry will attract a large number of new users, especially the young people growing up in the mobile Internet environment, thus leading to the rapid development of the industry. It has a long-term positive impact on the industry.

The essence of CBDC is the centralized fiat currency, which is still the central bank’s debt to the public. Therefore, the central bank will adhere to the centralized management mode. This relationship between creditor’s rights and debt will not change with the change of monetary form. Therefore, I think no matter how the form develops, it is impossible for the central bank’s digital currency to be decentralized.”

Kevin Shao, co-founder of Bitrise Capital:

“The development of the Internet has brought the popularization of electronic payments, especially the applications of Alipay and WeChat payment, which have changed the habits of many people around using cash. Such changes are profoundly affecting China’s financial development. The central bank is also following the trend of digital economic development, starting from the top-level design of the country, and building a complete set of electronic payment infrastructure.

At present, the central bank has not made a final decision on which technical means will be used for the digital currency. However, we have seen that some cities have experimented with digital currencies. But overall, China’s digital currency still serves the central bank’s monetary policy and monetary functions.”

Updated: 4-11-2021

Biden Team Eyes Potential Threat From China’s Digital Yuan Plans

The Biden administration is stepping up scrutiny of China’s plans for a digital yuan, with some officials concerned the move could kick off a long-term bid to topple the dollar as the world’s dominant reserve currency, according to people familiar with the matter.

Now that China’s digital-currency efforts are gathering momentum, officials at the Treasury, State Department, Pentagon and National Security Council are bolstering their efforts to understand the potential implications, the people said.

American officials are less worried about an immediate challenge to the current structure of the global financial system, but are eager to understand how the digital yuan will be distributed, and whether it could also be used to work around U.S. sanctions, the people said on the condition of anonymity.

A Treasury spokeswoman declined to comment. A National Security Council spokeswoman did not reply to a request for comment.

The People’s Bank of China has rolled out trial issuance of a digital yuan in cities across the country, putting it on track to be the first major central bank to issue a virtual currency. A broader roll-out is expected for the Winter Olympics in Beijing next February, giving the effort international exposure.

Many key details of the digital yuan are still in flux, including specifics on how it would be distributed. China’s recent establishment of a joint venture with SWIFT, the messaging nexus through which most cross-border settlements pass through today, suggests it is possible a digital yuan could work within the current financial architecture rather than outside of it.

U.S. officials are reassured that China’s intentions aren’t to use the digital yuan to evade American sanctions, according to people familiar with the matter. The dollar’s current dominance in cross-border transactions gives the U.S. Treasury the power to cut off much of a business or even a country’s access to the global financial system.

China’s officials have said the main intentions of the digital yuan are to replace banknotes and coins, to reduce the incentive to use cryptocurrencies and to complement the current private-sector run electronic payments system — dominated by Ant Group Co.’s Alipay and Tencent Holdings Ltd.’s WeChat Pay. The PBOC has been working for years on the digital yuan, also called the e-CNY, having set up a specialist research team in 2014.

​​“To provide a backup or redundancy for the retail payment system, the central bank has to step up” and provide digital-currency services, Mu Changchun, the director of the PBOC’s digital-currency research institute, said at an event last month.

The PBOC is also examining the potential for using the digital yuan in cross-border payments, launching a project studying the issue with a unit of the Bank for International Settlements along with the United Arab Emirates, Thailand and Hong Kong’s monetary authority.

The Biden administration isn’t currently planning to take any action to counter longer-term threats from China’s digital currency, the people familiar with the discussions said. However, China’s plans have given renewed impetus to efforts to consider the creation of a digital dollar, they said.

Members of Congress have also been increasingly interested in a digital dollar, aware of China’s moves, and asked Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen about the issue in hearings earlier this year.

Powell said in February the Fed was looking “very carefully” at a digital dollar. “We don’t need to be the first. We need to get it right.”

Yellen has signaled interest in research into the viability of a digital dollar, a shift from a lack of enthusiasm under her predecessor, Steven Mnuchin.

“It makes sense for central banks to be looking at” issuing sovereign digital currencies, she said at a virtual conference in February. Yellen said a digital version of the dollar could help address hurdles to financial inclusion in the U.S. among low-income households.

A recent report from the U.S. Director of National Intelligence said the extent of the threat of any foreign digital currency to the dollar’s centrality in the global financial system “will depend on the regulatory rules that are established.”

China’s currency makes up little more than 2% of global foreign exchange reserves compared with nearly 60% for the U.S. dollar. Policy decisions, rather than technical developments, will also be necessary to push forward yuan internationalization, as China maintains a strict regime of capital controls.

China’s financial system is too “fragile and weak” to pose a real threat to the dollar’s status as the world’s reserve currency, according to Mark Sobel, U.S. chairman for the Official Monetary and Financial Institutions Forum.

“At the end of the the day the markets have more confidence in the Fed” than China’s central bank, said Sobel, a former senior U.S. Treasury official for international matters.

Updated: 4-12-2021

Peter Thiel Defines Bitcoin’s Unstoppable Role In Global Politics

Thiel’s comments about China “weaponizing” bitcoin to hurt the U.S. are a warning about the cost of inaction.

The battle over bitcoin’s evolving role just became a piece in a complex game of political strategy.

Peter Thiel’s talk earlier this week at a Richard Nixon Foundation event thrust the cryptocurrency even further out onto the geopolitical stage and highlighted two important macro narratives that investors should keep an eye on and not just for their potential impact on crypto returns.

Here’s One Extract From His Comments:

“I do wonder whether bitcoin should be thought of as a Chinese financial weapon against the U.S. It threatens fiat money, but it especially threatens the U.S. dollar.”

As with most things in life, context is key, and this statement is crying out for it.

On the surface, it seems as if he is asking U.S. regulators to prevent bitcoin from becoming more of a threat to the U.S. dollar. This is the wrong interpretation. The underlying intention is both more meaningful and more supportive of bitcoin and, ultimately, the U.S. than it may at first appear.

Others have pointed out that Thiel is probably playing 4D chess here, and I agree with that. But I believe his underlying message is about more than bitcoin and about more than trying to get the U.S. to sit up and take notice.

Bitcoin As A Weapon?

Before we unpack why Thiel might have said what he said, let’s look at what he might have meant.

Why Would Bitcoin Threaten The U.S. Dollar?

As early as 2013, Thiel was talking about bitcoin’s potential to “change the world,” and has on other occasions praised bitcoin’s reserve qualities.

Thiel seems to be suggesting that bitcoin’s stable supply and worldwide reach could one day put it in a position to rival the U.S. dollar as the world’s reserve currency. And his statement implies he believes China is supporting bitcoin, effectively “weaponizing it,” for this reason.

Does He Really Believe This?

He has access to several of the best minds in the crypto industry through some of the investments made by his funds, and is arguably a very smart individual himself. He has acknowledged that bitcoin is not the best payments system, and surely recognizes the dollar is a strong reserve currency precisely because it is an efficient payment method. Countries want to hold it because it is essential for global commerce.

And as for China “weaponizing” bitcoin to hurt the dollar, Thiel is no doubt aware of just how long China is on the dollar. Chinese investment of U.S. Treasury bonds has been increasing since October of last year, and is now at almost $1.1 trillion.

What’s more, on the current macro landscape, bitcoin is probably well below central bank policies on the list of things that could hurt the U.S. currency.

And Thiel probably knows China has not exactly been “friendly” to bitcoin. On top of the years-old ban on crypto exchanges, authorities moved to shut down bitcoin miners in Inner Mongolia last month.

Given the country’s constant battle with capital flight, it’s more likely it wishes bitcoin would just go away. And if it really wanted to weaken the dollar (which is debatable), it has methods within reach that would not also cause damage to the yuan.

So, Thiel may have said that China was trying to bring down the U.S. dollar by “weaponizing” bitcoin, but I doubt he really believes that. So why did he say so? What is he hoping to achieve?

The Real Issue

To dive into these questions, we need even more ladlefuls of context.

The theme of the seminar was technology and national security. The comment flagged above was tucked into an answer to a question about China’s digital currency plans, and a discussion flowed about the potential control that would give the state over its citizens. The conversation also touched on AI, supply chains and much more, all with a sharp tinge of concern about ideological influence. Thiel even referred to the Chinese government as “omni malevolent.” Let that sink in.

Thiel’s remarks on bitcoin were most likely, as many have pointed out, an attempt to get the U.S. regulators to start taking bitcoin more seriously. But they were also about the broader threat to U.S. dominance that he sees coming from China.

The first point may seem risky – many are concerned the U.S. might decide to ban bitcoin if it starts to see it as a threat. But, as I’ve written elsewhere, this is unlikely to happen as authorities have been watching the social unrest triggered by attempts to curtail cryptocurrency activity in countries such as Nigeria. Plus, a U.S. attempt to ban bitcoin would be the best advertisement that something like bitcoin is needed, and the domestic fallout could shore up China’s soft power play.

It is more likely that greater attention to bitcoin regulation would support investment in crypto infrastructure, which would have extended effects throughout the industry. This includes putting institutional investors’ minds more at ease with the concept, and possibly even removing the last barriers to approval of a bitcoin exchange-traded fund by the U.S. Securities and Exchange Commission.

The Arc Of History

Now, let’s turn to the broader context. As a declared Republican who donated generously to Donald Trump’s first presidential campaign, Thiel was closer to the last administration than this one. He, and others, are concerned the new administration will take a more relaxed stance on relations with what many see as the greatest threat to U.S. power since the Cold War: China.

This almost nationalistic tone can also be heard in Kevin O’Leary’s insistence on CoinDesk TV last month that investors aren’t going to want “China coin.”

What’s more, the 2021 National People’s Congress held in February ratified the next five-year plan, which focuses on, among other things, shoring up China’s position on the global stage. The previous five-year plan described how a peaceful multilateral world would benefit China. This one highlights the danger of “hegemonism,” and describes a strong economic growth based on a vibrant domestic economy that is less dependent on others.

The crescendo in anti-American rhetoric and diplomatic actions point to escalating competition for not only trade but also hearts and minds on the international stage. The soft-power battle is being backed by loans and investment far beyond China’s borders in what appears to be a long game of influence.

I heard an interesting metaphor the other day: The U.S. favors chess, which is about capturing the opponent’s pieces in order to kill its king. The Chinese prefer Go, which is about a slow and stealthy occupation of territory.

Thiel seems to be saying the Chinese are playing Go with bitcoin as well as with blockchain, AI and other new technologies. He is effectively asking the U.S. to watch out for the territorial creep its inaction is facilitating.

Thiel’s talk is likely to have repercussions, slow and subtle but real and meaningful. Hopefully, U.S. regulators will recognize the real opportunity in supporting the use of bitcoin and the development of its infrastructure.

Hopefully, they will see that bitcoin is more representative of the American values of freedom and choice than many of the other new technologies making their mark on societal structures today. And hopefully they will understand that bitcoin will thrive no matter what they do, so they might as well start figuring out how to harness its innovation.

For those of us who love irony, there is much to appreciate in this emerging picture. Bitcoin is being thrust into a tussle between two world powers when it was created to live outside national boundaries. It is being associated with political intent when its inbuilt ideology is supposed to flourish outside party lines. It is being used as a tool in a shift away from globalization and towards nationalism when its design is based on decentralization.

Here’s the thing: Bitcoin doesn’t care. It can be what anyone wants it to be. It’s going to continue functioning the way it does, regardless of how people see it. I’m pretty sure Peter Thiel knows that, and so if he wants to use bitcoin to make larger points that he believes are necessary for prosperity and freedom, then I say we leave him to it.

Updated: 4-13-2021

Republican Kevin McCarthy Says Fed Chair Jerome Powell Needs More Education On Crypto

The House minority leader said the United States should not take a backseat to China when it comes to digital currencies.

Kevin McCarthy, the minority leader in the U.S. House of Representatives, hinted that both the current Secretary of the Treasury and chair of the Federal Reserve may need to reevaluate their positions on crypto.

Speaking on CNBC’s Squawk Box this morning, host Joe Kernen asked the Republican lawmaker whether either Treasury Secretary Janet Yellen or Fed chair Jerome Powell had a “good understand of digital currencies or Bitcoin.” In regards to Bitcoin (BTC), McCarthy claimed both the officials had “tried to ignore it to make it go away” while urging those in government to see the potential of crypto.

“This is moving towards the future,” said McCarthy. “They should not ignore it. They should not only learn more about it, but the basis is going to continue to grow. This is something that those who regulate, those who are in government that make policy, better start understanding what it means for the future because other countries are moving forward, especially China.”

Confirmed in January, Treasury Secretary Janet Yellen has referred to cryptocurrencies as a “growing concern” in the United States, and that the government should to examine ways to “curtail” their use as part of anti-money laundering efforts. Jerome Powell, who has served as Fed chair for three years, seemingly echoed some of Yellen’s sentiments on crypto last month, saying Bitcoin is “backed by nothing” and too volatile to be useful as a store of value.

The House minority leader has previously given his views on crypto, saying in 2019 that he likes the security aspects of blockchain technology and encouraged the U.S. government to start using it for more efficiency and transparency. However, he also criticized the Facebook-backed Libra token, now Diem, for being too centralized.

Updated: 4-15-2021

Casino Gambling Mecca Macau Says Using China’s Digital Yuan Will Be Death Knell For Industry

Macau has moved a step closer to the potential introduction of a digital currency as it seeks to better combat money laundering and tax evasion in the world’s biggest gambling hub.

The government plans to amend laws to regulate the issuance of a virtual legal tender, Chief Executive Ho Iat Seng told lawmakers Tuesday. The government will work with China’s central bank to “study the feasibility of issuing a digital currency,” he said.

Although no formal plans have been announced on whether or how a digital currency would be implemented, some junkets — businesses that act as middlemen for Chinese high-rollers who make up half the city’s gambling revenue — are worried the imposition of a traceable, government-linked currency will be the death knell for an industry already hobbled by the virus and stricter rules around high-stakes gambling.

A number of casino operators have been approached by Macau’s regulator to discuss the feasibility of using a digital yuan to buy gambling chips, Bloomberg News reported in December.

The aim of introducing a virtual currency is to improve effectiveness in reducing money laundering, tax evasion and terrorism financing, according to Ho.

The plan comes amid a slow recovery from the slump in casino revenue caused by the pandemic travel curbs that kept lucrative Chinese gamblers away.

Casino analysts still need more details to evaluate the impact of the potential launch of a digital yuan. The mandatory use of a digital currency as the only option for buying gambling chips would be negative for Macau casinos by essentially eliminating the junket system, according to an earlier note by Sanford C. Bernstein analysts led by Vitaly Umansky.

However, it would be a long-term positive, especially for the premium mass-market, if a digital yuan becomes one of the options that offer easier access to money in the city, the analysts said.

The People’s Bank of China has trialled a digital yuan in several cities, putting it on track to be the first major central bank to issue a virtual currency. A broader rollout is expected for the Winter Olympics in Beijing in February 2022, giving the effort international exposure. The development of a digital yuan has raised U.S. concerns of a potential threat to topple the dollar as the world’s reserve currency in the long term.

ECB Says Public Values Privacy Above All For Digital Euro

The European Central Bank’s public consultations on a digital euro have revealed that privacy is valued above all other features for any new form of the currency.

The top priority for 43% of citizens and professionals who responded was for their payments to remain private, according to a report published by the institution on Wednesday. Other features that were considered important included security, usability across the euro area, the absence of additional costs, and offline use.

While the ECB hasn’t yet decided whether it will launch a digital euro, the consultation is a first step in determining what kind of design would make it acceptable and usable for consumers and businesses.

Central banks around the world are toying with the idea of issuing a digital version of their currencies to keep up with technological advances that have spurred the rise of Bitcoin and other private initiatives. Bitcoin rose to a record high on Wednesday as cryptocurrency exchange Coinbase Global Inc. reached a valuation of $105 billion in its trading debut.

“We will do our best to ensure that a digital euro meets the expectations of citizens,” ECB Executive Board member Fabio Panetta said in statement alongside the report.

When choosing specifically between an offline digital euro focused on privacy, an online one with innovative features and additional services, or a combination of the two, “citizens generally opted for an offline solution focused on privacy, ” the ECB said in its report.

A minority actively opposed the issuance of a digital euro, mainly because they didn’t believe that the ECB would maintain the availability of cash and would use the new tool to pass on deeply negative interest rates to consumers, it said.

Other Key Takeaways From The Report Include:

* Around a quarter of respondents took the view that a digital euro should make cross-border payments faster and cheaper. They want the digital euro to be usable outside the euro area, though with limits.

* Despite prioritizing privacy, both citizen and professional respondents supported requirements to avoid illicit activities, and less than one in ten were in favor of anonymity.

* A quarter of the respondents favored end-user solutions comprising smart cards or a secure element in smartphones to facilitate cash-like features.

* The consultation was launched on Oct. 12 and concluded on Jan. 12, receiving over 8,200 responses, 94% of which were from private citizens.

The ECB’s Governing Council will decide in mid-2021 “whether to launch a formal investigation phase in view of a possible launch of a digital euro,” the report said.

Updated: 4-18-2021

PBoC Deputy Governor, Says “We Believe That Crypto Assets Should Play A Major Role Either As An Investment Tool Or As An Alternative Investment.”

The central bank official said stablecoins issued by private companies may require “stronger regulatory rules” than Bitcoin.

Li Bo, recently appointed deputy governor of the People’s Bank of China, or PBoC, reportedly spoke on the benefits of crypto as an investment tool while highlighting regulatory uncertainty in the country surrounding digital assets.

According to Chinese journalist Colin Wu, Li made the comments at the Boao Forum in southern China on Sunday. The PBoC head said there are still regulatory risks for the central bank, citing its previous ban on initial coin offerings and cryptocurrency exchanges.

Li reportedly said the PBoC will “continue to maintain the current measures and practices” as it explores any potential change in regulation, but seemed to recognize the investment potential of crypto.

“We believe that Bitcoin and stablecoins are encrypted assets,” said Li. “Encrypted assets are an investment option, not currency itself. It is an alternative investment, not currency itself. Therefore, we believe that crypto assets should play a major role in the future, either as an investment tool or as an alternative investment.”

The PBoC deputy governor added that stablecoins issued by private companies may require “stronger regulatory rules” than Bitcoin (BTC), saying:

“In the future, if any stablecoin hopes to become a widely used payment tool, it must be subject to strict supervision, just like banks or quasi-bank financial institutions are subject to strict supervision.”

Li, one of seven deputies to PBoC governor Yi Gang and former vice mayor of the Chinese municipality of Chongqing, is seemingly taking a stronger position for the central bank to recognize crypto as a store of value. His appointment as deputy governor was announced last week.

His comments come alongside former PBoC president Zhou Xiaochua, also in attendance at the Boao Forum, who seemed to make a distinction between the “real economy” and the one in which digital currencies play a role:

“Finance is to serve the real economy. Whether it is digital currency or digital assets, it should be closely integrated with the real economy and serve the real economy.”

China’s central bank is currently moving forward with piloting its digital yuan project first proposed in 2014, now testing the digital currency in major cities across the country.

Li added that the PBoC would be “focusing primarily on domestic use” for the digital yuan, saying China may consider cross-border payments and transactions “in the long term.” The country is reportedly planning to put the digital currency into use at the 2022 Winter Olympic Games in Beijing.

Updated: 4-18-2021

ECB Endangers Itself By Waiting Around On Digital Euro, Says ConsenSys Exec

“Who’s gonna use the euro in its current form? There are gonna be so many choices,” said ConsenSys South Africa lead Monica Singer.

The European Central Bank will put itself in jeopardy if it waits around o a digital euro for too long, according to an executive at major cryptocurrency firm ConsenSys.

ConsenSys South Africa lead Monica Singer joined the European Blockchain Convention to discuss the role of the private sector in shaping global central bank digital currencies, or CBDCs. She spoke of CBDC-powered benefits and opportunities in a Monday panel with BNP Paribas CIB digital transformation leader Dean Demellweek and Philipp Sandner, a professor at the Frankfurt School Blockchain Center.

Singer — who served more than 18 years as CEO of South Africa’s central securities depository, Strate — believes that the existing financial system is far from perfect.

According to the executive, the current financial system is broken due to the many intermediaries, and initiatives like a CBDC are a chance for central banks to repair their mistakes. As such, CBDCs can help the world to bank the unbanked as well as unlock more cost-efficient ways to get access to money for the private sector and end-customers, Singer noted.

If global banks miss this opportunity, alternatives from private tech giants like Facebook could make fiat currencies obsolete, she said:

“If the central bank in Europe is gonna wait until 2028, by then there won’t be a central bank. Because who’s gonna use the euro in its current form? There are gonna be so many choices.”

As previously reported, the ECB expects to decide whether to begin experimenting with a digital euro by mid-2021. ECB President Christine Lagarde believes that the adoption of a European CBDC would take at least four years. Meanwhile, some countries like China have been actively experimenting with a CBDC since April 2020.

US Policy Adviser Rebuts Peter Thiel: Bitcoin Won’t Undermine USD

One policy maker says China is unlikely to use bitcoin as a financial weapon against the U.S. dollar.

A member of a Congressional group tasked with looking at the national security implications of the U.S.’s economic relationship with China said Thursday that bitcoin  is no threat to the U.S. dollar, despite what Peter Thiel thinks.

Specifically, bitcoin does not compete effectively with fiat currencies because of its unstable price, said Alex Wong, a member of the U.S.-China Economic and Security Review Commission created by Congress in October to evaluate the U.S.-China relationship.

During its hearing Thursday Wong made the comment after he asked an expert witness about the accuracy of Thiel’s recent claim that bitcoin would be a threat to the U.S. and that it would benefit Beijing.

“I think the characteristics that make bitcoin attractive make it not really competitive with fiat currencies because when you buy a bitcoin, you don’t really know it’s going to be twice as much or 20% less tomorrow,” Wong said. “It is extremely volatile.”

Yaya Fanusie, an adjunct senior fellow at the Center for a New American Security and the expert witness in question, responded that the American entrepreneur’s concerns are “overblown.”

Fanusie said Thiel was referring to the fact that computing power to mine bitcoin is heavily concentrated in China, so the country could be able to hold and control bitcoin. In reality, he claimed, that would not be an issue due to the bitcoin network’s decentralized nature.

“If there were ever a case where there was so much national security leverage there or disadvantage, it’s not like additional mining couldn’t be built outside of China,” Fanusie said.

Thiel, the co-founder of digital payment giant PayPal, a bitcoin maximalist and early backer of Ethereum, has been critical of American tech companies such as Facebook and Google for their ties to China. He also co-founded the technology firm Palantir in 2004, whose clients include the CIA and FBI intelligence agencies, according to TechCrunch.

Bitcoin is not as effective for busting sanctions as it appears and stablecoins are more likely to compete with fiat currencies in the future, according to Wong.

“It is less likely they compete with the U.S. dollar than it is to countries that have limited access to regular dollars and use stablecoins as the substitute,” Wong said of stablecoins. Meanwhile, the People’s Bank of China, the country’s central bank, has made it clear its planned digital yuan will be the one and only yuan-pegged stablecoin used in China.

Updated: 4-19-2021

China Aims To Let Foreigners Use Digital Yuan At Winter Olympics In 2022

China wants to allow foreign athletes and visitors to use the county’s digital currency during the Beijing Winter Olympics in 2022.

China’s central bank is looking to enable foreign athletes and visitors to use the country’s digital currency during the Beijing Winter Olympics in 2022, according to a top central bank official.

Li Bo, deputy governor of the People’s Bank of China, said that the upcoming Winter Olympics could potentially become the first test of China’s central bank digital currency, or CBDC, by foreign users.

“For the upcoming Beijing Winter Olympics, we were trying to make e-CNY available not only to domestic users, but also to international athletes and like visitors,” Li said Sunday at a CNBC panel at the Boao Forum for Asia. The bank previously announced its plans to test the digital yuan at the event in August 2020.

The official said that the PBoC doesn’t intend to replace the U.S. dollar’s dominance as the world’s reserve currency. Li reportedly noted that the central bank is focused on the domestic use of the digital yuan.

“For the internationalization of renminbi, we have said many times that it’s a natural process and our goal is not to replace the U.S. dollar or any other international currency. I think our goal is to allow the market to choose and to facilitate international trade and investment,” he stated.

Despite the PBoC’s focus on the domestic digital yuan, China’s central bank is still exploring cross-border CBDC use. “At the same time, working with our international partners. Hopefully, in the long term, we have a cross border solution as well,” Li said. At the forum, Li also said that China’s central bank now views the major cryptocurrency Bitcoin (BTC) as an “investment alternative.”

After launching its first domestic digital yuan tests in 2020, China started cross-border CBDC pilots in collaboration with central banks in Hong Kong, Thailand and the United Arab Emirates in February. On April 1, the director of the PBoC’s research bureau, Wang Xin, announced that China’s central bank completed the first cross-border pilots of the digital yuan with the Hong Kong Monetary Authority.

Chinese authorities have stressed multiple times that the government is not seeking to replace existing fiat currencies including the U.S. dollar with the digital yuan. “We are not like Libra and we don’t have an ambition to replace existing currencies,” Zhou Xiaochuan, the president of the Chinese Finance Association and former PBoC governor, said in late 2020.

As previously reported by Cointelegraph, the United States has taken a careful approach toward CBDCs due to the U.S. dollar’s status of the world’s reserve currency and other CBDC-related challenges like privacy. The European Central Bank is also still deciding whether Europe needs a digital euro, with ECB President Christine Lagarde expecting the digital currency to be adopted in four years, at the earliest.

Updated: 4-19-2021

Bahamas Ranked First For Retail CBDC Development, According To PwC

Countries like the Bahamas and Thailand are on the leading edge of CBDC development, according to a new research report.

A new ranking of global central bank digital currencies, or CBDCs, places the Bahamas at the top of the leaderboard in terms of retail applications – offering an important glimpse in the race to issue government-backed cryptocurrencies.

In its 2021 CBDC Index, global consulting firm PwC surveyed the level of central-bank maturity in deploying cryptocurrencies based on two factors: retail applications and interbank applications. Retail applications refer to CBDCs that can be held and transacted directly by individuals and companies in the form of digital cash. Interbank or wholesale CBDCs, meanwhile, are restricted to major financial institutions for settlement.

“More than 60 central banks have already entered the central bank digital currency race, said Benoit Sureau, a PwC partner for the France & Maghreb region. He described CBDCs as a “game-changer” that will provide “access to alternative payment solutions for citizens and corporates…”

The retail CBDC ranking gave the Bahamas a score of 92 out of 100 to lead all other countries. Cambodia was a distant second at 83, followed by Mainland China (75) and Ukraine (71).

The Bahamas scored favorably due to the successful implementation of its so-called Sand Dollar in October 2020. Backed by the Central Bank of The Bahamas, the Sand Dollar is a digital version of the national currency issued through authorized financial institutions, or AFIs. As PwC notes:

“All residents can access the digital wallet through the mobile application or a physical payment card. The records collected during daily operations, such as income and spending information, can support applications for micro-loans.”

As Cointelegraph recently reported, Sand Dollar is nearing commercial rollout after achieving full interoperability between various wallet providers.

Although Mainland China began developing its retail CBDC in 2014, the country failed to crack the top ten, according to PwC.

Project maturity for interbank CBDCs is being led by Thailand and Hong Kong, both of which achieved a score of 80 out of 100.

Singapore is third with a score of 75, followed by Canada (69), United Kingdom (68) and France (64).

Thailand has been eyeing CBDC development since at least 2018, having achieved a successful prototype the following year.

Bahamas Tops China In Ranking of Central Bank Digital Currencies

the maturity of central banks’ retail digital currency projects, according to a report from PwC.

More than 60 central banks are now exploring digital currencies, with retail projects more active in emerging economies given the importance of financial inclusion, while interbank or wholesale applications tend to be more predominant in advanced economies, the report said.

The Bahamas and Cambodia take top marks in retail because their projects are already live, while China is still in the test phase. Only 23% of retail projects have reached implementation stage, while nearly 70% of wholesale projects are running pilot programs, according to the report.

“CBDCs will contribute significantly to the modernization of the international monetary landscape, hand-in-hand with reconfiguration in both payment and financial infrastructure,” PwC said. “They will generate numerous opportunities for further digitization in both corporates and financial institutions, as their integration in payment and financial infrastructure progresses.”

Central bank efforts at digital currencies accelerated first after Bitcoin became more popular and then once the Facebook Inc.-backed Libra project, now named Diem, was announced.

With China in the testing phase on its digital yuan, other countries have accelerated their efforts. Jurisdictions like Sweden and the European Union are starting to make some headway. The Federal Reserve, though, has signaled it’s in little rush to get a digital dollar off the ground.

Digital Yuan

China’s efforts to create a digital yuan are aimed at domestic use and its goal for internationalizing its currency is not to replace the dollar, a senior official from its central bank said Sunday.

As for interbank or wholesale projects, Thailand and Hong Kong SAR tied for the top ranking, according to the PwC report. They’re followed by Singapore, Canada and the U.K.

The report also said more than 88% of CBDC projects at pilot or production phase use blockchain as the underlying technology. While it isn’t always necessary for such projects, it helps offer secure transfer of ownership, transparent audit trails and increasing interoperability with other digital assets, the report said.

“The general public will be one of the biggest beneficiaries of CBDCs as it will give them access for the first time to a digital form of central bank money,” said Henri Arslanian, global crypto leader at PwC. “And that is a big milestone in the evolution of money.”

 

Updated: 4-20-2021

UK Government Establishes Central Bank Digital Currency Task Force

The United Kingdom is the latest country to begin exploring the possibility of creating a central bank digital currency.

Her Majesty’s Treasury and the Bank of England have begun preliminary central bank digital currency studies that could result in the creation of a national digital currency.

In a document published by HM Treasury, the exchequer announced the creation of a CBDC task force in collaboration with the United Kingdom’s central bank.

Sir Jon Cunliffe, deputy governor of the Bank of England, and Katharine Braddick, director general of financial services at HM Treasury, will co-chair the task force.

According to the terms of reference document, the task force will synergize the efforts of all relevant statutory bodies in the U.K. regarding CBDC development.

As part of its duties, the task force will explore preliminary issues associated with the design, implementation and operation of a CBDC in the United Kingdom. The task force will also interface with stakeholders across academia, fintech and other relevant industries to identify the technological hurdles involved in creating a sovereign digital currency.

The joint HM Treasury and BoE task force will also monitor CBDC-related developments on the international scene, especially as other nations are actively exploring their own central bank digital currency projects.

According to a BoE press release issued on Monday, the central bank will also run its own internal CBDC unit headed by Cunliffe.

The establishment of the task force is yet another indication of the U.K. government’s focus on digital currencies and fintech in the aftermath of Brexit. In November 2020, Rishi Sunak, chancellor of the Exchequer, said that Brexit offered an opportunity for the U.K. to revamp its financial services sector.

Since Brexit, Sunak has overseen a significant policy shift toward harnessing novel fintech innovations like a CBDC and stablecoins. As previously reported by Cointelegraph, U.K. financial services minister John Glen has identified stablecoin regulations as the major focus of the government in the area of cryptocurrency regulations.

According to a report by Reuters, the U.K.’s financial market focus is also extending toward distributed ledger technology firms. Speaking during a financial industry conference on Monday, Sunak announced that the government plans to establish a fintech sandbox for blockchain startups.

Updated: 4-21-2021

A Digital Yuan Should Be Welcomed By The U.S.

An app-based international Chinese currency would be good for American exports and the global financial network — which is also why it may never happen.

Once again, people are talking about a digital currency. This time, it’s the potential competitive threat from a digital yuan. But there’s no threat here at all — if China creates a digital currency, it’ll be little different from the payment methods they already use. And if the yuan partially replaces the dollar as the global reserve currency, that’s a good thing, not a bad thing.

Since about a year ago, China’s government has been publicly discussing the possibility of a digital yuan. When people talk about digital currencies, they think about Bitcoin and other cryptocurrencies, but a digital yuan — or any digital government-backed currency — would almost certainly not be like that.

It would simply be an app on people’s phones that would hold a certain amount of yuan that you could send to other people. In other words, it’s more like Venmo than Bitcoin. This makes sense, because Bitcoin uses an extremely laborious and expensive process to verify transactions, but transactions with the digital yuan app could just be verified by China’s central bank much more cheaply.

So what does it matter if China’s government makes an app that allows people to pay each other money? After all, most yuan transactions are already digital, so the practical difference for the average Chinese person would be very low. China’s existing fintech companies might be crushed by the competition, but for China’s rulers that might be a feature rather than a bug — they’ve already taken steps to curb the power of Ant Group Co., which handles most of the country’s digital transactions.

And a digital yuan would definitely give the government greater control over its citizens’ finances, since it could trace all transactions and presumably also freeze citizens’ accounts if it wanted. All of this would be in keeping with the Chinese state’s recent moves toward greater control of the economy and daily life.

But should the U.S. be concerned? There are reports that the Biden administration is worried that a digital yuan could compete with the dollar and potentially supplant the U.S. currency at the center of the global financial system. But that’s just not a thing worth worrying about.

Currently, the dollar is the currency most commonly used in transactions in the global banking network, with the Euro being its only real competition. Despite China’s economy being about as large as that of the U.S. or Europe, very few international transactions are done in yuan.

The fact that dollars are so commonly used in transactions creates a natural demand for dollars all over the world, since institutions need to keep some dollars on hand to make payments. That pushes up the value of the dollar, which in turn makes U.S.-made goods more expensive on world markets.

A “strong dollar” may make for a good slogan, but if you’re an American company looking to sell products overseas, a strong dollar actually makes you weaker.

Making the yuan an important part of the global financial system might therefore raise prices for American consumers (because imports would cost more), but it would raise employment and wages at businesses that export. Given the concerns over America’s deteriorating competitiveness, that’s a tradeoff the Biden administration might be happy to make.

Another advantage of a more internationalized yuan would be global financial stability. Currently, with the dollar as the world’s main reserve currency, the world financial system is extremely vulnerable to any unrest and instability in the U.S. — for example, a more effective version of the Jan. 6 insurrection. Adding the yuan to the world’s reserve basket would diversify part of this single-country risk.

In other words, a more internationalized Chinese currency is in the interest of both the U.S. and the world. Unfortunately, this might be why China never goes very far with the whole digital yuan project. The country is still deeply committed to its mercantilist strategy of keeping the yuan cheap in order to boost international demand for Chinese products, thus cementing China’s status as the world’s manufacturing center. A digital yuan, if available outside China’s borders, could compromise that strategy.

An internationalized yuan could also allow destabilizing hot-money inflows as people around the world downloaded the yuan app in order to buy up Chinese real estate and other assets. International investors are notoriously fickle; this kind of frenzy can quickly reverse, causing a damaging price crash.

Finally, an internationalized digital yuan could allow Chinese citizens and companies to move money out of the country very quickly in the event of a crisis. This happened when the country’s stock market crashed in 2015; only by tightening capital controls was China able to stanch the outflow of money. A digital yuan would make such interventions much harder.

So China seems unlikely to create a digital yuan that reaches beyond its national borders. It would endanger too many pieces of the state-directed growth model the country has successfully used heretofore. And if an international digital yuan eventually does emerge, so much the better.

Updated: 4-22-2021

Nigerians Shun Naira For Foreign Currencies To Protect Wealth

Nigerians have been accumulating foreign currencies to protect their wealth from naira volatility and surging inflation, according to a research paper in a journal published by the Central Bank of Nigeria.

“Higher real-exchange rate volatility is associated with an increased level of currency substitution,” central bank economists including Isaiah Ajibola, Sylvanus Udoette, Rabia Muhammad and John Anigwe said in the paper available on the central bank’s website.

There is a need to contain “exchange-rate volatility and inflation as a way of curbing the spate of currency substitution in the country,” they said.

One measure of currency substitution, the ratio of foreign cash deposits to naira deposits on demand in the banks exceeded the International Monetary Fund’s 30% threshold from 2009 following the global financial crisis, the researchers said.

It hit a peak of 98.2% in 2014 before declining to 83% in 2018. A broader measure of foreign currency in banks to naira savings, demand and term deposits, stayed largely within the IMF limit over the study period from 1995 to 2018.

Africa’s largest economy devalued the local unit twice last year after a crash in the oil price triggered by the coronavirus pandemic hampered revenues. While crude contributes less than 10% to the country’s gross domestic product, it accounts for nearly all foreign-exchange earnings and half of government revenue in the continent’s biggest producer of the commodity.

The naira has lost 66% of its value since 2009 when it exchanged at 149 naira to the dollar. The unit traded at 409.35 naira per dollar at the spot market as of 5:27 p.m. in Lagos on Wednesday. Nigeria’s inflation quickened to the highest level in four years in March and is now more than double the 9% limit of the central bank’s target range.

The central bank previously issued a warning to merchants to stop offering local goods in foreign currency and also banned the practice of accessing the foreign-exchange market for settling domestic transactions.

“The key policy implication of currency substitution is that it reduces monetary policy effectiveness,” the researchers said. “Efforts to further diversify the economy should be of paramount interest to boost the base for foreign-exchange earnings.”

Updated: 5-30-2021

Crypto Will ‘Come To Life’ In Nigeria, Central Bank Governor Says

Emefiele said the Nigerian government will do its best to prevent crypto from being used to finance illicit activities.

At a 279th meeting of the Monetary Policy Committee in Abuja, Central Bank of Nigeria Governor Godwin Emefiele expressed confidence that cryptocurrencies like Bitcoin (BTC) will be legal in the country, Business Insider reported on Wednesday.

Emefiele did not directly mention a decision to reverse the CBN’s February ban of institutions from buying and selling crypto but noted that the bank has been investigating the industry:

“We are committed in the CBN, and I can assure everybody that digital currency will come to life even in Nigeria […] Under cryptocurrency and Bitcoin, Nigeria comes 2nd, while on the global side of the economy, Nigeria comes 27th. We are still conducting our investigation, and we will make our data available.”

Emefiele also said the Nigerian government will do its best to prevent crypto from being used to finance illicit activities. “We found out that a substantial percentage of our people are getting involved in cryptocurrency, which is not the best. Don’t get me wrong, some may be legitimate, but most are illegitimate,” he said.

The banker also expressed concerns over the crypto market crash in mid-May, which has been largely attributed to Tesla’s decision to suspend Bitcoin payments for its cars and Elon Musk’s further criticism of BTC:

“We saw the market collapse. Initially, when Elon Musk tweeted around the time when we said our banking and payment facilities are no longer available for cryptocurrency transactions, and he tweeted that he will invest $1.5 billion, and the price went up. He now tweeted and raised a few concerns, and the thing plunged.”

The CBN did not immediately respond to Cointelegraph’s request for comment.

As previously reported, Nigeria has emerged as the biggest source of Bitcoin trading volume in Africa as of August 2020, also becoming one of the fastest-growing crypto markets in the world. According to data from Bitcoin P2P marketplace Paxful, Nigeria ranked second only to the United States in trading volume as of December 2020.

Amid the growing adoption of Bitcoin, Nigeria’s national currency, the naira, has been falling. “Bitcoin has made our currency almost useless or valueless,” Senator Sani Musa of the Niger East Senatorial District said in February. Following Emefiele’s latest remarks, the naira dropped 1.2% to near a three-and-half year low on the black market on Thursday.

 

Updated: 4-26-2021

Chinese Online Retail Giant JD.com Adopts Digital Yuan For Salary Payments

Chinese e-commerce company JD.com has upped its support for the country’s central bank digital currency.

JD.com has been using China’s Digital Currency Electronic Payment, or DCEP, system to pay the salaries of some employees since January.

The e-commerce firm revealed the news on Sunday while announcing its participation in the one-year DCEP trial show at the fourth Digital China Summit in Fuzhou slated for Sunday and Monday.

Commenting on its digital yuan adoption journey, the company stated that apart from paying staff salaries, JD has also utilized the DCEP in business-to-business payments to partner firms as well as cross-bank settlements.

As previously reported by Cointelegraph, JD Technology and Digital Currency Research Institute — the company’s fintech arm — has been a DCEP development partner with the People’s Bank of China since September 2020.

In December, the online retailer began accepting the digital yuan as a payment method on its website. According to a previous Cointelegraph report, JD.com received almost 20,000 DCEP-funded orders during the first week of adoption.

JD has also supported DCEP trials, contributing about $4.6 million to Suzhou’s second public lottery event back in February. Commenting on the company’s continued support for the digital yuan, Fei Peng, DCEP head at JD Tech, said: “JD Technology will continue to combine strengths in the supply chain, omnichannel scenarios, advanced technology, and client service experience to contribute more to the DC/EP ecosystem.

Meanwhile, JD’s continued support for the digital yuan puts AliPay and WeChat Pay’s absence from several DECP trials into even more stark relief. From ride-hailing services like DiDi Chuxing to streaming platforms like Bilibili, several firms are involved in testing China’s central bank digital currency except for the two largest payment gateways in the country.

Opinions over whether the DCEP will seek to challenge the AliPay–WeChat Pay duopoly in China’s electronic payment market remain mixed. Back in October 2020, Zhou Xiaochuan, a former PBoC governor, argued that the digital yuan was the central bank’s counter to the dollarization of the economy.

Updated: 4-26-2021

Top Chinese Banks Promote CBDC Over Local Payment Firms For Shopping Festival

Leading Chinese banks are promoting the digital yuan over Alipay and WeChat Pay for an upcoming shopping festival in China.

Some of China’s largest state banks are actively promoting the digital yuan as a superior means of payment to the country’s two leading payment providers, Alipay and WeChat Pay.

In a Monday report, Reuters revealed that six of China’s largest banks are promoting China’s nascent central bank-issued digital currency, or CBDC, in Shanghai ahead of an online shopping festival on May 5.

The banks are urging retail outlets and consumers to download the digital wallet and make purchases using the CBDC, also known as e-CNY. This would bypass the current payment methods of choice for millions of shoppers, Ant Group’s Alipay and Tencent’s WeChat Pay.

The report notes that one bank official appointed to the CBDC trial’s rollout in Shanghai under the guidance of the People’s Bank of China specifically described the digital currency as superior to Alipay and WeChat Pay, stating:

“People will realise that digital yuan payment is so convenient that I don’t have to rely on Alipay or WeChat Pay anymore.”

Speaking at an online panel discussion in late March, the head of the PBoC’s digital currency research institute, Mu Changchun, stated that Alipay and WeChat Pay account for 98% of the mobile payment market in China, posing risks to the domestic financial system should they experience any issues.

Changchun noted the central bank does not intend to compete directly with Alipay and WeChat Pay but acts as a backup to “ensure financial stability in case something happens” to them.

However, the state has also been increasing efforts to curtail tech-giant dominance and clamp down on anti-competitive behavior in the internet sector. In early April, the government hit Alibaba with a record fine of $2.8 billion for monopolistic practices, according to CNN.

The rollout of China’s digital yuan will allow the central government to gain control over a share of the massive troves of financial data that are being hoarded by the country’s top payment providers.

“Big data is wealth. Whoever owns data thrives,” another banking official tasked with promoting the CBDC told Reuters, adding: “WeChat Pay and Alipay own an ocean of data.”

Commenting during the Consensus conference in May 2020, academic Martin Chorzempa stated it is “difficult” for Chinese financial regulators to compel the country’s top payment firms to hand over the data they have collected on their customers.

“[China’s CBDC] could potentially allow that central bank to get a lot more access to payment data and also to gain back some power from these companies,” he added.

The six banks in the CBDC pilot schemes comprise the country’s largest lenders, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, HSBC and China Construction Bank.

On April 1, China completed its first cross-border pilot of the digital yuan with Hong Kong.

Ant Group Highlights Private Sector’s Role In Developing Digital Yuan

Major tech and commerce firms have been instrumental in helping China’s central bank develop the digital yuan.

Major Chinese tech and commerce firms are starting to open up regarding their involvement in developing the digital yuan.

Ant Group and Tencent Holdings revealed the extent of their collaboration with the People’s Bank of China in developing the digital yuan at the Digital China Summit, an annual trade fair in the city of Fuzhou in southeastern Fujian province.

According to the South China Morning Post, Ant Group starting working with the PBoC on the digital yuan in 2017, years before China officially debuted digital currency pilots in 2020. In June 2019, China’s digital currency institute reportedly used Ant’s mobile app development platform to create its own digital yuan app.

Ant Group said that it started officially testing China’s digital yuan in July 2020, launching a digital currency trial in Shanghai late that year. The company also noted that Ant-backed digital bank MYBank became one of the financial institutions to offer the Chinese CBDC.

Tencent said that it started CBDC tests as early as February 2018, forming a team of digital yuan experts by the end of that year.

“Tencent has been taking part in the PBOC’s e-CNY project from the start, and will continue to carry out pilot trials in accordance with the guidance of the PBOC,” a spokesperson for the firm said.

Other companies like smartphone giant Huawei Technologies and e-commerce platform JD.com have also been involved in the digital yuan’s development. Huawei became the first smartphone to feature a hardware wallet for China’s digital currency last year. JD.com started collaborating with the PBoC in September 2020, providing its technology and service support for currency pilots. The company reportedly became the first online platform to accept the digital yuan in late 2020.

Updated: 4-29-2021

Iran Central Bank To Allow Money Changers, Banks To Pay For Imports Using Mined Crypto

The bank had previously stipulated only digital assets for import funding could be used by itself and no one else.

Iran’s central bank is reportedly allowing the country’s financial institutions to use cryptocurrency, derived from sanctioned miners, to pay for imports.

According to a report by the Financial Tribune on Saturday, the Central Bank of Iran (CBI) has notified money changers and banks of its amended regulatory framework for crypto payments.

The amendment means those institutions will now be able to pay for goods and services from other countries in a bid to circumvent U.S. economic sanctions. Some say the local crypto mining industry could generate as much as $2 million a day in revenue.

The bank had previously stipulated only digital assets for import funding could be used by itself and no one else. All miner’s coins had to be sold to the bank directly, as previously reported.

Updated: 4-30-2021

In what Has Become A De Facto World Tour Of Crypto Hot Spots, This Week We Head To Nigeria

We talked to two Nigerian entrepreneurs – Yele Bademosi, the CEO of payments app Bundle Africa, and Adia Sowho, a venture builder and operator – about the burgeoning crypto innovation ecosystem in their country.

Central Banks Warm To Issuing Digital Currencies (#GotBitcoin?)

Among this entertaining pair’s many insights was the idea the Nigerian Central Bank’s February order that banks shut down crypto companies’ access ended up being a positive for the industry. It spurred even more innovation in the space, inspiring local developers to dream up interesting new decentralized solutions for getting around the banking sector’s gatekeepers.

The idea dovetails with some we’ve heard from other guests – from Democracy Earth’s Santiago Siri, for example, who spoke of how the startup scene in his native Argentina is shaped and driven by the failure of the existing financial system and the efforts by authorities there to constrain people’s financial freedom.

It shows how the crypto world has fostered a new breed of developer-entrepreneur, one who no longer wants to work to change the existing system but is inspired to build entire new alternatives to it.

We also learned from Bademosi and Sowho that the narratives the crypto community in the industrialized world tend to embrace about the technology’s value in the developing world are often misplaced.

It’s convenient for people in the U.S. to talk up the idea that Nigerian activists were using bitcoin during the anti-government protests last year or that it is being used widely as a remittance and payments vehicle. But our guests point out those use cases aren’t as widespread as believed and that, much like in the U.S, most Nigerians are for now buying bitcoin as a store of value.

On the other hand, they tell us Nigeria specifically – and Africa generally – is a hotbed of innovation in DeFi.

And why not? The opportunities for experimentation and creativity for decentralized finance are arguably much greater in places where the existing financial system is underdeveloped.

Updated: 5-2-2021

Rolling Up The Sleeves: China’s Tech Giants Drive Digital Yuan Adoption

CBDC tests are proceeding toward deployment, as Chinese internet, fintech and e-commerce giants are leading the digital yuan vanguard.

While key central bank figures in the West like Jerome Powell and Christine Lagarde appear to be procrastinating on the subject of central bank digital currencies, China continues to make significant progress.

China’s digital currency electronic payment project, or DCEP, helmed by the country’s central bank, continues to draw significant private sector participation. From tech giants, to e-commerce conglomerates, many of the major private sector firms are playing pivotal roles in the quest to create the digital yuan.

DCEP testing also continues to expand, with trial runs via lotteries taking place across several cities. Banks like the Agricultural Bank and the Industrial Commercial Bank have taken a leading role in these DCEP pilot protocols, creating user wallets for consumers.

Tencent And Ant Group Are Major Digital Yuan Players

Amid the many DCEP pilots across China, the absence of Ant Group and Tencent, operators of the country’s two largest electronic payment platforms — AliPay and WeChat Pay — caused significant speculation. Indeed, the digital yuan project has been touted as Beijing’s response to curb the duopoly held by both companies.

These rumblings also intensified in late 2020 after Jack Ma, co-founder of Alibaba, seemingly withdrew from the public eye in the aftermath of comments labeled as criticism directed at Chinese financial regulators. In an address delivered at the Bund Finance Summit held in Shanghai back in October 2020, the billionaire accused Beijing of stifling innovation while characterizing Chinese banks as pawn shops.

Ant Group as a holding firm, which has been on the cusp of a $37 billion initial public offering, saw that its IPO plans halted suddenly. Commentators at the time put Ma’s disappearance and the IPO imbroglio down to comments made during the event.

However, while Ant Group is still under intense regulatory scrutiny in China, reports have emerged that a financial holding company has been involved in the digital yuan project with the central bank since 2017. Indeed, this revelation means Ma’s firm and the People’s Bank of China (PBoC) have been collaborating on what is now known as the DCEP years before the PBoC officially debuted the DCEP in 2020.

Furthermore, the Ant Group-backed MYbank is also one of the financial institutions tipped to offer the digital yuan. The PBoC’s digital currency research division has been using Ant’s mobile app development environment to create smartphone apps for the DCEP.

Back in February, MyBank and Tencent-backed WeBank were also confirmed as participants in expanded digital yuan trials. WeBank, arguably China’s largest digital bank with over 200 million customers, has a noted history with blockchain with the financial institution, filing the third-highest number of patents related to the novel technology back in 2019.

Commenting on the likelihood of the DCEP competing with established electronic payment rails in China, Yifan He, CEO of Red Date Technology, a major infrastructure provider on the country’s Blockchain Service Network told Cointelegraph:

“I don’t really think that the purpose of DCEP is to compete with Alipay/WeChat pay. If the government really wants to muzzle them, they have a lot of methods. The vision of DCEP is much bigger.”

Between Fintech And The Banking Gatekeepers

From lotteries to shopping festivals, Chinese banks have been moving to promote the digital yuan for retail adoption across several cities in the country. These trial runs seem to focus on getting user adoption for the DCEP, and having live interaction with wallets and payment platforms.

However, an argument could be made that the digital yuan needs more adoption in the business-to-business payment arena, so it could function as a full-fledged CBDC companion to the existing fiat as envisioned by the central bank. E-commerce giant JD.com is one of the few companies to test the DCEP for B2B payments.

Earlier in April, the online retailer revealed that it was already utilizing the digital yuan for B2B payments to partner firms, as well for cross-bank settlements. These types of use cases likely push the boundaries of the DCEP in its current form to an actual CBDC.

JD.com also revealed that it was already using the digital yuan for salary payments since January. The company has sponsored a few DCEP trials, contributing about $4.6 million for the second public lottery held in Suzhou.

The company is also another example of a significant role being played by the private sector in fostering greater DCEP adoption. In December, the online retail giant began accepting the digital yuan as a payment method on its platform, receiving almost 20,000 DCEP-funded orders in the week following its announcement at the time.

Like Tencent and Ant Group, JD.com is also involved in the developmental backend of the DCEP matrix. In fact, the company’s fintech division, JD Technology and Digital Currency Research Institute, has been a development partner with the PBoC since September 2020.

According to Wang Peng, an associate research fellow at the Chongyang Institute for Financial Studies of Renmin University of China, it is in the best interest of these companies to partner with the PBoC in developing the digital yuan. However, the trend also likely elevates the position of fintech firms in China’s financial services arena, possibly to the detriment of commercial banks and their gatekeeping role in the industry.

Central bankers, while commenting on CBDCs, often talk about how sovereign digital currencies could cause the disintermediation of commercial banks. For Jason Blink, CEO of a digital bank EQIBank, the situation is simply part of the relentless march of the current ongoing progress in the global financial space, as he told Cointelegraph:

“Deployment of blockchain across numerous asset classes will inevitably go viral as incumbent processes and services become increasingly obsolete. Blockchain technology in large-scale capital markets, banking, exchanges, lending and other financial services is gaining extraordinary momentum, as stakeholders seek to eliminate inefficient processes across the entire lifecycle.”

According to Blink, digital processes, like decentralized ledger technology, will ultimately become the backbone of not just banking, but the entire global capital market infrastructure. However, Yifan maintains that the DCEP will not signal the end of banks in China, telling Cointelegraph:

“In the foreseeable future, all DCEP activities must go through commercial banks, based on the current design and structure. So, it has very little impact on commercial banks. But in the long run, when PBoC allows third parties to open DCEP accounts or access DCEP accounts anywhere in the world, then it will have a huge impact on Chinese commercial banks.”

For Yifan, the digital yuan will undoubtedly force commercial banks to rethink their business models, especially amid competition from fintech firms. “But I don’t think they will kill them, because the main functions of commercial banks are to provide services to end-users,” Yifan added.

The Rest Of The World Playing Catchup

The digital yuan might not be a full-fledged CBDC yet, but China’s accelerated progress in developing a sovereign digital currency arguably puts it ahead of other major economies. There are even reports that the country plans to allow foreign athletes and other visitors to use the digital yuan during the Beijing 2022 Winter Olympics.

While China is in accelerated testing phases, the European Central Bank is still weighing the need to commence a formal study on CBDCs. Recently, the ECB published the results of a public consultation on a possible digital euro, with almost half of the participants in the study clamoring for privacy as the most important feature of a European CBDC.

Indeed, privacy concerns are common in the CBDC conversation, with consumers wary of the increased visibility of their monetary activities under a national digital currency paradigm. Already, there are fears across Macau’s casino scene that a fully traceable digital yuan might signal the death knell for junket operators.

ECB President Christine Lagarde has previously stated that it could take Europe four years to develop a digital euro, which by that time, China’s DCEP could have at least achieved domestic penetration. According to Monica Singer of Ethereum infrastructure developer ConsenSys, the ECB and other global central banks risk losing ground to China and fintech firms if they remain indecisive about CBDCs.

Meanwhile, U.S. Federal Reserve Chairman Jerome Powell remains resolute in the position that the U.S. will not enter into a CBDC race with China. According to Powell, the Fed is more concerned with getting it right than rushing to play catch up with China.

In the United Kingdom, the central bank has recently established a CBDC task force. The Bank of England has also reportedly begun hiring CBDC experts for its internal exploratory team focused on CBDCs.

Updated: 5-3-2021

“Digital Dollar Project” Ready To Kick Off First US CBDC Tests

The Digital Dollar Project’s first five pilots will launch during the next year.

The U.S.-based Digital Dollar Project is kicking off a handful of pilot projects to test how a Federal Reserve-issued central bank digital currency (CBDC) may operate.

The organization, which is led by former U.S. regulators and executives from the consulting firm Accenture, announced its intention to launch within the next year its first five pilot projects to evaluate different aspects of a digital dollar.

A digital dollar – a central bank-issued, tokenized form of the U.S. currency – could help improve financial access for the unbanked and make it easier to disburse government aid, proponents argue. Opponents say existing technologies may be better suited for those tasks. A number of countries are already experimenting with the concept, with China’s digital yuan perhaps the most advanced so far.

The Digital Dollar Foundation was formed last year by Accenture, former U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo, former LabCFTC director Daniel Gorfine and investor Charles Giancarlo to design and advocate for the digital dollar. It’s a private effort separate from the Federal Reserve’s own research into a CBDC, though the two groups have been in contact, said David Treat, one of the directors of the project.

The five pilot projects will evaluate whether and how a digital dollar would benefit individuals who are unbanked or underbanked, individuals who do have access to banking services and small businesses.

“What we’re announcing is a funding structure, a process structure and a framework for how the Digital Dollar Project is going to form a testing ground for these (efforts),” Treat said.

Treat, who is a senior managing director at Accenture, said that the projects would receive support from Accenture, but would also be self-funded. He declined to share any specific details about the projects.

He did say, however, that they are designed to be “as close … as we can get” to a real-world application.

“Of course, until it’s something that is minted and issued by the Federal Reserve, it won’t be a central bank digital currency, but the advantage we have is it’s the same underlying structure,” Treat said. “We can use a stablecoin structure to directly demonstrate how a CBDC would perform, and the only difference is who the issuer is.”

Treat said he expects results to come in fairly quickly.

“Some of them we’ll be able to get results fairly quickly, measured in months, not quarters, and we’ll extend well into 2022,” Treat said. “As individual pilots are completed, we’re going to share those results.”

Updated: 5-3-2021

Bank Of England And UK Parliament Get ‘Bitcoin Fixes This’ Treatment

The BoE has recently taken greater steps toward the rollout of a central bank digital currency.

One crypto user is seemingly taking exception to current monetary policy from the Bank of England and expressing their frustration with a laser projector.

Reported by Twitter user Dominic Frisby, an unknown person projected “Bitcoin fixes this” and other messages on the exterior walls of both the BoE and the Parliament of the United Kingdom on Saturday. The message appeared underneath Big Ben as well as the front of the central bank surrounded by a red box with the artist’s hallmark, and the photo has already been turned into a nonfungible token.

Many financial institutions around the world have struggled to adapt amid restrictions and economic uncertainty brought on by the pandemic since March 2020. The BoE has since purchased billions in government bonds and corporate debt.

It’s unclear why the anonymous Bitcoiner chose to project the message at this particular time. The BoE recently listed seven job postings related to a central bank digital currency and will be establishing a task force to study its rollout in the U.K. market in collaboration with parliament. However, it seems that at least one person is dissatisfied with the direction of monetary policy in the United Kingdom.

Updated: 5-5-2021

Georgia’s Central Bank Is Exploring ‘Digital Gel’ CBDC

Georgia’s central bank has invited fintech firms and others to participate in the CBDC project.

The National Bank of Georgia said that it is considering launching a central bank digital currency, or CBDC.

In an announcement on Wednesday, the central bank hinted at the issuance of a CBDC in an effort “to enhance efficiencies of the domestic payment system and financial inclusion.” The NBG said it would be inviting fintech firms and other financial institutions to participate in the project, named “Digital Gel” after the symbol for the country’s fiat currency, the lari.

“CBDC holds the promise to unlock the tremendous value of innovative business models for the benefit of society,” says the announcement. “The introduction of CBDC could increase financial intermediation efficiency, help introduce new financial technologies, facilitate financial inclusion, and reach previously unbanked populations.”

However, the bank mentioned the possibility of risks in the launch of a CBDC in Georgia given the “new and potentially disruptive technology.” The NBG said it may conduct extensive testing of the CBDC in a controlled environment to ensure a smooth rollout, but it did not provide any details regarding a timeline for launch.

With a population of roughly 4 million and a gross domestic product of approximately $15 billion, a nation like Georgia falls at the smaller end of countries exploring CBDCs. The Bahamas officially rolled out its Sand Dollar central bank digital currency in October 2020, while China has been piloting its digital yuan in select cities prior to a full-scale launch. In the United States, Fortune 500 company Accenture announced this week it would be partnering with the Digital Dollar Foundation to conduct CBDC trials.

Bahamas Central Bank Prepares National Sand Dollar Push For Summer

The Bahamas is beginning a push for national digital currency adoption this summer, the central bank’s governor, John Rolle, said.

The Central Bank of the Bahamas is preparing a national push for its digital currency this summer to get more Bahamians signing up for the Sand Dollar.

In another move toward the adoption of the Bahamas’ central bank digital currency, the CBOB is now focused on connecting mobile Sand Dollar wallets with commercial banking systems, CBOB Governor John Rolle announced.

According to a Wednesday report by the Nassau Guardian, Rolle said that the Bahamian government has initiated a number of measures to prepare itself and the Sand Dollar ecosystem.

“There is a focus now on enrolling individuals on those various platforms. So we are literally at the cusp of beginning that push for national adoption and that is a focus that is going to gain attention and momentum as we move over the summer months,” Rolle stated.

The official noted that a number of financial institutions, including payment providers, have already integrated their mobile wallets with the Sand Dollar platform. “We know that among the payment providers they are now able to communicate with each other and send funds across the platform,” he said.

As previously reported by Cointelegraph, the Bahamas is one of the first jurisdictions to fully roll out a CBDC, officially rolling out a digital version of its national currency in October 2020. Despite countries like China aggressively piloting CBDCs, some reports have ranked the Bahamas’ CBDC as the top global state-backed digital currency in terms of retail applications.

Republic Of Georgia’s Central Bank Is Researching A Digital Currency

The National Bank of Georgia hopes a digital lari would improve the efficiency of financial services.

The National Bank of Georgia wants to launch its own central bank digital currency (CBDC), the regulator said in a public statement on Tuesday.

A small country in the Caucasian region with a population of 3.7 million, Georgia used to be ranked as one of the world leaders in bitcoin (BTC, +4.96%) mining. Now it’s planning to join the growing number of the nations exploring potential sovereign digital currencies.

The project is expected “to enhance efficiencies of the domestic payment system and financial inclusion,” the statement read. The regulator called for technology firms, fintech companies and interested financial institutions to partner with it to develop the digital Georgian lari. The regulator might create a regulatory sandbox, or testing environment, for the companies working on the CBDC project.

No specific details were mentioned in the announcement. The goals of the digital lari pretty much repeat those of other CBDC projects, including the digital dollar: incentivizing innovation, enhancing the efficiency of financial services, facilitating financial inclusion and reaching the unbanked population.

The National Bank is expecting the prospective partners from the private sector to make suggestions on keeping costs low, ease of use and near-instant settlement, the announcement said. The future solution should also allow for smart contracts and automatic payments, “for example automatic tax accounting and tax collection for simple transactions.”

The new CBDC should be compliant with the FATF anti-money laundering directives and Europe’s personal data protection rules, or GDPR, and allow the operator to collect statistical data without de-anonymizing users.

Updated: 5-6-2021

Kazakhstan Opens Public Consultation For Central Bank Digital Currency

The potential national digital currency in Kazakhstan is not intended to replace either cash or cashless payments, the central bank stressed.

Kazakhstan’s central bank is planning to examine the potential benefits and risks of adopting a state-backed digital currency.

The National Bank of Kazakhstan, or NBRK, published Wednesday a report on a digital tenge pilot project and opened a public consultation on the potential central bank digital currency.

According to the report, the digital tenge would be a new form of money issued by the NBRK to enable the “further development of the national payment system and reduce reliance on cash settlement using unique technical features.” The bank emphasized that the CBDC is not intended to replace either cash or cashless payments but would rather be an alternative used in parallel with existing payment solutions.

The NBRK noted that the digital tenge would improve competitiveness in the payment market, strengthen the stability of the financial system, as well as contribute to increasing public trust in state-backed payments. “The technology will meet the highest cybersecurity standards. […] The bank will pay special attention to consumer protection and the privacy of digital tenge users,” the NBRK stated.

The bank will first conduct a comprehensive study of benefits and risks related to a potential CBDC.

In collaboration with financial market players and global partners, the NBRK also plans to define the digital tenge’s objectives, issuance and distribution methods, the applied technology, and the potential impact on monetary policy, financial stability and the payment ecosystem.

As previously reported, Kazakhstan authorities initially announced that the government started considering a national digital currency in July 2020 alongside plans to increase investment in cryptocurrency mining. Local officials subsequently pointed out the digital tenge’s potential to become a crucial tool in fighting corruption in Kazakhstan.

Updated: 5-7-2021

Lagarde Says ECB Policy Has Alleviated, Not Deepened Inequality

The European Central Bank’s monetary policy has helped lessen inequality during the pandemic, President Christine Lagarde said.

Policy makers’ efforts to lift inflation in the 19-nation euro area through large-scale asset purchases, long-term loans and record-low interest rates has supported the economy and underpinned the labor market, she said on Friday. And “contributing to more jobs has a direct impact on reducing inequality.

Lagarde also said the coronavirus crisis “will create inequality,” especially for low-income workers and young people, “and we have to look at it very carefully.”

The ECB President’s remarks come a few days after Federal Reserve Chair Jerome Powell said that the benefits of the U.S. economic recovery are cutting hard along lines of race and income. At the same time, the Bank of International Settlements’ General Manager Agustin Carstens argued Thursday that central banks don’t have the tools to tackle inequality on their own, and must be aware their actions can also risk exacerbating the problem by creating financial imbalances.

Lagarde acknowledged the argument that asset-purchase programs have boosted financial assets held by the wealthy, but ultimately defended the ECB’s policies for contributing to growth. She also said her institution doesn’t share the same scope as the Fed to focus on inequality.

“We’re not operating with the same mandate as the Fed. The Fed has a dual mandate, we have a single mandate” of price stability, she said. “Clearly the fiscal authorities are the ones whose job it is to address those questions and actually have the tools to address the distributional impact.”

Updated: 5-7-2021

Bank Of England Governor Issues Crypto Investment Warning

England’s central bank warns crypto investors to be wary of the risks associated with buying cryptocurrencies.

Andrew Bailey, governor of the Bank of England, has warned crypto investors of the dangers of participating in the market.

Speaking during a conference on Thursday, Bailey balked at the notion of “cryptocurrencies,” stating that “crypto assets” was a more suitable nomenclature for describing digital currencies.

The BoE governor espoused well-worn anti-crypto rhetoric, specifically the argument that cryptocurrencies lacked intrinsic value. “I would only emphasize what I’ve said quite a few times in recent years, [and] I’m afraid they have no intrinsic value,” Bailey added.

Delivering His Stark Warning To Crypto Investors, Bailey Said:

“I’m sorry, I’m going to say this very bluntly again: Buy them only if you’re prepared to lose all your money.”

The BoE governor’s remarks bear a close resemblance to statements issued by the United Kingdom’s Financial Conduct Authority. As previously reported by Cointelegraph, the FCA warned the British public of the risk of incurring huge losses from crypto investments back in January.

At the time, the crypto market was in the throes of a significant correction as Bitcoin (BTC) dipped below $33,000. Since then, the total crypto market capitalization has grown almost three-fold and is currently above $2.3 trillion.

Bailey’s comments are coming amid a massive spike in crypto prices, especially for altcoins, with Ether (ETH) setting a new all-time high. Major altcoins such as Polkadot’s DOT, Chainlink’s LINK and XRP have also seen vertical price actions.

The BoE governor touched on the current mania despite the apparent lack of intrinsic value, adding: “Now that doesn’t mean to say people don’t put value on them, because they can have extrinsic value.”

Indeed, Dogecoin (DOGE), arguably the quintessential “meme coin,” is up more than 12,700% year-to-date.

While the BoE governor might not think much of the value proposition of crypto, the country’s tax authority is not neglecting the possibility of valuable digital currencies being used to evade taxes.

Back in April, Her Majesty’s Revenue and Customs announced plans to upscale its policing of would-be cryptocurrency tax evaders in a manner reminiscent of the United States Internal Revenue Service’s “crypto question.”

Updated: 5-20-2021

ECB’s Guindos Says Crypto Assets Aren’t A ‘Real Investment’

Crypto assets shouldn’t be seen as a “real investment” because their underlying value is hard to discern, and market participants should brace for more price swings, European Central Bank Vice President Luis de Guindos warned.

“When you have difficulties to find out what are the real fundamentals of an investment, then what you’re doing is not a real investment,” Guindos said in a Bloomberg TV interview on Wednesday. “This is an asset with very weak fundamentals and that is going to be subject to a lot of volatility.”

The value of Bitcoin and other tokens has plummeted in recent days, driven in part by criticism from Tesla Inc. chief and one-time proponent Elon Musk, as well as the risk of greater regulatory scrutiny. Some traders may have also been taking profits after a spectacular run to nearly $65,000 in April.

The ECB said earlier in its Financial Stability Review that the risks posed by Bitcoin to the wider system appear to be limited, even as the surge in prices “eclipsed previous financial bubbles like the ‘tulip mania’ and the South Sea Bubble in the 1600s and 1700s.”

“The situation we had some months ago when prices were rocketing is not very different to the one that we have now when prices are moving down,” Guindos said.

 

Updated: 5-10-2021

Alipay Set To Allow Users To Test China’s Digital Yuan

China’s e-payment giant will allow some users to link their accounts to the country’s digital yuan app.

Alipay, the mobile payment platform owned by Ant Group, is set to allow some of its users to participate in the emerging digital yuan commerce ecosystem.

According to a report by China Securities Journal on Monday, this new feature is a result of MYbank’s participation in the country’s expanded digital currency electronic payment testing protocols.

The news further cements Ant Group’s participation in China’s central bank digital currency project. Indeed, the conglomerate owns a majority stake in MYbank — one of the largest internet-only banks in the country.

In a statement quoted by CNBC, Ant Group confirmed its involvement in the digital yuan trials, adding:

“As one of the participants in the trial of the e-CNY, Ant Group’s associate MYbank will steadily advance the trial pursuant to the overall arrangement of the People’s Bank of China. Ant Group, together with MYbank, will also continue to support the research, development and trial of PBOC’s e-CNY.”

As previously reported by Cointelegraph, Ant Group has been collaborating with the PBoC on digital currencies since 2017. China’s central bank is reportedly using the firm’s mobile app development environment to create digital yuan-linked apps.

While MYbank is moving toward allowing users to interact with the digital currency, Tencent-backed digital bank WeBank is reportedly yet to activate any bridge for customers to the digital yuan. Both online banks were announced as the first private financial institutions to join the digital yuan testing ecosystem back in February.

However, the testing arena is dominated by six state banks, some of whom have created user wallets for the digital yuan.

The PBoC continues to promote the digital yuan’s utilization via a litany of airdrops and lotteries in several cities. These adoption events often target shopping festivals, with merchants encouraged to accept the currency as a payment means.

Back in April, Chinese e-commerce giant JD.com announced that it was already using the digital yuan to pay staff salaries. The online retail firm was the first to begin accepting the digital currency as a payment method and reportedly received about 20,000 DCEP-funded orders in the first week.

Updated: 5-11-2021

Israel’s Central Bank Floats Possible Digital Shekel With New Action Plan

The bank has been exploring the introduction of a CBDC since 2017.

The Bank of Israel is accelerating its research for the potential issuance of a central bank digital currency, or CBDC.

In a statement from the central bank on Tuesday, the Bank of Israel said it was preparing an action plan to explore the benefits of a digital shekel to the economy. Though the bank said it had not yet decided whether to issue a central bank digital currency, it added it would be prepared to do so should the benefits “outweigh the costs and potential risks.”

The central bank said it may consider issuing a CBDC if it could meet the needs of the future digital economy as well as provide more efficient cross-border payments. In addition, the Bank of Israel hopes to reduce the use of cash and ensure the public can make payments with “a certain level of privacy.”

Israel’s central bank has been exploring the introduction of a CBDC since 2017, when the governor set up an interdepartmental group to explore the issue. The following year, the team recommended against the Bank of Israel issuing a digital currency, saying: “No advanced economy has yet issued digital currency for broad use.”

However, the exploration and use of CBDCs have expanded significantly in the last three years, with countries like China piloting its digital yuan project in major cities across the country. In addition, the Bahamas became the first country to issue its own CBDC — the Sand Dollar — in October 2020.

 

Updated: 5-13-2021

Central Bank Of Bahrain And JPMorgan To Work On Digital Currency Settlement Pilot

The Central Bank of Bahrain expects that its digital currency collaboration with JPMorgan and Bank ABC could extend to a CBDC.

The government of Bahrain, the third-richest Arab country, is working with American investment bank JPMorgan Chase on a digital currency settlement pilot.

The Central Bank of Bahrain officially announced Tuesday that the bank is now collaborating with JPMorgan and the Arab Banking Corporation BSC, or Bank ABC, in a pilot scheme to introduce an instant cross-border payment solution based on digital currency technology.

Aiming to cut settlement processing time, the new digital currency pilot will involve transferring funds from and to Bahrain in U.S. dollars for payments from buyers and suppliers. The central bank emphasized that it could move forward with the project to extend the collaboration to a central bank digital currency.

“Through this pilot with JPMorgan and Bank ABC, we aspire to address the inefficiencies and pain-points which exist today in the traditional cross-border payments arena,” CBB Governor Rasheed Al-Maraj said.

Ali Moosa, JPMorgan’s vice chair of wholesale payments, noted that the new collaboration involves the company’s digital currency-focused division known as Onyx. Piloted in 2017, the product was originally referred to as Interbank Information Network and was rebranded as Liink in October 2020.

“JPMorgan Onyx has been setup with the mandate to lead the buildout of next generation clearing and settlement infrastructures and we are delighted to partner with a leading central bank and regulator like the CBB to lead the buildout of a next generation payment and settlement infrastructure,” the executive noted.

JPMorgan has been aggressively promoting its blockchain technology expertise to collaborate with global jurisdictions on cross-border payments. In late April, JPMorgan partnered with Singapore’s largest bank, DBS, and state investment company Temasek to launch a new blockchain venture focused on global payments and interbank transactions. The bank previously provided its Liink technology to an Indian government-backed bank to reduce transaction costs and improve cross-border payments.

Updated: 5-14-2021

UK Will Likely Need To Issue A Digital Currency, Says BoE Deputy Governor

The Bank of England’s deputy governor has argued that, with the possible rise of non-bank actors issuing currency, public money in digital form could serve as a crucial anchor for confidence in money as a social convention.

The Bank of England’s deputy governor Jon Cunliffe has argued that a sea change in the issuance and circulation of public and private monies could make general access to a digital form of central bank money crucial for ensuring financial stability in future.

In a speech at the OMFIF Digital Money Institute in London, Cunliffe reflected on past, present and future trends in the widespread use of private money issued by commercial banks, noting that the COVID-19 pandemic has accelerated existing trends away from public to private money for everyday payments.

About 70% of respondents to a recent Bank of England survey indicated they are using less cash than before the pandemic, typically turning to options such as contactless payments and internet transactions.

Whilst this shift away from public money in the form of cash towards private, commercial bank money continues to accelerate, Cunliffe predicted that newer technologies are likely to spark an equally significant change in the use and even concept of money, with potential implications for its resilience as a social convention.

Tokenization and distributed ledger technologies, particularly when deployed by non-bank, Big Tech actors, are likely to provide the public with more flexible, data-driven forms of money that offer new functionalities in the digital world, he noted.

With the advent of new phenomena such as stablecoins, programmable money, smart contracts and micro-payment channels, Cunfliffe said that central banks are already grappling with key questions about how to adapt existing regulatory frameworks that are currently designed for commercial bank money circulation.

These technology-driven changes, for Cunliffe, also pose the question as to whether central banks should risk allowing publicly available state money to decline further, or even disappear altogether.

Without anticipating the Bank of England’s forthcoming published study of these challenges, Cunliffe argued that new forms of private money likely make a strong case for the introduction of a public digital money (e.g., a central bank digital currency, or CBDC) in order to anchor public confidence in the uniformity of money; in other words, confidence in the substitutability of all monies in the national economy.

Preserving access to physical cash, as the Bank of England has already committed to do, will probably not be sufficient, he argued. “It looks probable in the UK that if we want to retain public money capable of general use and available to citizens, the state will need to issue public digital money that can meet the needs of modern day life,” he said.

Cunliffe further noted that, particularly in times of systemic stress, the “perception that there is no route out of private money, that there is no access to safe liquid assets backed by the state, could undermine confidence.” A CBDC, from this perspective, would be crucial to ensuring financial stability nationwide.

In November 2020, Cunliffe had already said that the central bank will need to adapt to changes in bank business models and manage the financial and macro-economic consequences these changes represent.

Updated: 5-17-2021

A Central Bank Digital Currency Would Be Bad For The US

Calls to “catch” China on digital currency downplay the promise of open financial technology, says Circle’s head of global policy.

There is a frenzied, if inaccessible, debate taking place among think tanks, policy experts and media outlets signaling that the U.S. Federal Reserve should launch a centrally issued digital twin of the U.S. dollar.

Among the many arguments for why this is necessary is that the U.S. is losing ground to China, whose government has a national blockchain strategy, including a real-world prototype central bank digital currency (CBDC).

While these arguments are valid, they miss the larger point, which is that by today’s hyper-competitive digital currency and blockchain standards, the U.S. may not be a laggard at all, but rather is already winning the race for the future of money and payments.

In trying to “out-China China” on these important issues, we miss that the future of money and payments should be about enhancing domestic financial optionality. Upgrading payment and banking systems, enhancing interoperability and open banking standards, requires a major upgrade in the technology stack that supports value transfer and more open financial services innovation.

This was exemplified by the original version of the COVID-19 relief bill, the CARES Act, which called for the creation of a digital dollar to expedite domestic stimulus payments while trusted, privately-issued digital currencies were already in circulation along with a growing and interoperable blockchain-based payment system.

Legacy financial rails, such as ACH, EFT and other interbank transfer networks, have not had an update in 50 years. Blockchain-based payment systems represent the completion of a lot of unfinished work in the financial services value chain, which has left more than 1.7 billion people around the world as unbanked, rather than a source of disruption or circumvention.

China’s fintech and mobile money titans collectively process over $67 trillion a year. This alone does not constitute a threat to the U.S. dollar as a global reserve currency. The vibrant crypto asset industry that calls the U.S. home has been advocating for a more open global payment system for years.

A true internet of value would advance important first principles, such as privacy, trust, democratization of assets and prosperity, rather than clinging to dated and largely ineffective financial rules, such as the Bank Secrecy Act.

The bottom rung of economic mobility is access to low-cost payments. In a world where individuals rely on nationally-issued identity, billions of people are currently on the financial sidelines – a source of global risk and destabilization.

We need new forms of digital financial services plus internet-native digital identification and authentication, which preserve privacy, but provide assurances that financial crime compliance standards are being adhered to and modernized.

“A $2 trillion industry was born largely on public digital commons, rather than on risk-prone and costly technology implied by a government administered CBDC.”

The U.S. should lead the way on both charges, promoting open internet-based financial services while enabling new forms of inclusivity. We should aim to be a pioneer in building the internet of value for digital assets, identity, and other breakthrough innovations.

The investors, entrepreneurs and diverse teams building this new wave of platforms are increasingly calling the U.S. home, powering U.S. economic competitiveness and the post-COVID-19 recovery.

COVID-19 revealed areas of pre-pandemic vulnerability, including our inability to execute financial transactions at population-scale domestically and through poverty-fighting remittance corridors. We should be able to exchange value, monetize and own digital assets, as well as build internet-native financial services firms, with regulatory clarity.

In the maiden decade of blockchain, digital currencies and crypto assets, a $2 trillion industry was born largely on public digital commons, rather than on risk-prone and costly technology implied by a government-administered CBDC, which would shift technology risk to the public sector and, thereby, taxpayers.

The more the U.S. embraces these financial innovations and industries of the future, the more the prospects of scaling internet-level prosperity and access becomes possible. The meteoric rise of the nine-year-old Coinbase, a crypto-native financial exchange, which is now the United States’ most valuable exchange bar none, is emblematic of the opportunity.

Proving regulatory clarity and a national industrial policy that embraces exponential technologies such as blockchain, can make all facets of our economy more resilient, future-proof and competitive.

Vulnerable critical infrastructure, which is imperiled by the twin-threats of climate change and single point of failure designs, such as the Colonial Gas Pipeline, which was hobbled by a ransomware attack, argue for blockchain-based thinking.

The same holds true for the void of open banking and financial access across the country, to safe e-voting or authentication options that can enhance trust on the Internet without divulging personal information, can at once improve national competitiveness and international standing for the U.S.

The fastest way to disrupt the very financial system that has made the U.S. the economic and political envy of the world, would be to succumb to the pressures of launching a centralized digital currency.

While the U.S. banking and financial system can improve how it deals with rampant cyber threats and an impossible digital transformation agenda that favors the largest banks in the country, CBDCs would disrupt the two-tiered banking system, while providing uncertain outcomes for consumers and markets.

The two-tiered banking system is the structure that enables household name banks to interface directly with a country’s central bank, enhancing consumer protection and regulations, while at the same time enabling central banks’ to convey monetary policy.

The democratic promise of cryptocurrencies and digital currencies, is the ability of powering internet-level prosperity and merchant acceptance – the technological equivalent of digital legal tender, while importing sound monetary policy.

A free market-based movement is afoot driving fundamental, open and compliant innovations in the movement of money and value on the Internet. This digital currency and blockchain economy is building the next generation of digital financial services firms in the U.S. and around the world, creating thousands of jobs and an outsized share of market value.

That the majority of asset-referenced stablecoins in circulation today are pegged to the U.S. dollar speaks to how the fundamental trust in the U.S. dollar as the global reserve currency of choice is being preserved by digital currencies, not circumvented by them.

There are material risks in the issuance of a digital U.S. Federal Reserve dollar. Most value-added money in circulation today rides on private or consortium-backed rails, a U.S. CBDC would transition substantial technological and operational risk from the private sector, which is powering safe and well-regulated digital currencies and assets on public blockchains, to the public balance sheet – and therefore shouldered by taxpayers.

Also privacy and censorship resistance is more likely to be protected by a vigorously competitive rules-based market than with general purpose, government-issued digital currencies.

We need a public-private balance that makes the U.S. dollar the reference asset for all manner of value-added activity. Whether enshrined on paper bills or emblazoned on coins, plastic cards or, in the case of dollar-digital currencies, in code, the key is to afford the full faith and credit of the U.S economy across a range of payment instruments and rails. Ultimately, this will be good for consumers, the economy and global security.

Dollar digital currencies that are backed 1:1 with assets preserved in the two-tier U.S. banking system (like USDC), import all the safety, soundness, and values of the U.S. dollar, turbocharging it with the power of the internet. Your financial needs do not take bank holidays, and neither should your money.

 

State of Crypto: Meet Lael Brainard, The Fed’s CBDC Champion

Last year, Federal Reserve Governor Lael Brainard announced the Boston branch of the U.S. central bank was exploring a digital dollar. She’ll be speaking next week at Consensus.

Federal Reserve Governor Lael Brainard has been one of a handful of prominent regulators addressing crypto over the past five years, from warning regulators to pay attention to crypto in 2016 to addressing central bank digital currencies three years ago to announcing the Fed’s research into a central bank digital currency last year.

Programming note: Next week is CoinDesk’s Consensus 2021. State of Crypto will be published a few days late (next week only!) and as a reminder, I’m moderating sessions with Brad Garlinghouse and Brian Brooks. If you have any questions for either CEO, email nik@coindesk.com, subject line “Consensus question.”

Studying A Digital Dollar

The Narrative

Three years ago, Federal Reserve Governor Lael Brainard declared that she saw “no compelling demonstrated need for a Fed-issued digital currency.” Then came libra, and later COVID-19.

Facebook’s unveiling of a global stablecoin project worried regulators worldwide. Brainard was among those criticizing the effort, revealing in February 2020 that the Fed had already begun researching digital payments and determining what issues may exist around them. The pandemic appeared to accelerate those efforts.

Americans slowed down their spending in the early days of the pandemic, only to increase their spending once stimulus checks began rolling out, Brainard said in another speech last August about the need for a modern, efficient payments system.

In that same speech, Brainard announced the Boston Fed was working with MIT to study different technology bases for a possible digital dollar, which could use “innovative technologies” to boost financial inclusion and lower payment costs.

And shortly, Brainard, who will speak next week at CoinDesk’s Consensus 2021, went from a skeptic of the idea of a virtual greenback to one of its most prominent champions in Washington.

“The COVID-19 crisis is a dramatic reminder of the importance of a resilient and trusted payments infrastructure that is accessible to all Americans,” Brainaid said in August, explaining why the Boston branch of the Fed was now examining different technologies and how the U.S. central bank can take advantage.

Why It Matters

A former Treasury Department undersecretary for international affairs, Brainard has reportedly been in the running for Treasury Secretary and remains an influential government official who has been studying the cryptocurrency sector for years – while in office.

Unlike many high-profile government officials who recently entered public service after spending some time at private cryptocurrency companies or researching the technology, Brainard has been in her role at the Federal Reserve since 2014, giving speeches on crypto as long ago as 2016, when she said regulators should engage in the sector.

Breaking It Down

“We have been conducting in-house experiments for the last few years, through means that include the Board’s Technology Lab, which has been building and testing a range of distributed ledger platforms to understand their potential opportunity and risk,” Brainard said in her August speech.

Officials at the Fed later confirmed this was not just a surface-level drive-by look. The central bank branch was deeply examining up to 40 different technology stacks to see which would best meet its policy goals.

“Given the dollar’s important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding CBDCs,” Brainard said.

The speech and subsequent research set Brainard apart as one of the few high-ranking U.S. government officials engaging in digital currency beyond just giving speeches. Others include SEC Commissioner Hester Peirce, former CFTC chairmen Chris Giancarlo and Heath Tarbert, CFTC Commissioner Brian Quintenz and Acting OCC Comptroller Brian Brooks.

Brainard has a long history of being the lone dissenting voice on Federal Reserve policy, a 2019 profile by American Banker noted. At the time of the article’s publication, she had dissented on six different votes. Today, that number is 23, according to a review of public records, with three abstentions.

Notably, Brainard’s dissents tend to come with links to statements explaining the policymaker’s reasoning.

Federal Reserve Vice Chair Randal Quarles seemed to say that Brainard’s dissents in particular may result in “sharpening the resulting proposal,” according to the American Banker article.

All this points to the likelihood that if and when Brainard announces the results of the Boston Fed’s research into CBDCs, we’ll have a better understanding of just how the U.S. would design a digital dollar.

The same Fed spokesperson referred CoinDesk to comments Chairman Jerome Powell made last month at the Federal Open Market Committee. The chair said the U.S. isn’t in a hurry to issue a digital dollar, but would rather “get it right.”

“Central bank digital currencies are now possible, and we’re going to see some of them around the world. And we need to understand whether that’s something that would be a good thing for the people that we serve,” Powell said, referencing the work the Boston Fed is currently conducting into the technology.

The Big Three (Plus One)

The head of the Federal Deposit Insurance Corporation (FDIC), Chair Jelena McWilliams, said the federal agency is about to publish a request for information to learn how banks are currently interacting with the cryptocurrency sector, how they might interact with crypto in future and what, if anything, the FDIC should be doing.

The actual RFI went live yesterday, giving the general public until mid-July to respond. It asks questions about use cases for digital assets, compliance management, deposit insurance, supervision and other issues.

This comes on top of the Office of the Comptroller of the Currency (OCC), which is issuing trust charters to cryptocurrency companies and dangling the possibility of treating a crypto firm as a bank, and the Federal Reserve, which is looking into allowing fintech companies and other entities with novel forms of bank charters access to its master accounts.

That’s the game right there. The three main federal banking regulators in the U.S. are either actively letting crypto companies tap into the national banking system or looking into how they might enable crypto-related activities.

The Fed regulates the bank holding companies and certain state-chartered banks, the OCC regulates the actual national banks and the FDIC regulates state chartered banks that aren’t members of the Fed and provides deposit insurance to all these financial institutions.

It’s entirely possible that at some point in future we may have a crypto bank regulated by the different federal regulators that can a) help other crypto and fintech firms gain banking services (which is an ongoing problem, if somewhat less of an issue than it was in years past) and b) provide customers with some comfort if they’re looking to transact with regulated and insured financial institutions.

There’s also the National Credit Union Administration (NCUA), which recently posted a job listing for an individual who would deal with cryptocurrencies. The posting comes after Vice Chair Kyle Hauptman floated the idea of the NCUA following in the OCC’s footsteps in allowing its regulated entities to interact with crypto.

Michael Hsu, acting comptroller at the U.S. Comptroller of the Currency, has appointed Benjamin McDonough as senior deputy comptroller and chief counsel. Like Hsu, McDonough comes from the Fed, where he served as associate general counsel. Also like Hsu, McDonough has experience in the bank supervision sector.

Perhaps more pertinent, McDonough will succeed current Senior Deputy Comptroller and Chief Counsel Jonathan Gould, whose name and signature appear on numerous pieces of guidance the OCC issued granting federally regulated banks permission to interact with the cryptocurrency space. Gould will move back to the private sector, according to the OCC’s announcement.

Central Bank Digital Currencies, or CBDCs Introduce Increased Cybersecurity Risks

While CBDCs could help central banks address the decline in cash payments, some risk factors remain.

Central bank digital currencies, or CBDCs, could pose a threat to financial systems if related risks are not managed, Big Three credit agency Fitch Ratings has warned.

Fitch Ratings released a report on Monday entitled “Central Bank Digital Currencies: Opportunities, Risk and Disruption,” which discussed the major trade-offs between risks and benefits associated with CBDCs.

Fitch Ratings stated that the key benefits of a retail CBDC lie in its potential ability to expand government-backed cashless payments in an effort to keep up with the wider digitalization of society. The biggest reasons to explore a CBDC for central banks and some emerging markets are the opportunity to bank the unbanked as well as reduce the cost and speed of payments.

Fitch Ratings also noted that some CBDC proponents see state-backed digital currencies as a way to address challenges of the declining use of cash with the private sector actively involved in digital payments. “Widespread use of CBDCs could erode these providers’ control over payments-related data and improve central banks’ capacity to track financial transaction data, aiding the prevention of financial crime,” the credit agency wrote.

However, people may be deterred from using CBDCs if they offer less privacy than cash, or severely limit amounts stored on electronic wallets, Fitch Ratings noted.

The firm warned that the widespread adoption of CBDCs may be disruptive for financial systems if authorities do not manage risks like financial disintermediation caused by the potential for funds to move quickly into CBDC accounts from bank deposits.

Fitch Ratings also pointed out increased cybersecurity risks as “more touchpoints are created between the central bank and the economy.”

More governments worldwide are actively exploring CBDCs, including countries like Georgia and Kazakhstan. In the meantime, countries like The Bahamas have been preparing for a nation-wide CBDC push this summer. In early May, the United States’ Digital Dollar Foundation finally announced their first pilots.

About 80% of Central Banks Are Exploring CBDC Use Cases, Bison Trails Report Says

The potential launch of private cryptocurrencies such as the Facebook-backed Diem is motivating central banks to develop CBDCs, the report noted.

About 80% of central banks are exploring use cases involving central bank digital currencies (CBDCs), with 40% already testing proof-of-concept programs, according to a new report by blockchain infrastructure platform Bison Trails.

The report by Bison Trails, a unit of crypto exchange Coinbase, examines digital currency proof-of-concepts launched by more than 11 countries and cities, including Hong Kong, Thailand, China, Australia, Singapore and Japan. The report also looks at the role of private digital currencies such as Diem.

CBDCs are moving toward global implementation, and the infrastructure of a digital currency is critical for a successful rollout, according to the report.

Facebook-backed cryptocurrency Diem, formerly known as Libra, is motivating many central banks to develop CBDCs, the report noted. Most recently, Diem formed a partnership with Silvergate Bank with plans to test the U.S. dollar-pegged stablecoin later this year.

“Diem offers a whole new paradigm in economics: a diverse association of enterprise and social impact stakeholders developing digital currencies on a permissioned, open-source chain built with the most cutting edge tech – with a built-in global market and limited barriers for growth once live,” said the report titled “Infrastructure and Design of Central Bank Digital Currencies.”

According to the report, the development of Diem has been considered a “catalyst” for the Chinese government to accelerate its plans for its digital currency issued by the state bank People’s Bank of China.

China is close to launching the digital yuan and is testing the CBDC with commercial institutions and the public.

“The Chinese government remains intent on establishing itself as a central player in the emerging global digital currency market,” the Bison Trails report stated.

The U.S. Federal Reserve is taking a more cautious approach regarding the issuance of a CBDC with no firm commitment to date.

Updated: 5-21-2021

Fed Will Issue Discussion Paper On Benefits And Risks Of CBDC, Says Jerome Powell

“Irrespective of the conclusion we ultimately reach, we expect to play a leading role in developing international standards for CBDCs,” said the Fed chair.

Federal Reserve chair Jerome Powell said the government body is moving forward with research to implement a central bank digital currency.

In an announcement from the Fed today, Powell said the Federal Reserve Board would be issuing a discussion paper sometime this summer, calling for the U.S. public to comment “on issues related to payments, financial inclusion, data privacy, and information security.” While the Fed chair said crypto was not a “convenient way to make payments” given its volatility, he was seemingly more open to stablecoins and a central bank digital currency, or CBDC.

“Our key focus is on whether and how a CBDC could improve on an already safe, effective, dynamic, and efficient U.S. domestic payments system,” said Powell. “We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks.”

According to Powell, designing a CBDC in the United States would require input from the public and elected officials, given that it raises “important monetary policy, financial stability, consumer protection, legal, and privacy considerations.” The proposed discussion paper would complement the Fed’s research into the risks and benefits of issuing a digital dollar, which has been ongoing for the last several years.

He Added:

“Irrespective of the conclusion we ultimately reach, we expect to play a leading role in developing international standards for CBDCs, engaging actively with central banks in other jurisdictions as well as regulators and supervisors here in the United States throughout that process.”

Powell has spoken extensively about the possible ramifications of the United States releasing a CBDC, stressing that he believed it was more important “to get it right than it is to be first.” In February, he hinted that prior to a digital dollar rollout the Fed would “engage with the public pretty actively,” but did not rule out the project first going to lawmakers.

Updated: 5-23-2021

Digital Yuan Won’t Replace Dollar, Ex-Bank Of China Chief Says

China has never aimed to challenge the U.S. dollar’s status as the international reserve currency with the development of a digital yuan, Xiaochuan Zhou, former governor of the People’s Bank of China, said during a forum at Tsinghua University in Beijing on Saturday.

Zhou said the development of a digital yuan may help facilitate usage of the currency in cross-border payments, but China has never intended to replace the U.S. dollar as the preferred international payment currency.

A digital yuan should not be linked intimately to the concept of the currency’s internationalization, which in fact depends more on the opening-up of financial policies and reform of the financial system, rather than on technology, Zhou said.

Also, the digital currency electronic payment system has been jointly developed by commercial banks, telecoms companies and several major third-party payment companies, and is not meant to fulfill the role played by third-party payments. “We are in the same boat,” Zhou said.

China is likely to be the first major central bank to issue a digital version of its currency, seeking to keep up with — and maintain control of — a rapidly digitizing economy. Trials and tests are underway in several cities, including Hong Kong, which is in talks with China to expand cross-border testing of the digital yuan.

Unlike cryptocurrencies such as Bitcoin, the digital yuan won’t have any presumption of anonymity and its value will be as stable as the physical yuan.

Updated: 5-23-2021

Fed Will Launch A Broad Discussion Of A Digital Dollar This Summer, Powell Says

The Federal Reserve will ramp up its exploration of a digital dollar later this summer, Federal Reserve Chairman Jerome Powell announced on Thursday.

In order to “help stimulate broad conversation,” the Fed will issue a discussion paper this summer outlining the central bank’s “current thinking” on digital payments and the benefits and tradeoffs of a central bank digital currency, or CBDC, Powell said in a statement.

The Fed has already been exploring the benefits and tradeoffs of a digital currency for the past several years, Powell said.

Last summer, a team at the Boston Fed started to work with researchers at the Massachusetts Institute of Technology to find out what it would take to build a U.S.-backed digital currency.

A Fed-backed digital dollar wouldn’t be a cryptocurrency based on decentralized blockchain, the ledger-based technology that underpins traditional digital currencies like bitcoin It would merely be a digitized form of the fiat dollars that the Fed issues, and with which Americans are the most familiar, essentially antithetical to assets like bitcoin, in the eyes of cryptocurrency purists.

China has made headlines recently when it rolled out tests of a new digital yuan.

In his message, Powell stressed any potential digital dollar would not be a replacement of cash or current private-sector digital forms of the dollar, such as deposits at commercial banks.

Progressive Democrats view the creation of a “digital dollar,” along with accounts for every American at the central bank, as ways to assist poor Americans who don’t have access to the banking system.

The Fed This Summer Will Take Another Step In Developing A Digital Currency

The Federal Reserve is moving forward in its efforts to develop its own digital currency, announcing Thursday it will release a research paper this summer that explores the move further.

Though the central bank did not set any specific plans on the currency, Chairman Jerome Powell cited the progress of payments technology and said the Fed has been “carefully monitoring and adapting” to those innovations.

“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” Powell said in a video message accompanying the announcement.

“Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation,” he said.

Fed officials have emphasized the importance of getting the issuance of a central bank digital currency right rather than participating in a race with its global peers.

However, the moves of multiple countries, most prominently China, in the central bank digital currency (CBDC) space has intensified talk about how aggressively the Fed should move. China’s progress has stirred worries that it could undermine the dollar’s position as the global reserve currency.

“It’s going to take some time to do it right,” said David Treat, leader of the blockchain practice for Accenture, which is leading public-private research initiative into CBDCs. “We’re talking about a four- or five-year journey to real availability and usage and a lot of learning that has to happen between now and then to make sure how it’s implemented fits with each country’s social values and laws.”

Looking At Options

Powell referenced the growing popularity of digital currencies like bitcoin, though he said they remain inefficient payment mechanisms. Stablecoins, which are tied to specific currencies, offer other advantages.

“Technological advances also offer new possibilities to central banks — including the Fed,” Powell said. “While various structures and technologies might be used, a CBDC could be designed for use by the general public.”

The Fed has been studying payments systems for several years and plans to release a product called FedNow, likely in 2023, that would address many of the issues regarding the need for immediacy in transactions as well as the plight of the unbanked.

However, digital coins represent another avenue that central banks are pursuing to make payments more efficient. There remain multiple issues around implementation, though, that have held back the efforts.

“We are committed at the Federal Reserve to hearing a wide range of voices on this important issue before making any decision on whether and how to move forward with a U.S. CBDC, taking account of the broader risks and opportunities it could offer,” Powell said. “The paper represents the beginning of what will be a thoughtful and deliberative process.”

The Fed is working in conjunction with a variety of groups on the project, including the Bank for International Settlements. The Boston Fed has taken the lead on the project.

Updated: 5-25-2021

Central Bank Digital Currencies Will Fix Bad Policy

The Federal Reserve and its peers would be able to tier interest rates to better target individual sectors of the economy.

More than 85% of the world’s central banks are working on central bank digital currencies, according to the Bank for International Settlements. The People’s Bank of China has already implemented a digital yuan, and the European Central Bank wants to launch a digital euro by 2025.

Federal Reserve Chair Jerome Powell said Thursday that the central bank will launch a centerpiece research paper this summer on a digital currency. The Bank of England is looking into the matter as well.

Central bank digital currencies, or CBDCs, have the potential to revolutionize monetary policy. Rather than providing an alternative to national monetary systems, so-called GovCoins would mirror each country’s fiat currency, using blockchain technology to strengthen central bank oversight.

The architecture of CBDCs will determine how much information central banks will have on individual transactions. In theory, a digital dollar using the blockchain could provide the identity of each buyer and seller in a transaction, giving the Fed real-time data on individual “wallets”.

This may give the Fed the ability to tier interest rates at various levels for economic sectors or regions, rather than relying on commercial banks for policy transmission. The PBOC, which sets policy with individual sectors and provinces in mind, is already doing this via its digital yuan.

Another byproduct of CBDCs is that it will result in fewer bank notes in circulation, and with fewer bank notes in circulation the effective lower bound for interest rates might disappear. In the current monetary system, there is a physical floor to interest rates, which is where it is cheaper for institutions to dig a hole in the ground and store bank notes rather than depositing them at the central bank.

In 2016, German lender Commerzbank reportedly explored hoarding billions of cash in its vaults to escape the ECB’s negative interest rates. This physical limit is probably around negative 1%. But if CBDCs completely replaced bank notes, then central banks could set interest rates much lower, at negative 2% or negative 3%, for example, effectively imposing a tax on depositors and savers.

One reason why central bankers are looking to add new instruments to their toolkit is that the extraordinary measures employed since the financial crisis – like quantitative easing and negative interest rates – failed to reverse disinflationary pressures. At the same time, such policies benefited owners of financial assets and increased wealth inequality, as Federal Reserve Bank of Dallas President Robert Kaplan recently noted.

After two decades of financial asset-based monetary policy, today’s shift toward investment in the real economy is much needed. Both the U.S. and European Union are trying to deploy infrastructure plans of historic size, looking to foster the recovery while avoiding stagnation and fixing inequalities.

As growth and inflation recover, central banks will normalize interest rates. The process may go wrong for three reasons. First, fixing secular stagnation in a matter of months won’t be easy after decades of policies focusing on short-term growth rather than on boosting productivity.

Second, quantitative easing left companies and governments with large debt overhangs, and markets with excessively high valuations. Companies are reliant on government support now more than ever, as the ECB recently wrote in an article on zombie firms. Recent trading patterns show markets are vulnerable to a repricing of interest rates. This means policy normalization might fail again, as it did in the 2013 and 2018 taper tantrums.

Third, when the time comes to cut back on fiscal stimulus, governments might find it hard to quit. As economist Milton Friedman said, nothing is more permanent than a temporary government program. If governments struggle to restore full employment and reduce inequality, then the likelihood of new monetary experiments will rise.

Updated: 5-25-2021

Don’t Bet Against Beijing’s Efforts To Smother Bitcoin

China has several reasons to further crack down on cryptocurrencies.

Bitcoin has recovered some of its losses after Chinese Vice Premier Liu He’s pledge to crack down on mining and trading on Friday. But investors should be cautious with all crypto as far as China is concerned. The government has its own reasons for smothering the sector, and a track record that suggests it will follow through effectively.

The first and most obvious reason is the stated one: to limit the risk of financial excesses becoming a broader social issue.

In some areas, particularly real estate, the Chinese government has struggled to seriously control expanding leverage and risk. But crypto advocates shouldn’t confuse that for laxity generally.

Case in point: peer-to-peer lending. An explosion of platforms and borrowing in 2014 and 2015 attracted attention from regulators, with a particular sharp negative turn in 2018 after a series of small protests against some lenders. The amount of outstanding peer-to-peer loans fell from more than 1 trillion yuan, the equivalent of $155.78 billion, in mid-2018 to less than half that by the end of 2019. By the end of last year, Chinese regulators announced that the sector had been “zeroed out.” Major players either wound down or moved into other businesses.

The second reason to smother bitcoin applies to mining particularly: The energy intensity of “mining” increasingly runs at odds with Beijing’s environmental goals. The government has become more ambitious in terms of targets relating to emissions in the past year, and environmental protection is one of the very few areas where there is still any prospect of significant China-U.S. cooperation. It’s hard to see why bitcoin mining would be a priority for increasingly scarce energy use.

The third reason is unlikely to be mentioned in press communiqués, but remains a core priority for Beijing. Put simply, any avenues citizens might use to easily move money out of China will be under perpetual threat of closure. Capital outflows between 2014 and 2016 caused a drop in China’s foreign-exchange reserves by around $1 trillion, and Beijing has spent the years since narrowing any potential escape routes.

With such strong negatives from Beijing’s perspective it’s difficult to see what the optimistic case for bitcoin mining and trading in China is—or for cryptocurrencies more broadly aside from the government’s own newly minted alternative, the digital yuan.

Friday’s statement is unlikely to be the last turn of the screw emanating from Beijing.

Central Bank Of Kuwait Issues Warning Against Crypto Investments

The Central Bank of Kuwait said that a “real” currency is one issued by the state.

Last week’s market-wide price crash caused central banks around the world to issue warnings about the risks of investing in cryptocurrencies.

The Central Bank of Kuwait was no exception, and on Saturday, it issued a statement to warn the public about volatility in cryptocurrency markets.

The Central Bank of Kuwait stated that crypto assets are not real currencies even though they are commonly called cryptocurrencies. According to the statement, only a lawful state can issue real currency as a symbol of sovereignty:

“The real currency is regulated by state authorities such as central banks or monetary institutions. It is considered and accepted as a store of value and legal tender. It serves as a reliable medium for exchange.”

The statement noted Dogecoin (DOGE) among the most prominent cryptocurrencies by market capitalization, Bitcoin (BTC) and Ether (ETH). Dogecoin is known for its meteoric rise earlier this year following Elon Musk’s repeated mentions of the meme-originated coin on social media. However, Dogecoin took a sharp dive after the tech mogul’s appearance on Saturday Night Live.

The CBK noted that the warning is a part of the bank’s Diraya campaign, which translates to “Be Aware” in Arabic. Managed by the Kuwait Banking Association, Diraya aims to raise financial awareness in the country and encourage social responsibility activities across the Kuwaiti banking sector.

After listing the typical beef regarding crypto, such as money laundering, fraud and unauthorized transactions, the CBK noted the environmental cost of energy-intensive crypto mining operations.

Recently, Musk announced that the electric car manufacturer Tesla would stop accepting Bitcoin as a form of payment due to its potentially harmful effect on the environment. However, according to a new study by Mike Novogratz’s Galaxy Digital, traditional banking uses two times more energy than Bitcoin annually.

South Africa’s Central Bank Begins Preliminary Study For Retail CBDC

The South African Reserve Bank has begun exploratory studies on central bank digital currencies.

South Africa is the latest country to begin exploring the possibility of creating its own sovereign digital currency.

According to a release issued on Tuesday, the South African Reserve Bank has begun preliminary feasibility studies about the “desirability and appropriateness” of a retail central bank digital currency.

As part of its announcement, the SARB defined a retail CBDC as a cash-complimentary sovereign digital currency issued by the central bank suitable for electronic payments.

“The objective of the feasibility study is to consider how the issuance of a general-purpose CBDC will feed into the SARB’s policy position and mandate,” South Africa’s central bank stated in its announcement.

According to the SARB, the preliminary study will focus on issues surrounding a potential CBDC issuance for retail use in South Africa:

“The feasibility study will include practical experimentation across different emerging technology platforms, taking into account a variety of factors, including policy, regulatory, security and risk management implications.”

South Africa’s CBDC study is expected to last until 2022 and will potentially align with the existing institutional digital payments pilot under the aegis of “Project Khokha.”

Like other central banks currently studying CBDCs, the SARB also stated that its current exploratory studies were in no way an indication of plans to issue a digital rand in the future.

Back in June 2018, the SARB launched a pilot test for Project Khokha — the country’s tokenized fiat interbank payment system. As previously reported by Cointelegraph, the project utilizes the Ethereum-based Quorum infrastructure to test digital clearing and settlements for interbank payments.

The global CBDC field continues to expand, with China seen as the de facto leader — at least among the major economies. In South Korea, the country’s central bank recently announced plans to partner with a technology firm to build a sovereign digital currency for its testing protocols scheduled to begin in August.

Updated: 5-25-2021

US Must Win CBDC Race To Maintain Dollar’s Global Reserve Currency Status: Federal Reserve Governor

The Federal Reserve Governor has urged the United States to be at the forefront of developing CBDC to maintain the U.S. dollar’s role as a global reserve currency.

The Fed’s governor has argued that The United States must be at the forefront of developing a central bank-issued digital currency, or CBDC, to bolster the role of the U.S. dollar as a global reserve currency.

In a May 24 announcement, Federal Reserve Governor Lael Brainard asserted that leading CBDC projects could have a “significant effect” on the global financial system, urging the U.S. to ensure it plays a leading role in the burgeoning CBDC ecosystem:

“Given the potential for CBDCs to gain prominence in cross-border payments and the reserve currency role of the dollar, it is vital for the United States to be at the table in the development of cross-border standard.”

The announcement notes The Fed is “sharpening its focus” on four key areas of CBDC development — “the growing role of digital private money, the migration to digital payments, plans for the use of foreign CBDCs in cross-border payments, and concerns about financial exclusion.”

The Governor offered some of the potential benefits to adopting launching a CBDC, asserting the covid-19 pandemic had “accelerated the migration to digital payments” among U.S. households and noting that it took “weeks” for prepaid debit cards to be distributed as relief to households that did not have up-to-date bank information filed with the Internal Revenue Service.

“We must explore—and try to anticipate—the extent to which households’ and businesses’ needs and preferences may migrate further to digital payments over time,” she added.

Brainard also emphasized potential risks associated with the widespread adoption of private stablecoins, suggesting that a CBDC could provide the utilities and benefits associated with existing USD stable tokens without undermining the government’s control over monetary policy.

“Unlike central bank fiat currencies, stablecoins do not have legal tender status[,] there is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses,” she said.

“In any assessment of a CBDC, it is important to be clear about what benefits a CBDC would offer over and above current and emerging payments options, what costs and risks a CBDC might entail, and how it might affect broader policy objectives.”

On May 20, Federal Reserve chair Jerome Powell announced that the Fed will compile a paper discussing the benefits and risks of CBDC, stating: “As stablecoins’ use increases, so must our attention to the appropriate regulatory and oversight framework.”

China’s CBDC Could Give Beijing ‘Leeway For Economic Retaliation,’ Says National Security Expert

Yaya Fanusie also believes that fears the Chinese CBDC would undermine or displace the U.S. dollar as the world’s reserve currency are “overblown.”

China’s central bank digital currency (CBDC) could give it more leverage over international companies that are required to use it, Yaya Fanusie, a senior fellow at the Center for a New American Security, said on the second day of Consensus 2021.

The digital currency, or “eCNY” as it is known, could give China “a little more leeway for economic retaliation,” according to Fanusie.

He provided the recent example of H&M being “pretty much booted off the digital presence within China,” because of some statements the Swedish clothing company had made around concerns about the use of forced labor targeting the Uyghur Muslim population in Xinjiang.

“Imagine if H&M and other foreign companies were required to [accept] eCNY for retail transactions — might it be easier to cut off transactions to them or to companies from countries that had a political dispute with China?” Fanusie asked.

Fanusie was responding to the question of a Chinese CBDC displacing or undermining the U.S. dollar as the world’s reserve currency, fears that he said are “overblown.” The variables that affect whether the dollar is the top currency are “big structural issues that aren’t going to be displaced or offset just due to the introduction of a new digital currency,” he argued.

The eCNY has been in pilot testing in 10 cities around China over the last year with aims of being offered to foreign athletes and visitors at next year’s Winter Olympics in Beijing. This would be the eCNY’s first test with international users.

Updated: 5-26-2021

When Is A Dollar Not A Dollar?

If the Federal Reserve issues digital currency, it will forever change the U.S. financial industry.

A digital currency issued by the Federal Reserve would revolutionize the U.S. financial industry. Yet while economic and financial digitization is crucial, as Fed Chairman Jerome Powell says, it cannot also be universal. The result is that major economies are going to end up with at least two different kinds of money.

The most common worry is that a central bank digital currency, or CBDC, would lead to disintermediation, with individuals or wholesalers putting their money into a CBDC system rather than commercial banks. The result would be fewer loans and less private-sector economic activity.

CBDC proponents typically say regulation can fix this problem. They favor some combination of issuance limits on CBDC units, CBDC access for wholesalers and major players only, or penalty interest rates or fees on CBDC holdings.

Yet all of these ideas create barriers — you might even call them “capital controls” — between ordinary dollars and CBDC dollars. If there are limits or barriers to dollar-to-CBDC conversion, dollars and CBDC units will not sell for the same price.

Why Should They? They perform different functions for different clienteles. Of course if the Fed allows unrestricted conversions, a one-to-one price would be enforced by arbitrage. But such open and unfettered privileges are precisely what policy advocates are seeking to limit.

The result would be a bit like the Chinese system. The yuan has for a long time had one value within China and another in world markets, with the difference being enforced by capital controls. And with a Chinese digital currency on the way, China may soon have (at least) three different currency prices.

In this new world, people will ask whether the U.S. dollar unit of account refers to “ordinary dollars” or to CBDC dollars. There might be two competing “dollar units of account” — or, more plausibly, retail prices would continue to be denominated in terms of ordinary dollars and the CBDC would have a floating exchange rate with respect to these “retail dollars.”

Given the sophistication of U.S. business and the widespread distribution of smart phones, which can enable ready calculation, I don’t find this scenario troubling. Nonetheless it would be a revolution of sorts.

In particular, the price of the CBDC dollar would become both a major policy variable and a major indicator of where central bank policy is headed. To what extent does the Fed wish to allow transactions, intermediation and resources to flow into the CBDC-linked sector? Current debates about open-market operations or interest on reserves will become arcane and outdated.

The regulations roping off the CBDC sector from the retail-dollar sector would become truly significant, and would give the Fed (and other regulatory parties) much greater influence over sectoral allocation.

Over time, the CBDC financial sector would become much larger, as more of the economy digitizes and demands the hypermodern CBDC payment and settlement system. That would mean that the dominant U.S. currency — the CBDC dollar —would be fully separate from the mainstream accounting unit, namely the retail dollar.

Whether some other currency might replace the U.S. dollar as the world’s reserve currency is a perennial debate. Maybe the real alternative to the dollar is … the CBDC dollar.

Another question is whether privately supplied digitized currencies can coexist with a Fed-issued CBDC. The likely answer is yes. A Fed-issued CBDC, no matter how well run, will not serve all purposes. Market participants might also desire digital currencies with greater privacy and anonymity, digital currencies subject to different regulations, or digital currencies designed to transact with foreigners, including countries with illiquid, non-convertible currencies.

After all, it is unlikely that the Fed will allow all foreigners to partake in the new CBDC system, in part because of regulatory requirements, and in part because of fear of global runs. There might also be a “basket” of CBDCs at the global level.

Updated: 5-30-2021

Sweden Moving Forward In E-Krona CBDC Trials

Sweden will trial its CBDC with a live banking participant. The experimentation will involve participation between Riksbank and Handelsbanken, a retail bank chain based in Sweden.

Sweden has made a number of strides toward its own central bank digital currency, or CBDC, called the e-krona. The Sveriges Riksbank, the country’s central bank, now looks to experiment with the asset using a non-simulated party.

As reported by Reuters, Riksbank detailed on Friday via a statement: “The e-krona pilot is therefore moving on from only having simulated participants, to cooperation with external participants in the test environment.” The experiment will involve participation between Riksbank and Handelsbanken, a retail bank chain based in Sweden.

In January, Riksbank elaborated that its e-krona proof-of-concept harnesses Corda, a distributed ledger technology, or DLT, solution is from R3. Sweden has been on the CBDC path for over a year. April brought the news that the country had finished the beginning portion of its CBDC pilot.

The Riksbank statement reported on by Reuters also included Handelsbanken noting: “For Handelsbanken, the project means the opportunity to participate in what may be among the first digital central bank-issued money in the world to be available to the public.”

CBDCs were a hot topic in 2020, with countries continuing their pursuits in 2021. China has largely led the charge in terms of CBDC ambition, although the Bahamas burst on the scene last fall with the first CBDC launch, calling its currency the Sand Dollar. Just recently, Lael Brainard, the governor of the Federal Reserve, the central bank of the United States, expressed the importance of a CBDC in terms of the country’s position as the world’s reserve currency.

The Riksbank will partner with Handelsbanken to test how the e-krona might work in the real world.

The Riksbank plans to test its proposed central bank digital currency (CBDC) with commercial bank Handelsbanken as it moves on from having only simulated participants.

* The e-krona is set to move from the simulation phase to a testing environment with external participants, Reuters reported Friday.

* Handelsbanken, the country’s largest bank by assets as of 2019, will work with the central bank to test how the CBDC could handle payments in the real world.

* The Riksbank announced in April that it would involve commercial banks in the next phase of the project, which could reach fruition within five years, according to Governor Stefan Ingves.

* “The project means the opportunity to participate in what may be among the first digital central bank-issued money in the world to be available to the public,” Handelsbanken said in a statement.

* Sweden appears to be second only to China among major economies in the advancement of its CBDC plans, Reuters said. While multiple other countries are in active discussion and research, Sweden and China are the only ones to have begun testing, with the latter’s currently being rolled out to consumers on a pilot basis.

Bank Of Canada Sees No Strong Case For A Digital Dollar — For Now

Amid the global CBDC race, the Canadian central bank does not currently see a strong case for issuing a state digital currency.

The Bank of Canada does not see a strong reason for issuing a central bank digital currency at the moment.

Timothy Lane, the Bank of Canada’s deputy governor and head of research at the bank’s fintech and crypto department, spoke on CBDC issues at a Wednesday panel, Reuters reports.

According to the official, the Canadian central bank is now focused on CBDC implementations in more concrete terms, thinking about how it might work and look. However, the Bank of Canada has not found any solid case for issuing a CBDC. Lane said:

“In terms of where we are with the project, we don’t currently see a strong case for issuing it, but the world is progressing very rapidly and probably even more so in the wake of the pandemic.”

Not only does the Bank of Canada not see a solid case for issuing a CBDC but it has also outlined a number of risks related to a state digital currency previously. In October 2020, the bank issued a report on CBDC-associated risks, paying special attention to threats arising from CBDC storage issues and competition between crypto exchanges and banks in terms of attracting users.

Last December, Lane said that the global coronavirus pandemic could force Canada to launch a CBDC sooner than originally expected. “I would say that in the last nine months, we’ve seen developments that look like they’re in the direction of some of those things coming to pass sooner than expected,” he said in late 2020.

Updated: 5-31-2021

Indian Central Bank Clarifies Regulations As Local Banks Shun Crypto

Banks like HDFC and the State Bank of India reportedly cautioned customers against crypto, citing the RBI’s quashed crypto circular.

India’s central bank has issued an official notice regarding the fact that local banks are reportedly cautioning customers against using cryptocurrencies like Bitcoin (BTC).

Published Monday, the notice points out that the Reserve Bank of India is aware of media reports that certain banks have cautioned their customers against crypto by referring to the RBI’s quashed, three-year-old circular.

“Such references to the above circular by banks/ regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 4, 2020 in the matter of Writ Petition,” the notice reads, emphasizing that the circular is no longer valid and cannot be cited.

However, banks and other regulated financial institutions can still carry out customer due diligence processes related to Anti-Money Laundering and Know Your Customer standards under the Prevention of Money Laundering Act of 2002, the RBI noted.

The RBI’s statement comes in response to media reports claiming that some of India’s largest banks, like HDFC Bank and the State Bank of India, have cautioned their customers against dealing in digital currencies. Some users claimed that HDFC Bank cited the RBI’s 2018 order banning crypto trading in India. The ban was officially overturned in March 2020 by the Supreme Court of India.

The news adds to the prevailing uncertainty regarding the legal status of crypto in India. Earlier this year, anonymous sources claimed that the government was planning a blanket ban on crypto.

Bitcoin ‘Of Great Concern,’ Ireland’s Central Bank Official Warns

Cryptocurrency investors should be ready to lose all their holdings, according to Ireland’s central bank financial conduct director.

Ireland’s central bank director general for financial conduct is the latest official to point out issues of Bitcoin (BTC) and the cryptocurrency industry following a major market sell-off.

The growing popularity of cryptocurrencies like Bitcoin is “of great concern,” the Central Bank of Ireland’s Derville Rowland warned recently.

“Crypto assets are quite a speculative, unregulated investment,” and investors should be “really aware they could lose the whole of that investment.” Rowland stated after crypto markets shed nearly $1 trillion in a matter of days in one of the biggest historic crypto sell-offs.

Rowland’s perspective on crypto is set to contribute to the global regulation of the space, as the official will take over as chairwoman of the European Securities and Markets Authority’s (ESMA) investment management standing committee in July.

Earlier this year, the financial authority outlined the same concerns around crypto, stating that these types of assets are not regulated and pose significant risks for investors due to its highly-volatile nature.

As one of the top executives of Ireland’s central bank, Rowland is known for her stringent stance on financial violations, as well as her involvement in major enforcement investigations. In March, the central bank fined Ireland’s largest stock broker Davy for breaching market rules, eventually pushing the firm to put itself up for sale.

Aside from pointing the finger at crypto, Rowland also reportedly outlined the problem of “gamification” of stock investing, referring to coordinated trading via social media platforms, including Reddit-driven GameStop short squeeze. The official said that the ESMA and Ireland’s central bank have held discussions on the issue.

While there’s not yet a timeline for any new rules, regulations need to be “technology neutral, so that you’re not getting better protections in older paper-based processes than you are in more online processes,” Rowland said.

A number of central bank officials have rang the alarm on crypto investment recently. In early May — prior to a downturn on crypto markets — the Bank of England governor Andrew Bailey warned that cryptocurrencies have no intrinsic value, and that people should only buy them if they’re prepared to lose their money. Last week, Bank of Japan governor Haruhiko Kuroda slammed Bitcoin, arguing that most of the trading was speculative.

Ex-Head of China’s Digital Yuan Effort Says CBDCs Could Operate On Ethereum

Central bank digital currencies will one day be more “smart,” and not merely digital versions of cash, Yao Qian said.

The former head of the digital currency initiative at the People’s Bank of China (PBoC) said central bank digital currencies (CBDCs) are set to become more “smart” and could one day operate on blockchain networks like Ethereum.

Yao Qian, now director of the Science and Technology Supervision Bureau of the China Securities Regulatory Commission, said at the weekend that CBDCs shouldn’t attempt to be just a digital form of physical cash, but should incorporate smart contract functionality, Sina Finance reported Monday.

Smart contracts are automatically executing pieces of blockchain code that carry out functions when certain conditions are met, and can also be designed to complement or replace legal contracts.

Yao told the International Finance Forum 2021 Spring Conference in Beijing, however, that the number of security incidents arising from smart contract vulnerabilities shows the technology still needs to mature. Further, there are concerns over the legal status of digital contracts, he said.

As such, central banks should take a cautious approach, starting with simple smart contracts and building complexity as security and legality become more assured.

Yao led the central bank’s digital currency research lab from its inception until he left the PBoC in 2018, moving to the China Securities Regulatory Commission at the end of 2019. He is cited as author or co-author on many of the central bank’s patent applications relating to CBDC technology.

The People’s Bank has been working on trials of its digital yuan with commercial banks and payment providers. However, a CBDC needn’t necessarily be account-based, Yao said.

In theory, via a “two-tier” approach, a digital yuan or digital dollar could sit on Ethereum’s network, or that of the Facebook-backed Diem (formerly Libra). That would mean central banks could provide CBDCs directly to users without needing intermediaries.

“Layered operations can enable the central bank’s digital currency to better benefit groups without bank accounts and achieve financial inclusion,” he said.

The Evolution And Future Direction Of CBDCs

Central bank digital currencies have evolved from a loosely formed concept to tangible, real-life projects and an array of models have emerged.


Michael Casey and Sheila Warren host a live CBDC edition of their “Money Reimagined” podcast at Consensus 2021. In this program, they discuss the further development and future direction of CBDCs with Christian Catalini, the chief economist of the Diem Association, and Benedicte Nolens, head of the Bank of International Settlements’ Innovation Hub in Hong Kong.

Updated: 5-31-2021

Digital Yuan Conceived To Counter Alipay-Like Platforms, Says Former PBoC Executive

Chinese “crypto dad” and ex PBoC director Yao Qian insists digital yuan is not a surveillance tool for the government.

China’s digital yuan will utilize smart contracts, and will be built to counter Alipay-like payment platforms designed by the privately-owned conglomerates, former People’s Bank of China director Yao Qian said.

Speaking at the International Finance Forum in Beijing, Qian argued that simply simulating its physical counterpart would not be enough for the digital yuan to succeed.

To fully benefit from being digital, it will move toward the “smart currency” by making use of smart contracts, he added, according to local sources.

Central banks need to innovate the legal fiat money to keep up with the tides of digitalization, he said. Qian then listed the European Central Bank, Bank of Japan and the central bank of Canada as examples of how to work on smart contract-based digital currencies.

Qian reportedly said that China’s initial idea of a digital yuan was to counter the impact of private payment platforms that have become increasingly popular, possibly implying the country’s ubiquitous payments service Alipay.

However, he insisted that the Chinese government did not develop the digital yuan as a surveillance tool to track all transactions in real-time:

“The digital yuan needs to achieve a balance between protecting users’ privacy and cracking down on crimes such as money laundering, tax evasion and the financing of terrorism.”

Central banks can provide users digital currencies without intermediaries “if the digital dollar and digital yuan run directly on blockchain networks like Ethereum and Diem,” Qian further explained.

Layered operations can enable the central bank’s digital currency to better benefit bankless people and achieve financial inclusion, he added.

Yao Qian is the director of the Science and Technology Supervision Bureau of the China Securities Regulatory Commission. Formerly, he was the director of PBoC’s Digital Currency Research Lab.

He is known for his works on digital yuan since its initial steps in 2014. His friendly attitude toward crypto as an official of China’s SEC counterpart earned him the moniker “Chinese crypto dad.”

Updated: 6-1-2021

China Digs Deep Into Its Currency Toolkit To Manage Yuan

As China’s central bank pulls back from direct intervention in its currency market, officials are reverting to old tools to manage the yuan.

The People’s Bank of China said on Monday lenders will need to hold more foreign currencies in reserve, a move that will reduce the supply of the dollar onshore. Officials have pulled on multiple levers to influence the yuan since October, when China cut the cost of shorting the currency to zero and removed a key factor used by banks to calculate the daily reference rate.

The PBOC is seeking to curb a yuan rally without derailing a plan to liberalize the currency and promote its global usage. The removal of the threat of intervention, however, can fuel one-way bets.

With the yuan near a three-year high against the dollar and the drivers for its recent outperformance remaining in place, the PBOC will be under pressure to take further steps to slow the pace of gains. The currency is also close to the strongest since 2016 versus a basket of trading partners.

“On the one hand, the PBOC wishes to make the yuan exchange rate more market-oriented,” said Larry Hu, head of China economics at Macquarie Group. “But on the other hand, it also doesn’t want to see an aggressive one-way rally.”

Other measures it may take could include making it harder to bet on the yuan through derivatives, encouraging more capital outflows, and signaling through its daily fixing. On Wednesday, the PBOC weakened its yuan daily reference rate from Tuesday’s fix, tracking moves in the spot rate.

The currency has still appreciated around 12% versus the dollar since a low last year in onshore markets. It was little changed at 6.3813 against the dollar at 10:50 a.m. in Beijing.

Should The Central Bank Want To Slow The Yuan’s Rise Again, Here Are Four Key Tools It Could Employ In More Details:

Reducing Dollar Supply

The reserve requirement ratio for foreign-exchange deposits could be increased again. At 7% from June 15, it remains far lower than the 12.5% rate for yuan deposits. That would further tighten dollar liquidity onshore, slowing the pace of foreign-exchange loans and narrowing the yield gap between the greenback and the yuan, said Becky Liu, head of China macro strategy at Standard Chartered Plc.

The PBOC could also allow lenders to swap their yuan reserves for foreign currencies, or encourage higher interest rates on foreign-exchange deposits to increase the appeal of holding dollars.

Yuan Derivatives

The central bank could put a tax on bullish speculative trades. One way to do this is to make it more expensive to bet on yuan appreciation with derivatives. This would be similar to what happened in October, when the central bank significantly reduced the cost of shorting the yuan.

Capital Outflows

China has one-sided capital account controls. Outflows are restricted while inflows are encouraged, which has boosted demand for the yuan. In recent months Beijing has taken measures to let more money flow out by giving additional quota for funds to invest in securities overseas, but there’s plenty more authorities could do.

Beijing could allow residents to buy more than the $50,000 annual quota in foreign exchange, according to Citic Securities Co.

Hong Kong’s plan to allow mainland investors to trade bonds in the city via a southbound trading channel, which is set to be launched as soon as July, would also encourage outflows.

“Should China need to manage yuan expectations any further, it will probably opt to loosen capital restrictions for outflows,” said Stephen Chiu, a strategist for Bloomberg Intelligence. “Other ways — like a much weaker fixing — are less preferable because this would go against the goal of achieving a more market-driven currency.”

Daily Signals

The easiest way for the central bank to influence the currency is through its daily reference rate, known as the fixing, which is set at 9:15 a.m. The yuan is then allowed to move 2% in either direction. This would be considered direct intervention, and it’s the tool the central bank used to devalue the currency in 2015.

The PBOC has been tracking closing moves in the yuan when setting the fixing recently, with the rates largely being in line with average estimates in Bloomberg surveys. That suggests the central bank is either comfortable with the yuan’s strength or has shifted its strategy.

Back in January, the PBOC set the fixing 0.15% lower than the average estimate by traders and analysts in a Bloomberg survey. That was the biggest bias on the weak side since Bloomberg started compiling the data in June 2018.

Another way to set weaker fixings is to encourage declines at the official close at 4:30 p.m. That’s because the rate factors into the following day’s fixing formula. While it can be an effective way to influence the yuan without sending a strong signal on policy or destabilizing markets, there’s been little sign of that lately.

Bitcoin Price, Foreign ASIC Demand Drive Profitable Q1 For Miner Producer Canaan

Canaan’s overseas business is growing, a testament to the undercurrent of miners leaving China for other jurisdictions.

Chinese ASIC manufacturer Canaan just eked out a profit in Q1 thanks to a surge in bitcoin’s price and, by proxy, growing demand for bitcoin mining machines.

The company’s unaudited financials for Q1 report a net income of $200,000 from $29.6 million in gross profit. Additionally, Canaan reported that it had sold some 2 terahashes worth of mining equipment in the first quarter of the year, more than doubling the machines they sold in Q4 of 2020 when COVID-chocked supply lines undermined Canaan’s bottomline.

The modest haul was enough to send shares of the typically financially beleaguered firm up nearly 12% at press time.

Canaan CEO Nangeng Zhang said the company’s financial turnaround was “driven by the bitcoin price rally” and higher demand from customers.

“During the period we improved our mining machine production yields and secured sufficient capacity for future production,” Zhang said. “We have obtained a large number of pre-orders from long-term clients both at home and abroad,”

Canaan noted in its report that its contract liabilities for hardware, now worth $184 million, have nearly tripled since the end of last year.

Bitcoin Mining Migrates To North America

Notably, 78% percent of the orders underpinning these contracts are coming from outside China, Canaan noted. In prior years, this percentage point has been in the single digits.

“Our revenues generated from overseas markets increased to 78.4% of our total net revenues in the first quarter of 2021 compared to 4.9% in the same period of 2020. Looking ahead, we plan to continue investing in those areas that will help to further develop both our core bitcoin mining machine business and other business initiatives in order to sustain our growth trajectory in 2021 and beyond,” Canaan CFO Tong He said.

Canaan’s influx of overseas orders corresponds with a shift in bitcoin’s mining landscape as the Chinese government cracks down on coal-fire mines, leading miners to look elsewhere to host their operations.

In North America, mining firms are scaling aggressively and taking measures to address bitcoin’s perceived energy appetite.

Updated: 6-2-2021

ECB Says Digital Euro May Be Needed To Combat ‘Artificial Currencies’

The ECB’s annual euro report stressed that a digital euro may be needed to fight off the threat of “artificial currencies” from “foreign tech giants.”

The European Central Bank has warned that a CBDC or digital euro may be required to head off the spectre of “artificial currencies” dominating cross-border payments.

In ECB’s annual review of the euro dubbed “The international role of the euro”, economists Massimo Ferrari and Arnaud Mehl conveyed concerns over the rise of artificial currencies led by unnamed “foreign tech giants” — likely a veiled reference to Facebook’s Diem project:

“One concern could be a situation in which domestic and cross-border payments are dominated by non-domestic providers, including foreign tech giants potentially offering artificial currencies in the future.”

“Not only could this threaten the stability of the financial system, but individuals and merchants alike would be vulnerable to a small number of dominant providers with strong market power,” the pair added.

The ECB has long-held concerns over the rise of artificial currencies or stablecoins in Europe and previously asked EU lawmakers for veto powers regarding private stable projects such as Facebook’s Diem coin.

The ECB has taken a careful approach to launching a digital euro, with ECB’s president Christine Lagarde noting in January that “it’s going to take a good chunk of time to make sure it’s safe,” and adding, “I would hope that it’s no more than five years.”

Ferrari and Mehl’s report on “CBDC’s and global currencies ” weighed up “several scenarios in which the need to issue a digital euro” may become important.

The economists emphasized the need to compete with big tech firms for payment products and services, and noted that bundling a digital euro with complementary services could be a way to do so:

“A CBDC could facilitate the digitalization of information exchanges in payments through e-invoices, e-receipts, e-identity, and e-signature, allowing intermediaries to offer services with higher value-added and technological content at lower cost.”

According to the report, deploying the digital euro may also be needed to enhance current cross-border payment infrastructures. The authors notes that a digital euro could negate the need to use foreign currencies for international transactions, and reduce the costs associated with doing so, which in turn would “facilitate an expansion of global e-commerce”:

“Low transaction costs and bundling effects could increase its appeal for invoicing cross-border transactions — as a means of payment and as a unit to settle current transactions.”

The report also stated that the “specific design features of a CBDC would be important for its global outreach,” and emphasized the need to incentivize the use of a digital euro through interoperability, the anonymity of users, and being able to conduct offline payments.

However, the economists stressed that anonymity would also have to be tempered with the need to have enough information on CBDC users in order to “build safeguards” and identify misuse of funds for terrorism financing, cross-border criminal activities, and money laundering.

Updated: 6-2-2021

Digital Dollar Should Be ‘Actively Explored,’ Says Former CFTC Chairman

Maintaining users’ privacy is a key design focus, according to Massad. “We’re not China.”

A digital dollar should be “actively explored,” former Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad told CoinDesk TV.

* “I’m glad to see that the [Federal Reserve] is doing that,” Massad said during CoinDesk TV’s “First Mover” on Wednesday.

* He added there are multiple design choices and other issues to think about in terms of maintaining users’ privacy, noting, “We’re not China.”

* Like almost all major economies, the U.S. is exploring the development of a central bank digital currency (CBDC), though for the time being all plans remain in the discussion phase.

* One potential design choice is for the Fed to build a digital dollar operating platform on which private institutions can build applications, Massad suggested.

* “That’s attractive because innovation is always going to come more from the private sector than the government,” he said.

* The ex-CFTC chairman and current senior fellow at Harvard University had previously been discussing his opinion piece by Bloomberg published Tuesday about the potential dangers posed by any disruption of the value of the stablecoin tether for the wider crypto ecosystem.

China To Hand Out $6.2M In New Digital Yuan Trial In Beijing

Beijing residents should apply to participate in the lottery until midnight on June 7.

The Chinese government is launching another digital yuan lottery to stimulate its ongoing digital currency trials, this time in the capital of Beijing.

The Beijing Local Financial Supervision and Administration officially announced Tuesday that the government will distribute 40 million digital yuan ($6.2 million) to Beijing residents as part of a new digital currency pilot.

Starting in June, the program features “red envelopes” — a traditional way of gifting money — with each providing a free online wallet containing 200 digital yuan ($31). These red envelopes will be distributed to 200,000 lottery winners, who must download an application to use their prizes at nearly 2,000 designated merchants in the city. In order to register, consumers can use two banking apps: China’s Mobile Banking App and ICBC Mobile Banking app.

According to the announcement, Beijing residents should apply to participate in the lottery before midnight on June 7, while the winners will be able to spend their prizes by June 20. Users will be able to top up their wallets if they want to spend some extra money, the announcement notes.

The government has carried out multiple digital yuan giveaways in other cities including Shenzhen. These lotteries intend to help the People’s Bank of China test the country’s digital currency after the central bank launched the first digital yuan trials in April 2020.

China has reportedly given away as much as 150 million digital yuan ($23.5 million) in order to promote digital currency use as part of the trials as of late March.

As previously reported, China’s central bank is looking to allow foreign athletes and visitors to use the digital yuan during the Beijing Winter Olympics in 2022.

Updated: 6-3-2021

ECB Says Lack of Official Digital Currency Risks Loss of Control

Countries that decide not to introduce digital versions of their currencies may face threats to their financial systems and monetary autonomy, the European Central Bank warned.

Consumers and businesses in places that don’t have their own digital currency could end up being reliant on a small number of dominant payment-service providers, including foreign tech giants, the ECB said in a report published Wednesday. That could affect the central bank’s ability to fulfill its mandate and act as a lender of last resort, the ECB said.

“Issuing a central bank digital currency would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world,” according to the report.

Central banks across the globe are toying with the idea of issuing a digital version of their currencies to keep up with technological advances that have spurred the rise of Bitcoin and other private initiatives. The ECB is one of several institutions leading the charge, though it won’t officially decide until this summer whether it will move forward with practical experiments on a digital euro.

ECB President Christine Lagarde has said that a digital euro could exist within the next four years if officials give the project the green light. Such an initiative could also boost the euro’s international reach if it is designed with a focus on safety, low transaction costs and compatibility with other services, according to the ECB’s report.

“Fostering the international role of the euro is not a prime motivation for issuing a digital euro,” according to the ECB researchers. “However, if the use of a digital euro in cross-border payments were allowed – a decision that remains to be taken – this would also have implications for the international role of the euro.”

 

Bitcoin Is Greener Than Many — Including Elon Musk — Think It Is

Bitcoin miners use a lot of energy. But the devil is in the details.

It’s been three weeks since Tesla CEO Elon Musk tweeted that the electric-car company had dropped bitcoin as a payment option, citing concerns over the cryptocurrency’s link to greater consumption of fossil fuels.

Since May 12, bitcoin BTCUSD, 2.35% has plunged by about a third, dragged down, in part, by criticism over its carbon footprint.

But the issue is not so simple.

Today I’m joined by Alexander Benfield, a cryptocurrency analyst at Weiss Ratings. Instead of focusing on overall market dynamics, we’ll talk about bitcoin and issues surrounding its energy consumption during the mining process.

The cryptocurrency’s network relies on computers solving puzzles, which uses electricity. Annual power consumption of bitcoin mining is about 130 terawatt-hours, according to the University of Cambridge. To put that in perspective, the U.S. uses almost 4,000 terawatt-hours of electricity a year.

MarketWatch: A claim that bitcoin is an energy hog has been around for a while. How much merit is there to such a claim?

Benfield: That is a question with a multi-faceted answer. Yes, bitcoin does consume a lot of energy, but that does not necessarily translate into carbon emissions. Much of bitcoin mining uses renewable energy; depending on the source, that number ranges between 39%-73%, which is far higher than the percentage of renewable energy in the U.S. power grid.

So even going by the low estimates, bitcoin is far more energy-conscious than the average industry. Additionally, a considerable amount of bitcoin mining actually uses excess energy that would otherwise be wasted in areas where it can’t be exported to a nearby city infrastructure.

For example, bitcoin miners in rural China use hydro-electric energy that would otherwise be wasted due to low local energy demand and the inability to transport that excess energy to an urban power grid.

MarketWatch: Some analysts say bitcoin is actually “greener” than many people think. What do they mean by that?

Benfield: Nic Carter has done some amazing research into this topic and is constantly trying to prove this point on television. (Carter is a general partner at Castle Island Ventures, a Cambridge, Mass.-based venture firm.) However, many critics don’t care to listen.

Cathie Wood recently took to Bloomberg to talk about potential ways of incorporating bitcoin mining into renewable energy providers’ power grids to capitalize on the intermittent periods when their excess energy is currently wasted. (Wood is CEO of active-ETF manager ARK Invest.) So perhaps bitcoin can actually help take advantage of much more wasted energy than was previously thought.

MarketWatch: So far, we have established that bitcoin is somewhat energy hungry. What is the purpose of all that energy expenditure?

Benfield: Bitcoin’s energy usage makes bitcoin more secure. The cost of attacking bitcoin rises along with the increase in the computational power and the energy consumed by those mining or securing the network.

MarketWatch: We hear a lot about the advent of cryptocurrencies that spend less energy than bitcoin does. What can you tell us about them?

Benfield: Many of the “green” cryptos are marketing their blockchain as energy efficient because this is better than saying that they have underdeveloped networks that nobody is using, validating or mining on.

That being said, proof-of-stake cryptocurrencies are typically much more energy efficient and new projects will likely shift their attention toward proof of stake because of the energy benefits.

MarketWatch: Will bitcoin evolve and grow to surpass its hunger for energy? What’s next in store for the world’s most popular cryptocurrency?

Benfield: Much of bitcoin’s energy use to date has been for mining new coins and not the actual processing of transactions. After all the coins have been mined, energy usage is likely to come down, as the act of validating transactions uses far less energy than coin mining.

There is also the possibility that scaling solutions and upgrades that have been in the works for years could help cut down on energy expenditure by offloading some transaction processing to layer 2s or sidechains.

These sidechains or layer 2s would then checkpoint on the bitcoin blockchain, but similar to the lightning solution, individual transactions would be handled off the main chain and the summaries of those transactions would be stored on the main bitcoin blockchain during those checkpoints.

MarketWatch: Finally, is this energy issue big enough to jeopardize bitcoin and cryptocurrencies as a store of value?

Benfield: No, at the end of the day the issue of bitcoin’s energy consumption boils down to whether the consumption is worth it. Bitcoin’s adopters will eventually need to demonstrate bitcoin’s societal value to the world to justify its energy footprint.

Big-Picture Thinking

There you have it. After having this conversation with Alex, reviewing Nic Carter’s research (the link is above, I highly recommend you read it) and other papers on the topic, it seems that many of the issues concerning bitcoin’s carbon footprint may have been overblown or simply misrepresented.

Determining bitcoin’s effect on the environment requires a lot of big-picture thinking. It is easy to miss the forest for the trees, and easier still to rely on information that has been since debunked, simply because it favors one’s cognitive bias.

The way I see it, cryptocurrencies aren’t going away, and by the looks of it, neither is bitcoin. Current market action looks like nothing out of the ordinary — yet more volatile crypto action, the likes of which we’ve seen in the past. This slump is likely just a pause.

What do you think? Do you support the use of bitcoin or would you rather invest in one of the “green” cryptocurrencies? Which one?

Let me know in the comment section below.

Updated: 6-3-2021

The CBDC Promised Land: As Some Governments Falter, Others Press On

Regulatory hurdles and the economic impact of the pandemic have derailed some CBDC projects, but not all hope is lost.

With the crypto market turning up its pace of growth over the last year and a half, the idea behind central bank digital currencies (CBDCs) seems to have gained an increasing amount of traction among many governments and retail banking institutions. In this regard, as per a study recently released by consulting giant PwC, more than 60 central banks have been exploring the unique value proposition put forth by CBDCs.

Furthermore, it bears mentioning that following the dawn of the coronavirus pandemic, the use of physical cash has continued to dwindle globally, with many now transitioning to digital payments in order to minimize potential health risks, while others have simply grown accustomed to online shopping.

So, there are several reasons why an increasing number of countries may be looking to employ CBDCs, especially because they make it possible for people to facilitate fast, convenient, contactless remittances. But how many nations are actually open to launching such a solution?

To put things into perspective as to how much progress has been made within this space, the People’s Bank of China (PBoC) has successfully tested its digital yuan offering — also referred to as the Digital Currency Electronic Payment, or DCEP — across a whole host of major commercial regions including Shenzhen, Chengdu and Suzhou. In fact, the country is reportedly looking to roll out the coin for mass use before the start of the 2022 Winter Olympics.

Similarly, the Bank of Japan has also followed in the footsteps of the PBoC by initiating a yearlong trial of its digital yen as a means of mapping out the long-term technical/monetary feasibility of launching a mass-scale CBDC. The pilot is already live and is set to conclude by the end of the first quarter of 2022.

What’s Hampering The Adoption Of CBDCs Globally?

At present, it seems as though every other country and major banking institution is interested in creating its very own CBDC. However, it’s hard to determine which of these players are actually serious about adopting this technology. Ran “Goldi” Goldshtein, CEO of First Digital Assets Group (First DAG) — a firm focused on building interoperable payment rails supporting CBDCs and stablecoins such as Diem — pointed out to Cointelegraph:

“I think most countries are serious about CBDCs, to the extent that there is always a core group of people leading local projects. That being said, when looking at various countries, they have different progression skews. I believe these countries differ due to several factors such as governance, public sentiment, etc.”

Providing his thoughts on why CBDCs have not been able to enter the financial mainstream, Goldi believes that adoption has been hindered due to a plethora of reasons, including there being too much red tape. In this regard, one can see that in countries like China, Singapore and Korea, where the local governments are quite proactive in promoting the use of future-ready technologies, these novel digital assets have been able to gain a lot of attention.

Additionally, another reason that many countries have not been able to fulfill their CBDC aspirations could be because of the economic devastation caused by the coronavirus pandemic, which basically put the financial plans of most counties at a standstill.

As a result, the interest that nations previously had has waned. “We heard a lot about CBDCs around 2016–2018, and then, as crypto winter hit all of us in 2019, everyone went silent, as it wasn’t ‘cool’ to dabble with digital currencies anymore,” Goldi added.

Not All CBDCs Are Created Equal

There are several ways that CBDCs may be built and implemented, and according to Gerald Votta, director of communications for Quantum Economics, the technological aspects of CBDCs can differ greatly. As he told Cointelegraph, “Many of these digital fiat currencies are being designed based on Tether and USDC, the largest stablecoins in existence.”

Furthermore, he added that any government or central authority looking to build a centralized version of a CBDC could potentially be setting themselves up for economic failure, stating that such systems tend to routinely be compromised — citing the recent Facebook data breach as an example of a similar situation. “This could be a serious issue if the information compromised involves your country’s monetary supply,” Votta opined.

On a more technical note, different CBDCs employ different architectural designs. For example, some make use of time-tested frameworks where the flow consists of the central bank, then a retail bank/financial institution, then the consumer; whereas others opt for a more direct approach where the central bank is the only entity allowed to mint, burn and distribute the funds.

That said, the technology underlying most of these projects, at least the ones that are further along in their life cycle, is mostly the same. “A majority of all mature projects in existence today involve the use of R3 Corda and Bitt Inc,” Goldi pointed out. R3’s Corda platform is an enterprise-level blockchain solution, while Bitt Inc. is a payment systems company.

Will CBDCs Ever Be Interoperable With Other Digital Assets?

Another pertinent question worth delving into is whether CBDCs will ever reach a point in their evolution, overcoming one of the main challenges presented by fiat money, where people will be able to use them to facilitate cross-asset transactions — for example, completing payments between stablecoins and CBDCs, such as Tether (USDT), USD Coin (USDC), the DCEP and the Bahamian Sand Dollar.

Goldi believes that in a decade or so, there will be automatic relays and payment gateways that will be able to take care of any conversion/transfer-related processes that need to be completed between most CBDCs, highlighting the fact that the infrastructure setup required to achieve this goal is fairly simple and straightforward.

In fact, there are already quite a few unique products on the market today that help fulfill this vision, albeit in a slightly different manner. For example, First DAG processes payments on behalf of merchants that wish to receive cryptocurrencies, allowing them to gain increased financial exposure.

Taking The Next Step

Recently, a lot of positive developments surrounding CBDCs have emerged. For example, after a few months of little to no progress, Sweden’s central bank, the Riksbank, published the results of the first phase of its e-krona pilot project.

Not only that, but over the course of the last couple of years, countries like the Bahamas and Cambodia have released their own CBDCs: the Sand Dollar and the Bakong, respectively.

That being said, the adoption of the Sand Dollar — as well as most other similar offerings — has been slow. This issue has not gone unnoticed, and most governments across the globe have recognized the pertinent risks involved with going all-in on a large-scale CBDC project.

Therefore, it will be interesting to see how determined governments will be to continue in their pursuits of a functional, well-integrated CBDC, especially as China’s highly touted DCEP project gets ready for mainstream deployment. If successful, it stands to reason that an increasing number of countries will follow in the country’s footsteps and mint their very own CBDCs.

Updated: 6-6-2021

Ghana Gearing For Central Bank Digital Currency Pilot

Ghana is striving to become the first African nation to float a central bank digital currency.

The Bank of Ghana (BoG) is reportedly moving towards the introduction of a central bank digital currency (CBDC) experiment.

Speaking during a news conference in Ghana’s capital, Accra, on Monday, Ernest Addison, governor of the country’s central bank revealed that the BoG was in the advanced stages of creating a CBDC.

As part of his address, Addison said that the planned e-cedi will pass through developmental and evaluation phases before a decision will be made on a national rollout.

According to the BoG governor, the final stage will involve a pilot study to finalize issues concerning feasibility before the CBDC goes into national circulation.

Detailing the process made so far, Addison said that the design phase is already nearing completion with the implementation team on standby for phase two. The pilot study will reportedly involve a limited rollout of the planned e-cedi for mobile payments.

“From that pilot, we will be able to determine whether this is feasible and what sort of things need to be tweaked to make it work effectively,” the central bank governor added.

For Addison, The Country Is Looking To Pioneer CBDC Development On The Continent, Stating:

“The Bank of Ghana was one of the first African Central Banks to declare that we were working on a digital currency looking at the concept of an e-cedi.”

Indeed, as previously reported by Cointelegraph, the BoG has been exploring the possibility of creating a CBDC since late 2019. In June 2020, the central bank confirmed that it was ready to pilot an experimental e-cedi project.

Commenting on Bitcoin (BTC) and cryptocurrencies, the central bank governor warned investors to be wary of the volatility of virtual currencies. According to Addison the unstable nature of crypto prices make them unsuitable as a unit of account and medium of exchange.

Instead, Addison called for more emphasis on central bank-issued digital money which the BoG governor identified as being a better form of digital currency than crypto.

Bitcoin May Yet See ‘Breakthrough,’ Norway Finance Minister Says

The finance minister of Norway appeared to break away from the chorus of Bitcoin critics and suggested that cryptocurrencies will at some point move past the volatility for which they’re currently known and experience a period of “breakthroughs.”

“It is clear that there may be a development over time, whereby you will be able to get more stabilization mechanisms in the currencies that can lead to greater breakthroughs and upheavals in the slightly longer term,” Jan Tore Sanner said in an interview on Tuesday. For now, though, the finance minister warned that it’s “not a market I would recommend consumers to enter.”

The ascent of Bitcoin and its rivals has triggered a slew of warnings from governments and monetary authorities, who point to cryptocurrencies’ lack of any underlying value as a fundamental flaw in their design. Meanwhile, central bankers are racing to produce their own digital currencies to fill the void left by an increasingly cashless world.

What Bloomberg Economics Says…

“Fears of a ‘digital dollarization’ with a gradual loss of control over monetary conditions is one reason for central banks to introduce digital currencies of their own (as an alternative to private cryptocurrencies). As central banks accelerate moves toward a public digital payments option, it’s also likely that they will step up efforts to keep the volatile cryptocurrencies in check.”

–Johanna Jeansson, Nordic Economist

The governor of Norway’s central bank, Oystein Olsen, is among Bitcoin’s detractors. But in Norway’s industrial heartland, the billionaire owner of one of the country’s biggest corporate empires has emerged as a Bitcoin enthusiast. Kjell Inge Rokke, majority shareholder in Aker ASA, says Bitcoin will end “on the right side of history,” and the chief executive of Aker recently hinted the company might even consider taking payment in Bitcoin.

Sanner says he can’t see crypto assets going mainstream until they’re properly regulated, which European authorities are currently working on. For now, cryptocurrencies are also “popular with criminals,” he warned.

Updated: 6-7-2021

BoE Tackles ‘Difficult And Pertinent’ Questions About Digital Money

The Bank of England has published a new discussion paper that tries to gauge the systemic implications of both private stablecoins and a central bank digital currency.

The Bank of England is continuing to devote significant resources to researching digital money in both private and public forms. With an eye on both the domestic and international context, the central bank’s latest discussion paper, published June 7, outlines the role and possible developments of both in the ongoing evolution of money.

Commenting on the paper’s publication, BoE governor Andrew Bailey said that “the prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks, governments, and society as a whole, need to carefully consider and address. It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.”

In the case of stablecoins — i.e., privately issued digital currencies that are designed to maintain parity with the value of various fiat currencies — the BoE paper emphasized that it remains difficult to gauge future demand and thus the scale of their potential impact, as they remain marginal at present.

Nonetheless, the central bank explored various possible reasons why these new forms of private money could be preferred to commercial bank deposits in the future.

The BoE has two foci in analyzing stablecoins and their potential systemic impact, distinguishing their payment functions from their use as private money. In the case of both, the central bank emphasized that they will be expected to meet equivalent regulatory standards to either traditional payment chains or to the traditional banking regime.

Issuers will be subject to “capital requirements, liquidity requirements and support from a central bank, and a backstop to compensate depositors in the event of failure.”

Highlighting stablecoins’ significance, the BoE has noted that commercial banks have never before faced a system-wide displacement of the deposits they create and thus may need to adapt their balance sheets in response to potential outflows just in order to sustain their current liquidity ratio.

This increase in funding costs for commercial banks is assumed by the BoE to be likely to increase rates on new bank lending.

In the case of central bank digital currencies, or CBDCs, the BoE has focused its attention on the need to ensure the broadest financial inclusion possible and has also taken on feedback from outside the central bank that has advocated for ensuring the privacy of CBDC transactions.

While the BoE is mainly analyzing CBDCs from the perspective of payments, it is also considering aspects related to their potential use as a store of value and, therefore, considering whether a future CBDC should be interest-bearing.

A scheme of tiered remuneration, including the potential use of zero or negative interest rates, could be one way to incentivize the use of CBDCs primarily for payments rather than as a store of value, the BoE notes.

Moreover, a remunerated CBDC would allow the central bank to directly affect the interest rate on a higher proportion of funds held by households and enterprises, thereby strengthening mechanisms for affecting monetary policy. It would also indirectly affect the cost of credit and deposit rates offered by commercial banks.

As recently reported, BoE deputy governor Sir Jon Cunliffe has recently argued that general access to a digital form of central bank money could be crucial for ensuring financial stability in the future.

Updated: 6-8-2021

Hong Kong Includes Central Bank Digital Currency In Fintech Strategy

Research into central bank digital currencies will play a significant role in Hong Kong’s fintech development efforts.

The Hong Kong Monetary Authority (HKMA) has published its “Fintech 2025” strategy with central bank digital currencies (CBDC), both retail and wholesale, included in the digital finance innovation package.

Unveiling the fintech strategy via a release issued on Tuesday, CBDCs will reportedly play a part in the city administration’s goal of promoting comprehensive digital finance adoption by 2025.

Concerning its plans for central bank digital currencies, the HKMA revealed that it would increase its research efforts to ensure Hong Kong’s readiness to float both retail and wholesale CBDCs.

According to the announcement, the HKMA is collaborating with the Bank for International Settlement to research a retail digital Hong Kong dollar currency. This research is reportedly examining risks, benefits and potential use cases of an e-HKD currency.

The HKMA also stated that it will continue to work with China’s central bank on cross-border utilization of the latter’s digital currency electronic payment (DCEP) project. Indeed, Cointelegraph reported back in May that Hong Kong was looking to expand pilot studies for the PBoC’s digital yuan.

Meanwhile, the HKMA is also part of a consortium of Asian central banks working on a multiple central bank digital currency bridge. The project builds upon a similar collaboration between Hong Kong and Thailand to create cross-border CBDCs based on decentralized ledger technology.

The expanded CBDC research plan is one of five major focus points in Hong Kong’s fintech strategy. Other areas include ensuring the city’s banks embrace digital finance technology while creating a robust data infrastructure to support the planned fintech expansion.

Hong Kong also wants to support its comprehensive fintech overhaul with government-led policies while also laying the groundwork to develop a skilled workforce for the new digital finance paradigm.

Amid the backdrop of its expanded fintech focus, Hong Kong is also moving to restrict access to cryptocurrencies. The city’s Financial Services and Treasury Bureau issued a policy proposal back in May calling for the government to restrict crypto trading to qualified investors with portfolios worth at least $1 million.

Updated: 6-9-2021

Elizabeth Warren Compares ‘Bogus’ Crypto To ‘Legitimate’ CBDCs In Senate Hearing

“The threats posed by crypto show that congress and federal regulators can’t continue to hide out, hoping crypto will go away,” said the Massachusetts senator.

Digital Currency Banking Subcommittee Hearing (Video)

Democratic Senator Elizabeth Warren did not mince words when it came to criticizing crypto, but seemed to consider a federally-backed digital currency as a possible solution to address problems around financial inclusion in the United States.

At a Wednesday session of the Senate Banking Committee discussing a U.S. government-backed central bank digital currency, or CBDC, Warren said the recent explosion in cryptocurrencies had helped many people understand the foundational technology on which digital currencies were based. However, she called crypto a “fourth rate alternative to real currency.”

“Digital currency from central banks has great promise,” said Warren. “Legitimate digital public money could help drive out bogus digital private money.”

Discussing what she labeled as “bogus” currency, Warren cited Dogecoin (DOGE) as an example of many cryptocurrencies’ volatility making them unsuitable as a medium of exchange in her opinion. She called out pump and dump schemes and other apparent efforts to manipulate the prices of certain tokens.

“Crypto is a lousy investment,” said the senator. “Unlike, say, the stock market, the crypto world currently has no consumer protection. As a result, honest investors and people trying to put aside some savings are at the mercy of fraudsters.”

The Massachusetts senator also voiced her opinion on crypto being tied to many illegal activities, all “made easier with crypto,” as well as environmental concerns over crypto mining. She cited the recent ransom by hackers who attacked the Colonial Pipeline, causing fuel shortages for many people in the United States, and claimed some mining operations were “spewing out filth in return for a chance to harvest a few crypto coins.”

“Cryptocurrency has created opportunities to scam investors, assist criminals, and worsen the climate crisis. The threats posed by crypto show that congress and federal regulators can’t continue to hide out, hoping crypto will go away. It won’t. It’s time to confront these issues head on.”

Elizabeth Warren, US Lawmakers Put Bitcoin On Trial In Senate CBDC Hearing

While a Senate Banking Committee hearing ostensibly focused on central bank digital currencies, bitcoin’s role in the ecosystem drew much of the attention.

U.S. lawmakers may be warming to a central bank digital currency (CBDC).

But while CBDCs drew some of the attention during Wednesday’s Senate Banking Committee hearing, the issues around bitcoin drew far more attention from the group of lawmakers, led most vocally by Sen. Elizabeth Warren (D-Mass.).

The Subcommittee on Economic Policy, chaired by Warren is likely going to hold further hearings on the cryptocurrency sector as well, the lawmaker told Bloomberg.

The hearing presented one of the sharpest criticisms of bitcoin from U.S. lawmakers to date, even as smaller countries like El Salvador move to accept the cryptocurrency as legal tender. Warren’s views are likely a preview of how the issue may be discussed in other upcoming hearings, with counterparts in the House of Representatives holding a similar discussion next week.

Pros And Cons

“If you want to send money to somebody else, digital currency can be easier and faster,” Warren said as she opened the hearing. “But in order for those advantages to be realized, the digital version needs to be secure, stable and accepted everywhere.”

In response, MIT Digital Currency Initiative Director Neha Narula pointed out that bitcoin’s value is not stable, pointing to the recent market drop of about 40%.

Warren then likened cryptocurrencies to wildcat notes issued in the past.

Warren contrasted with Sen. Cynthia Lummis (R-Wyo.), the pro-Bitcoin lawmaker who launched a Financial Innovation Caucus last month.

Lummis contrasted nations using bitcoin, naming El Salvador’s recent bill to adopt the cryptocurrency as legal tender, with the U.S.’s possible approach.

Warren also took aim at bitcoin and other proof-of-work cryptocurrencies’ environmental cost, saying it draws as much energy as The Netherlands, and could use as much energy as every other data center on Earth by the end of the year. (Whether bitcoin indeed uses an excess amount of energy compared to other technologies or monetary systems is hotly debated.)

CBDCs May Be Good

All four witnesses – Narula, Columbia Law’s Lev Menand, Stanford University’s Darrell Duffie and Digital Dollar Foundation Director Chris Giancarlo – argued that a well-built digital dollar would prove useful to the U.S.

Sen. Sherrod Brown (D-Ohio), who chairs the full Senate Banking Committee, expressed support for the idea of a Fed-issued CBDC on Wednesday, saying it could complement a no-fee bank account plan he has proposed.

“Americans shouldn’t have to pay exorbitant fees just to use the money they’ve already earned … a central bank digital currency can work with these no-fee accounts to make sure working families have access to the payment system and full participation in our economy,” he said.

(Brown has also recently come out strongly against provisional banking charters granted to crypto-native firms.)

Arguments in favor of CBDCs varied. Menand said they could allow for large companies to find new ways of storing value.

“Offering non-defaultable money with no maximum amount would be stabilizing for the U.S. financial system in ways that people haven’t thought about,” Menand said, adding:

“It would be very helpful to large companies to be able to hold very, very large cash balances in non-defaultable amounts and this could crowd out a lot of unsafe and unstable alternative products that those companies use right now.”

China Looms Large

A digital dollar may also help the U.S. keep pace with China, which has been working on both its own Blockchain-based Services Network and a CBDC of its own, the digital yuan.

Giancarlo pointed to China’s work in arguing that a CBDC would help the dollar maintain its role as the global reserve currency.

“It’s only a matter of time before China will combine its latest blockchain technology with its new digital currency and its futures markets,” he said.

His remarks came a day after the full Senate passed the Endless Frontier Act, which if implemented as-is would require the federal government to study the national security implications of the digital renminbi, after an amendment sponsored in part by Lummis.

Global Banking Regulator Plans To Hold Consultation On Crypto Exposure

The group has previously warned of “financial stability concerns” and risks faced by banks when it comes to cryptocurrencies.

The Basel Committee on Banking Supervision has said it will be publishing a consultation paper aimed at banks reducing their risk of exposure to crypto.

According to the Switzerland-based Bank of International Settlements, or BIS, the Basel Committee will publish the paper on crypto exposure this week following its decision to hold a public consultation on the matter. The announcement came during a Friday meeting, during which the committee also discussed the impact of the current pandemic on the banking system as well as any proposed policy initiatives:

“While banks’ exposures to cryptoassets are currently limited, the continued growth and innovation in cryptoassets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment.”

The BIS added that though many authorities seek the approval of the Basel Committee, the regulator relies on its members to enforce proposed actions. In other words, the committee’s decisions do not carry the force of law. Banking regulators from countries including Japan, the United States and many nations in Europe are members of the group.

Calling for a “prudential treatment” of crypto has been a common theme for the committee. In 2019, the regulator said that cryptocurrencies were “unsafe to rely on” as a medium of exchange or store of value.

Updated: 6-10-2021

BIS Joins France And Switzerland’s Central Banks On Cross-Border CBDC Project

The central bank digital currency project will test cross-border settlement between French and Swiss fiat currencies.

The Bank of France and the Swiss National Bank are teaming up with the Bank for International Settlements’ Innovation Hub to test a wholesale central bank digital currency (CBDC) system dubbed “Project Jura.”

According to a release by the Bank of France on Thursday, the Project Jura pilot study will also draw participation from a private consortium led by global service company Accenture. Other establishments in the private consortium include Credit Suisse, UBS, SIX Digital Exchange and R3.

The experiment will reportedly use two wholesale CBDCs — one pegged to the euro and the other pegged to the Swiss franc. According to the announcement, the process will involve the exchange of financial instruments against each wholesale CBDC via a delivery versus payment settlement apparatus.

As part of the announcement, the Bank of France revealed that the settlement for both sides of the transaction will occur in banks domiciled in the two countries.

Jura is an extension of the French central bank’s extensive work on CBDCs that has also attracted participation from several major European financial service institutions. In July 2020, the central bank selected eight financial institutions to test its interbank CBDC project.

As previously reported by Cointelegraph, the Bank of France settled $2.4 million in a CBDC pilot back in December 2020.

However, the Bank of France circular clarified that Project Jura remains an exploratory study and does not indicate any plans to issue a CBDC by another of the participating central banks.

International cooperation is becoming a major focus of CBDC development with efforts being made to develop viable protocols for cross-border settlements among central banks. In Asia, Hong Kong and China are testing cross-border utilization of the latter’s digital yuan.

Indeed, both Hong Kong and China are also involved in a broader cross-border CBDC project along with the central banks of Thailand and the United Arab Emirates. In April, the Eastern Caribbean Central Bank CDBC “DCash” went live in four of the currency union’s eight nation-states.

Updated: 6-27-2021

Swiss National Bank Has No Plans For A Digital Currency

The Swiss National Bank tested the feasibility of CBDCs in 2020.

The Swiss National Bank (SNB) is not planning to introduce a central bank digital currency (CBDC), according to a report in the Swiss weekly business publication Handelszeitung.

At a recent press conference hosted by the Swiss Bankers Association, SNB’s chief economist Carlos Lenz announced that there is no need for a digital franc because the current payment system works well without one. Lenz also criticized blockchain technology, calling it “very inefficient.” “I don’t think a decentralized solution is ideal,” he said.

Switzerland has been researching central bank digital currencies since at least 2019, when the Swiss parliament asked the government to examine the potential of creating a CBDC. In December 2019, the government concluded that a digital franc would be too risky.

The country has created a friendly environment for blockchain startups with the Zug Valley among the world’s hotbeds of innovation. Diem, the Facebook-backed stablecoin project formerly known as Libra, is also based in Switzerland.

Despite the Swiss government’s negative stance on central bank digital currencies, Swiss CBDC research has continued. In 2020, the Bank of International Settlements (BIS) wrapped a trial testing the feasibility of a CBDC used among financial institutions, and earlier this month the SNB and the Bank of France started a cross-border bank-to-bank CBDC experiment called “Project Jura.”

But during the press comments, Lenz emphasized that these studies are just that – studies, not implementations.

“This is not about implementation on a productive level,” Lenz stated. “There are currently no plans to introduce digital bank money. This also applies to the wholesale area.”

Lenz compared the ongoing scramble to develop a CBDC to the fear that many in Switzerland felt when the euro was introduced.

“We had such discussions when the euro was introduced,” Lenz said. “There was also fear that payments would suddenly be made in euros.”

Updated: 6-11-2021

Nigeria’s Central Bank May Launch A Digital Currency Pilot In 2021

A central bank official said Nigeria has been researching CBDCs for two years.

Nigeria may launch a central bank digital currency (CBDC) by the end of 2021, according to a central bank official.

Speaking at an online news briefing on Thursday, Rakiya Mohammed, an information technology specialist at the Central Bank of Nigeria (CBN), said that the entity had been exploring a possible CBDC for over two years, according to local media reports.

“Before the end of the year, the central bank will be making [a] special announcement and possibly launching a pilot scheme in order to be able to provide this kind of currency to the populace,” Mohammed was quoted in Today, a local news outlet.

Nigerian authorities have been debating how to regulate the use of private cryptocurrencies in the country. Earlier this year, the CBN ordered all local banks to seek and shut down accounts tied to crypto platforms, although the governor of the bank later clarified that crypto trading is not banned in the country.

Meanwhile, cryptocurrency usage as a store of value and remittance tool is soaring in Nigeria, with Ray Youssef, the CEO of peer-to-peer lending platform Paxful saying last week that the African nation is its biggest market.

Mohammed said one reason for a CBDC would be to make it easier to transfer remittances into the country. Before the pandemic hit and caused a dip in remittances worldwide, Nigeria received more than $5 billion in remittances quarterly. Earlier this year, Nigeria set up a temporary rewards program to encourage international transfers to Nigeria.

The specialist also said that CBN will explore different technology options, engage various industry players and test the digital currency.

Mohammed reportedly said that the CBDC would complement cash, and that the CBN has looked at the architecture, accessibility and privacy issues of a digital currency, according to Today.

China’s Digital Yuan Wallets Are ‘Inclusive,’ PBOC Official Says

China’s digital yuan wallets are designed to ensure everyone can use them and in different formats, according to Mu Changchun, director general of the central bank’s Digital Currency Research Institute.

The e-yuan can be stored in various kinds of wallets, including physical or digital, and personal or public ones, Mu said Friday at the Lujiazui Forum in Shanghai. The wallets are designed to satisfy different demands, with users able to apply for them based on their credit limits, purposes of use, or preferences for a physical one or a digital one, he said.

The People’s Bank of China is conducting digital yuan trials in several cities ahead of a possible wider rollout of the program at the Beijing Winter Olympics next year. So far, there’s been a subdued consumer response to the e-yuan given the dominance of online payments platforms like Ant Group Co.’s Alipay and Tencent Holdings Ltd.’s WeChat Pay.

Mu reiterated comments from March that the digital yuan will co-exist with Alipay and WeChat Pay, as well as provide a backup, since their dominance in the market creates financial stability risks.

China’s Much-Hyped Digital Yuan Fails To Impress Early Users

As China moves closer to rolling out the world’s first major sovereign digital currency, speculation over the global implications has reached a fever pitch.

Historian Niall Ferguson is calling the digital yuan a “potentially fatal challenge” to decades of American financial hegemony. Franklin Templeton’s Michael Hasenstab says it could undermine the dollar’s role as the world’s reserve currency. Joe Biden’s White House is studying the potential threat to U.S. interests.

Yet talk to people who’ve actually used the digital yuan in China, and you’re more likely to get a different response: shrugs of indifference.

In Shenzhen, the high-tech metropolis that just extended China’s largest digital yuan trial, participants interviewed by Bloomberg showed little interest in switching from mobile payment systems run by Ant Group Co. and Tencent Holdings Ltd. that have already replaced cash in much of the country. Some balked at the possibility a digital yuan might give authorities easier access to real-time data on their financial lives.

“I’m not at all excited,” said Patricia Chen, a 36-year-old who works in the telecom industry and was one of the more than 500,000 people in Shenzhen eligible to take part in the trial.

While none of the seven participants who spoke to Bloomberg professed insight into the digital yuan’s future role in global foreign exchange markets, their lukewarm response underscores the challenge facing President Xi Jinping’s government as it lays the groundwork for adoption at home and abroad.

Even if authorities ultimately convince — or compel — citizens to embrace the digital yuan, it’s far from clear they can do the same with international consumers and businesses already wary of China’s capital controls, Communist Party-dominated legal system and state surveillance apparatus.

Those are just some of the concerns that have capped the yuan’s share of global payments at around 3%, well below levels commensurate with China’s contribution to world trade and economic output. A digital version of the currency is unlikely to boost its share by much more than 1 percentage point, according to Zennon Kapron, managing director of Singapore-based consulting firm Kapronasia.

“The global impact will be very small” barring structural changes to China’s economy and financial system, said Kapron, author of “Chomping at the Bitcoin: The Past, Present and Future of Bitcoin in China.”

Many China watchers suspect Xi has high hopes for international use of the digital yuan as he tries to lessen his country’s reliance on the U.S.-led global financial system. But so far at least, Chinese policy makers have given mixed signals about their ambitions in public.

Zhu Jun, head of the central bank’s international department, said in an article last month that China faces an “important window” to promote global use of yuan as U.S.-China decoupling threatens to spread to finance from trade, technology and investment. She said China “should take advantage of the early progress” in the digital yuan’s development to explore potential areas for internationalization.

Meanwhile, People’s Bank of China Deputy Governor Li Bo told the Boao forum last month that the digital yuan, also known as the e-CNY, is aimed at domestic use and isn’t meant to replace the dollar.

The project was started in 2014 by then-PBOC chief Zhou Xiaochuan, a longtime proponent of creating a new international reserve currency as an alternate to the dollar. Zhou saw the e-CNY as one way to fend off potential threats from digital currencies like Bitcoin or Facebook’s Diem (formerly called Libra).

Chinese regulators, who banned cryptocurrency exchanges in 2017, have also said the digital yuan will help combat money laundering and increase financial inclusion.

Other use cases are more controversial. The reams of data produced by digital yuan transactions could give China’s central bank valuable real-time insights into the world’s second-largest economy; they might also be used by security services to monitor political dissidents or international businesses that compete with state-owned Chinese enterprises.

A programmable version of the currency allowing for expiration dates on stimulus payments could encourage spending during economic downturns — or enable regulators to instantly turn off the e-wallet of anyone who runs afoul of Beijing.

While global adoption of e-CNY could make cross-border payments cheaper and faster, it might also help the Communist Party weaken the impact of international sanctions. The PBOC has so far offered few details about how the e-CNY might be used overseas, other than to say it’s conducting cross-border tests with Hong Kong’s de-facto central bank.

The domestic trial that began in Shenzhen last month was by far China’s most ambitious to date. Participants who downloaded the government’s e-wallet app on their phones and linked it to their bank accounts could transfer as much as 10,000 yuan ($1,548) into e-CNY at a one-for-one rate.

Similar to Ant’s Alipay and Tencent’s WeChat Pay, transfers using digital yuan take place almost instantly via QR code. They can also be conducted with near-field communication technology in the absence of an internet connection.

Using the digital yuan was easy enough for Vera Lin, a 25-year-old who works at a financial company in Shenzhen. At the same time, she said, incentives for making a permanent shift to e-CNY are lacking given China’s existing digital payment options are reliable and work seamlessly with other app-based services from social media to e-commerce platforms.

Even discounts of as much as 10% from merchants participating in the digital yuan trial weren’t enough to win Lin over. Platforms operated by companies like Ant routinely offer discounts on everything from ride-hailing services to grocery delivery.

Privacy concerns were among the turnoffs for Jan Chen, a 33-year-old civil servant. It’s “a little scary” that authorities might be able to trace every payment, she said. In a country where compliance with tax laws is often patchy, some merchants may also be wary of their transactions flowing directly into a government database.

Updated: 6-14-2021

Tanzanian President Urges Central Bank To Prepare For Crypto

Tanzania’s president wants the country’s central bank to begin exploring Bitcoin and digital assets.

Tanzania appears to be the latest emerging economy poised to embrace Bitcoin (BTC) and crypto assets.

On Monday, Tanzanian president Samia Suluhu Hassan urged the country’s central bank to begin exploring crypto assets. Hassan emphasized the increasing impact of digital assets on global finance, stating, “We have witnessed the emergence of a new journey through the internet.”

She highlighted the lack of crypto adoption and development in the East African region, stating, “Throughout the region, including Tanzania, they have not accepted or started using these routes.”

“My call to the Central Bank is that you should start working on that development. The Central Bank should be ready for the changes and not be caught unprepared.”

Hassan’s comments come on the heels of numerous lawmakers in Latin America pushing for greater crypto adoption in other emerging economies, including El Salvador — where Bitcoin has been mandated as legal tender.

While African legislators have been slow to recognize and encourage the crypto economy, the region has been a hotspot for peer-to-peer (P2P) Bitcoin trading for years.

According to Useful Tulips, Sub-Saharan African is the second-largest region for P2P trading behind North America, representing roughly $16.5 million in weekly volume.

Nigeria represents half of the region’s volume, ranking behind the United States as the second-largest nation by P2P Bitcoin trading, with $8.5 million in BTC changing hands weekly. Kenya is Africa’s second-ranked peer-to-peer market with more than $3 million in weekly trade, followed by Ghana with $2 million, and South Africa with $1.6 million.

Tanzania ranks seventh for the region with nearly $90,000 worth of trade over the past seven days.

China Debuts Blockchain-Based Digital Yuan Salary Payments In Xiong’an

China reportedly implemented the country’s first blockchain-powered digital yuan transactions in the Xiong’an New Area.

China is progressing with its central bank digital currency (CBDC) tests, debuting blockchain-enabled salary payments in the digital yuan.

According to the official website of the Xiong’an New Area, the People’s Bank of China (PBoC) has successfully completed the nation’s first on-chain wage payouts in the digital yuan.

Announcing the news on Saturday, Xiong’an authorities said that the pilot involved guidance and support from the Shijiazhuang-based PBoC branch, the Bank of China Hebei Xiong’an branch, as well as the National Development and Reform Commission.

The new CBDC pilot used a blockchain-based payment platform to distribute salaries to workers on spring afforestation projects in Xiong’an. Engineering subcontractors made payments directly to builders’ digital wallets from a public wallet and recorded the relevant data on a blockchain.

According to the announcement, blockchain-based salary payouts significantly simplified the wage payout process. The implementation reportedly marks the first combination of blockchain technology with the digital yuan.

Xiong’an was one of the first four regions to pilot China’s CBDC in April 2020. In February, the Xiong’an branch of the Agricultural Bank of China in Hebei produced the first digital yuan-designed hardware wallet. The product was developed by the Party Working Committee of the Xiong’an New Area and the PBoC’s branch in Shijiazhuang.

The Netherlands Should Regulate Crypto Instead Of Banning It, Says Finance Minister

Dutch finance minister Wopke Hoekstra is confident that supervision is more effective than banning crypto outright.

A cryptocurrency ban is not the right solution for the Netherlands, the country’s finance minister reportedly said after a local official called for a total ban on crypto.

The Netherlands should regulate the cryptocurrency market instead of prohibiting its citizens from using crypto entirely, Dutch minister of finance Wopke Hoekstra stated, according to a Friday report by local news agency NU.nl.

The official still admitted to certain risks associated with the crypto market, reportedly saying that he understood the concerns raised by the director of the Dutch Bureau for Economic Analysis, Pieter Hasekamp. The minister stressed that it’s crucial to ensure proper rules for digital asset service providers in order to mitigate the risks around issues such as money laundering.

“My observation is now that supervision is more effective than a total ban in the Netherlands,” Hoekstra stated, reportedly noting that it’s important to oversee the crypto market at the European level.

Hoekstra also mentioned that he had already issued a warning regarding cryptocurrency-related risks back in 2017, stressing that crypto investors should realize that their bets on crypto are “entirely at their own expense and risk.”

“That’s going very well now, but we’ve also seen big dips and peaks along the way,” Hoekstra said in November 2017 just a few weeks before Bitcoin (BTC) hit $20,000 for the first time in history in December.

As previously reported, Hasekamp argued in a Friday article that the Dutch government must enforce an immediate total ban on mining, trading and holding of Bitcoin. He cited the common anti-crypto arguments, claiming that cryptocurrencies like Bitcoin are unable to fulfill any of the three functions of money as a unit of account, means of payment or store of value.

Some of the world’s biggest Bitcoin critics, such as the award-winning economist Nouriel Roubini, have already admitted that Bitcoin could serve as a store of value, which is a major function of money alongside a unit of account and a medium of exchange.

Updated: 6-15-2021

Russian Central Bank ‘Short-Sighted’ Regarding Crypto, Lawmaker Says

A long-time member of the Russian State Duma has criticized the central bank’s approach to digital assets.

A Russian State Duma member has blasted the central bank’s tough stance on the cryptocurrency industry for ignoring the growing demand for crypto in the country.

Fedot Tumusov, a member of the “A Just Russia” party representing the Siberian region of Yakutsk, has criticized the Bank of Russia’s approach to regulating the crypto industry following a Tuesday plenary meeting of the State Duma.

In a Tuesday Telegram post, Tumusov outlined the growing need to create an ecosystem that allows Russian residents to purchase cryptocurrencies like Bitcoin (BTC) amid increasing demand. The official argued that despite Russia enforcing crypto legislation earlier this year, the Bank of Russia has been negligent, refusing to authorize local banks to offer crypto investment services.

Tumusov said that central bank governor Elvira Nabiullina has been speaking openly about the bank’s reluctance to deal with decentralized cryptocurrencies, focusing on a state-controlled digital ruble instead. “Reluctance or not, this will not change the situation. It is necessary not to struggle with the reality but rather to adjust to it, to respond to the challenges of the time,” Tumusov argued.

The lawmaker noted that many countries around the world offer clear tax laws and policies that allow the industry to develop. He stated that Russia needs methods to deal with crypto that aren’t just prohibitions:

“Short-sightedness can be costly for Russia. Cryptocurrencies are the reality. Either we will accept it, or we will lose.”

Tumusov’s remarks on crypto come shortly after reports confirmed that major Russian banks such as private bank Tinkoff have been unable to offer crypto services due to the Bank of Russia’s tough stance on digital assets. Meanwhile, state-backed commercial banks such as Sberbank and VTB largely criticize the industry, claiming that they don’t like Bitcoin because it’s too risky.

While Russian banks are hesitant to dive into digital assets, major crypto companies like Binance have established a presence in the country. According to a June report by crypto intelligence firm Chainalysis, Russia is ranked the fifth-largest country in the world according to its estimated realized Bitcoin gains in 2020, following the United States, China, Japan and the United Kingdom.

Cryptocurrencies Not Good Medium For Payments, BOE Chief Says

Bank of England Governor Andrew Bailey warned against using cryptocurrencies for payments, taking another swipe at digital tokens.

“They fluctuate in value substantially,” he told a virtual conference on Monday. “Which is why they’re on the whole not a good medium for making payments.”

The latest price swings appear to underscore his remarks. Bitcoin, the world’s largest crypto, has rallied about 9% since Friday after losing about 30% since mid-April. Elon Musk, whose comments have whipsawed the market, said via tweet over the weekend that Tesla Inc. would allow transactions in Bitcoin once mining is done with more clean energy.

Bailey has emerged as a prominent critic among central bankers of the coins. Less than a month ago, he said there was a danger of “getting carried away” with financial innovation.

On Monday, he reiterated his warning that people who want to buy the coins should be prepared to lose their money.

“Given the volatility of the asset value, and given the fact that there isn’t a real asset underpinning them, I’m afraid if you want to buy them then please understand that you can lose, you could lose all your money,” he said.

“Now, I’m not saying you will. That’s not the point. But you could, because there isn’t a real thing underpinning them.”

The BOE, along with the U.K. Treasury, are weighing the potential creation of a central bank digital currency, joining authorities from China to Sweden exploring the next big step in the future of money.

“We’re going to engage with users, the technology sector, to understand the potential for these things,” Bailey said. “And there’s a lot of work going on in the Bank of England to understand the implications of them for central banking.”

The Big Difference Between A Digital Dollar And A CBDC

Outside of perhaps China, right now the big use case for central bank digital currencies (CBDCs) seems to be just talking about them. Crypto is cool right now and people are interested in digital money, so government and central bank officials are also spending a lot of time talking about their visions of how fiat currencies could be brought into this new realm.

However, there’s still a lot of ambiguity about how, say, a digital dollar would be designed, or what exactly it would accomplish.

We’re still at the talking stage.

A big hearing happening today in D.C. is called “Digitizing The Dollar: Investigating The Technological Infrastructure, Privacy, and Financial Inclusion Implications of Central Bank Digital Currencies.”

To this end, you should definitely read the introductory remarks from Rohan Grey, a professor at Willamette University College of Law. Rohan is a longtime advocate of the government establishing a digital dollar, but with a specific vision in mind. Here are a few key parts of his testimony:

I am afraid I must begin my substantive remarks with a quibble, albeit a gentle and mostly provocative one. In particular, my complaint is with the use of the term “central bank digital currency” in the title of this hearing.

In my view, it is a mistake to equate and reduce the idea of a “digital dollar” to that of a “central bank digital currency.”

The former encompasses a wide spectrum of designs, architectures, and arrangements, while the latter refers only to a narrow segment of that spectrum in which central banks are the exclusive issuers and administrators. To be clear, I believe the Federal Reserve should and will play a central role in any future digital dollar regime introduced in the United States.

I also strongly endorse the FedAccounts proposal of my co-panelist Professor Menand and his colleagues. But in my view, the universe of digital fiat currency possibilities that we should be exploring at this stage extends beyond that which the vocabulary of CBDCs allows us to consider.

The emphasis added is mine, but the key thing is that a central bank digital currency, as most people talk about it, is essentially a way for people to hold money that’s a direct liability of the central bank.

It could potentially be likened to a public option for banking. A way for people to hold savings in an institution that’s not directly tied to a commercial bank.

However, a digital dollar, in Rohan’s view, would bear some properties that are similar to cash itself, which include being a private, bearer asset.

Later In His Testimony, He Writes:

The right to transactional privacy and anonymity is a bedrock of political freedom and democracy, and should not be abandoned as we transition to a permanently digitally connected society. Instead, policymakers should adopt a “do no harm” principle, and commit to preserving “currency neutrality” in both design and implementation.

Right now, anyone with cash in their pocket can hand that money to someone else as a form of payment, and no centralized authority has any control over it, or any clear visibility into it. On the internet this is impossible.

Or at least it was impossible until the invention of Bitcoin and other cryptocurrencies, which for the first time created something online that was somewhat private and also a bearer instrument. Of course, Bitcoin isn’t an official money or legal tender, and so if you want to conduct transactions with dollars, but in a private way, that’s basically impossible.

As more and more commerce shifts to the internet, the prospect could arise that transactional privacy and anonymity go away, unless there’s a solution. Of course, some policymakers and academics are excited about this possibility. Ken Rogoff wrote a book on the harm caused by cash (in terms of crime, money laundering, etc.) though he mostly took aim at large-denomination bills.

If transactional privacy were to be seen as an important design consideration in a future digital money, one could imagine a government crypto-dollar that users hold in digital wallets, like they hold their Bitcoin, that can be passed between two people without it showing up on any kind of centralized ledger.

As for the other vision of digital money — something more akin to CBDCs — there are many reasons people are excited about some kind of public accounts. Maybe people don’t want to use a private bank. Also we’ve seen, for example, some of the logistical problems that arise from direct cash stimulus payments. Perhaps public accounts could solve that.

There’s also a general frustration that the Fed is capable of backstopping corporate debt and borrowing in a crisis, while the typical household has to wait or hope that Congress will pass something in a timely manner.

People also like the idea of stimulus helicopter money and the prospect of a central bank being able to put cash directly into people’s savings accounts, as needed. However, ultimately something like that is going to come down to politics, rather than some new tech. The real question is whether fiscal authorities (Congress) want to delegate this kind of power to an independent authority.

Obviously, there’s still a long process before the U.S. has some kind of official digital government money (if it ever happens at all) but it’s important to make clear that it’s a very different thing to talk about private, cash-like bearer assets in digital form as opposed to an account that citizens can hold at the Fed or something similar. Both may have their uses, but they’re two distinct discussions.

Central Bankers Talk Down Concerns Over Digital Currency Risks

Central bankers sought to play down concerns that their efforts to develop digital currencies will take business away from the financial industry.

Benoit Coeure, the head of the Bank for International Settlement’s Innovation Hub, which was expanded to Stockholm on Wednesday, said commercial lenders should look at central bank digital money “as an opportunity that will enable them to offer new services to their customers, as part of a broader set of new technologies.”

Monetary authorities from Sweden to China are working on their own digital currencies as the dwindling use of notes and coins threatens to upend traditional payment methods. Meanwhile, the emergence of cryptocurrencies such as Bitcoin has added to pressure on central banks to ensure they have a viable alternative before unregulated payment forms take over.

But the prospect of a digital currency controlled by central banks has some corners of the commercial banking world worried, amid concerns they’ll lose customer flows. Fitch Ratings recently warned that the widespread adoption of CBDCs could disrupt financial systems if not properly managed. Risks include the sudden flow of funds into CBDC and out of bank deposits.

Coeure said the most likely setup will be a two-tier model, whereby digital currencies would be issued by central banks but distributed by commercial lenders.

Cecilia Skingsley, the first deputy governor of Sweden’s Riksbank, said central banks will play a “focused and narrow role” in providing the infrastructure on which the private sector can build, “and that’s where we are going to stay.”

But Skingsley also said that commercial banks shouldn’t assume it’s their “divine right” to control deposits.

“It’s something that the banks have to some extent to compete for,” she said. “It’s always up to depositors what they find is to be the most attractive way to store their money.”

Ultimately, central bank digital currencies shouldn’t be about “changing the way the financial system works,” according to Coeure.

Updated: 6-16-2021

Digital Euro Could Drain 8% Of Bank Deposits, Morgan Stanley Says

Banks in smaller countries like Latvia, Estonia and Greece could be impacted harder by the digital euro, analysts said.

Analysts at the American multinational investment bank Morgan Stanley have estimated the likely changes in eurozone banks’ deposits should a digital euro be widely adopted.

According to the analysts, a European Union central bank digital currency (CBDC) could suck away 8% of customer deposits from eurozone banks, Reuters reports Wednesday. This share may be far higher in smaller countries like Latvia, Lithuania, Estonia, Slovakia, Slovenia and Greece, they said.

The analysts’ estimates were based on a “bear case” scenario where all euro area citizens above the age of 15 sent 3,000 euros ($3,637) into a digital euro wallet controlled by the European Central Bank. As previously reported, this amount could be a theoretical limit of total CBDC holdings by residents, according to ECB executive board member Fabio Panetta.

“This could theoretically reduce euro area total deposits, defined as households’ and non financial corporations’ deposits, by 873 billion euros, or 8%,” Morgan Stanley analysts said.

Morgan Stanley also said that digital euro adoption could slightly increase the average loan-to-deposit ratio by eurozone banks, increasing the risk that banks may not have enough liquidity to cover unforeseen fund requirements.

The average LDR would surge from 97% to 105%, the analysts estimated, noting that banks in aggregate would “hardly notice” the effect, as LDR previously spiked to 105% in late 2019 before the COVID-19 pandemic.

Many banks around the world have expressed concerns over central banks getting more power over the money supply by adopting a CBDC. Last week, a Bank of England discussion paper modeled a scenario where a fifth of all retail deposits in the United Kingdom was held in new forms of digital currency or a CBDC.

“As a result of this potential outflow, commercial banks would have to adapt their balance sheets in response to maintain their current liquidity ratios,” the bank wrote.

Updated: 6-18-2021

Over 3,000 ATMs In Beijing Can Now Convert Digital Yuan Into Cash

The Agricultural Bank of China previously debuted digital yuan ATMs this January.

China continues apace with the adoption of its central bank digital currency (CBDC) as major banks launch a significant batch of digital yuan-powered ATMs.

The digital yuan — a CBDC controlled by The People’s Bank of China — is now available for deposit and withdrawals at over 3,000 ATMs across Beijing, state-run Xinhua news agency reported Friday.

According to the report, the Beijing branch of the Industrial and Commercial Bank of China has become the first bank to fully enable the digital yuan exchange in the Chinese capital city by setting up more than 3,000 digital currency-compatible ATMs.

The Agricultural Bank of China (ABC), another major bank involved in China’s CBDC tests, has also deployed more than 10 ATMs in the Wangfujing area, a major shopping street in Beijing. As previously reported, the state-owned bank debuted digital yuan ATMs this January, enabling customers at select branches within the Shenzhen region to deposit and withdraw the digital currency.

The ABC has been actively involved in developing a wallet for the digital currency.

The Chinese government has been actively promoting the digital yuan in the capital through a digital currency lottery as part of ongoing digital yuan pilots. The state intends to distribute 40 million digital yuan ($6.2 million) to Beijing residents in a “red envelope” campaign, allowing participants to spend digital currency prizes by June 20.

Updated: 6-21-2021

Banks Fall In Line As China’s Central Bank Cracks Down On Crypto Accounts

AgBank — the world’s third-largest bank by assets — has indicated it will follow the PBoC’s cue and work to stamp out its clients’ crypto-related activities.

The Agriculture Bank of China (AgBank) — the world’s third-largest bank by assets — is set to implement Beijing’s firm anti-cryptocurrency measures and rigorously vet its clients to ensure they are not engaged in any form of illegal activities involving crypto transacting, trading or mining.

AgBank’s statement today followed the institution’s meeting with the People’s Bank of China (PBoC), which convened major domestic banks and mobile payment service providers and ordered them to ensure that banking and settlement services are denied to clients engaged in crypto-related transactions. An official PBoC statement today reiterated that all banks and payment institutions “must not provide account opening or registration for [virtual currency]-related activities.” It outlined:

“Institutions must comprehensively investigate and identify virtual currency exchanges and over-the-counter dealers’ capital accounts, and cut off transaction funds payment links in a timely manner; they must analyze the capital transaction characteristics of virtual currency trading hype activities […] and ensure that relevant monitoring and handling measures are implemented.”

In addition to AgBank, the Industrial and Commercial Bank of China, the Construction Bank of China, Postal Savings Bank of China and the Industrial Bank, alongside mobile payments app AliPay, were all present at the PBoC meeting.

AgBank’s statement is the first made by a Chinese state bank in line with the tenor of this year’s renewed suite of anti-crypto measures, which have included the State Council’s Financial Stability and Development Committee’s decision in late May to curtail Bitcoin (BTC) mining amid financial risk concerns.

Regional financial regulators in China have also upped their game and issued warnings against illegal crypto- and blockchain-focused financing platforms or advertising campaigns, as well as banning financial and payment institutions from “directly or indirectly [providing] services related to virtual currencies.”

AgBank has indicated that it will immediately shut accounts and suspend ties with any clients found to be involved in cryptocurrency trading. The megabank initially appealed to its clients to report any suspected crypto-related frauds, although this request has reportedly since been deleted from the bank’s statement.

Having banned token issuance and crypto trading as early as 2017, during the market’s first major bull run, this year has seen a consolidation of Beijing’s antagonistic stance toward decentralized cryptocurrencies.

In mid-May, three major Chinese trade associations — The China Internet Finance Association, China Banking Association and China Payment and Clearing Association — issued a joint statement warning the public about the risks of investing in cryptocurrencies.

Beijing’s major crackdown on crypto mining has cited concerns over the industry’s carbon footprint, especially in areas such as Inner Mongolia. At least three mining firms — BTC.TOP, Huobi and HashCow — have been driven to cease their activities on the mainland. Social media networks and internet companies in the country have also fallen in line with the center’s anti-crypto stance and have, over the last few months, censored crypto-related search results and banned crypto-related profiles.

Banque De France Tests Digital Currency-Based Securities Settlement

The Bank of France has completed a central bank digital currency pilot for securities transactions in collaboration with Swiss crypto bank SEBA.

The central bank of France — Banque de France — is continuing its work on the development of a European central bank digital currency (CBDC).

On Monday the bank officially announced the successful completion of a CBDC experiment with major Switzerland-based cryptocurrency bank SEBA.

Conducted in collaboration with SEBA, Banque Internationale à Luxembourg, and Luxembourg central securities depository LuxCSD, the experiment used a CBDC to simulate the settlement and delivery of listed securities on TARGET2-Securities (T25), a European securities settlement engine.

SEBA purchased securities from Banque Internationale à Luxembourg, with post-trade settlement managed by LuxCSD.

Nathalie Aufauvre, general director of financial stability and operations at Banque de France, said that the latest CBDC test demonstrated the possibilities for conventional finance systems and distributed systems to interact. “It also paves the way for other alliances in order to benefit from the opportunities offered by financial assets in a blockchain environment,” Aufauvre said.

The bank noted that the new CBDC test is part of an experimental CBDC program launched in March 2020, that aims to test CBDC integration for settlements. The program’s other experiments will continue until mid-2021 as Banque de France, in addition to other central banks in Europe, tests the viability of CBDCs.

European Central Bank Can Better Protect Digital Payment Privacy, Exec Board Member Says

Privacy in the digital euro is a focal point for Europeans as are concerns of security and interoperability.

The European Central Bank (ECB) is better suited than private companies to protect user privacy for the eventual adoption of a digital euro, according to an executive board member.

In an interview with the Financial Times on June 14 and published Sunday, Fabio Panetta said his institution had no commercial interest in storing, managing or monetizing user data.

The issue over privacy in the digital euro is a focal point for Europeans as are concerns of security, according to a recent survey by the ECB.

Chris Giancarlo: U.S. Risks Becoming ‘Backwater’ Without Central Bank Digital Currency

The former CFTC chairman weighs in on what a U.S. CBDC might look like, as well as the benefits it could bring to American citizens.

One of the few high-profile public officials to have served under both the Obama and Trump administrations, Chris Giancarlo is a former Wall Street executive-turn-regulator who is widely-respected by nearly all parties on Capitol Hill. As the former Chairman of the Commodities Futures Trading Commission, however, his latest venture, the Digital Dollar Foundation, might well test his soft touch with politicians.

The former regulator is now leading the Foundation towards five pilot programs set to launch this year, part of a broader effort to help the United States regain the lead in a race against China towards a functioning CBDC.

According To Giancarlo, However, The Us’s Priorities When It Comes To A CBDC Shouldn’t Merely Be Jingoistic:

* “What’s very clear, [is] that China intends their digital yuan to be an instrument of state surveillance. […] And this is why it’s one of the reasons why the digital dollar project, we’re so animated, because we feel that our new mission is to make sure central banks wake up to this and the US Fed wakes up to this, that these social values that got us here, the rule of law, a free capital markets, free enterprise, zones of individual economic privacy, are ingrained in a new digital future of the US dollar, and that we don’t allow ourselves to be taken in by what China’s doing and match that state surveillance approach.”

However, the race to a CBDC isn’t merely about maintaining current US values, but also potnetially about unlocking new forms of smart contract-based value for the wider population.

* “The notion of a digital currency, whether it be sovereign and non-sovereign, tied to smart contracts, allows money to solve the old problem of being able to move it in place, i.e. moving around the globe as easily as you could send a text message, but also move it in time.

Heretofore, money was a temporal thing, but with a smart contract you can say, I want to program my money today to go to my one grandchild in the future once they graduate college and all of those contingencies can be programmed in. […] With a programmable digital currency, you can program it today to move around the globe in space, but move around the globe in time. And that is such, I think, such a powerful construct.”

Ultimately, this work is part of an effort to ensure that America maintains technological supremacy.

* “You can’t stop the march of technology in time, and if you do, you become a backwater. We in the United States have always been open to innovation and we must be open to this innovation as well. In a prudent way, in a way that’s in correspondence with our society that expects investor protections and a role for government. […] And it’s one that I’m very excited to be involved in.”

Bank of Israel Deputy Governor Confirms Digital Shekel Pilot Is Underway

Despite the pilot, the central bank’s deputy governor said he was apprehensive about launching a full-scale CBDC in Israel, and referred to Bitcoin as a “pyramid scam.”

The Bank of Israel has reportedly already issued a central bank digital currency through a pilot test of a digital shekel.

According to a Monday report from the Jerusalem Post, Bank of Israel deputy governor, Andrew Abir, said the financial institution had started to conduct a pilot program for a digital shekel. Speaking at a conference of the Fair Value Forum of IDC Herzliya, Abir added that he was not optimistic about the bank issuing a central bank digital currency, or CBDC, despite the fact he confirmed a pilot test was underway.

“I had previously estimated that the chance of having a CBDC within five years is 20%,” said Abir. “My estimate has increased a bit in the last year, mainly because other countries are advancing with it too, but still there is less than a 50% chance.”

The Bank of Israel has made no formal announcement on its website regarding the issuance of a digital shekel at the time of publication. Last month, the financial institution said it was preparing an action plan to explore the benefits of a CBDC on the Israeli economy, adding it would be prepared to do so should the benefits “outweigh the costs and potential risks.”

At the time, the central bank said it may consider issuing a CBDC if such meets the needs of the future digital economy and provides more efficient cross-border payments. Bank of Israel also hopes to reduce the use of cash and ensure the public can make payments with “a certain level of privacy.”

“The option for a CBDC is still being examined, and when we made our statement last month, it was not to say what we are doing, but rather to share what we do not know and receive feedback from the public,” said the deputy governor. He added that the country’s banks “will still have an important part in the entire payment system” following any potential rollout of a digital shekel.

Despite his seeming willingness to eventually integrate a CBDC in the country’s economy, Abir criticized Bitcoin (BTC) as a means of payment:

“What we are talking about is a payment system. Bitcoin is not a payment system, and it is not a currency. In the best situation, it is a financial asset, and in the worst case, it is a pyramid scam.”

Israel’s central bank begin exploring the introduction of a CBDC four years ago with the establishment of an interdepartmental group tasked with exploring the matter. In 2018, the team recommended against the Bank of Israel issuing a digital currency, saying “no advanced economy has yet issued digital currency for broad use.”

Updated: 6-22-2021

With Crypto Mining Banned In Iran, Local Authorities Seize 7K Rigs

The police chief of Tehran said authorities had raided 50 locations across the Iranian capital in the last 48 hours, discovering 3,000 illegally operating crypto miners.

Iranian provincial police are continuing their crackdown on crypto miners big and small, with news surfacing that they have confiscated more than 7,000 rigs at a farm operating in the capital of Tehran.

According to a Tuesday report from the country’s state-run media, the Islamic Republic News Agency (IRNA), police seized crypto miners that were operating out of an abandoned factory. Experts on the country’s electrical grid estimated that the miners operating at full capacity would amount to roughly 4% of the average daily energy consumption in Iran.

Tehran police chief Hossein Rahimi said authorities had found another 3,000 crypto miners across the Iranian capital in the last 48 hours, with police raiding 50 locations. He added that the discovery of the 7,000-rig farm was the largest, most significant drain on the country’s energy usage so far.

The operation came following Iranian President Hassan Rouhani announcing in May that Bitcoin (BTC) and cryptocurrency mining in the country would be prohibited until September. The measures are aimed at ensuring that Iranians have access to electricity during the summer.

Though the seizure of more than 7,000 miners may get more attention from authorities, police are also cracking down on the little guys — miners operating illegally using their household’s electricity can potentially face large fines. An IRNA report on Tuesday said that the police had found four miners at a Pakdasht home southeast of the capital. Authorities measured the power consumption of the household from the outside before inspecting it for mining rigs.

Before the energy crisis in Iran led to the government cracking down on power-sucking miners, many in the country seemed to be more open to the crypto industry. In 2019, lawmakers gave the green light to crypto mining as an industrial activity, requiring miners to be licensed and regulated. However, any use of the country’s electrical grid has come under scrutiny as Iran faces blackouts and brownouts, and miners are often the target.

Denied Electricity, World’s 5Th-Largest Mining Pool Leaves China For Kazakhstan

Crypto mining pool BTC.com is leaving China after local authorities withdrew its power supply.

BTC.com — a major crypto mining pool that is operated by BIT Mining and owned by the NYSE-listed Chinese lottery service provider 500.com — has announced the successful relocation of its first batch of mining machines to Kazakhstan.

BTC.com was founded by Jihan Wu and was operated by Bitmain and Bitdeer until its acquisition by 500.com this February. As of the time of writing, the pool is the world’s fifth-largest, validating 10.4% of blocks on the Bitcoin blockchain.

The relocation comes after the company was notified by the state grid in western Sichuan province that the power supply serving one of its local data centers would be suspended imminently. In its announcement yesterday, BIT Mining stated:

“On June 19, 2021, the Company’s indirectly held subsidiary, Ganzi Changhe Hydropower Consumption Service Co. Ltd […] received notice […] from State Grid Sichuan Ganzi Electric Power Co., Ltd. […] informing Ganzi Changhe Data Center, that its power supply would be suspended, effective 9:00pm Beijing time, June 19, 2021. Ganzi Changhe Data Center has since suspended its operations. Data centers in Sichuan, including the Ganzi Changhe Data Center, contributed approximately 3% of the Company’s total revenues in the month of May 2021.”

The intervention from the state grid comes amid an ongoing crackdown on crypto mining by the Chinese state due to concerns over the mining industry’s carbon footprint, which runs counter to China’s decarbonization targets.

In areas such as Inner Mongolia, once popular with crypto miners, regional authorities have even established a dedicated hotline for the local public to directly report any suspected illicit mining activities. Amid these pressures, at least three mining firms — BTC.TOP, Huobi and HashCow — have recently been driven to cease their activities on the mainland.

BIT Mining CEO Xianfeng Yang has gestured towards this backdrop, claiming that the company is “committed to protecting the environment and lowering our carbon footprint. We have been strategically expanding our operations overseas as part of our growth strategy. Following our investments in cryptocurrency mining data centers in Texas and Kazakhstan, we are accelerating our overseas development for alternative high-quality mining resources.”

While China has been an early mover against crypto miners, authorities elsewhere are increasingly signaling their concerns about power-guzzling mining sites — for the most part, less on climate grounds than for their impact on local energy provision. In late April, a former government official argued that crypto mining was a major driver of the energy crisis in Kyrgyzstan. Similar concerns have been voiced in the Caucasus and Iran.

In line with China, global regulators and nonprofits, Elon Musk this year made a notorious intervention when he announced Tesla would no longer be accepting BTC as payment for vehicles due to concerns about the high energy consumption of Bitcoin (BTC) mining.

China’s Crackdown Means Bitcoin Is Working, Says Crypto Miner

A former crypto exchange engineer believes that China’s ban on Bitcoin mining is “fantastic news.”

China’s crackdown on Bitcoin (BTC) mining and cryptocurrency trading recently became a primary driver for the red candlesticks on crypto market charts. But one Bitcoin mining engineer believes China’s ban on crypto is “fantastic news.”

Brandon Arvanaghi, a former security engineer at crypto exchange Gemini, compared China’s harsh stance against Bitcoin with the country’s ban on Facebook and Google.

Arvanaghi called getting banned in China a rite of passage for free technology and stressed that the crackdown means that Bitcoin is working, not that it’s failing. “It’s making nations shiver in their boots,” he added.

He said that nations are now picking sides, with China responding to Bitcoin much as it did to major Western tech firms, which is incredibly bullish for Bitcoin for the long and medium-term.

Miners are currently flowing out of China — where a phone call is enough to shut down an entire mining plant — and into the United States.

“Bitcoin is the greatest store of value in the history of planet Earth; nothing is even comparable,” Arvanaghi said, adding:

“We are going to start valuing our wealth in terms of Bitcoin, and the volatility is the tax that we pay for being on the right side of this trade.”

Arvanaghi also compared Bitcoin’s journey to a video game. In this trope, market-crashing news like drops in the hash rate or geopolitical tensions are bosses along the way “to the inevitable state of Bitcoin becoming universally identified as the greatest store of value we have ever seen.”

In the meantime, miners are going to look for cheap electricity around the world, and Texas will be a potential address, Arvanaghi predicted recently. “We have governors like Greg Abbott in Texas who are promoting mining. It is going to become a real industry in the United States, which is going to be incredible,” he added.

Updated: 6-23-2021

BIS Optimistic About Central Bank Digital Currencies

The central bank of central banks says CBDCs are necessary for maintaining the status quo of the legacy financial system.

The Bank for International Settlements (BIS) has reaffirmed its support for central bank digital currencies (CBDCs).

In a report titled “CBDCs: an opportunity for the monetary system,” BIS researchers argued that sovereign digital currencies offered “the unique advantages of central bank money.”

According to the report, CBDCs are the embodiment of digital money designed for the public good and are best suited for interfacing with instant retail payment systems.

Indeed, several central banks around the world are experimenting with retail CBDCs with many of these projects examining ways to float a digital companion to their respective fiat currencies.

Detailing a probable retail CBDC architecture, the BIS report put forward the following: “CBDCs are best designed as part of a two-tier system, where the central bank and the private sector each play their respective role,” adding:

“A logical step in their design is to delegate the majority of operational tasks and consumer-facing activities to commercial banks and non-bank PSPs that provide retail services on a competitive level playing field. Meanwhile, the central bank can focus on operating the core of the system.”

On the subject of privacy concerns, the BIS researchers argued in favor of robust customer identification protocols. According to the report, a token-based CBDC with complete anonymity features would provide avenues for illegal financial activities.

Instead, the BIS said central banks should design account-based CBDCs that interface with already existing digital identity infrastructures such as tax records, property registries, and education certificates, among others.

Account-based CBDCs with associated digital identity systems mean there will likely be a need for a dedicated entity tasked with identity verification and user data protection.

With user data across both public and private entities often a target of cyberattacks, robust cybersecurity measures will also paramount importance in any CBDC architecture.

Concerns about data privacy may become even more significant within the context of international transactions where customer information exchange across borders is necessary. On this subject, the BIS report called for greater international cooperation to handle the risks associated with sharing digital IDs across national borders.

The BIS report did not fail to bash Bitcoin (BTC) and cryptocurrencies employing the usual speculative investments, money laundering, carbon footprint and ransomware rhetorics. Earlier in June, Benoît Cœuré, BTC critic and the head of the BIS innovation hub, called El Salvador’s Bitcoin adoption an “interesting experiment.”

On the subject of stablecoins, the BIS researchers concluded that CBDCs could co-exist with privately issued stable digital currencies.

 

Bank Of Israel Steps Up CBDC Efforts With Reported Tests On Ethereum

The Bank of Israel has experimented with using Ethereum and nonfungible tokens for a pilot as part of its ongoing digital shekel research, a local report claims.

Israel’s central bank has allegedly completed a pilot — under the radar — for a central bank digital currency (CBDC) using Ethereum’s technology. The claim was made by the Israeli financial news site Globes and later reported by BNN Bloomberg.

Globes’ sources for its claims are undisclosed: The report alleged that the Bank of Israel (BOI) completed its pilot in an experimental, closed environment based on Ethereum’s architecture, involving the trial issuance of tokens representing digital shekels and their transfer amon digital wallets.

Globes also claimed that as part of its pilot, the BOI successfully tested its ability to program a car ownership certificate transfer using nonfungible digital tokens (NFT) and completed a transaction wherein an NFT payment was made the condition of the certificate’s transfer and vice versa. The transaction was instantaneous without any risk or need for a central intermediary or trustee.

This application, the report stated, represents just one possible example of what payment services providers, tasked with providing digital wallets for the public, could be able to build. The BOI has reportedly asked industry actors to propose various smart applications that could prospectively be built upon the infrastructure of a future digital shekel.

Globes, however, contended that broadly speaking, the central bank has not been forthcoming about its current experimental CBDC research. As reported by Cointelegraph, the BOI’s deputy governor only revealed that a preliminary CBDC pilot was in fact already being conducted during a discussion held at the Fair Value Forum at Herzeliya IDC earlier this month.

Globes characterized the deputy governor’s concession as the result of his having been “pushed into a corner” and criticized the central bank for not reaching out to local industry sufficiently as it begins to investigate the highly complex issue of CBDCs.

The BOI did, however, publish an in-depth report last month outlining its analysis and examination of various alternatives and models for a prospective CBDC, all the while emphasizing that the document and its proposed draft CBDC model was only meant to serve as a basis for discussion, not as a blueprint:

”This draft does not represent a decision of the Bank of Israel regarding the characteristics of the digital shekel, if issued. The draft model forms the basis for discussion and examination of alternatives by the working teams dealing with the issue at the Bank of Israel, and, following the publication of this document, it will also serve as a basis for discussion in the professional community in Israel about the characteristics required for the digital shekel.”

This engagement with CBDCs signals renewed momentum and interest in CBDCs at the institution after a team led by former governor Karnit Flug had recommended against issuing a digital shekel in late 2018.

While the BOI’s report from May makes no mention of Ethereum, it does note that “the various opportunities that a digital shekel could offer for the innovation of the payments system in the Israeli economy include smart contracts, programmable money, and the like.”

Nor does the BOI’s report from May make any mention of either smart applications or NFTs. It does, however, note the possible benefits of using distributed ledger technologies as compared to existing, centralized technologies for different parts of the digital shekel ecosystem.

The bank’s report also stressed the interdependence of developments in digital identity technologies and CBDCs and pointed to the benefits of conducting proofs-of-concept that could help the institution to gauge the relevance, risks and benefits of a digital shekel for the Israeli economy at large.

Why The Fed Is Considering A Digital Dollar


 

Updated: 6-24-2021

Palestine’s Central Bank Is Reportedly Considering A CBDC Launch

Palestinians have been without their own currency for 70 years.

The Palestinian Monetary Authority, Palestine’s central bank, is looking into the development of a digital currency, according to a report from Bloomberg on Thursday.

Feras Milhem, the governor of the Palestinian Monetary Authority, told Bloomberg Television that two studies on cryptocurrencies are being done with the hope of eventually using digital currency for domestic and international payments.

Palestine has not had an independent currency for 70 years, and the Palestinian economy primarily relies on the Israeli shekel for day-to-day transactions, with the Jordanian dinar and U.S. dollar acting as stores of value.

Palestine’s consideration of a central bank digital currency (CBDC) puts it in league with other major geopolitical players, including China and Sweden that have begun rolling out CBDCs.

However, regional economic analysts have expressed hesitation about the feasibility of a Palestinian digital curency.

“The macroeconomic conditions don’t exist to allow a Palestinian currency – digital or otherwise – to exist as a means of exchange,” Raja Khalidi, director of the Palestine Economic Policy Research Institute, told Bloomberg.

The Palestinian Monetary Authority’s push to develop a digital currency is likely impacted by Palestine’s dire economic situation.

Israeli anti-money laundering laws have left Palestinian banks with an abundance of shekels, and limitations on how many shekels the banks can transfer back to Israel per month have combined to create an untenable financial situation for many.

Updated: 6-25-2021

Tanzania Central Bank May Rescind Crypto Ban After Presidential Endorsement

President Samia Suluhu Hassan’s positive stance on crypto could see Tanzania’s central bank reversing its previous cryptocurrency prohibition.

The Bank of Tanzania is reportedly working to overturn its ban on crypto amid favorable cryptocurrency comments made by the country’s president.

According to Reuters, Tanzania’s central bank has begun working on directives from the country’s federal government that could see a reversal of its November 2019 crypto ban.

As previously reported by Cointelegraph, president Hassan urged the central bank to begin exploring Bitcoin (BTC) and digital assets earlier this month.

At the time, Hassan enjoined the Bank of Tanzania to keep up with the times, given the growing popularity of cryptocurrencies.

These favorable comments on crypto came on the heels of El Salvador’s Bitcoin Law and a wave of positive BTC sentiment across several nations in Latin America.

However, in Africa, crypto-related regulations beyond central bank bans are yet to emerge. Back in February, Nigeria’s central bank also prohibited financial institutions in the country from servicing crypto exchanges.

For Abdulmajid Nsekela, chairman of the Tanzania Bankers Association, the move could help to diversify financial transactions in the country that are currently dominated by cash payments.

Nsekela also echoed the president’s comments about the Bank of Tanzania needing to become better acquainted with the crypto market, adding, “The most challenging element for regulators is to be caught by surprise by innovations.”

According to data from Useful Tulips — a platform that tracks peer-to-peer BTC trading across the globe — Tanzania ranks seventh in peer-to-peer trading volume in Sub-Saharan Africa. Nigeria still accounts for more than half of the region’s Bitcoin trading activity.

While clear-cut crypto regulations are yet to emerge on the continent, some nations are working toward floating central bank digital currencies. Indeed, the central banks of both Nigeria and Ghana have issued announcements to that effect in June.

Blockchain Not Suitable For CBDC, Says Swiss National Bank Economist

Global economists continue to question the implications of blockchain implementation for central bank digital currencies.

Blockchain, the underlying technology of cryptocurrencies like Bitcoin (BTC), is not the right solution for a central bank digital currency, according to an economist at Switzerland’s central bank.

Carlos Lenz, chief economist at the Swiss National Bank, argued that blockchain-based decentralization features are not efficient for a state-controlled digital currencies like a digital franc, German-language Swiss newspaper The Handelszeitung reported Thursday.

The economist reportedly noted that there is a large number of technological opportunities for building a digital franc. “One could imagine a direct account with the National Bank. Not that we want to do that, but that would be the simplest form,” Lenz said. Another option could be using blockchain technology enabling digital currency operations without any central authority, he noted. However, blockchain is “very inefficient,” the economist argued: “I don’t think that a decentralized solution is ideal.”

Lenz went on to say that Switzerland’s central bank currently has no plans to introduce a digital fran. The economist emphasized that the “existing payment system works well,” and that there is no need for a CBDC in Switzerland. The economist elaborated that there’s also no risk that the franc could be replaced by other currencies like the euro if Switzerland prefers to stay away from the CBDC development.

The implementation of blockchain technology for state-controlled digital currencies has been questioned by many global financial experts. SNB’s alternative member Thomas Moser argued last year that blockchain use is unnecessary for a retail CBDC as the trust is already provided by the central party of a central bank. However, the SNB was still exploring blockchain-enabled benefits for implementing a CBDC last year.

Despite ongoing arguments on whether CBDC really needs blockchain, the Chinese government continues to experiment with the distributed ledger technology for simplifying CBDC transactions. In mid-June, the People’s Bank of China successfully completed salary payouts in the digital yuan using blockchain technology.

Updated: 6-26-2021

Palestine Monetary Authority Mulls Digital Currency As ‘Political Signal‘

Analysts note that the occupied territories’ macroeconomic and political conditions don’t allow for a digital currency to operate as a means of exchange but stress its potential value at a symbolic level.

Palestinian Monetary Authority (PMA) Governor Feras Milhem has revealed that the proto-central bank — which does not issue a domestic currency and operates under highly restrictive political and economic conditions — is exploring the idea of issuing a Palestinian digital currency.

Raja Khalidi, director of the Palestine Economic Policy Research Institute, told Bloomberg that “the macroeconomic conditions don’t exist to allow a Palestinian currency — digital or otherwise — to exist as a means of exchange.”

Khalidi argued, however, that the PMA’s issuance of some form of digital currency may “send a political signal to show apparent appearance of monetary autonomy from Israel.”

Khalidi’s view has been echoed by Barry Topf, former senior adviser to the Bank of Israel’s governor, who has claimed that any Palestinian digital currency is “not going to replace the shekel or the dinar or the dollar. It’s certainly not going to be a store of value or a unit of accounting.”

The occupied territories of the West Bank and Gaza may not seem to be the most propitious place to launch a centrally issued digital currency. The former has been subject to a 14-years blockade that has brought its economy to near collapse, subjected to severe Israeli restrictions and enduring four wars since 2008.

The latter is under the jurisdiction of the Palestinian Authority (PA), which has only limited — administrative but not military — powers of governance in under 40% of the West Bank. The PMA’s jurisdiction is distinct from that of the PA’s, extending to Gaza and West Bank areas under full Israeli control.

Under the terms of the Paris Protocol of 1994, the PMA has central bank-like powers but cannot issue its own currency. The West Bank and Gaza remain primarily reliant on the Israeli shekel, alongside the Jordanian dinar and the U.S. dollar.

In an interview with Bloomberg Television on June 24, Milhem said that the PMA was now studying the issue of digital currencies, in line with central banks worldwide, but that no decision has been taken to proceed to issuance. Asked about the potential benefits of such a move, Milhem addressed the specific challenges faced by the institution:

“We aim to limit the use of cash, especially Israeli cash. We have excessive Israeli cash in our market that we have problems transferring to the Israeli side […] our strategy is to use a digital currency for payments systems in our country and hopefully […] to use it for cross-border payments.”

The shekels glut in Palestinian banks is due to Israeli restrictions on large cash transactions, which were imposed citing Anti-Money Laundering concerns. Israel also restricts how many Palestinian banks are able to transfer back into Israel each month, presenting a significant difficulty given that both economies overlap in extensive and complex ways.

At various junctures, Israeli banks have also threatened to suspend correspondent services to Palestinian banks. With shekels in overabundance, Palestinian banks are sometimes forced to take on additional loans to meet their foreign exchange liabilities to third parties.

Israel also manages the Palestinians’ taxes, and belatedly released $1.14 billion in revenue collected on the PA’s behalf in December 2020, after a seven-month-long political crisis surrounding Israel’s bid for further illegal annexations of West Bank territories that would be de jure and not only de facto, as now.

In this fraught political, institutional and macroeconomic context, with the occupied territories still heavily reliant on aid donations and Israeli remittances and the economy strained by both Israeli actions and the impact of the global pandemic, analysts have noted that digital currency issuance may be more a question of political symbolism than monetary pragmatism.

Back in 2019, then Palestinian Prime Minister Mohammad Shtayyeh Raif said that, in a bid to try to better insulate the Palestinian economy from Israeli restrictions and political threats, he would consider using cryptocurrency as an alternative to the shekel.

Then as now, however, analysts argued that “the problem of the Palestinian economy is not the currency but rather a complex economic and political reliance on Israel,” noting that a different currency could lift neither import/export blockades nor the withholding of tax clearance funds.

Updated: 6-27-2021

Paying With e-CNY? First Show A Digital ID

The pandemic may help develop a solution for how travelers can spend their country’s digital currency abroad.

Digital currencies are almost here, with China’s e-CNY possibly off the block as early as the 2022 Beijing Winter Olympics. But among the many things we still don’t know about these new payment instruments is their usage overseas: How helpful will one country’s electronic cash be in another?

All we know is that digital cash will be a direct claim on a central bank, just like its physical counterpart. But there the similarity ends. There’s a whole money-changing industry ready to swap — for a fat fee — our banknotes for different ones that can be used where we’re going. However, when the cash resides in a wallet on our smartphones, tourists may not be able to spend it at a coffee shop or a curio store overseas if merchants aren’t allowed to receive foreign digital currencies.

Commercial banks have solved this problem. By using intermediaries like Visa Inc. and PayPal Holdings Inc., they’ve made our claims acceptable as payments in other countries.

But for monetary authorities to do this, every one of them will need a way to verify the identities of 8 billion people. That’s because, in theory, anyone on the planet can land in any country with purchasing power acquired abroad.

Unlike cash, or cryptocurrencies like Bitcoin, digital money issued by central banks won’t be pure tokens. Either the issuing monetary authority, or some private players it tasks with the job, will keep debit and credit accounts. Accounts involve identities, and — when the setting is international — questions of money laundering, terrorist financing and national security arise.

China’s digital yuan trials with foreign athletes next year will probably involve giving them some e-CNY to spend locally. That’s just marketing. It’s when the Chinese try to use it overseas that the challenges of sharing identities across borders will become more complex. Beijing wants to promote the currency internationally as an alternative to the all-important dollar. But will it be comfortable if the Federal Reserve wants access to a database that would check the identities of all Chinese visitors in the U.S., potentially tracking what they’re buying with digital yuan, where and when? Will Washington tolerate the same when a digital dollar is ready?

There are three ways out of the logjam, according to the latest annual economic report by the Bank for International Settlements.

The simplest solution may be for two different payment authorities to enhance compatibility of their technical and regulatory standards. Going a step further, they can interlink their systems and share some interfaces, eliminating middlemen.

Finally, several can get together on one platform for their independent digital currencies. Each of the three approaches “would require increasingly intertwined identification schemes, but in all cases, ID would remain at a national level,” the BIS says.

The third model — a jointly operated payment system supporting multiple central bank digital currencies — is the most promising from a user’s perspective. After the Hong Kong Monetary Authority began experimenting with the Bank of Thailand to develop a common platform, they were joined by the People’s Bank of China and the central bank of the United Arab Emirates. The project is now called m-CBDC Bridge. Even in such a highly cooperative setup, a single ID system would not be needed, the BIS says.

It’s unlikely that the U.S. and China will agree to join their digital currencies at the hip, given their growing mutual distrust.

What to do then? In some ways, the pandemic may be offering clues to solve the problem.

My vaccination certificate in Hong Kong sits on my Apple Wallet, with name and identity numbers partially masked. It has a tamper-proof QR code, which can be read by immigration authorities anywhere. To achieve this, Apple and the health authority had to verify my identity via my phone number and my unique Hong Kong ID.

It took only a few seconds, because both of them independently know a lot about me, though only a tiny bit is to be shared with border control officials. As long as other countries recognize Hong Kong’s vaccination certificates, the electronic version, protected by the phone’s facial or fingerprint recognition feature, would be accepted for international travel.

A similar system could work for international payments with digital cash. For a cup of coffee, it should be sufficient that a competent national authority has verified that you are who you say you are, and you have what you say you do: unspent money.

As long as the country accepting foreign digital cash is satisfied with the issuing authority’s anti-money-laundering standards, nothing more is required. The Fed can credit the cafe’s wallet with FedCoin and the People’s Bank of China can debit e-CNY from yours, and the two can settle their accounts without telling each other anything more about you. Travelers save on high foreign-exchange conversion costs built into card payments.

Without this level of coordination, e-CNY, FedCoin, Britcoin and the digital euro will all remain trapped in silos, making them complete non-starters in a globalized world and paving the way for the likes of Diem, synthetic private-sector tokens backed by reserves maintained in one or several official currencies.

The growing popularity of cryptocurrencies is already a headache for central banks; they won’t want their legal tender to lose out to these so-called stablecoins. So they’ll cooperate — even if they don’t collaborate. Your country’s digital cash may be more welcome in some places than others. But it’ll work everywhere.

Updated: 6-28-2021

New York Fed President Says Crypto Poses Challenging Questions For Central Banks

John Williams responded to a presentation from Mark Carney, the former head of the Bank of Canada and Bank of England, about the potential for issuing central bank digital currencies.

New York Federal Reserve Bank President John Williams believes the emergence of cryptocurrencies poses a significant challenge to existing regulations, highlighting the ongoing discussions policymakers are having about blockchain technology and central bank digital currencies, or CBDCs.

Before central banks like the Federal Reserve can issue their own CBDC, several major questions pertaining to blockchain technology and regulation need to be addressed, Williams told a panel hosted by the Bank for International Settlements. Specifically, Williams said policymakers need to outline how blockchain-based payment systems would function alongside physical cash.

Williams is a member of this year’s Federal Open Market Committee, the group responsible for setting U.S. monetary policy. The 11-person committee meets eight times each year to review economic and financial conditions before voting on monetary policy. Earlier this month, Williams and his colleagues voted to leave interest rates unchanged.

It’s estimated that central banks representing a fifth of the world’s population could issue CBDCs in the next three years, though the pace and intent of the rollouts vary greatly across jurisdictions. According to the Bank for International Settlements, emerging markets have stronger motivations for pursuing CBDCs due to local economic and financial conditions.

The Fed has already begun preliminary research on CBDC development, though no timetable has been established for pursuing such projects. Williams’ colleague, Fed Bank of Dallas President Robert Kaplan, expressed in November 2020 that the central bank should begin work on a digital dollar as soon as possible.

Singapore’s Central Bank Offers Cash Prizes For Digital Currency Ideas

The Monetary Authority of Singapore is seeking new retail CBDC solutions with a new global challenge offering cash prizes and expert digital currency mentorship.

The Monetary Authority of Singapore, the country’s central bank and a major financial regulator, is challenging fintech companies to pitch solutions for a central bank digital currency, or CBDC.

On Monday, the central bank officially announced a global challenge that seeks new retail CBDC solutions which enhance payment efficiencies and promote financial inclusion. As part of the initiative, the MAS is planning to distribute 50,000 Singapore dollars, or $37,000 USD at time of publication, to each of three challenge winners. They will also provide expert mentorship to 15 finalists in an effort t encourage rapid development of digital currency solutions.

Singapore’s CBDC challenge is launched in partnership with major global financial institutions including the International Monetary Fund, the World Bank, the Asian Development Bank, the United Nations Capital Development Fund, the United Nations Development Programme, and others.

The initiative is also supported by industry players including payment giant MasterCard, Amazon Web Services, R3, Hyperledger, and the Mojaloop Foundation, and managed by the API Exchange and Singapore-based blockchain accelerator Tribe Accelerator.

Global fintech companies and institutions can apply for the CBDC challenge until July 23, the announcement notes.

MAS chief fintech officer Sopnendu Mohanty noted that the initiative intends to gather industry solutions for a wide range of policy and technology challenges related to the CBDC development. “MAS hopes to encourage innovator communities worldwide to develop and showcase solutions that can maximise the potential of CBDC to deliver efficiencies to payment services, improve financial inclusion, consistent with central banks’ core mandate of monetary stability,” the exec noted.

Singapore has emerged as a major global player in the digital currency development, actively exploring both CBDC and the crypto industry. The country has been exploring a wholesale CBDC, with the MAS saying last year that the bank didn’t see much demand for a retail CBDC given that the Singaporean payment system infrastructure already features fast and cheap payments.

Singapore’s banking giant DBS Private Bank, one of the biggest wealth managers in Asia outside China, launched its own crypto trust solution in May 2021 after establishing a dedicated crypto exchange division last year.

Updated: 6-30-2021

‘We Don’t Have Much Time Left’ To Regulate Crypto, Says Bank Of France Governor

“We in Europe need to move as quickly as possible or risk an erosion of our monetary sovereignty,” said Francois Villeroy de Galhau.

Bank of France governor Francois Villeroy de Galhau said that Europe should make crypto regulation a priority or risk digital assets challenging its monetary sovereignty.

At a Paris Europlace financial conference today, Villeroy said he believed the European Union only had “one or two years” left in which to establish a regulatory framework for cryptocurrencies. To not act, according to the central bank governor, would “risk of an erosion of our monetary sovereignty” and potentially weaken the euro.

“I must stress here the urgency: we do not have much time left, one or two years,” said Villeroy. “On both [digital] currencies and payments, we in Europe need to move as quickly as possible.”

Villeroy called on the EU “to adopt a regulatory framework in the coming months,” given the growing role cryptocurrencies are playing in regional markets. The use of cash declined during the first few months of the pandemic, a trend that Villeroy said could lead to “marginalization of the use of central bank money.”

The Bank of France governor has previously warned regulators against the potential risk of cryptocurrencies, including stablecoins and central bank digital currencies, or CBDCs.

In September he said big tech companies could potentially build “private financial infrastructures and monetary systems” — including issuing their own stablecoins — which could adversely impact financial sovereignty in the EU for decades.

In January, the bank completed a pilot program for its own CBDC, later reporting investors had purchased and sold 2 million euros — roughly $2.4 million at the time — worth of simulated shares. The Bank of France has said it will conduct other test runs for the digital currency this year.

Beijing Subway Now Accepts Digital Yuan

Beijing’s rail transit service now accepts digital yuan for subway rides through an integration with the Industrial and Commercial Bank of China.

China continues expanding the scope of its central bank digital currency (CBDC) by debuting digital yuan payments for transport services.

According to an official Wednesday announcement, the Beijing subway has launched a pilot program enabling passengers to access 24 subway lines and four suburban railway stations using the digital yuan, also known as e-CNY.

The new service is only available for customers witb a bank account at the Industrial and Commercial Bank of China, a major bank involved in China’s CBDC tests. “You need to download a mobile app that is linked with your bank account to access the service,” a spokesperson for the Beijing rail transit network reportedly said.

The announcement notes that Beijing rail transit service providers will continue promoting diverse applications of the digital yuan in order to optimize the “new digital travel experience.”

The news comes shortly after Suzhou, a city in East China’s Jiangsu province, launched a similar digital yuan integration on Tuesday. According to a report by Sina Finance, Suzhou was the first city in China to start accepting e-CNY payments for subway rides.

Beijing has become a major spot for China’s digital yuan trials, housing a wide number of e-CNY integrations and related initiatives.

As of mid-June, Beijing hosted more than 3,000 digital yuan-enabled ATMs, allowing the public to deposit and withdraw the digital currency. Previously, the Beijing Local Financial Supervision and Administration announced an initiative to distribute $6.2 million in digital yuan to Beijing residents.

Bank of Russia Forms First Digital Ruble Testing Group

Twelve Russian banks including Sberbank, VTB and Tinkoff Bank will help the Bank of Russia test the digital ruble in January 2022.

The central bank of Russia is setting up a group of banking institutions to test its central bank digital currency (CBDC) next year.

On Tuesday, the Bank of Russia officially announced the establishment of the first pilot group for testing the digital ruble, bringing together 12 Russian banks.

The pilot members include Russia’s largest banks like state-backed Sberbank and VTB, as well as major private banks like Tinkoff Bank. Other participants include commercial bank Alfa Bank, Gazprombank, Promsvyazbank, Rosbank, Ak Bars Bank, Dom.RF, SKB-Bank, TKB and Soyuz bank.

The bank reaffirmed Russia’s plans to complete a prototype digital ruble platform by the end of 2021 and roll out testing in January 2022. The first stage of testing will involve issuing the digital ruble and several other operations. The Bank of Russia then plans to extend the number of participants and range of pilot activities.

Bank of Russia’s first deputy governor, Olga Skorobogatova, said that the digital ruble will increase the availability of payments while reducing costs.

The Bank of Russia officially announced its CBDC plans, issuing a consultation paper on the development of a digital ruble in October 2020.

The central bank’s prioritization of the digital ruble over private cryptocurrencies has drawn the ire of some high-profile figures, including prominent oligarch Oleg Deripaska, who recently argued that the bank should provide a “real financial instrument enabling independence in foreign trade settlements.”

The CEO of Tinkoff said that the central bank’s policies were preventing Tinkoff from offering crypto trading services.

Spanish Socialist Workers’ Party Pens Public Digital Currency Initiative

Spain’s oldest active political party is reportedly looking to create a public digital currency.

The Spanish Socialist Workers’ Party (PSOE), the governing political body in Spain, is backing a new national digital currency initiative.

PSOE, Spain’s oldest active party and the leading force in the Congress of Deputies, has introduced a non-law proposition to launch a national digital currency in response to the ongoing decline in cash usage, local news agency El Economista reported Monday.

The party noted that the proposition comes in response to the European Central Bank’s experiments with a digital euro. Carlos Conesa, general director of the financial innovation division at the Spanish Central Bank, recently said that “the decision to launch a project on the digital euro is very close.”

According to the proposal, a national digital currency would enable higher liquidity “In the event that a monetary expansion is necessary, it allows a more direct mechanism, by injecting liquidity directly into current accounts and thus transferring it immediately and without intermediaries to economic activity.”

The party went on to say that a Spanish digital currency “would end the ‘privilege’ of banks over money,” noting that the project would be achieved “without the nationalization of the banking system or the nationalization of credit.”

“At present, it is perfectly feasible that each individual can have his own account with his digital money directly at the central bank. A privilege, for the moment, restricted to banks,” the proposal reportedly reads.

According to El Economista, the PSOE initially proposed creating a national digital currency in mid-June. The party urged the government to establish a dedicated group to evaluate digital currency’s effect on the greater financial stability of the Spanish economy and the euro area as a whole.

While the European Central Bank takes its time to deliberate on the digital euro, some observers have begun to doubt the hypothetical currency’s efficacy. Pablo Urbiola, an executive at BBVA, argued on Monday that it is not yet exactly clear what kind of customer demand the digital euro is supposed to meet.

Updated: 7-5-2021

Vietnam’s PM Asks State Bank To Trial Digital Currency On The Blockchain

Vietnamese news outlets have reported that the country’s prime minister, Phạm Minh Chính, has tasked the State Bank of Vietnam with studying and conducting a pilot for a digital currency.

The State Bank of Vietnam is reportedly set to become the latest central bank to delve into explorations of the feasibility and operationality of central bank digital currencies (CBDCs).

Its brief, distinct from other countries, is looking to trial a digital currency that would be expressly built on blockchain technology, rather than a centralized protocol.

According to a July 3 report from the English-language daily Viet Nam News, Prime Minister Phạm Minh Chính announced the initiative as part of his wider e-government development strategy. The central bank is expected to work on the development and implementation of the pilot from 2021 to 2023.

Vietnamese politicians’ embrace of blockchain technologies, in principle, remains distinct from their broad hostility to the decentralized currencies that have popularized the underlying protocols. The country banned Bitcoin (BTC) in 2018 as a means of payment while retaining individuals’ and enterprises’ rights to privately invest in crypto.

The ban was soon followed by a directive to credit institutions to restrict services provided to digital currency-related activities in order to mitigate money laundering risks. Despite both moves, there has not been a formal regulatory framework in place for crypto exchanges operating in the country.

Since spring 2020, this hostile but relatively off-hands approach has begun to shift. In May of that year, Vietnam’s Ministry of Finance agreed to establish a research group charged with studying and making policy proposals regarding cryptocurrencies and digital assets.

That group, which includes the State Bank, also includes the country’s securities regulator, the Department of Banking and Financial Institutions, the General Department of Vietnam Customs and others.

Huỳnh Phước Nghĩa, deputy director of the Institute of Innovation at the University of Economics Ho Chi Minh City (UEH), told reporters that as cashless payments continue to increase in the country, recognition of digital currencies by the State Bank would help to further accelerate this process.

In Nghĩa’s view, “Digital money is an inevitable trend” and conducting the pilot will help the government assess the pros and cons of various approaches and to explore appropriate management mechanisms.

Another interviewee, Lê Đạt Chí, who is deputy head of UEH’s Finance Faculty, stressed that acting fast would be necessary for the country to be competitive as momentum behind CBDCs continues to grow.

Viet Nam News contends that CBDC issuance could be useful for smaller countries in a global system dominated by the U.S. dollar, and, to a lesser extent, the euro and yen. Chí, however, in addition to calling for an acceleration of CBDC study and development, stressed potential risks for the country’s financial and monetary security.

A representative from NextTech Group of Technopreneurs — a group of companies focused on digitized commerce across Southeast Asia — argued that it is necessary for Vietnam to determine an official definition for cryptocurrency.

Prior to the government setting up its research group in May 2020, Vietnamese police officials urged citizens not to participate in crypto investment schemes.

This March, Vietnam’s Ministry of Finance itself warned the public about the risks of cryptocurrency investment, given the industry’s still-unregulated status in the country.

Japan’s Finance Industry Awaits A Clearer Picture Of The Digital Yen In 2022

The digital yen should be compatible with other CBDCs to counter China’s progress with its digital yuan, one official argued.

Japan will have more clarity on the design of its central bank digital currency (CBDC) no earlier than late 2022, according to a ruling party official.

Hideki Murai, head of the ruling Liberal Democratic Party of Japan’s panel on digital currencies, said that the Bank of Japan (BoJ) is still working on sorting out the key functions of the digital yen, such as defining what entities would serve as intermediaries between the central bank and its deposit holders.

“By around the end of next year, we’ll have a clearer view of what Japan’s CBDC would look like,” Murai said in a Reuters interview on Friday. The official said that the BoJ does not expect to make an immediate decision on whether to issue a digital yen by the start of the second-phase CBDC testing — slated to start next year.

However, more details on Japan’s CBDC design could trigger a debate on how the digital yen will affect financial institutions, the official suggested.

Japan’s financial industry is already undergoing major changes, with non-bank firms increasingly offering means for online settlements. If the digital yen is designed in a way that makes commercial banks key intermediaries, that shift could be reversed, Murai noted, adding:

“If the BoJ were to issue a CBDC, it would have a huge impact on financial institutions and Japan’s settlement system. A CBDC has the potential to completely reshape changes occurring in Japan’s financial industry.”

The official also said that the BoJ must ensure that the digital yen is compatible with other global CBDCs in order to counter China’s progress with its digital yuan.

“If a digital yuan becomes so convenient it’s frequently used by tourists or becomes the main settlement means for trade, the relationship between the yen and yuan could change,” eroding the yen’s status as a safe-haven currency, Murai warned.

The BoJ originally announced its plans to develop a CBDC in October 2020, stressing that the bank has “no plan to issue CBDC” yet. The bank launched its first phase of CBDC pilots in April 2021, targeting the development of a test environment and conducting experiments on basic CBDC functions related to payment, issuance, distribution and redemption.

Fed Chair Met With Coinbase CEO Brian Armstrong And Former House Speaker In May

Armstrong said he had spoken about China’s central bank digital currency with lawmakers and heads of federal agencies, believing it to be “a threat to U.S. reserve currency status long term.”

Prior to the Federal Reserve announcing it would release a discussion paper on a central bank digital currency, chairperson Jerome Powell met with Coinbase CEO Brian Armstrong.

According to Powell’s meeting calendar which was made public on Friday, the Fed chair held a 30-minute meeting with Armstrong as well as former House of Representatives Speaker Paul Ryan on May 11. The reason for Ryan’s presence is unclear — the former speaker left politics in early 2019 and is now with private equity investment firm Solamere Capital.

While Powell’s schedule did not reveal the topics under discussion, Armstrong referenced the meeting in a Twitter thread on May 14. The Coinbase CEO said his goal in speaking to members of Congress and heads of various federal agencies was to help answer lawmakers’ questions about crypto and get more regulatory clarity for the technology in the United States.

At the time, Armstrong said he had voiced his opinions on China’s central bank digital currency, or CBDC, saying he believed it represented “a threat to U.S. reserve currency status long term if the U.S. doesn’t move quickly to create their own.” A little more than a week later, Powell announced the Fed would be moving forward with research to implement a CBDC.

Prior to that announcement, the Fed chair had spoken extensively about the possible ramifications of releasing a CBDC in the United States, saying that he believed it was more important “to get it right than it is to be first.” However, his May statement included a plan to release a discussion paper on CBDCs and digital payments sometime this summer.

While the U.S. government has not yet made a decision regarding a digital dollar, China is continuing to pilot its CBDC with giveaways in multiple provinces. Last month, 100,000 people in the Shenzhen region received $31 million worth of digital yuan, and were able to use ATMs to exchange their digital holdings for fiat.

Updated: 7-6-2021

Bitcoin Trims Gains As PBOC Steps Up Crypto Crackdown

Bitcoin fell from $35,100 to nearly $34,000 after the news started doing the rounds on Twitter.

Bitcoin trimmed early gains after the People’s Bank of China (PBOC) reiterated its long-held anti-crypto stance, warning institutions against providing services to crypto-related companies.

China’s central bank closed down a Beijing-based company providing software services for virtual-currency transactions and reiterated that no institution under its jurisdiction should engage in such transactions.

Bitcoin fell from $35,100 to nearly $34,000 after the news started doing the rounds on Twitter.

Both the PBOC and the Chinese government stepped up their anti-crypto rhetoric in May, adding to bearish pressures around the cryptocurrency.

China’s crypto restrictions have been dominating the headlines and taking a toll on market sentiment since mid-May.

The National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China published a note on May 18, confirming a ban on crypto services and initial coin offerings originally implemented in 2013 and 2017.

In June, China’s Qinghai province banned virtual currency mining. The crackdown was later extended to the southwest province of Sichuan.

According to some observers, China’s mining ban has dramatically reduced competition for block rewards and improved the profitability for miners based elsewhere.

However, China’s mining crackdown is a one-off event, meaning most of the hash power will return, eventually boosting competition and difficulty. There are reports of miners banned in China moving to Kazakhstan, Russia, and the U.S.

Bitcoin’s sensitivity to negative news flow out of China has declined in recent weeks. The cryptocurrency appears to have stabilized near $34,000 at press time after the initial decline.

While similar comments rocked the market in the second half of June, bitcoin buyers were able to defend the psychological support level of $30,000.

Update: 7-7-2021

Bank Of Jamaica To Begin Digital Currency Pilot In August

The Bank of Jamaica is getting ready to begin testing its planned central bank digital currency in collaboration with financial institutions in the country.

Jamaica’s central bank will reportedly commence the initial roll-out of its central bank digital currency (CBDC) project in August.

According to a report by the Jamaica Observer on Wednesday, Bank of Jamaica (BOJ) Governor Richard Byles made this known during a Rotary Club event earlier in July.

Detailing plans to begin the pilot phase in August, Byles revealed that the BOJ was currently working on the technical aspects of the CBDC within a sandbox environment.

As previously reported by Cointelegraph, the BOJ chose Irish technology firm eCurrency Mint as the tech provider for its national digital currency project back in March. The Ireland-based cryptography security company was chosen from a list of solution providers that began applying for the project back in July 2020.

“As we work through the technical minting of the currency, we have to test it rigorously as a pilot that we’ll do in August,” Byles stated, adding:

“In September to December we’ll be recruiting more of the banks to come on board and then we’ll gradually expand the pilot out into a full-fledged launch of the CBDC.”

The BOJ governor also provided more details about the planned CBDC, stating that financial institutions will serve as intermediaries between the central bank and consumers — both retail and corporate.

With the CBDC designed to complement Jamaica’s banknotes, financial institutions will be able to issue the digital currency to individual and business account holders at a rate of one CBDC “coin” to one Jamaican dollar.

Byles also stated the BOJ’s plan to use the CBDC as a platform to provide financial services to the unbanked population. In this regard, the central bank governor called on the assistance of telecom firms in the country as well as their significant network of retail payment merchants.

CBDC efforts have become a global endeavor, with central banks across the world establishing pilot studies or even launching sovereign digital currencies. A fellow Caribbean nation, the Bahamas, became one of the first countries to float a CBDC back in October 2020.

Elsewhere in the Caribbean, the Eastern Caribbean Currency Union recently launched its DCash digital currency in four or the currency union’s eight member states.

Chinese Banks Tell Staff To Recruit Up To 300 New Digital Yuan Users Each

Six of China’s top banks have tasked their employees with promoting digital yuan wallets to between 200 to 300 people a year.

Chinese banks have begun a hard sell of digital yuan wallets, asking staff to recruit hundreds of new users each year.

According to a translation of a June 6 article from Shenlian Caijing, employees of top banks such as the Industrial and Commercial Bank of China and the Bank of Communications, along with four other state-owned banks, have been instructed to promote digital yuan wallets to an average of 200 to 300 people a year.

To entice new users, employees are able to offer an odd variety of small gifts, such as “laundry detergent, data cables, card holders, Chinese knots, umbrellas, and tissues.”

The banks have included the task of promoting the central bank digital currency (CBDC) on employee evaluations, with the number of CBDC wallet recruits determining each branch’s end of year bonuses.

Essentially the banks have deployed an incentive scheme focused on mass recruitment of wallet users, and will reward branches and their employees with favorable performance reviews and monetary bonuses.

From the Chinese government’s perspective, the ramp-up in digital yuan wallet adoption is part of a move to get a stronger hold over the financial tech market, as it will be in competition with payment service providers such as Alipay and WeChat, who reportedly account for 98% of the mobile payment market in China.

Cointelegraph reported on April 26 that in the lead-up to an online shipping festival on May 5, six of China’s largest banks promoted the CBDC as a better alternative to Alipay and WeChat.

As part of China’s ongoing testing of the CBDC, the local government of Chengdu, located in the Sichuan province, announced on June 2 that it is issuing 12 million digital yuan ($1.85 million) via a lottery to 100,000 residents.

The theme of the lottery is dubbed “Green Travel – low carbon summer” and interestingly, the 12 million digital yuan is pre-programmed to work specifically for public transportation payments, such as bus and subway tickets, along with shared bike rental payments.

Bitcoin Miner Revenue Jumps By 50% In 4 Days Since Record Difficulty Drop

It’s a tale of two Bitcoins as active miners reap the benefits, while others remain completely offline.

Bitcoin (BTC) miner revenue jumped after the network saw its biggest-ever difficulty drop, data shows.

According to figures from monitoring resource Blockchain.com, daily revenues have surged by over 50%.

“Interesting Dynamic” Hits Bitcoin Mining

Bitcoin mining is currently in a unique state of flux — around half of the hashing power is offline as miners relocate from China, and it remains unknown how quickly they will be able to come back online.

At the same time, those miners unaffected by the Chinese rout have seen half their competitors disappear overnight, and profitability has gone up as a result.

With data now coming in for the past few weeks, the scale of the changes is plain to see. Daily mining revenue was around $20.7 million on Friday, the day before the difficulty adjustment. A day later, it hit $29.3 million, and by Tuesday this week — $31.9 million.

This is all a consequence of a “very interesting dynamic,” analytics firm Glassnode summarized in a video guide to this week’s edition of its newsletter, “The Week On-chain.”

“We have a very interesting dynamic where approximately 50% of the hash power is currently offline and incurring a great number of costs due to logistics and just simply not hashing, having hardware that’s not currently working, and the other 50% has essentially seen half their competition drop off the network,” it explained.

“Whilst the protocol’s now issuing the same number of coins as it regularly does, having difficulty wound down, we’re now in a situation where half the network has doubled their income and the other half of the network is essentially producing nothing.”

For active miners, profitability has reverted to around the levels seen when BTC/USD traded at $55,000–$60,000.

Block Times See Records

The result has been felt not just by miners. Average block times hit their highest levels ever over the past week, Glassnode added, beaten only during Bitcoin’s “bootstrapping” period in 2009–2010, before the cryptocurrency even had a solid price in United States dollars.

Other on-chain metrics likewise record the dichotomy between different groups of miners.

These show, among other things, how some are spending treasuries due to relocation costs while being unable to mine new coins and receive a share of block rewards and fees.

At the same time, others have been holding on to more BTC per block than they are spending — part of an uptrend that continues despite the drop in price, which has also reached over 50%.

“This is certainly one to watch,” Glassnode advised.

Who Gets Left Holding The Digital-Dollar Fad?

The Fed isn’t obliged to join China and other central banks in the craze to issue an official electronic currency. Private equivalents may do the job better.

Is the idea of a digital dollar just a fad — like the 1980s craze with parachute pants that became synonymous with Michael Jackson and M.C. Hammer?

Randal Quarles, the Federal Reserve’s vice chair for supervision, recently used that very imagery to express his skepticism. He wasn’t trying to prejudge the monetary authority’s thinking, which will soon be outlined in an eagerly awaited discussion paper on a so-called FedCoin.

But speaking for himself, Quarles isn’t convinced that the Fed should have to issue its own electronic money to the public even if other central banks do so. My interpretation of what he’s suggesting is this: Instead of one, there could be many digital dollars. All private.

By 2023, the U.S. will put in place FedNow, its first new payment system in 40 years. It will allow two people to instantly exchange funds from their bank accounts at any time of the day, any day of the year, without needing an intermediary like PayPal Holdings Inc.’s Venmo.

After that, there’ll be little extra gain to users from cutting out the banks’ balance sheets in the middle and making payments directly as customers of the Fed. Without limits on the FedCoin held in smartphone wallets, however, an exodus of bank deposits could threaten financial and price stability.

Volatile cryptocurrencies like Bitcoin may never pose a serious challenge to the dollar’s hegemony. Nor is China’s impending e-CNY much of a justification for why the Fed must follow suit to keep America in the race. Even if there’s no FedCoin, there will still be other digital-dollar stablecoins — synthetic online currencies offered by private issuers like Diem that can be freely converted 1:1 into dollars.

“A global U.S. dollar stablecoin network could encourage use of the dollar by making cross-border payments faster and cheaper, and it potentially could be deployed much faster and with fewer downsides” than a central bank’s own digital currency, Quarles said at a bankers’ convention in Sun Valley, Idaho.

Although it appears to be little more than a fashion statement for now, a FedCoin may still come in handy in the not-so-distant future. In an internet-of-things world, our devices will also make and receive payments. We’ll set the rules, but not authorize each transaction.

A conventional payment system that offers 24×7 settlement may be able to build a technological bridge to self-executing software code — smart contracts — powering machine-to-machine claims. But it may be easier to settle a very large number of transactions with tokenized money.

And if central banks recognize one another’s digital IDs, cross-border remittances could become a lot cheaper with digital currencies issued by them.

Ditto for offline person-to-person payments, which are most reliably settled using the liability of a central bank. Similarly, when businesses clear one another’s claims, they also want to update their accounts automatically.

The traditional bank-to-bank payment system, which imposes a character limit on the information that can be shared along with a payment, struggles with “incomplete reference data for the clearing process and often requires manual correction,” according to Bundesbank’s research. Vendor payments get messy when invoice values are adjusted for defects and credit notes.

This inefficiency, too, is best eliminated using some type of programmable cash.

Updated: 7-8-2021

New Zealand’s Reserve Bank Consulting Public On A Potential CBDC

The Reserve Bank of New Zealand will look at the potential for a CBDC “to work alongside cash as government-backed money,” and assess the issues around the emergence of crypto assets such as stablecoins.

The Reserve Bank of New Zealand says a central bank digital currency might be a “solution” to the ongoing reduction in the use of cash and that it will look more closely at the use of cryptocurrencies.

The bank will open up public consultations regarding a CBDC and the emergence of new digital forms of money including stablecoins.

In a July 7 announcement, the Reserve Bank revealed it will be releasing a set of “money and cash issues papers for feedback from August to November,” which build upon the “Future of Cash” consultations from 2019.

The bank will “introduce and seek feedback” on crypto-focused papers that will look at the potential for a CBDC “to work alongside cash as government-backed money,” along with unspecified issues that arise from innovations in money and payment tech, including cryptocurrencies such as Bitcoin and stablecoins.

NZ’s Reserve Bank appears to be open-minded towards the deployment of a CBDC, but it has emphasized that a measured and cautious approach is required.

Assistant Governor Christian Hawkesby said in October 2020 that the bank had “no imminent plans” to deploy a CBDC, noting that “to issue currency that meets the needs of the public, we must take a new and holistic approach. We acknowledge there is much work to be done.”

In The Latest CBDC Related Announcement, Hawkesby Notes That:

“The potential for a Central Bank Digital Currency to help address some of the downsides of reducing physical cash use and services is something we want to explore for New Zealand.”

“A CBDC, similar to digital cash, might well be part of the solution, but we need to test our assessment of the issues and proposed approach before developing any firm proposals,” he added.

The Assistant Governor stated that despite the declining number of New Zealanders using cash, it is still “widely valued because it ensures inclusion” and gives the citizens “autonomy and choice in the way they pay and save.”

“Personal and retail customers are struggling with the loss of cash and in-person banking services despite banks’ efforts to help them adapt,” he added.

However, Hawkesby noted that digital payments are the preferred option for the majority of New Zealanders and that the bank’s “job is to ensure that these transitions work for all New Zealanders”:

“We also know that digital forms of payment are the preferred way of paying for the majority of us, and that the future will undoubtedly involve less cash.”

China’s Digital Yuan Deploys At Speed, Leaving Dust In Its Path

From being labeled impractical to nearing mainstream deployment, the digital yuan can transform the global economic landscape.

With each passing day, the list of nations actively exploring the idea of central bank digital currencies (CBDCs) is continuing to grow at a rapid pace. While China’s digital yuan project may be the one that everyone talks about the most, in recent months, countries like The United Kingdom, Sweden and Japan have forged ahead with their own CBDC research and/or testing.

That said, the digital yuan project is head-and-shoulders ahead of any of its contemporaries at this point, owing to the simple fact that Chinese authorities have already completed many beta-testing rounds of the currency across a number of major regions including Beijing, Chengdu, and Hong Kong’s greater bay area.

In fact, just to highlight how far along the project has actually come, reports indicate that the citizens of Suzhou city can now pay for their daily travel on the city’s fifth line using the digital yuan.

A Brief Overview Of The e-CNY Project

Initially thought of as a tool that would help China digitize its economy amid the then-worsening COVID-19 situation, initial news reports simply claimed that a select group of state-run commercial banks within China were performing internal tests of a digital currency wallet that had been designed to house an called the “digital yuan” — known as the Digital Currency Electronic Payment, or DCEP.

Soon after, however, it became clear that the scope of this project would extend way beyond simple bank transfers, especially as confirmations of successful pilot trials across major metropolises like Beijing, Xiong’an New Area, Shenzhen, Suzhou and Chengdu started to surface.

In terms of how testing was carried out, most recently, authorities doled out the digital yuan — estimated to be worth around $6.2 million — to people living within the municipal limits of Beijing city via a lottery system. Basically, residents of the Chinese capital were given the opportunity to register and win one of 200,000 packets containing 200 digital yuan ($31.34) each.

The digital cash was delivered using an app that, according to various reports, has been designed to facilitate real-time monetary transactions, albeit at certain select retail outlets for the time being. Similar CBDC lotteries have also been held across many of the aforementioned destinations, clearly showcasing China’s resolve to release its digital token for mainstream utilization.

Lastly, Yao Qian, the former chief of China’s CBDC efforts, recently went on record to say that as we move into an increasingly digitized future, a vast majority of all CBDCs will eventually transition (or at least start) to support public blockchain networks like Ethereum, thus hinting at the possibility of the e-CNY eventually becoming compatible with Ether (ETH).

The Proof Is In The Pudding

Success stories relating to China’s CBDC are now becoming more common. Just recently, China’s Xiong’an New Area, which is situated a little over 50 miles from Beijing, had the local government paying its workers using the digital yuan. In fact, the entire region seems to have adopted the Blockchain Fund Payment Platform to help digitize its local economy.

In addition to this, the public transportation authorities of major Chinese cities, such as Chengdu, are committed to expanding their payment setups to include the digital yuan, potentially spurring the mainstream rise of e-CNY.

Meanwhile, some of China’s leading retailers have also been participating in the e-CNY adoption drive. Furthermore, Alibaba’s online grocery services including ele.me, Tmall supermarket and Hema grocery stores have started allowing chunks of their clientele to pay for their goods using the digital yuan — essentially enabling the sovereign digital currency to gain access to a combined consumer base of more than one billion users.

China’s Crypto Policy Aims To Bolster e-CNY Adoption

Over the last few years, China has taken an extremely hardline stance in terms of governing its local crypto market. In recent months, local authorities seem to have gone into overdrive, made evident by the recent cryptocurrency mining ban.

In the following days, the government also issued orders prohibiting financial institutions, ranging from banks to online payment providers and everyone else in between, from indulging in any sort of cryptocurrency transactions — including registrations, trading, clearing and settlements.

Kevin Zhang, vice president of business development at Foundry, an investment company focused on digital assets mining and staking, told Cointelegraph that in his view, China and the CCP are focused on maintaining “social stability,” even though Bitcoin mining and crypto financial flows/volumes are mere drops in the bucket when it comes to the grand scheme of things, adding:

“It is a noisy distraction that is constantly hogging attention and undermining the perception of China’s control over capital outflows and financial regulation. This all came to a head when crypto/Bitcoin started pushing all-time highs and the CCP was celebrating its 100 year anniversary.”

Providing his thoughts on the subject, Nishant Sharma, founder at BlocksBridge Consulting, an international consultancy focused on the cryptocurrency mining industry, told Cointelegraph that China is still the biggest market for cryptocurrencies, such as Bitcoin (BTC), outside of the United States. He added: “Since the ban on crypto exchanges in 2017, cryptocurrencies are traded in China in a peer-to-peer fashion and Chinese citizens continue to use cryptocurrencies, such as Bitcoin, both as reliable stores of value as well as speculative investments.”

Where Do Other Countries Stand With Their CBDC Programs?

The Chinese digital currency experiment seems to not have gone unnoticed, because recently, the Bank of Japan announced that it had successfully commenced a year-long trial of its digital yen. The goal of the project seems geared toward assessing the long-term technical/monetary viability of releasing a mass-scale CBDC within Japan’s borders. The pilot is likely to conclude by Q1 of 2022.

Sweden’s central bank, the Riksbank, after months of apparent inactivity in relation to its e-krona project, published the results of its successful phase-1 testing. Similarly, since the start of 2021, the Bank of England has also expressed a strong desire to develop its very own digital currency.

In the meantime, nations like the Bahamas and Cambodia have gone on to issue their own CBDCs: the Sand Dollar and the Bakong, respectively. However, the adoption of these assets has been slow to come by, an issue that the People’s Bank of China (PBoC) seems to be tackling heavily in anticipation of full deployment through its various e-CNY airdrops and initiatives.

China’s Digital Yuan Trial Expands To 10 Million Eligible Users

China has made 10 million people eligible to participate in its expanding digital yuan trial as it continues to lead global central banks in developing a virtual currency, according to a central bank official.

For now, people interested in using the digital yuan can apply to join “white lists” at state-owned banks that distribute digital yuan. There are now 10 million users of such white lists, Fan Yifei, deputy governor of the People’s Bank of China, said at a press briefing Thursday.

“We have the confidence to continue increasing the scope of the trials,” said Fan, adding that the Beijing Winter Olympics in 2022 will be the next key trial area.

China has accelerated its push for the digital yuan this year, rolling out more trials in cities including Shenzhen, Beijing, Shanghai and Chengdu. At the same time, the central bank has intensified its crackdown on cryptocurrency, most recently shutting down a Beijing-based company for providing cryptocurrency-related services.

Cryptocurrencies issued by private institutions have become speculative tools that threaten financial security and social stability, Fan said at the briefing. They also have become payment means for illegal activities and money laundering, he said.

Meanwhile, global stable coins could pose challenges to international currency, payment and settlement systems, Fan said.

“We are quite worried about this problem, so we have taken some actions,” he said.

China’s Digital Yuan Deploys At Speed, Leaving Dust In Its Path

From being labeled impractical to nearing mainstream deployment, the digital yuan can transform the global economic landscape.

With each passing day, the list of nations actively exploring the idea of central bank digital currencies (CBDCs) is continuing to grow at a rapid pace.

While China’s digital yuan project may be the one that everyone talks about the most, in recent months, countries like The United Kingdom, Sweden and Japan have forged ahead with their own CBDC research and/or testing.

That said, the digital yuan project is head-and-shoulders ahead of any of its contemporaries at this point, owing to the simple fact that Chinese authorities have already completed many beta-testing rounds of the currency across a number of major regions including Beijing, Chengdu, and Hong Kong’s greater bay area.

In fact, just to highlight how far along the project has actually come, reports indicate that the citizens of Suzhou city can now pay for their daily travel on the city’s fifth line using the digital yuan.

A Brief Overview Of The e-CNY Project

Initially thought of as a tool that would help China digitize its economy amid the then-worsening COVID-19 situation, initial news reports simply claimed that a select group of state-run commercial banks within China were performing internal tests of a digital currency wallet that had been designed to house an called the “digital yuan” — known as the Digital Currency Electronic Payment, or DCEP.

Soon after, however, it became clear that the scope of this project would extend way beyond simple bank transfers, especially as confirmations of successful pilot trials across major metropolises like Beijing, Xiong’an New Area, Shenzhen, Suzhou and Chengdu started to surface.

In terms of how testing was carried out, most recently, authorities doled out the digital yuan — estimated to be worth around $6.2 million — to people living within the municipal limits of Beijing city via a lottery system. Basically, residents of the Chinese capital were given the opportunity to register and win one of 200,000 packets containing 200 digital yuan ($31.34) each.

The digital cash was delivered using an app that, according to various reports, has been designed to facilitate real-time monetary transactions, albeit at certain select retail outlets for the time being.

Similar CBDC lotteries have also been held across many of the aforementioned destinations, clearly showcasing China’s resolve to release its digital token for mainstream utilization.

Lastly, Yao Qian, the former chief of China’s CBDC efforts, recently went on record to say that as we move into an increasingly digitized future, a vast majority of all CBDCs will eventually transition (or at least start) to support public blockchain networks like Ethereum, thus hinting at the possibility of the e-CNY eventually becoming compatible with Ether (ETH).

The Proof Is In The Pudding

Success stories relating to China’s CBDC are now becoming more common. Just recently, China’s Xiong’an New Area, which is situated a little over 50 miles from Beijing, had the local government paying its workers using the digital yuan.

In fact, the entire region seems to have adopted the Blockchain Fund Payment Platform to help digitize its local economy.

In addition to this, the public transportation authorities of major Chinese cities, such as Chengdu, are committed to expanding their payment setups to include the digital yuan, potentially spurring the mainstream rise of e-CNY.

Meanwhile, some of China’s leading retailers have also been participating in the e-CNY adoption drive. Furthermore, Alibaba’s online grocery services including ele.me, Tmall supermarket and Hema grocery stores have started allowing chunks of their clientele to pay for their goods using the digital yuan — essentially enabling the sovereign digital currency to gain access to a combined consumer base of more than one billion users.

Updated: 7-9-2021

IMF, World Bank And BIS Champion Central Bank Digital Currencies At G20

A new report released by the triumvirate of global finance argues that central bank digital currencies will benefit worldwide development.

In a joint report, the International Monetary Fund (IMF), the World Bank and the Bank of International Settlements (BIS) have proposed to the G20 that a cross-border network of central bank digital currencies (CBDC), underpinned by efficient technological integration and proactive international cooperation, could be of significant benefit to the world economy.

The report focuses on broadening the horizon beyond central banks’ individual studies of CBDCs for domestic needs, emphasizing that it is crucial to coordinate work at a global scale and to find common ground between various national efforts to reap the full benefits of digital currency.

If tackled astutely, the IMF, the World Bank and the BIS believe that the creation of CBDCs could offer a “clean slate” that would enable the global financial system to significantly enhance the efficiency of cross-border payments.

The report paints a bleak picture of the current system for cross-border payments, which is beset by long transaction delays and high costs due to an excessive number of intermediaries operating across different time zones across the correspondent banking process.

Moreover, cross-border flows are often opaque and difficult to trace, presenting a problem for Anti-Money Laundering (AML) and combating the financing of terrorism (CFT) implementation. Over the past decade, the attenuation of cross-border banking relationships has left some countries struggling to integrate into the global financial system fully.

The report weighs the significant benefits that CBDCs could present for increased efficiency and enhanced economic inclusion against the potential global macro-financial implications and risks involved in the widespread use of CBDCs for cross-border flows.

These challenges include dealing with the sudden capital flow reversals enabled by more frictionless cross-border flows and the potential impact on countries’ ability to manage their exchange rates.

If the foreign currency becomes easier to obtain, store and spend, widespread currency substitution could potentially undermine states’ monetary policy independence and pose risks to both issuing and receiving countries.

A worldwide push for CBDC issuance, the report notes, would therefore require tight integration of multiple CBDCs and uniformity of design choices, alongside specific measures designed to mitigate these macro risks.

The groundwork would not only be conceptual and design-focused but would imply coordinated strategies, standardized practices and a degree of structural integration, ranging from the creation of new international payment infrastructures to targeted policies. The latter, for example, could include introducing limits on foreign CBDC holdings or transfers.

In addition to extensive infrastructural cooperation on technological interoperability and payment system access, there would need to be a similar level of regulatory coordination, implying the alignment of supervisory and oversight frameworks for cross-border flows and the coordination of AML and CFT measures.

While most countries are studying or developing pilots for CBDCs, central banks have taken a wide variety of distinct approaches to CBDC design and have paced their research and development efforts differently. China’s digital yuan is well ahead of the international game, and multiple countries have piloted CBDCs for cross-border use, including France, Switzerland, Singapore and Bahrain, to name just a few.

Pandemic Has Accelerated The Rollout Of CBDCs By 5 Years, Says Blockchain Firm

“There is also no doubt in our mind that a major central bank will soon launch a digital currency and we expect this to happen within the next three years,” said Guardtime.

Research from European blockchain company Guardtime suggests that the current pandemic may have accelerated the launch of a major central bank digital currency by up to five years.

According to Guardtime, the company said the growth of many technology companies, improved use of networking and telecommunications platforms, and digitalization of the world in general could mean the first central bank digital currency, or CBDC, from a major economy could be rolled out within three years. The firm works with several central banks around the world in exploring the development of a CBDC.

“There is an increasing sense of a ‘race to the moon’ regarding central banks launching their own digital currencies, because this could radically enhance their country’s and currency’s positions on the global economic stage,” said Guardtime’s head of strategy Luukas Ilves. “Not only has Coronavirus accelerated the digitisation of society, it has also further transformed how we use money.”

Ilves said due to many countries’ enforcing social distancing guidelines and encouraging people to stay at home, the corresponding surge in online transactions seems to have made CBDCs look like a more practical solution for payments. Though he said a government-led move to a CBDC could be “slow, gradual and fragmented,” central banks are “showing how digital transformation can be done right.”

The Firm Added:

“The development of CBDCs has been accelerated by up to five years. There is also no doubt in our mind that a major central bank will soon launch a digital currency and we expect this to happen within the next three years.”

Of the world’s largest economies — the United States, China, and Japan — China arguably leads the pack for CBDCs, having started piloting trials of its digital yuan in April 2020.

In the United States, Federal Reserve chair Jerome Powell said in May the government body would soon be issuing a discussion paper to explore the implementation of a digital dollar. The Bank of Japan has also started a trial of its digital yen scheduled to end in March 2022.

According to a study released by consulting giant PwC in April, there are more than 60 central banks currently exploring CBDCs, with each country facing unique challenges for a potential rollout. Guardtime said some of the concerns facing major central banks include whether a CBDC will deliver equal or greater financial security than physical cash, and whether it can offer more functionality than existing commercial banks.

“The introduction of central bank digital currencies could upend the global economic order,” said the blockchain firm. “This technology could bring a multitude of benefits such as more efficient trade, greater financial access for millions of people, and a reduction in crime. But there are important technological barriers to overcome regarding scalability and security.”

Updated: 7-12-2021

UAE To Experiment And Launch An In-House Digital Currency

As a part of the 2023-2026 strategy, CBUAE intends to be among the world’s top 10 regulators.

The United Arab Emirates becomes the latest country to join the race for experimenting with an in-house digital currency. According to the three-year plan for 2023-2026 that announces the launch of its digital currency, the Central Bank of the UAE, or CBUAE, intends to stand among the top 10 central banks across the world.

CBUAE’s strategy involves seven objectives to help drive the country’s digital transformation ambitions, primarily focused on financial services. Gulf News reported that this transformation will be heavily dictated by the latest iterations of artificial intelligence and big data solutions.

While UAE’s innovation strategy is aimed at streamlining “inspection, monitoring and insurance systems” through technology, the government will involve the use of the UAE Pass, a digital identity system for keeping track of citizens “to bolster financial inclusion and easy access to financial services.”

Staying in line with its goal of global fintech disruption and the Green Economy initiative from Vision 2021, the UAE government envisions developing a secure cloud infrastructure for consistent innovation. Gulf News also reported on the launch of a survey carried out by CBUAE named “Future Expectations and Needs of Partners Survey,” which has been scheduled for July 15, 2021.

While numerous Gulf countries have previously signaled their readiness to experiment with digital technologies, the UAE becomes the first regulator to announce interest with a fixed timeline.

As cryptocurrency continues to gain the trust of the general public, governments have become more attentive to developments around the use of blockchain and digitization within their existing financial systems.

Earlier this month, the Vietnamese prime minister Phạm Minh Chính shared his interest in trialing a digital currency “as part of his wider e-government development strategy.” On the contrary to this development, the Vietnamese government had previously banned the use of Bitcoin (BTC) for payment. However, citizens are still allowed to privately invest in BTC without expecting any regulatory scrutiny.

With Bitcoin’s presence in mainstream finance getting stronger by the day, governments across the globe are reevaluating the use case for Bitcoin and its direct implication on the shift of political power.

South Korean Internet Giants Bid For Central Bank Digital Currency Pilot

The Bank of Korea plans to select an operator to run a blockchain-based CBDC pilot next month that will test a digital won in various use cases.

Affiliates of South Korean internet giants Naver and Kakao are among the top contenders to work on the country’s first central bank digital currency (CBDC) pilots.

On Monday, the Bank of Korea (BoK) announced the preliminary bid results for participating digital won pilots, local news agency Yonhap reported. Kakao’s blockchain subsidiary Ground X, Naver-affiliated Line Plus and conglomerate SK Group were the top three companies that submitted applications for a 10-month CBDC pilot contract.

The BoK now plans to select an operator to run a blockchain-based simulation project for the digital won. The bank expects to reach a decision next month. The pilot will run until June 2022, with a research budget of 4.96 billion won ($4.3 million).

According to the report, the pilot aims to test the CBDC in a virtual simulation environment based on distributed ledger technology. The BoK intends to explore potential use cases related to CBDC issuance, redemption, electronic payments and settlement, and the purchasing of digital artworks and copyrights.

The BoK launched the bidding process to choose a tech partner for studying the benefits and implications of launching a CBDC in May. The central bank previously published a book on CBDCs in February, officially announcing the country’s plans to test the distribution of a digital won.

The news comes shortly after Line Plus released its own blockchain platform optimized for issuing and maintaining a CBDC. The new open-source project is based on Line’s own blockchain technology and is designed to support confidentiality-focused payments and high-speed transactions.

Updated: 7-15-2021

ECB Moves To Start Digital Euro Project

The ECB has been discussing the potential launch of a eurozone central bank digital currency since the beginning of the year.

The European Central Bank (ECB) said it will move from discussion to exploration in its plans to develop a digital euro.

* The ECB decided to start the investigation phase of a eurozone central bank digital currency (CBDC), which will last 24 months, an announcement Wednesday said.

* The ECB has been discussing the potential launch of a CBDC for the 19 euro countries since the beginning of this year. ECB President Christine Lagarde said in March that one could be launched within four years.

* “We will commit the resources necessary to design a marketable product,” ECB board member Fabio Panetta said in a blog post on Wednesday. “But a decision about whether or not to issue a digital euro will only come at a later stage. And in any event, a digital euro would complement cash, not replace it.”

* Research by the central bank last year highlighted a drop in the use of cash since 2019, with the COVID-19 pandemic accelerating in the long-term decline.

* The ECB said prior experimentation suggested that an architecture “combining centralized and decentralized elements are possible.”

* The move from discussion to exploration of a CBDC is one that numerous other central banks including those of the U.K. and Japan have made in the past year.

* Among major economies, China leads the way in CBDC plans, while South Korea and Sweden both appear to have moved from exploration to testing in recent months.

The Crypto Revolution Will Not Be Public

Is a central bank digital currency, or CBDC, a solution in search of a problem?

A revolution is pending in finance, and the world is only beginning to realize the transformations it is likely to bring. Financial institutions will have to take a radically different approach to information technology just to stay in business.

Bullish Global, a crypto firm, is planning to go public this year, with an expected valuation of $9 billion. Circle Internet Financial Inc., the company behind stablecoin, is also planning to be publicly listed, as is cryptocurrency platform Bakkt Holdings. Financial markets are difficult to predict, but at this point, 12 years after the inauguration of Bitcoin, it is hard to argue that this is all a bubble.

To understand why, ask yourself a simple question. Why shouldn’t finance and payments be as easy as sending an email?

Anyone who grew up on computer games and texting probably thinks that running a financial system should be equally frictionless and cheap, especially if there were a mature central bank digital currency. There’s no reason money couldn’t be transferred by a simple act of communication.

Due to the large amount of money at stake, there would need to be higher levels of security than with email. But some mix of bioscans, multi-factor authorization and hardware security (you need more than a password) ought to suffice. These safeguards shouldn’t cost very much once they are in place.

One vision is that governments and central banks will run these systems, making governments and central banks far more important in finance. For many institutions, private banks would not be needed to get access the payments system, and so the role of private banks would shrink. The central bank in turn would have more funds to deploy, and inevitably it would apply some amount of discretion to those funds.

If the role of government is to expand, and if private banks are to suffer, it would create significant issues of the sort that the U.S. political system is often not very good at resolving. The U.S. Federal Reserve has made it clear it won’t create a digital currency without approval from Congress, but Congress is notorious for being slow or even unable to act, especially on issues involving the role of the government in the economy.

And these squabbles are not purely partisan. Given the government’s record with technology — remember the botched rollout of the Obamacare website? — can we be so sure that a central bank digital currency would be hack-proof and well-functioning from the start?

In a remarkably honest yet radical speech last month about stablecoins, Fed Governor Randal Quarles argued that current payments systems already incorporate a great deal of information technology — and they are improving rapidly. The implication is that a central bank digital currency, or CBDC, is a solution in search of a problem.

Quarles also suggested that the Fed tolerate stablecoins, just as central banking has coexisted and indeed thrived with numerous other private-sector innovations. Stablecoins can serve as a private-sector experiment to see if individuals and institutions truly desire a radically different payments system, in this case based on crypto and blockchains. If they do, the system can evolve by having some but not all transactions shift toward stablecoin.

There need not be any “do or die” date of transition requiring a perfectly functioning CBDC. But insofar as those stablecoins can achieve the very simple methods of funds transfer outlined above, market participants will continue to use them more.

Quarles argued that with suitable but non-extraordinary regulation of stablecoin issuers, such a system could prove stable. He even seems to prefer the private-sector alternative: “It seems to me that there has been considerable private-sector innovation in the payments industry without a CBDC, and it is conceivable that a Fed CBDC, or even plans for one, might deter private-sector innovation by effectively ‘occupying the field.’”

In essence, Quarles is willing to tolerate a system in which privately issued dollar equivalents become a major means of consummating payments outside of the Fed’s traditional institutions. Presumably capital requirements would be used to ensure solvency.

For many onlookers, even hearing of innovation in finance raises worries about systemic risk. But perhaps the U.S. would do better by letting information technology advance than trying to shut it down. And if you are afraid of instability, are you really so keen to see foreign central bank digital currencies fill up this space?

If you are still skeptical, ask yourself two final questions. First, which has been more innovative on these issues: the private sector or the public sector? Second, how realistic are the prospects that Congress takes any effective action at all?

This is now a world in which radical monetary ideas are produced and consumed like potato chips. I say, pass the bag.

Updated: 7-16-2021

China’s Crypto Industry Is Gone? Beijing’s Crackdown Keeps Sending Shockwaves

The Chinese government’s ongoing crusade against cryptocurrencies might have dramatic consequences for both domestic and global crypto traders.

Since the start of the summer, a series of measures from Chinese authorities to curb cryptocurrency trading and mining have dominated the crypto news cycle.

From urging financial service providers to throttle cryptocurrency-related transactions to ordering a crypto trading software provider shut down, the initiatives coming out of Beijing and their repercussions are widely believed to have contributed considerably to the recent market downturn.

What motivates this new round of hostile actions, and how will they affect the cryptocurrency space of the nation that had once accounted for some two-thirds of the global digital asset supply? Furthermore, it seems that whatever happens in China is having a great effect on other parts of the world, which doesn’t seem to be negative.

Propping Up The Digital Yuan

It is not hard to notice how the intensifying clampdown on trading and mining of decentralized cryptocurrencies comes hand-in-hand with the ramping up of China’s central bank digital currency (CBDC) project.

As part of the Digital Currency Electronic Payment system testing, stacks of the government-issued electronic money have already landed in the wallet apps of some 200,000 Chinese citizens selected via a lottery. It looks as if larger-scale trials and wide implementation can be expected within months.

When it comes to the distribution of political or economic power, Chinese leadership is not in the habit of promoting pluralism and competition. Up to a certain point, the nation’s sprawling cryptocurrency sector could eschew scrutiny, as it didn’t come into direct conflict with the government’s strategic plans, but this does not seem to be the case anymore.

Yu Xiong, professor of business analytics and director of the Center for Innovation and Commercialization at the University of Surrey, told Cointelegraph that China will not allow any currency to affect the renminbi, and for that reason, it can’t allow Bitcoin (BTC) to grow too big. Xiong added:

“China, like most of the other governments, would like Bitcoin value to grow at a manageable pace. If Bitcoin is allowed to be used as currency, China, [as many other countries], would face financial disaster. China now has its own CBDC, which can be controlled by the central bank, so there is no need for the government to encourage a decentralized cryptocurrency.”

With major Chinese banks such as the Agricultural Bank of China falling in line and squishing consumer and business operations related to crypto, the concerted effort looks more like a chokehold than a lack of encouragement. On the receiving end of the government’s anti-Bitcoin push, crypto businesses and everyday users are dealing with the dire consequences of the stiffening policies.

Bearing The Brunt

The authorities’ all-around crusade against China’s cryptocurrency sector encompasses all major groups of stakeholders: As financial service providers are waking up to their bank accounts suspended, miners in several key provinces are receiving eviction notices. The exit of the company that operated the nation’s oldest Bitcoin exchange vividly illustrates the depth of the crisis.

Yifan He, CEO of Hong Kong-based blockchain firm Red Date Technology, opined to Cointelegraph that “the entire crypto industry in China is officially gone.” He thinks that while trading has always been in the area and mining was largely supported by some local governments, the current prohibitive turn in governmental policy will deal both types of activity a blow, from which they are unlikely to recover anytime soon:

“Once banks and payment service companies ban crypto trading completely, it will be very hard for regular people to use RMB to buy crypto. There is already a significant drop in crypto trading activities in China because all mining is gone. Regular users can no longer inject new money into trading, and almost all major exchanges have banned leverage and margin services for Chinese citizens.”

In He’s opinion, a fraction of crypto trading can still persist, yet it will have to migrate underground. This will essentially put an end to China’s BTC mining dominance, as miners will either have to shut down completely or relocate and be regulated in other jurisdictions.

The global Fallout

What’s being witnessed right now appears to be nothing short of the dismantling of the entire cryptocurrency industry in the country that, until recently, was a major mining and trading powerhouse.

Most everyday Chinese traders will likely find the new rules prohibitive and cease trading activity. Mining businesses will face a choice between vanishing and opening up shop in a different jurisdiction. Those who appreciated the ease of transacting in digital assets will soon have a centralized alternative in the government-backed CBDC.

Squashing the crypto sector on such a vast scale is inevitably echoing on the global scale as well. With much of the Chinese mining capacity gone, the hash power map of the world will have to undergo a dramatic rearrangement, with new centers of mining power emerging elsewhere to fill the void.

With that, not just the firms but also the regular users will be affected in the long run, as some parts of the world will start witnessing an inflow of crypto-related business, to which regulators will start responding.

It is also possible that the loss of Chinese trading activity will become a factor weighing on the global crypto market for quite some time.

Building and sustaining a new bull run comparable to that of the early 2021 — a process that requires a continuous inflow of new market participants — might become more challenging, given that China is no longer able to supply the user base growth it had contributed previously. The rest of the world is going to have to try really hard to compensate for China’s departure.

Jerome Powell: I’m ‘Undecided’ On The Benefits Of CBDCs

The Federal Reserve chair said “the more direct route” would be to regulate stablecoins.

Stablecoin regulations may determine whether the U.S. gets a central bank digital currency.

In response to a question from Sen. Pat Toomey (R-Pa.) during a Thursday hearing before the Senate Committee on Banking, Housing and Urban Affairs, U.S. Federal Reserve Chair Jerome Powell said that he was undecided on whether the benefits of central bank digital currencies outweigh the costs, and vice versa. He also said that “the more direct route” would be to regulate stablecoins.

“Our obligation is to explore both the technology and the policy issues over the next couple of years, so that we’re in a position to make an informed recommendation,” Powell said. “Again, my mind is open on this, and I honestly don’t have a preconceived answer to these questions.”

In response to a question from Sen. Cynthia Lummis (R-Wyo.), Powell expanded on his comments from yesterday before the House Financial Services Committee where he noted that a CBDC could make stablecoins and cryptocurrencies unnecessary.

The Chair conceded that cryptos like bitcoin  and ethereum  are no longer primarily payments mechanisms but act like investment vehicles.

“It’s not that they didn’t aspire to be payment mechanisms, but they’ve completely failed to become one except for people that desire anonymity,” Powell said.

Updated: 7-18-2021

Japan To Reportedly Take Action To Scrutinize Crypto Globally

The Japanese Ministry of Finance is hiring more staff to develop stricter global rules for digital currencies, particularly fiat-pegged stablecoins.

Japan is strengthening its efforts to regulate digital currencies on a global scale, with related government authorities reportedly looking to expand staff to impose stricter rules.

Japanese regulators have expressed fresh concerns over the massive growth of the cryptocurrency market, particularly cautioning against stablecoins, Reuters reported on Friday.

Tokyo is willing to engage with global financial regulators to develop stricter rules for private digital currencies, three Japanese officials reportedly said, adding that G7 and G20 group regulators have called for greater regulations for fiat-pegged stablecoins.

“Japan can no longer leave things unattended with global developments over digital currencies moving so rapidly,” one official said.

According to the report, the Japanese Ministry of Finance is allegedly considering increasing staff to pursue its efforts to scrutinize the industry worldwide. The country’s Financial Services Agency (FSA) has reportedly already established a new unit to oversee digital currency regulation.

Launched on July 8, the new FSA unit aims to monitor broader crypto markets and focus on decentralized finance, a blockchain-based form of finance that doesn’t rely on centralized financial intermediaries, the officials said.

The news comes amid the crypto industry drawing increased attention from global regulators recently. Many authorities particularly caution against stablecoins, a type of cryptocurrency pegged to assets or fiat currencies such as the United States dollar. Around the world, central banks have been specifically pushing central bank digital currencies (CBDC), digital versions of national fiat currencies, to maintain control over money.

U.S. Federal Reserve Chairman Jerome Powell said Wednesday that a U.S. CBDC would cut the need for private options like Bitcoin (BTC) and stablecoins. Last week, People’s Bank of China deputy governor Fan Yifei argued that the rapid development of private payment systems is “very alarming,” warning that stablecoins pose a serious threat to global financial and settlement systems.

Crypto Experts In Demand As Countries Launch Digital Currencies

Rebels against traditional monetary systems find themselves advising governments.

Monetary authorities around the world are rushing to design digital currencies, and many are asking: Who knows how to do this?

Some of the first governments to go digital have found an answer in cryptocurrency enthusiasts. For these rebels against traditional approaches to finance, the digital trend presents an opportunity to create virtual money for a whole nation.

Israeli crypto consultant Barak Ben-Ezer had never visited the Marshall Islands before 2018 when he flew halfway around the world to propose that the Pacific Ocean archipelago adopt a national currency he designed in the likeness of bitcoin.

The Marshall Islands represented a clean slate for financial innovation: A U.S.-supported nation of 59,000 people spread over more than a thousand islands, with no currency of its own and no central bank. A bank in Honolulu was its only link to the global banking system—and access to the U.S. dollars used as everyday money on the islands.

Mr. Ben-Ezer told local officials the country could create and sell a digital currency of its own. It would be like bitcoin. People anywhere could invest in it, but with one important difference: It would be issued by a national government.

“We told them bitcoin is amazing, but it’s not a sovereign currency,” he recalls. “You are sitting on a pile of virtual gold.”

David Paul, who was then a Marshall Islands cabinet member, had already been studying cryptocurrency technology on his iPad. “I didn’t need much convincing,” he said.

The government soon gave Mr. Ben-Ezer responsibilities more typically reserved for treasurers and lawmakers. Within months, the Marshall Islands Parliament overwhelmingly passed a law adopting his creation—which he dubbed the SOV, for sovereign—as legal tender, a crucial step toward its actual issuance.

Demand for digital-currency strategies in other countries has been supercharged by China’s signals that it may be close to launching a digital version of the yuan. On Friday, Beijing said its e-CNY has been tested in more than 70 million transactions worth over $5 billion.

Major central banks often have teams modeling digitization scenarios, though many are also quietly turning to engineers with experience in cryptocurrencies and blockchain, advisers say. Even the U.S. Federal Reserve has teamed up with such experts—at Massachusetts Institute of Technology—for the creation of a possible digital dollar.

Smaller economies may have more to gain and less to lose by taking a risk on a new type of monetary system, according to a book to be published in the fall by Cornell professor Eswar Prasad, “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.” Some smaller nations have been more public in tapping expertise from the crypto world.

In late 2018, a text message from an associate in the financial-technology industry alerted Canadian Jay Joe that the Bahamas central bank was inviting bids to help create a digital version of the Bahamian dollar.

The digital-security and blockchain specialist, whose only experience with the Bahamas had been a stopover on a cruise, assembled a team that had worked on tokenized electronic payments, the cryptocurrency ethereum and financial-system technology based on blockchain, the electronic ledger technology that underpins bitcoin and other cryptocurrencies.

“There was no playbook,” said Mr. Joe. “We were drawing on our experience in blockchain.”

The Bahamian central bank had set broad parameters. Mr. Joe’s team focused its proposal on how a digital currency could benefit island residents far from bank branches since money would now be linked to their mobile phones. The team won the job for an undisclosed fee.

When the Bahamanian sand dollar launched last year as the world’s first central-bank digital currency, Mr. Joe’s company, NZIA Ltd., got joint credit for developing it.

Suddenly, more of that kind of expertise is in demand. “We’ve been in discussions with a number of [central banks] and it’s just intensifying,” said Mr. Joe.

When Cambodia sought a way to let its citizens pay bills or make other electronic transfers free of charge, it turned to Tokyo-based Soramitsu, which develops approaches to finance that can be at odds with traditional government-run systems. Yet it is increasingly being called on by government authorities to help them navigate toward a digital future.

Bakong, the Cambodian network, isn’t technically a digital currency but shares some characteristics of one as it is run by the central bank instead of commercial banks or credit-card companies. Bakong works like an interchange between an array of payment apps, so that users can send and receive money to anyone with a mobile-phone number.

“A lot of central banks are cautiously looking at this technology,” said Makoto Takemiya, the co-founder of Soramitsu, who said he advised central banks on blockchain and digital currencies in some of the biggest nations of the world.

Soramitsu has about 100 employees schooled in engineering and macroeconomics who have created cryptocurrencies and exchanges to trade them, based on a proprietary blockchain called Hyperledger Iroha. Mr. Takemiya once produced an experimental cryptocurrency for The Wall Street Journal dubbed WSJCoin for a story that showed how easy it has become to issue money.

Serey Chea, director general at the National Bank of Cambodia, declined to discuss Soramitsu’s role but said the digital network it built aims to boost usage of the country’s local currency, the riel, a long-term goal in a nation where the dollar is used in around 90% of transactions. She cited surveys that found many Cambodians said they would transact in the riel if it were more convenient to use.

Mr. Ben-Ezer’s vision for the Marshall Islands was to make it the first nation to issue a tradable cryptocurrency, using it to attract new financial flows, much like tiny Panama used its canal to draw ship traffic, he said.

Bitcoin had long fascinated him, and he wanted to see a nation adopt something similar. With American degrees in computer science and economics, he had done technology work for the Israeli military and Microsoft Corp.

Under the approved plan, most of the currency stock would be issued free to the Marshallese government and its investment funds, with 10% of the total to be shared equally by the entire population.

Mr. Ben-Ezer’s team would also get 10% of the issue, as payment for the years of work.

To make it work, he recruited veterans of the U.S. Treasury and the Bank for International Settlements, plus an expert in digital law from Malta.

But putting private advisers like Mr. Ben-Ezer into the driver’s seat can raise questions about potential conflicts of interest and liability that are less evident when bureaucrats design systems.

The Marshall Islands plan then hit a snag in the form of First Hawaiian Bank, which threatened to sever its link as correspondent bank to the country if issuance of the currency went ahead.

Letters from First Hawaiian and between Marshallese officials seen by the Journal show the bank expressed concerns the currency could be used for nefarious purposes. The bank didn’t respond to requests for comment.

The International Monetary Fund echoed the worry, saying in a March report that the currency “could disrupt external aid and other important financial flows, resulting in a significant drag on the economy.”

The currency hasn’t been issued yet as a result of the concerns. The Marshallese politician, Mr. Paul, said the worries are misplaced. He said the currency’s use of blockchain ledgers will make it secure and transparent. To him, blockchain resembles a monetary system used on the Pacific island of Yap under which massive limestone disks are hauled between households to represent changes in wealth, for all to see.

It’s an ancient principle, Mr. Paul said, and “the world has woken up to it.”

Updated: 7-19-2021

Republicans Want Digital Yuan Restricted At Beijing Olympics

Republican Senators Marsha Blackburn, Roger Wicker, and Cynthia Lummis urged the U.S. Olympic Committee to forbid American athletes from using China’s new digital currency at the 2022 Beijing Winter Olympics, citing espionage and data-security concerns.

“Olympic athletes should be aware that the digital yuan may be used to surveil Chinese citizens and those visiting China on an unprecedented scale, with the hopes that they will maintain digital yuan wallets on their smartphones and continue to use it upon return,” the lawmakers wrote in a letter sent Monday to Susanne Lyons, board chair of the U.S. Olympic Committee.

China’s token, still in trial stages, has triggered concerns that it may challenge the U.S. dollar’s status as the world dominant reserve currency despite assertions from Chinese officials that it will mainly be used for domestic retail transactions. Across China, more than 20.8 million individuals have opened a virtual wallet, the People’s Bank of China said in a white paper published Friday.

The Senators, all members of the Committee on Commerce, Science, and Transportation, requested a briefing on their request within 30 days.

Updated: 7-20-2021

Study Suggests Canadian CBDC Could Promote Digital Innovation Within The Country

The Bank of Canada suggested that a Canadian CBDC could provide a number of innovations, including the elimination of transaction fees from debit and credit cards.

A study released by Canada’s central bank, Banque du Canada, has noted a number of favorable reasons that the country could benefit from its own Central Bank Digital Currency, or CBDC.

The document laid out two scenarios that might result in the bank issuing a CBDC at some future date. One would be if citizens were no longer widely using cash within the country for reasons that were left unspecified. The other could be if a digital currency, public or private, were to become so widely adopted as to threaten the sovereignty of Canada’s existing central currency.

Participants did not see either scenario as a likely outcome in the near future, but noted that an interest in stablecoin regulation and adoption had increased within the country in recent months. Even so, the study found that cryptocurrencies and stablecoins used as a means of payment in Canada are currently a “novelty for a small number of enthusiasts.”

The document acknowledged a number of potential benefits inherent to the adoption of a CBDC. Namely that the technology could have the same level of safety as cash while allowing for use in payment systems for online transactions and peer-to-peer transfers. When compared to payment options like credit or debit cards, a CBDC would also not necessarily have the same type of transaction fees for retailers:

“A CBDC could be a simpler competition policy tool because it would provide an alternative low-cost payment instrument for customers and merchants. This would help bring down the interchange fees charged by the established networks.”

That a CBDC could potentially support smart contracts was also a point of interest, as they could increase the speed and accuracy of execution by automating actions that are typically done manually. Participants felt that smart contracts would create some risk for users however, given that smart contract developers would likely be independent from the bank’s CBDC platform.

This could be problematic if the execution of the contract did not follow the terms agreed upon, whether purposely or otherwise. They advised that smart contracts, as well as the programmability of a Canadian CBDC, would need to be studied further before implementation is decided.

There Could Be Many Benefits To Creating A CBDC For Canada. The Study Explained:

“In general, we argue that a CBDC might be beneficial and probably necessary to ensure a competitive and vibrant digital economy.”

Canada is not the only country looking into possibly implementing a CBDC. Last week while speaking to the House of Representatives, Chairman of the Federal Reserve Jerome Powell said there would be no need for stablecoins or cryptocurrency if there was a digital U.S. dollar. A paper focusing on the benefits and risks of a digital dollar is expected to be released sometime in September.

Updated: 7-22-2021

Digital Yuan Pilots Expand To Insurance Industry For The First Time

China’s central bank digital currency can now be used on insurance policies that offer various levels of compensation for diagnosis of or death due to COVID-19.

China’s nascent central bank digital currency, the digital yuan, has already been deployed for an extensive array of successful pilot schemes, ranging from e-commerce to salary payments and to festive traditional lotteries.

This week has reportedly seen the currency debut in the insurance industry, in the city of Shenzhen, where it is being piloted by the local branch of the People’s Bank of China together with a local subsidiary of China’s leading insurer, Ping An.

The project involves a new insurance policy tailored to medical workers in Shenzhen’s Nanshan district, offering them various levels of compensation for diagnosis of or death due to COVID-19.

Workers are being incentivized to use the digital yuan wallet to make their insurance premium payments by being offered the prospect of preferential allowance, according to the report.

Wang Peng — an assistant professor at the Gaoling School of Artificial Intelligence at the Renmin University of China — has said that the pilot is significant as it extends the use of the digital yuan well beyond e-commerce and retail payments and can demonstrate its feasibility in a much wider range of more complex application scenarios. Peng told local reporters:

“As more users get used to making payments with the digital yuan and the market matures, the application scenarios will be able to expand from the insurance industry to more scenarios such as financial services, life services, and even the purchase of funds and trading in securities.”

Ping An will reportedly further explore the integration of the digital yuan for insurance claims, payments and other scenarios in the insurance sector.

This week has notably seen the digital yuan enter the fray of geopolitical tensions between China and the United States, following several senators’ submission of a letter requesting that officials from the U.S. Olympic and Paralympic Committee board prevent U.S. athletes from using or accepting the Chinese digital currency.

In response, Chinese Foreign Ministry spokesperson Zhao Lijian has called for a lowering of tensions, appealing to senators to “stop making sports a political matter and stop making troubles out of the digital currency in China.”

US Senators Tell Athletes To Avoid Digital Yuan, Chinese Exchange Volumes Rebound … And More

Geo-politics surrounding digital currencies begins to wrestle with athletes for the Olympic spotlight, and Axie Infinity’s token is embraced by Chinese traders.

Olympic Battle

After months of writing about the relentless actions of the Chinese government, this week we lead with a story from the US Government. On July 19, three US senators signed a letter addressed to the to U.S. Olympic and Paralympic Committee, requesting US athletes not use the e-CNY in February’s Winter Olympic games in Beijing.

The logic was that the digital currency would be traceable after the athletes returned to the US, in case China was interested in tracking foreign bi-athletes and bobsledders in their offseason training regiments.

China’s Foreign Ministry spokesperson Zhao Lijian snapped back that the senators “should stop making troubles” and “figure out what a digital currency really is.” Zhao apparently believes that the US lawmakers might not be up-to-date on the latest in technology, something the crypto-enthusiasts on Twitter have been bemoaning for years.

All sarcasm aside, this points to a growing trend of consumers being caught in geo-political struggles around technology, which could become a much larger issue as CBDCs become more prevalent. Users can choose to avoid certain hardware or apps that provide a data security risk, but avoiding the local currency will be a much more difficult choice to make.

Cash use has dropped to a negligible amount in China, with the bulk of daily transactions being digital through Alipay and WeChat. Traveling or living in China without touching the digital currency will be a huge inconvenience, and one likely to not go over well with future generations.

Leading The Pack

On July 19, Cointelegraph reported that Chinese Bitcoin miners had earned close to $7 billion dollars in the past year, ten times higher than miners in the second highest country, the US. This trend might be broken up slightly by the regulatory crackdown this year, but still shows the influence China has on the industry, especially if large Chinese companies can continue to set up operations in neighboring countries.

Chinese Volumes Bounce Back

Volumes on Chinese exchanges Huobi and OKEx rebounded slightly compared to the same time last week, including on the derivatives side where the two exchanges made up around 44% of Binance’s volume, compared to only 38.7% at the same time the week before.

Gaming token Axie Infinity remained a hot token for trading, and was the fourth-most traded token on Huobi on Thursday behind BTC, ETH, and DOGE. Actual gameplay hasn’t really taken off in China, and even though the site remains unblocked by the Great Firewall thus far, visits to the website are still scarce.

Users from the Philippines make up 40% of website visitors, whereas China accounted for less than 3%. China boasts the largest gaming community in the world, but tight restrictions on cryptocurrencies is likely to limit the growth of public blockchain-based gaming for the time being. Speculating on gaming-related tokens, however, will likely remain a strong trend.

It’s worth noting that in the short term, the regulations looming on the horizon makes betting on exchanges a risky proposition. Many rumors have swirled about upcoming action to be taken by Chinese regulators, particularly for repeat offenders in the area. Regulators in smaller countries seem to be waiting to see who will throw the first punch.
Non-fungible fossils

Hong Kong’s most prominent newspaper South China Morning Post is launching an NFT platform aimed at historical news and items. This platform will let verified issuers mint and trade NFTs in an open marketplace. This should appeal to a broader audience of collectors and non-crypto native users in Southeast Asia, as well as a government interested in exporting soft power to the world.

Reserve Bank Of India Mulls First Steps Toward An Eventual CBDC

RBI is looking for ways to test a CBDC while causing little to no disruption for the bank’s status quo.

The Reserve Bank of India, or RBI, continues to investigate the issuance of a central bank digital currency, or CBDC.

T Rabi Sankar, the deputy governor of RBI, said in a speech organized by the Vidhi Center for Legal Policy that private digital currencies could be part of what makes CBDCs ultimately necessary. He felt that the RBI’s development of it’s own CBDC could provide the public with many of the same uses as digital currencies such as Bitcoin, while limiting the average user’s exposure to volatility. He stated:

“Indeed, this could be the key factor nudging central banks from considering CBDCs as a secure and stable form of digital money…. The case for CBDC for emerging economies is thus clear – CBDCs are desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private VCs.”

Sankar continued that the RBI is currently looking at a phased implementation strategy, and examining cases where a CBDC could be put into practice with little to no disruption of the bank’s status quo. The official detailed a number of issues that would need to be examined before CBDC implementation could truly be considered.

He noted the need for careful consideration with regard to how retail payments, or payments occurring between consumers and businesses, would be orchestrated. Security issues, including the degree of allowable user anonymity, were also up for debate.

Of the problems mentioned, Sankar seemed most concerned with the toppling of central bank oversight and authority. He stressed that traditional financial institutions might lose their role as trusted third-parties, should individual users be given the ability to trustlessly transact for themselves.

An arguably valid fear, given that Bitcoin creator Satoshi Nakamoto openly devised blockchain technology as a way to end the stranglehold he felt banks needlessly enjoyed with regard to disintermediation.

People transacting without a middleman could also reduce the bank’s ability to issue credit to patrons, according to Sankar. In his statement however, the official failed to acknowledge the numerous options for decentralized credit issuance which the DeFi community has devised — a number of which have already been successfully implemented.

Sankar said that while there is more research to be done, it may not be long before pilot projects in both the retail and wholesale markets are put into motion:

“Setting this up will require careful calibration and a nuanced approach in implementation. Drawing board considerations and stakeholder consultations are important. Technological challenges have their importance as well. As is said, every idea will have to wait for its time. Perhaps the time for CBDCs is nigh.”

CBDCs have gained a lot of traction over the past year. South Korea recently chose a blockchain subsidiary of a local internet company as the technology provider for the pilot tests of its digital won. Members of the staff of the Bank of Canada also released a study detailing the possible benefits of a CBDC.

They noted a number of plusses, including the elimination of transaction fees on debit and credit cards, and the possibilities inherent to programmable currency. In the U.S., the Chairman of the Federal Reserve said a CBDC could cut down on the number of cryptocurrencies being launched.

Updated: 7-23-2021

Nigeria To Pilot Central Bank Digital Currency In October

The Central Bank of Nigeria will start the pilot of its central bank digital currency, which runs on the Hyperledger Fabric blockchain, on Oct. 1.

For much of 2021, the Central Bank of Nigeria (CBN) has been in the headlines for its anti-cryptocurrency measures. Yet, the institution has this week redoubled its investment and research into crypto’s underlying technology, blockchain, and has set a clear date for the pilot scheme of its blockchain-powered central bank digital currency (CBDC).

On Oct. 1, CBN will reportedly launch a pilot scheme for “GIANT,” a CBDC project in development since 2017 that runs on the open-source blockchain Hyperledger Fabric.

Rakiya Mohammed, CBN’s information technology director, said the bank might conduct a proof-of-concept before the end of 2021. In a webinar this week with stakeholders, CBN representatives reportedly emphasized that the institution could not afford to be left behind while the vast majority of central banks worldwide make headway with their own CBDC research and development.

Among the motivations cited for the project, CBN has noted that a CBDC would be beneficial for macro and growth management, cross-border trade support and financial inclusion.

Potential benefits could still extend further, in CBN’s view, ranging from higher efficiency for payments and remittances, better monetary policy transmission, improved tax revenue collection, and the facilitation of targeted social policies.

Alongside CBN, the Bank of Ghana has this summer been moving rapidly toward the pilot stage for its own central bank digital currency. The country has positioned itself as a pioneer in CBDC development on the continent and considers central bank-issued digital currencies to be superior to and less risky than decentralized cryptocurrencies.

However, Ghana’s wariness of crypto is overshadowed by Nigeria’s more aggressive measures, which include a ban on commercial banks and other financial institutions from servicing crypto exchanges. Despite this, Bitcoin (BTC) adoption and peer-to-peer trades have remained high in the country.

Updated: 7-27-2021

SWIFT Go Launches Low-Cost Network With 7 Major Banks

The service might be seen as a possible threat to the real-time payments network offered by Ripple.

Seven major global banks are live on SWIFT Go, a new service by the global interbank messaging system aiming to offer low-cost, cross-border payments, in a possible threat to the real-time payments network offered by Ripple.

* BBVA, BNY Mellon, DNB, MYBank, Sberbank, Societe Generale and UniCredit are the seven banks using SWIFT Go, an announcement Tuesday said.

* The service is designed to enable businesses and consumers to send payments quickly and securely anywhere in the world directly from their bank accounts.

* Global messaging network SWIFT connects banks and other financial institutions for cross-border payments and links more than 11,000 institutions. In June alone it transmitted more than 350 million messages containing financial information.

* SWIFT Go may be seen as an attempt to compete with the global real-time payments system provided by Ripple.

* The introduction follows barely a month after SWIFT announced a new platform to start in November next year designed to extend its existing capabilities with greater efficiency and lower costs. Six major banks gave it their endorsement, including Citi, Deutsche Bank and Bank of China.

Updated: 7-25-2021

Countries Representing Over 90% Of Global GDP Are Exploring CBDCs

Governments around the world are pouring more resources into CBDC research and exploratory use cases. Among the major economies, China appears to be pulling ahead and has plans to implement digital-yuan usage during the 2022 Winter Olympics in Beijing.

The quest to understand the opportunities and challenges of a central bank digital currency, or CBDC, is underway in 81 countries, with five nations fully implementing a digital version of their currency, according to a new tracker from the Atlantic Council.

The Caribbean region is home to all five CBDCs that are currently in use, with The Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia and Grenada all implementing their digital cash systems.

CBDCs are in their pilot stage in 14 other countries, including South Korea and Sweden, the tracker shows.

Established in 1961, the Atlantic Council describes itself as a nonpartisan organization that seeks to promote U.S. leadership on various world issues. The CBDC tracker, which was unveiled July 22, currently monitors 83 countries and currency unions.

Among the countries with the four largest central banks — United States Federal Reserve, European Central Bank, Bank of Japan and Bank of England — the U.S. is furthest behind in terms of CBDC development.

The Federal Reserve has been researching CBDCs for several years now, with Chairman Jerome Powell indicating in January that digital-dollar development is a “very high priority” to combat financial crime. Meanwhile, New York Fed Bank President John Williams believes that the emergence of cryptocurrencies raises challenging questions for central banks.

China recently indicated that foreign visitors will be allowed to use the digital yuan during the 2022 Winter Olympics — provided they share their passport information with the central bank. A group of U.S. senators that includes Bitcoin proponent (BTC) Cynthia Lummis has urged American Olympians to boycott the digital yuan. According to the South China Morning Post, Beijing responded by telling the U.S. senators to “stop making trouble.”

The People’s Bank of China claims that nearly 21 million people have already opened a virtual wallet for the purpose of using the digital yuan.

Updated: 7-25-2021

Bringing The Crypto Payments Ecosystem Around The World

“I was nearly killed by the police, who saw me wandering through the city thinking I’m a looter.” Ray Youssef discusses his close calls and crypto adoption.

Though he has had 11 business failures, today Ray Youssef is building Bitcoin-funded schools across Africa as executive director of the Built With Bitcoin Foundation and is helping millions of people buy and sell cryptocurrency as CEO of Paxful. However, Youssef also admits to looting hardware stores on behalf of a convent school after Hurricane Katrina and says he was nearly shot as a suspected CIA agent during the Egyptian Revolution.

He has just returned from El Salvador, where he spent time at Bitcoin Beach — where he says even children are using Bitcoin (BTC). Crypto payments services are important there because 70% of people in El Salvador have no bank account. For Youssef, peer-to-peer financial networks spell hope for the developing world.

All Roads Lead To Bitcoin

When Youssef first heard about Bitcoin in 2011, he quickly “dismissed it as nerd money.” He had more pressing things on his mind, as that year he left the relative comfort of New York to support the revolution in his native Egypt. There, he went to the core of the protests at Tahrir Square in downtown Cairo and “nearly died on the first night of really crazy fighting” during which he was arrested by the military as a suspected CIA agent. “I could write a book on that one night alone,” he concluded with a laugh that exuded mystery.

He’s not the first crypto leader to throw themself into a revolution — like Griff Green, who once protected polling booths in Catalonia, or Amir Taaki, who went to fight with the Kurdish YPG. After he returned home to the United States, however, he began integrating his experiences of the revolution and questioning many things about society.

One of the rabbit holes he descended was that of money. “I started asking questions about money: Where is it? Where does it come from?” he said. Soon, he “began to see history through a very different lens.” That’s when he returned to Bitcoin, where he felt he could find answers.

It seems that crypto attracts revolutionaries, perhaps backing the idea of a technological or financial revolution brought on by blockchain. As he arrived at Bitcoin Center NYC for his first meetup in 2013, he wondered about the other Bitcoiners: “What are they like? Are they on the same journey that I am on?”

Describing the event, he sounded not unlike a pilgrim recounting a tale of a faraway shrine where they’d hoped to find other seekers of truth. The first person he met, Artur Schaback — his soon-to-be business partner — was the only other tall guy in the meeting, “So we got along, and we really bonded over the belief that Bitcoin could help the little guy.” Soon, they started working on a Bitcoin retail solution, but it was no easy ride.

“We ran out of money — we had to choose between our startup or a place to live.”

The two adventurers “ended up homeless, surfing couches.” Youssef felt he had hit rock bottom, and he needed to ask for help — he was terrified of his mother finding out about his situation. He fasted for a month, and he prayed. “I had to be truly humbled and really begged God for help — I was broken, defeated, and I got a very special night — it was the Night of Power of Ramadan,” he recalled solemnly. Whatever he experienced then, for Youssef, it represented a turning point.

Youssef initially moved to the U.S. with his family from Egypt when he was 2, and by 8, he was already working odd jobs. He studied history at Baruch College in New York starting in 1996, but his real passion lay with computers. He got his first PC at 19 and “taught myself to code right away and started doing startups.” He worked as a senior software engineer at early smartphone company YadaYada first for two years before embarking on his entrepreneurial path. The first of these was related to coupons being distributed over text messages, but the idea failed to gain traction.

The young entrepreneur soon went on to have his first taste of success, however, as he pivoted to downloadable ringtones. His new company, called MatrixM, “went from like $0 to $1 million revenue in less than six months.”

“The biggest problem was primarily that the users who wanted ringtones were unbanked people — teenagers.”

Though he got off to a strong start, the next decade did not provide a comfortable ride. Youssef best describes this turbulent part of his life on LinkedIn, where he writes his title as “Entrepreneur” at “11 failed startups and many lessons learned.” The fact that he did not give up during that time speaks volumes. Though his initial success could be attributed to mere luck, it surely helped him to believe in himself despite years of failure. Whether he was a competent entrepreneur after his first success or not, he surely had put in the hard yards to become one after the 11th failure.

In his work at MatrixM, Youssef discovered that peer-to-peer infrastructure, then still in its infancy, was the key to getting access to ringtones and a broad audience — users could upload ringtones as well as download them. Today, Youssef explained, peer-to-peer platforms like Uber and Airbnb have “become part of our daily lives.” The same will soon happen with peer-to-peer finance. “Humanity has been waiting for this one for a long time,” he said. While developed countries can benefit, Youssef said that the need in emerging economies, like throughout much of Africa, is much greater.

He described the issues people face around transacting money as “mind-bending — even if they have a bank account and get a bank card, they can only spend $100 a month maximum with your Visa card.” This means that sending money in and out of Africa can quickly become a nightmare, as merchants cannot easily buy goods from China, for example. “They have to go through like three or four hops, turn their money into USD on the black market, and find a way to get that into a bank account that can actually wire the money because their personal accounts cannot,” he explained in an exasperated tone.

Paxful

Some time later in 2015, he was told of a method to profit by selling gift cards for BTC. Youssef was suspicious but decided to try it out of desperation. “I thought it was a scam, but it worked, so we scaled it up,” he recalled as if still surprised. With their system working, Youssef and Schaback decided to build a platform for trading cryptocurrency for gift cards, seeing it as “the best way to onboard the unbanked” into the world of cryptocurrency. After 72 hours of coding, Paxful was live.

Youssef recalls a time when he took a customer service call from a “desperate lady” needing to purchase $2.50 worth of BTC in order to pay for an online classified ad. Down to her last $13 and without a bank account, she had no idea how to buy Bitcoin, as no services were geared toward people like her. With her children crying in the background, Youssef guided her to go to a nearby drugstore and buy a $10 Walmart gift card.

“‘Okay, I’ll walk you through the whole process of turning a Walmart gift card into Bitcoin, and then actually sending the Bitcoin to that address.’ It was two hours — it was rough.”

The experience was formative, as it illustrated the real struggles of those without access to the traditional banking system who try to use modern internet-based services. “That’s why Paxful is on top — we are willing to do what others are not, we’re willing to go where others are not willing to go, like Nigeria,” Youssef explained, referring to the fact that small transactions carry little profit. He said that he feels a deep connection to Africa because of his roots. “This whole time, my dream was to help Africa,” he asserted.

Today, Paxful allows users to buy and sell cryptocurrency via hundreds of methods. It is profitable and boasts over 6 million users, supported by “almost 500 people in nine offices around the world.” Soon, he believes, the platform will go mainstream, especially in Nigeria — which is the company’s biggest market and Youssef’s part-time home. “They’re the ones who are going to pull the rest of Africa forward. Nigeria is the Lion of Africa,” Youssef said with pride, as if he were a Nigerian himself. Soon, Youssef believes, it will be the Silicon Valley of Africa.

Built With Bitcoin

The Built with Bitcoin Foundation, where Youssef serves as executive director, aims to build 100 schools around the world in support of local communities — an idea inspired by his experience after Hurricane Katrina in Louisiana in August 2005. Youssef saw the devastation on the news and decided that “I’m going down there myself.”

On the ground, he found various charities to be of little help. “Finally, I managed to find these five Dominican nuns in the French Quarter. They had a school, and they wanted me to help rebuild and reopen the school.” Youssef went around the city to scavenge building materials and supplies, sometimes putting himself in great danger. At one point, he befriended a trucker, and “Me and him actually ended up looting a Lowes [hardware store] to get supplies to the school.”

“During this time I had a lot of adventures — one where I was nearly killed by the police, who saw me wandering through the city thinking I’m a looter.”

The opening of the school, Youssef believes, was key to helping the city reopen after the disaster, as the police and fire department “wouldn’t have come back if they couldn’t have put their children back to school.” Schools, he realized, are a pillar of community development and civilization.

“That’s where I got the idea for Built with Bitcoin — a hundred schools in the next five years, and we’ve already built three of them,” he said. So far, the organization has completed three schools. In addition to schools, there is a focus on sustainable farming and the provision of wells in order to guarantee communities access to clean water.

According to the website, 92% of funds go directly into projects. One of the recent school projects in Rwanda was done in collaboration with a charity called Zam Zam Water. While the building of schools and wells certainly nourishes communities to grow, the idea that the proliferation of cryptocurrencies can help form more robust local and internationally connected economies is a much newer one. “I consider myself a Bitcoin optimist,” Youssef said.

El Bitcoin

When El Salvador’s president, Nayib Bukele, recently announced that Bitcoin was an official currency for the nation, the international press was skeptical. Youssef was among the CEOs who flew to the country in the weeks following the announcement, no doubt in hopes of opening up a new major market for Paxful.

In his view, the new Bitcoin Law, which is seeing all citizens receive an airdrop of $30 in BTC, benefits the common people. Still, he noted that “The old aristocracy of El Salvador came out” to disparage him as a colonizer after he “took a photo-op at the airport with a bunch of police guards who are not working for me.”

Youssef is confident that this is just the beginning, as grassroots use of Bitcoin and other cryptocurrencies will “spread to Costa Rica, Guatemala, Panama, Honduras as well, and eventually Mexico and all Central America — we’re seeing that very clearly.”

India Eyeing Phased Roll Out of Central Bank Digital Currency

The Reserve Bank of India is considering a “phased introduction” of a central bank digital currency as it will need legal changes to be made in the nation’s foreign-exchange rules and information-technology laws, Deputy Governor T. Rabi Sankar said.

Delivering a speech to outline the RBI’s plans on Thursday, Sankar said policymakers were considering running pilot programs for the proposed central bank digital currency. Its introduction will protect people from the volatility of private virtual currencies, he said.

“Central banks have increased their attention on digital currencies,” in recent years, Sankar said, adding that the introduction of such currencies — which will be backed by the sovereign — will help in bringing down the usage of cash in the economy, while minimizing the damage to the public from the usage of private currencies.

Sankar’s speech comes just days after the European Central Bank took a major step toward a digital euro approving an “investigation phase” that could ultimately lead to a virtual currency being implemented around the middle of the decade. The next stage will last 24 months and aims to address key issues on design and distribution, the ECB said.

Most major central banks trail China where trials of a digital currency have started in several cities. Eastern Caribbean islands that share a central bank, including Grenada and St. Kitts and Nevis, have already launched their own versions. The U.S. Federal Reserve and the Bank of England are looking into the possibilities for their economies.

Earlier this year, in its annual Report on Currency and Finance, the RBI said central bank-backed digital currencies could be designed to promote non-anonymity of monetary transactions and financial inclusion by direct transfers.

Interest-bearing digital fiat can also increase the economy’s response to changes in the policy rate, the RBI report said. In emerging markets, facing large scale-capital inflows, such a currency can act as an instrument of sterilization, alleviating the constraint that a finite stock of government securities in the central bank’s balance sheet poses, the report said.

On the downside, the RBI report said that since central bank digital currencies provide anonymity, they may have implications for cross-border transactions. To curb this, appropriate safeguards would need to be laid down under existing anti-money laundering and financial-terrorism laws.

Sankar said countries with partially convertible currencies could come under pressure and the banking system witness a flight of deposits, if central bank-backed digital currencies are introduced.

The RBI has expressed concern about cryptocurrencies on a number of occasions, citing issues such as money laundering and terrorism financing. The regulator banned banks and other regulated entities from supporting crypto transactions about three years ago, but the Supreme Court overruled that ban last year.

Updated: 7-30-2021

One-tenth Of Russians Ready To Get Salaries In Digital Ruble, Report Says

A new survey of 3,000 Russians suggested that most people strongly disagree with receiving salary payouts in a state-controlled digital currency.

Amid the Bank of Russia continuing progressing with its central bank digital currency (CBDC) development, one survey suggested that few Russians are ready to accept salary payments in the digital ruble.

Almost half of the Russian respondents strongly objected to receiving salaries in the digital ruble in a new survey by local recruitment site HeadHunter. Only 11% of respondents said that they were ready to get salaried in the digital ruble, while 41% indicated that they were “categorically opposed” to being paid in the CBDC, local news agency Izvestia reported on Wednesday.

As Russia is preparing to roll out digital ruble testing next January, as many as 48% of respondents said they were unsure whether they wanted to receive salaries in the state-controlled digital currency.

Among few survey participants ready to get paid in the digital ruble, half of these respondents said they agreed to receive 100% of their salary in the upcoming digital currency. Another half of respondents said they would prefer to receive not more than 50% of their salaries in the CBDC.

The news comes shortly after the Russian central bank established the first pilot group for testing the digital ruble, bringing together 12 major Russian banks, including state-backed Sberbank and VTB, as well as major private banks, such as Tinkoff Bank. According to Izvestia, these banking institutions currently process salary payments for 87% of Russians.

As previously reported, the Bank of Russia officially disclosed its plans to issue a CBDC in late 2020. The central bank is considering using the digital ruble to distribute salaries once the digital currency is publicly adopted. The bank said that users would be able to store and transact the upcoming digital currency through an analog of a bank card. Earlier this year, Russian government official Anatoly Aksakov argued that the digital ruble is the “highest form of money.”

CBDCs ‘Concocted In Hell By Satan Himself,’ Says ASI President Rich Checkan

Rich Checkan described CBDCs as the spawn of Satan and thinks that Bitcoin is still a speculative asset and not a currency alternative yet.

Rich Checkan, president of Asset Strategies International (ASI), has described central bank digital currencies (CBDC) as a product that was “concocted in hell by Satan himself.”

ASI was founded in 1982 and deals in alternative assets, such as precious metals, foreign currencies and pre-1933 United States gold coins, and offers a precious metals trading platform.

Speaking during an interview with streaming financial news provider Kitco News on Tuesday, Checkan slammed CBDCs due to the threat they posed to individual privacy, noting they give the state the ability to monitor every transaction you make and track your entire life.

“I think central bank digital currencies were concocted in hell by Satan himself,” he said and asserted that they will give governments incredible control “over everybody’s bank accounts,” which will “create a void of privacy for every individual citizen.”

The U.S. is behind the curve on CBDC rollout in comparison to China, which has already deployed widespread trials of the digital yuan in its financial system. However, the Federal Reserve has warmed up to the idea in 2021 and is currently in the process of researching the risks and benefits associated with adopting a CBDC.

During the interview, Checkan was asked whether he thought Bitcoin (BTC) posed a threat to fiat currency and CBDCs. The ASI president stated that it’s too early to tell, as he thinks Bitcoin has performed as a speculative asset so far, but it hasn’t been tested enough as a currency to become a threat to the dollar yet.

“It’s not a threat, one of the options for Bitcoin is to be a form of currency, but there’s not widespread adoption and penetration […] so we really haven’t tested that model. Which is why I think it’s partially acting as a speculative asset.”

“I think we need deeper penetration and then we will see, if it becomes a threat, what the government is capable of doing to hold onto its power position,” he added.

Unlike other figures in the precious metals sector, who are often pro-gold and anti-crypto, Checkan stated that there is a place for both, as he thinks they perform a “different function for your portfolio.”

Checkan views gold as a store of value and advocates allocating 10% of portfolios to the asset. He views Bitcoin as a speculative asset that may become a store of value in the future and suggests a 1%–2% allocation in a portfolio, with regular cash outs to bank profits.

Rise Of Digital Yuan Brings New Challenges For China Tech Giants

Tencent and Ant Group spent a decade digitizing money and payment networks. Now the government wants a larger role.

For the past decade, private companies in China have led the way in the digitization of money, with Tencent Holdings Ltd. and Ant Group Co. setting up enormous private payment networks and cryptocurrency-mining operations providing the fuel for the global Bitcoin boom. Their emergence was a break from Chinese financial history, which has been marked by aggressive centralized control. Things may now be reverting to the norm.

“Over the last few years of this internet-technology boom, private companies have swallowed up the markets where regulators fall behind,” says He Yifan, the founder and chief executive officer of blockchain startup Red Date Technology Co., which works closely with China’s top economic planning agency. “But at the end of day, the Chinese government will step up and rein it in regardless.”

This spring, Chinese regulators took their strongest actions yet to cut down on cryptocurrency mining, the bookkeeping system that’s the foundation of Bitcoin and other blockchain-based currencies, sending some of the biggest players fleeing to Canada, Russia, and other countries. In April 2020, China also began testing its own electronic currency—the e-CNY, or digital yuan—a project that could put the government in more direct competition both with cryptocurrencies and with corporate payments systems.

The rollout of the digital currency corresponds with a broader push to exert control over tech companies by, for instance, forcing payment businesses to submit to traditional banking regulations. The e-CNY can provide a backup to the inherently unpredictable private systems, Mu Changchun, head of the digital currency research wing of the People’s Bank of China, said at an event in March. “If something bad happens to them, financially or technically, that could bring a negative impact on the financial system’s stability in China,” he said.

If the e-CNY does catch on, the central bank could suck deposits out of Ant’s and Tencent’s networks, crippling their lucrative businesses of lending and wealth management. But the two companies may have no choice but to cooperate. Both have said they’re working with the government on the e-CNY, without sharing details.

Mu says digital yuan won’t replace WeChat Pay or Alipay, which make up about 90% of China’s $35 trillion mobile payment market, according to Bloomberg Intelligence. Bloomberg estimates the e-CNY could capture about 9% of China’s market by 2025.

The digital currency could also afford the government a level of surveillance that isn’t possible with cash or independent digital currencies. This could be useful for combating money laundering, tax evasion, illegal gambling, and other illicit activities. It also raises concerns about the potential of the currency as a tool for political repression. Yao Qian, former director of the digital currency institute at the People’s Bank of China, said in May that it wasn’t the bank’s intention to observe all transactions in real time.

So far, China has tried to persuade people to adopt the digital currency rather than force them. It’s given away millions of dollars’ worth of free money, which people can spend in stores, including the China-based locations of American companies including Walmart Inc. and McDonald’s Corp. Internet companies such as e-commerce site JD.com Inc. and travel-booking site Trip.com Group Ltd. are also testing digital yuan as a payment method inside their apps. And the local government in Xiong’an, a government-planned urban area and innovation hub being built near Beijing, has paid some workers in digital currency. A bigger rollout is planned for the 2022 Winter Olympics.

Updated: 8-1-2021

China’s Central Bank Says It Will Keep Pressure On Crypto Market

China’s central bank vowed to maintain heavy regulatory pressure on cryptocurrency trading and speculation after escalating its clampdown in the sector earlier this year.

The People’s Bank of China will also supervise financial platform companies to rectify their practices according to regulations, it said in a statement on Saturday. Policy makers met on Friday to discuss work priorities for the second half of the year.

China launched its most intense crackdown on crypto trading and mining since 2017 in recent months, after a surge in Bitcoin and other tokens heightened authorities’ concerns over risks of fraud, money laundering and excessive energy usage. It also imposed a series of regulatory actions targeting monopolistic behavior at online payment platforms such as Ant Group Co. over the past year.

The central bank will act to prevent major financial risks and push to lower the number of high-risk financial institutions in key provinces, according to the statement. It will also accelerate its work to create a financial stability law, which was proposed by Deputy Governor Liu Guiping in March.

The PBOC reiterated that its prudent monetary policy will be flexible, targeted, reasonable and appropriate. It vowed to implement a good “cross-cyclical” policy design, a term widely interpreted to mean authorities will use a longer time frame when considering policy support and will avoid overstimulating the economy.

Ukraine Central Bank Now Officially Allowed To Issue Digital Currency

Ukraine’s newly signed law On Payment Services requires close cooperation between the National Bank of Ukraine and private startups in the payment market.

The Ukrainian government is moving forward with its central bank digital currency (CBDC) plans, as the National Bank of Ukraine (NBU) is now officially authorized to issue a digital currency.

Ukrainian President Volodymyr Zelenskyy has signed a law titled On Payment Services, officially enabling the country’s central bank to issue a CBDC, the digital hryvnia, according to a Thursday announcement.

The new law authorizes the NBU to set up regulatory sandboxes for testing payment services and instruments based on emerging technologies. The new legislation also requires close collaboration between the Ukrainian central bank and local startups in the payment market, taking into account the demand of the private sector, the announcement reads.

Initially approved by the Ukrainian parliament in late June, the On Payment Services aims to provide the implementation of open banking, the practice of sharing access and control to consumer financial information through third-party applications. The law is expected to stimulate the development of financial technologies in the country, allowing private fintech companies to establish cooperation with banks and have more business opportunities.

Among other intentions, the newly signed law is also designed to adapt the Ukrainian legislation to the legal framework of the European Union, which would eventually allow integrating the country’s payment system with the one of the EU, the announcement notes. The legislation is based on modern requirements and takes into account the standards of European regulatory acts, including the Payments Service Directive 2 and the E-Money Directive.

As previously reported, the NBU has been closely looking into issuing a digital currency over the past several years, outlining the potential of a CBDC to strengthen public confidence in the central bank and its financial services. However, the bank remained largely concerned about potential related risks like its impact on financial stability and possible threats to the traditional banking system.

Earlier this year, Ukraine’s Ministry of Digital Transformation entered into a partnership with the Stellar Development Foundation to jointly develop a strategy for digital assets and CBDC infrastructure.

PM To Launch Digital Payment Solution e-RUPI On 2nd August

Prime Minister Shri Narendra Modi will launch e-RUPI, a person and purpose specific digital payment solution on 2nd August 2021 at 4:30 pm via video conferencing.

Prime Minister has always championed digital initiatives. Over the years, several programmes have been launched to ensure that the benefits reach its intended beneficiaries in a targeted and leak-proof manner, with limited touch points between the government and the beneficiary. The concept of electronic voucher takes forward this vision of Good Governance.

About e-RUPI

e-RUPI is a cashless and contactless instrument for digital payment. It is a QR code or SMS string-based e-Voucher, which is delivered to the mobile of the beneficiaries. The users of this seamless one-time payment mechanism will be able to redeem the voucher without a card, digital payments app or internet banking access, at the service provider.

It has been developed by National Payments Corporation of India on its UPI platform, in collaboration with the Department of Financial Services, Ministry of Health & Family Welfare and National Health Authority.

e-RUPI connects the sponsors of the services with the beneficiaries and service providers in a digital manner without any physical interface. It also ensures that the payment to the service provider is made only after the transaction is completed.

Being pre-paid in nature, it assures timely payment to the service provider without involvement of any intermediary.

It is expected to be a revolutionary initiative in the direction of ensuring a leak-proof delivery of welfare services. It can also be used for delivering services under schemes meant for providing drugs and nutritional support under Mother and Child welfare schemes, TB eradication programmes, drugs & diagnostics under schemes like Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, fertilizer subsidies etc. Even the private sector can leverage these digital vouchers as part of their employee welfare and corporate social responsibility programmes.

Updated: 8-2-2021

China’s Central Bank Says It Will Keep Pressure On Crypto Market

China’s central bank vowed to maintain heavy regulatory pressure on cryptocurrency trading and speculation after escalating its clampdown in the sector earlier this year.

The People’s Bank of China will also supervise financial platform companies to rectify their practices according to regulations, it said in a statement on Saturday. Policy makers met on Friday to discuss work priorities for the second half of the year.

China launched its most intense crackdown on crypto trading and mining since 2017 in recent months, after a surge in Bitcoin and other tokens heightened authorities’ concerns over risks of fraud, money laundering and excessive energy usage. It also imposed a series of regulatory actions targeting monopolistic behavior at online payment platforms such as Ant Group Co. over the past year.

The central bank will act to prevent major financial risks and push to lower the number of high-risk financial institutions in key provinces, according to the statement. It will also accelerate its work to create a financial stability law, which was proposed by Deputy Governor Liu Guiping in March.

The PBOC reiterated that its prudent monetary policy will be flexible, targeted, reasonable and appropriate. It vowed to implement a good “cross-cyclical” policy design, a term widely interpreted to mean authorities will use a longer time frame when considering policy support and will avoid overstimulating the economy.

Updated: 8-5-2021

Fed Governor Says CBDCs Remain ‘A Solution In Search Of A Problem’

Chris Waller’s comments come after Jerome Powell said that the Federal Reserve would be issuing a discussion paper on CBDCs.

Chris Waller, a member of the Board of Governors of the Federal Reserve System (Fed), seems to think it’s unnecessary for the United States government to develop a central bank digital currency, or CBDC.

Speaking with Michael Strain of the American Enterprise Institute today, Waller said he was “highly skeptical” of a central bank digital currency, addressing issues in existing payment systems. He feels that the U.S. government should only intervene with a potential digital solution in the event of significant market failures.

“I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives,” said Waller.

He Added:

“The private sector is already developing cheaper payment alternatives to compete with the banking system, hence it seems unnecessary for the Federal Reserve to create a CBDC to drive down payment [systems] we see by banks […] Facilitating speedier payments is not a compelling reason to create a CBDC.”

Specifically, the Fed governor said he believes that the government should not be competing with the private sector, given that the potential benefits of a CBDC may be outweighed by privacy concerns and would likely not address the issue of financial inclusion or encourage faster and cheaper payments. Waller cited a 2019 survey from the Federal Deposit Insurance Corporation, estimating that only 1% of households in the United States were both unbanked and might be interested in using a CBDC.

However, Waller also expressed concern with potential CBDC designs giving the Fed access to “a vast amount of information” from account holders. According to the Fed governor, the system would make it a tempting target for hackers, and be more akin to China regulating how it monitors the transactions of its citizens with the digital yuan.

“A CBDC remains a solution in search of a problem.”

Waller’s comments come two months after Fed chair Jerome Powell said that the government agency would be issuing a discussion paper on CBDCs in the United States, calling on the public to comment “on issues related to payments, financial inclusion, data privacy and information security.” Powell said the paper would be released sometime this summer, giving the Fed roughly six more weeks to publish.

Unlike Waller, Powell’s public statements on CBDCs have seemingly been more measured, often saying it is more important “to get it right than it is to be first” when it comes to rolling out a digital dollar. President of the Dallas Federal Reserve Robert Kaplan also said in November that it is “critical that the Fed focuses on developing a digital currency.”

Other U.S. lawmakers have spoken in favor of CBDCs when comparing a central bank-issued digital currency with cryptocurrencies like Bitcoin (BTC). Democratic Senator Elizabeth Warren said in June that the tokens had “great promise,” calling CBDCs “legitimate digital public money” that could drive out “bogus digital private money” like crypto.

Updated: 8-8-2021

Cambodia Explores Cross-Border Transactions Of CBDC-like Bakong

Launched in late 2020, Cambodia’s digital money project Bakong reached 200,000 users in June, doubling from three months earlier.

The National Bank of Cambodia (NBC) continues progressing with its central bank digital currency- (CBDC)-like initiative known as Bakong, disclosing several project milestones.

NBC’s director general and the Bakong project lead Chea Serey said in a Wednesday interview with The Nikkei that Bakong’s electronic wallet reached 200,000 users in June, doubling from three months earlier. Based on blockchain technology, the Bakong payment and money transfer service was originally launched by the NBC in October 2020.

The digital money project has amassed nearly six million users in the first half of 2021, including those reached indirectly through member bank mobile apps, recording a total of 1.4 million transactions worth nearly $500 million, Serey noted.

The official disclosed that the NBC is currently exploring cross-border transactions through Bakong, closely working with Thailand’s central bank and Malaysia’s largest bank, Maybank. Serey explained that the cross-border Bakong transactions would provide Cambodian people in foreign countries with a “safe and efficient way to send money to their families.” She noted that the new payment method would be beneficial for many Cambodian women migrating to Malaysia.

Serey also reportedly said that Bakong’s launch has significantly increased the use of Cambodia’s national currency riel, which is part of the country’s dual-currency system alongside the United States dollar. However, the digital money project alone will not be able to switch Cambodia from a U.S. dollar-based economy to the riel, she added.

“There are other policies that need to be in place, like having a stable exchange rate and inflation rate,” Serey stated, concluding that the mission of Bakong is to “increase the usage of the local currency,” with the long-term goal to “solely use” the country’s local currency. According to data by Wall Street Journal, the U.S. dollar is currently used for 90% of financial transactions in Cambodia.

Additionally, the NBC director general expressed a skeptical stance on Bitcoin (BTC), the world’s most-valued cryptocurrency. Serey said that the crypto industry needs regulation and consumer protection measures to avoid the consequences of volatile prices, stating: “There are no fundamentals, and if you were to allow investors to go into this, who is going to take responsibility when the price crashes?”

Developed by NBC in collaboration with Japanese blockchain technology company Soramitsu, Bakong allows Cambodian citizens to pay at stores or send money through a mobile app, supporting settlements and remittances in riel or U.S. dollar. At the project’s launch, Serey emphasized that Bakong should not be referred to as a CBDC but rather a payment and money transfer service.

Updated: 8-12-2021

Bank Of Ghana To Pilot CBDC With German Securities Printing Firm G+D

Originally specialized in currency and securities printing, Giesecke+Devrient has been increasingly working with central banks like the Bank of Thailand in piloting CBDCs.

The Bank of Ghana (BoG) is making another step towards the development of a central bank digital currency (CBDC) by partnering with a German currency technology provider.

The BoG officially announced Wednesday that it signed an agreement with German banknote and securities printing company Giesecke+Devrient (G+D) to pilot a retail CBDC in Ghana, West Africa.

As part of the agreement, G+D will provide its proprietary CBDC solution known as Filia to pilot the issuance of a digital form of Ghana’s national currency, the cedi. The digital currency will be tested in a trial with local banks, merchants, payment service providers and consumers, as well as other related parties.

The project is part of Ghana’s digitization strategy, the “Digital Ghana Agenda,” aimed at digitizing data and government services for the country of 30 million people. Also known as e-cedi, the digital cedi aims to complement the country’s traditional national currency as a digital alternative. According to the announcement, the CBDC should facilitate payments without a bank account, contract or smartphone.

BoG governor Ernest Addison said that the e-cedi provides a great opportunity to create a “robust, inclusive, competitive and sustainable financial sector, led by the central bank.” “From all indications, the concept has a significant role to play in the future of financial service delivery globally. This project is a significant step towards positioning Ghana to take full advantage of this emerging concept,” he added.

Ghanaian Vice President Mahamudu Bawumia recently said that the African governments need to embrace digital currencies to facilitate trade throughout the continent. The official argued in late July that trade between African countries demands a “single central payment” system.

Originally specializing in high-quality currency and securities printing, G+D has become deeply focused on digital payments and CBDC technology in recent years. As of August last year, G+D was already negotiating using its Filia technology with six global central banks like the Bank of Thailand to create CBDCs.

Apart from working on CBDC technology, G+D has been also actively investing in the blockchain and cryptocurrency industry, last year leading a $17 million Series A funding round for Metaco, a Swiss startup providing custody services for cryptocurrencies and stablecoins.

Updated: 8-15-2021

President Of Argentina Open To Bitcoin And A CBDC, But Central Bank Says No

Argentina’s president is open to the idea of central bank digital currency, but the country’s central bank head has rejected the idea.

Argentina President Alberto Fernandez has indicated support for digital assets, asserting there is no reason to push back against the emerging asset class.

During an interview with a local media outlet, Caja Negra, on Thursday, Fernandez responded to a question about whether he would consider exploring a central bank digital currency (CBDC), or even recognize Bitcoin as legal tender as El Salvador did earlier this year.

“I don’t want to go too far out on a limb […] but there is no reason to say ‘no’,” Fernando stated, adding: “They say the advantage is that the inflationary effect is largely nullified.”

Inflation was a defining issue for the administration of Argentina’s previous president, Mauricio Macri. Government data indicates that 100 Argentine pesos from when Macri left office in 2019 would be worth the equivalent of 661 pesos today.

Despite Argentina’s tight currency controls, the current President noted increasing perceptions of Bitcoin (BTC) as a hedge against inflation in the broader global economy. However, Fernandez also cautiously noted that it is still very early days for the cryptocurrency sector:

“There is caution because of how unfamiliar it is, and because it is hard to understand how this fortune materializes. Many people in the world have these concerns, and that is why the project, or the system, has not yet expanded [more than it has]. But it is something to consider.”

Despite the president’s openness with exploring digital assets, the head of Argentina’s central bank, Miguel Pesce, appears to be threatening a crackdown on the industry.

Speaking during the Argentine Institute of Executive of Finance’s Digital Finance Forum on Tuesday, Pesce took an aim at cryptocurrency, characterizing digital assets as a threat to economic stability and foreshadowing tighter regulations for the sector.

During the event, Pesce asserted that BTC fails to generate value for investors outside of short-term hype cycles. The central bank head also likened Bitcoin to a commodity, concluding that BTC “is not a financial asset” as defined by the country’s National Securities Commission.

Pesce expressed his intention to “regulate the intersection of Bitcoin with the payment system and exchange market,” warning that the cryptocurrency “could be very detrimental” for domestic financial stability.

In regulating the sector, the central bank wishes to prioritize “preventing low-sophistication investors” from engaging the crypto assets, with Pesce stating:

“We are concerned that (cryptocurrencies) are used to generate undue profits on unsuspecting people.”

Pesce also dismissed the suggestion that Argentina would explore a central bank digital currency (CBDC).

In May, reports indicated that retail cryptocurrency mining was flourishing in Argentina as citizens looked to take advantage of cheap electricity and soaring crypto prices. That same month, the central bank reiterated warnings to Argentinians regarding the risks associated with crypto assets.

The previous month, Canadian mining firm Bitfarms advanced its roadmap for Argentine expansion, estimating its forthcoming Argentine facility will reduce its production costs by 45%.

Bank Of Jamaica Mints The First Batch Of National Digital Currency (CBDC )

The Bank of Jamaica plans to issue a total of $1.5 million of CBDC to institutions and authorized payment service providers as part of a pilot ending this December.

Jamaica is aggressively progressing with the country’s central bank digital currency (CBDC) as the Bank of Jamaica, or BOJ, has minted the country’s first batch of CBDC.

The BOJ officially announced that its dedicated CBDC division demonstrated the process of minting digital currency at a financial ceremony on Monday.

The issuing process for a digital version of the Jamaican dollar (JMD) was carried out with participation from Jamaica’s finance minister Nigel Clarke, BOJ governor Richard Byles and a group of senior BOJ executives, as well as a management team from Irish technology firm eCurrency Mint.

According to the announcement, the BOJ is planning to issue a total of 230 million JMD ($1.47 million) in the form of a CBDC to deposit-taking institutions and authorized payment service providers as part of a digital currency pilot ending this December.

Minister Clarke noted that the Jamaican government has seen rapid progress in the development of the country’s digital currency project, highlighting its crucial role in the creation of a digital economy in the island country. The official also said that local lawmakers are working on a legislative amendment to provide a legal basis for the Jamaican CBDC by the end of 2021.

According to BOJ governor Byles, Jamaica’s next CBDC adoption step would be to ensure widespread access and acceptance by bringing the CBDC to users.

The announcement notes that the Jamaican CBDC aims to enable a number of benefits to users, including “easier-to-access means of efficient and secured payments.” “For deposit-taking institutions and the BOJ itself, CBDC presents an opportunity to improve cash management processes and costs,” the central bank added.

The BOJ did not immediately respond to Cointelegraph’s request for comment.

The latest development comes in line with the BOJ’s CBDC plans as governor Byles announced that the initial roll-out of the Jamaican CBDC was scheduled for August. Controlled and issued by the BOJ, the country’s CBDC is designed to complement Jamaica’s banknotes, allowing financial institutions to issue the currency to individual and business account holders with each digital token pegged to the JMD on a 1:1 ratio.

The news comes amid an increasing number of countries aggressively piloting national CBDC initiatives, with Venezuela planning to launch a CBDC in October. According to a Friday analysis by JPMorgan strategist Josh Younger, retail CBDCs could risk “disintermediating commercial banks” and lead to a 20% or 30% loss of their funding base.

Updated: 8-16-2021

The Fed Has A Chance To Boost Equality With Digital Currency

The central bank must focus not only how it would impact the transmission of monetary policy, but also on ensuring that it improves economic opportunity.

On Aug. 15, the U.S. marked the 50th anniversary of the birth of fiat currency, or a currency that depends on faith in the Federal Reserve and not in the gold standard. Like most 50th anniversaries, this one shows the celebrant worse for wear.

The “almighty dollar” is facing a raft of challenges from other supra-national currency powerhouses such as China and from giant technology companies that understand they would exercise even more market clout if they controlled not just what we buy and sell, but also how we pay for it.

If the Fed doesn’t quickly redefine the dollar to reflect its rapid digitalization by other hands, central banks will join shopping malls on the long list of complacent category killers felled by agile competitors.

When the Fed designs the U.S. central bank digital currency (CBDC), it must focus not only on its own concerns, including how it would impact the transmission of monetary policy, but also on ensuring that CBDC is money that materially improves economic opportunity.

This does not and must not mean manipulating a digital dollar’s value to advantage one group or another; it means that digital dollars need to be a truly neutral transmitter of value just like physical dollars.

Although Fed Chair Jerome Powell disputes any of the risks digitalization poses to the dollar as both fiat and the primary global reserve currency, the U.S. central bank is preparing for a possible assault. And while work is under way, nothing said by Fed officials so far indicates any awareness about the importance of a CBDC’s design beyond just the Fed and the banking system. There are four design features essential for equitable CBDC.

First, the CBDC must complement cash, not replace it. The Fed already knows this for its own purposes, but it also needs to understand that cash is critical to low-income households and digital dollars remain inaccessible to many elderly and disabled Americans. And, while the new infrastructure bill will shrink the “digital divide” if it’s enacted, cash is still crucial to many rural communities cut off from fast, safe and efficient broadband connectivity.

Second, accessibility should be incorporated from the start in CBDC design. Any vision-impaired computer user knows the difference between using screen-reading software that is only tenuously attached to an operating system as an afterthought and already built-in accessibility features.

Important though cash is, it’s fast disappearing from the day-to-day financial system. Ready access to digital dollars is thus at least as important to equality as preserving a role for cash.

Third, the Fed’s digital dollars need to flow through sound, safe and regulated financial institutions. Anyone with its hands on a consumer’s money should have no commercial conflicts of interest that might divert digital dollars for its own purposes.

Sure, the current payment system is inefficient in ways that adversely affect the most vulnerable, but speed that gives an advantage principally to retailers or social-media companies would destroy the neutrality fundamental to fairness.

Finally, the Fed must not take deposits out of the national financial system. Instead, the CBDC should only, but importantly, facilitate the payment system’s accessibility, efficiency and speed. If the Fed instead becomes the nation’s deposit-taker, then it will also need to be the nation’s loan-maker. It would need to make decisions not only about each individual’s creditworthiness, but also about who deserves a loan to advance what type of economic activity.

When the Fed in March 2020 restarted buying trillions of dollars of financial assets, it saved financial markets, up to and including junk-bond exchange-traded funds, not the millions of households struggling with a liquidity crisis.

The financial system stood firm and key sectors in it — junk bonds again coming immediately to mind — even did better than before. But millions of households still face years of lost opportunity due to layoffs and the bills coming due as loan forbearances come to an end.

When the U.S. finally established the dollar’s dominance in 1971, the gold standard it replaced was anything but golden or standard. Failure to recognize this and ensure a gradual transition to a new currency regime led to macroeconomic and financial-system disruptions that lasted well into the late 1980s, sowing the seeds of today’s economic inequality.

In 1971, the U.S. was a middle-class nation; by 1990, it was anything but. A digital dollar is as inevitable as the gold standard’s demise, but a CBDC designed with equality as an afterthought will be a CBDC that comes at an unduly high cost not just to the economy and financial system, but also to the greater good.

Updated: 8-19-2021

Ghana’s Digital Cedi Must Emulate Cryptocurrencies, Afroblocks States

Afroblocks’ co-founder urges Ghana’s central bank to involve the in-house crypto experience and expertise to help the e-cedi succeed.

The latest central bank digital currency (CBDC) initiative from the Bank of Ghana (BoG) has been met with skepticism as Afroblocks, an in-house independent association, speculates the lack of clarity on the central bank’s intentions.

Afroblocks (previously Blockchain Society Ghana) has warned the BoG to steer away from “old traditional siloed financial thinking” while planning and developing its digital currency.

Rather, Afroblocks co-founder Omar Majdoub said that the success of a CBDC in Ghana will be in its ability to emulate modern-day cryptocurrencies — i.e., being borderless and decentralized.

The BoG has partnered with German securities printing firm Giesecke+Devrient (G+D) for the CBDC project, which will provide a solution based on the unique requirements of Ghana and its citizens. The partnership will see G+D use its proprietary CBDC solution, Filia, to issue Ghana’s digital version of the cedi, which will be tested by local banks, businesses and citizens.

Despite G+D’s involvement in Ghana’s pilot CBDC, Majdoub noted the BOG’s unwillingness to discuss the developments openly with home organizations with similar experience and expertise:

“Public details on the CBDC are very sparse. We would be more than willing to contribute our expertise if called upon.”

Majdoub also questioned Ghana’s stance on crypto assets, as the country currently does not offer regulatory clarity related to cryptocurrencies.

Rooting for the success of the soon-to-be-launched e-cedi, Majdoub urged the central bank to make its CBDC plans and “intentions regarding cryptocurrencies” available to the general public.

Supporting the BoG’s move to pilot CBDC in the region, Ghanaian Vice President Mahamudu Bawumia said that a “single central payment” system could catalyze trade among the African nations.

At the Fifth Ghana International Trade and Finance Conference, Bawumia said that a digital payments system can rectify the costly and time-consuming process of moving goods across the African borders.

Thailand’s Central Bank Outlines Safeguards For A Future Retail CBDC

The results of a new study from the Bank of Thailand point to three key considerations for making sure a retail central bank digital currency doesn’t adversely impact financial stability.

The Bank of Thailand (BoT) has published the results of a new study into how to manage the implications of issuing a retail central bank digital currency (CDBC) for the country’s financial sector.

As distinct from a wholesale CBDC, which is limited to use by financial institutions and intermediaries, a retail CBDC is widely available for use by the general public. The Bank of Thailand, like many other central banks worldwide, has been engaged in CBDC research and development and now plans to begin testing a CBDC next year. Unlike the BoT, not all these central banks have committed to trialing specifically retail CBDCs.

From its latest study, the BoT has disclosed three key conclusions it has drawn for ensuring that retail CBDC issuance does not present risks for financial stability. Having previously identified a “flight to quality,” i.e., consumers preferring CBDCs to existing fiat currency in certain situations — as a major risk factor — the BoT’s study notes that further challenges may include an adverse effect on monetary policy transmission or on existing financial institutions. To prevent this, the study suggests that the following three points are crucial:

“(1) the CBDC shall be cash-like and non-interest-bearing, (2) intermediaries such as financial institutions shall be the distributors of CBDC to the general public, and (3) conditions or limits for converting CBDC shall be established.”

Such measures, the BoT suggests, will help to ensure that a retail CBDC does not compete with bank deposits and to “preserve the role of intermediaries in collecting deposits and providing credit as well as managing liquidity in the overall financial system.” These measures also provide a safeguard against runs on financial institutions, in the BoT’s view.

Notably, the BoT predicts that public demand for a retail CBDC will grow over time and could lead to such a currency becoming an alternative form of payment in the future, in lieu of cash and existing forms of e-money.

Alongside these takeaways, the BoT has disclosed further details of its planned pilot for a retail CBDC in real-world situations. The pilot will be split into two tracks. The first, the “Foundation Track,” will begin in Q2 2022 and will involve using the currency to conduct cash-like activities at a limited scale, e.g. as a payment or receipt for goods and services, as well as for conversion.

The second, more ambitious “Innovation Track” will explore ways in which a retail CBDC can be used for more novel use cases, drawing on input from private sector actors and technology developers. The roadmap for this second track has not yet been finalized and the BoT indicates it is still developing the pilot’s format and assessing which actors will be eligible to participate in its conduct.

As previously reported, the BoT has joined forces with several major banks across Asia to work on a project for a prototype cross-border CBDC or Multiple Central Bank Digital Currency Bridge (m-CBDC) that uses distributed ledger technology. Other participant banks include the Hong Kong Monetary Authority, the Central Bank of the United Arab Emirates and the Digital Currency Institute at the People’s Bank of China.

Updated: 8-19-2021

Brazil Central Bank Eyes Crypto Rules as Investor Interest Grows

Brazil’s central bank president said local regulations need to better heed investors’ need for cryptocurrencies, which are here to stay alongside instant payment platforms.

“This comes out of a need that people have for payments to be very fast, open, secure, and have transparency in every sense” Roberto Campos Neto said on Thursday at an event organized by Council of the Americas.

Since assuming his post in 2019, Campos Neto has pushed to make Brazil’s financial sector more technologically savvy. The country is holding workshops with economists and academics amid work on a digital version of the real, its currency. Last year, the bank rolled out its own instant payment platform, Pix, which now has over 96 million users in a population of 213 million.

Campos Neto said there are ongoing conversations with the local securities exchange commission to adapt to a new environment in which cryptocurrencies exist alongside platforms like Pix. In early August, that payment tool hit a record of 40 million transactions in just one day.

At the same time, policy makers are “worried” that, so far, crypto has shown more growth as an investment tool rather than a general payment system, he said.

“We need to pay attention to that,” Campos Neto said. “The financial market is changing so much that it’s all becoming data. We need to reshape the world of regulation.”

Speaking at an online event organized by the Council of the Americas, Roberto Campos Neto, president of the Central Bank of Brazil, shared his views on transparent payments networks, the country’s central bank digital currency project and crypto regulation.

Campos Neto has been a staunch advocate of the cryptocurrency space since taking office in 2019. His progressive policy-making has been an encouragement to investors and organizations alike, ambitious to modernize the Brazilian financial infrastructure.

During The Event, Campos Neto Mentioned Several Ongoing Discussions With Brazil’s Securities And Exchange Commission On How To Welcome Cryptocurrencies Into The Regulatory Landscape:

“The financial market is changing so much that it’s all becoming data. We need to reshape the world of regulation.”

Fernando Carvalho, CEO of QR Capital, Told Cointelegraph Brasil Last Month:

“Brazilian regulators are recognizing the maturation of the crypto market and understanding that it is important to offer regulated products to investors looking forward to exploring these new asset classes.”

Brazil has made notable headlines over the past few years following developments of a government-backed digital payments initiative called Pix, which has garnered over 96 million users, a 45% representation of the nation. Pix has partnered with crypto exchange OKEx to facilitate Tether (USDT) purchases in exchange for Brazilian real.

Additionally, a new exchange-traded fund (ETF) titled BITH11 was launched in Brazil last week from investment firm Hashdex Asset Management. The firm reports that this is the country’s first eco-centric Bitcoin (BTC) ETF, with objectives to contribute 0.15% of its liquid assets into carbon credits and eco-tech each year.

Amid Brazil’s commendable advancements in the cryptocurrency space, Campos Neto is keen to acknowledge the importance of advancing regulation to match the demands of innovation, asking:

“How can we reshape the word ‘regulation?’ Finance will become about data. It will be impossible to regulate financial transactions without understanding the regulation of data.”

Updated: 8-27-2021

India CBDC Pilot May Commence In December, Says RBI Governor

India’s central bank is carefully considering the merits of issuing a digital rupee, while CBDC exploration continues to gather steam across the globe.

The Reserve Bank of India (RBI) could commence preliminary central bank digital currency (CBDC) trials before the end of the year.

Speaking to CNBC on Thursday, RBI governor Shaktikanta Das said that the central bank was “being extremely careful” in its handling of a potential digital rupee, even as its counterparts around the world have been exploring their own sovereign digital currencies.

According to Das, the RBI’s focus is on examining the potential impact of a digital rupee on India’s financial sector, with issues such a monetary policy control high on the agenda.

On the technical side, the RBI governor also revealed that the central bank was weighing the merits of utilizing a centralized or decentralized ledger for its proposed CBDC.

Providing a likely timeline for the next phase of the project, Das remarked, “I think by the end of the year, we should be able to […] be in a position, perhaps, to start our first trials.”

The RBI governor’s comments are in keeping with recent remarks from other central bank officials in the country about the progress of the planned digital rupee project.

As previously reported by Cointelegraph, RBI deputy governor Rabi Sankar stated back in July that the central bank was leaning toward a phased implementation strategy for its CBDC project.

With global financial bodies such as the Bank for International Settlements pushing for CBDCs as a counter to cryptocurrencies and private stablecoins, several central banks are developing their own national digital currencies.

According to the Atlantic Council back in July, countries representing 90% of the entire global gross domestic product are in several stages of CBDC exploration.

Among the major global economies, China continues to lead the way in the CBDC race with multiple pilot programs to incentivize the adoption of its e-yuan. Other countries in Asia are also moving forward with their digital currency plans.

International cooperation is also another major talking point in the CBDC space, with regional digital currency initiatives taking shape in Asia and the Caribbean.

 

Updated: 8-29-2021

Singapore Central Bank Shortlists 15 Companies To Develop Retail CBDC

The 15 finalists will be mentored by the MAS and “be given access to the APIX Digital Currency Sandbox for rapid prototyping of digital currency solutions.”

The Monetary Authority of Singapore (MAS) has shortlisted 15 “Global CBDC Challenge” participants to help build an in-house retail central bank digital currency (CBDC).

An announcement shared by the MAS shows that the finalists include six companies from Singapore, four from the United States, and one each from Australia, Barbados, Germany, France and Switzerland, of which only three winners will be selected to deploy a retail CBDC in Singapore.

Soon after the Singaporean central bank announced cash prizes for digital currency ideas back on June 28, the challenge reportedly saw the participation of over 300 fintech companies spread across more than 50 countries.

The global finalists include ANZ Banking Group Limited (Australia), Bitt (Barbados), Giesecke+Devrient advance52 GmbH (Germany), Criteo (France) and Soramitsu (Switzerland).

Locally, shortlisted Singaporean consortiums include Citibank N.A., HSBC Bank Limited and HSBC Holdings plc, IDEMIA, IOG Singapore Pte Ltd., Standard Chartered Bank and Xfers Pte. Ltd.

The United States-based companies are cLabs Inc., Consensys, Extolabs LLC and IBM.

This initiative to build a retail CBDC for Singapore will be complemented with a cash prize of 50,000 Singapore dollars ($37,000). As discussed in an older announcement, the 15 finalists will be mentored by the MAS and “be given access to the APIX Digital Currency Sandbox for rapid prototyping of digital currency solutions.”

The sandbox environment will include more than 100 APIs related to core banking and payments and will also have digital currency APIs from Mastercard. The finalists will now have the opportunity to pitch their CBDC solutions at Singapore FinTech Festival, which is planned for Nov. 8 to Nov. 12, 2021.

The Singaporean authorities have been making pro-crypto moves throughout 2021. The MAS recently gave an “in-principle approval” to the Australian crypto exchange Independent Reserve, allowing the firm to “operate as a regulated provider for Digital Payment Token (‘DPT’) Services.”

Singapore reportedly hosts a long list of 170 crypto exchange applicants, including Binance and Gemini, which are waiting for approval to conduct business within its jurisdictions.

Nigeria’s Central Bank Issues Draft Guidelines On E-Naira CBDC Project

The CBN says the proposed central bank digital currency will offer parity of value and will operate as a non-interest-bearing CBDC.

The Central Bank of Nigeria (CBN) has issued preliminary guidelines for its proposed e-naira digital currency.

In a sensitization document sent to commercial banks in the country, the CBN outlined several design features of the central bank digital currency (CBDC).

According to the document seen by Cointelegraph, Nigeria’s CBDC is codenamed “Project Giant” and will be pegged to the value of the naira.

Thus, the e-naira will offer parity of value but will not be an interest-bearing currency. The e-naira will run alongside the country’s fiat currency, with the CBN responsible for issuing, distributing and redeeming the digital currency among other monitoring and management functions.

Based on the sensitization document, Nigeria’s CBDC will function under a tiered Anti-Money Laundering and Know Your Customer (AML/KYC) structure with different transaction limits.

The bottom of the AML/KYC pyramid will reportedly encompass unbanked citizens who will be mandated to provide their national identity-linked phone numbers for verification. Users in this category will be limited to a daily transaction limit of 50,000 nairas (about $120).

Citizens with bank accounts can fall under the second and third tiers depending on the number of AML/KYC steps completed. These two levels will have daily limits of 200,000 nairas ($487) and 1 million nairas ($2,438), respectively.

Users of the third tier will likely have to complete a physical AML/KYC verification process in addition to the bank verification number requirements stipulated for tier two.

Users classified as merchants will also fall under the same 1-million-naira limit as tier three but will have no restrictions as to the amount they can send to their bank accounts.

Indeed, the CBN plans to ensure seamless transfers between e-naira wallets and bank accounts with no fees for several types of transactions. The zero-fee structure is likely a means to incentivize the adoption of the digital currency, especially amid complaints about the onerous transaction costs associated with mobile and digital banking in the country.

The CBN document also offered likely process flows for international money transfer operators (IMTO) and the proposed e-naira indicating plans to integrate the digital currency with the central bank’s forex control policies.

The first option proposed by the CBN will see the central bank providing collateralized e-naira credit to IMTOs via their banking partners in the country. A second option might see the CBN pre-funding IMTO accounts, but this method might carry significant exchange fluctuation risks.

A third option offered by the CBN will involve the e-naira operating in the current forex architecture where overseas remittance will be cashed out in CBDC by the beneficiary in Nigeria.

As previously reported by Cointelegraph, the CBN plans to pilot the e-naira project in October. Back in June, the country’s communications minister linked the government’s efforts to drive blockchain adoption as an integral part of digital innovation in Nigeria.

Ghana, Nigeria’s West African neighbor, is also making significant strides with its own CBDC project.

Updated: 8-31-2021

Nigeria’s CBDC: The Good, Bad And Ugly

The possible impacts of an eNaira for financial inclusion, privacy and decentralized crypto.

Central bank digital currencies (CBDC) are fast gaining popularity worldwide, including in Nigeria. The Central Bank of Nigeria (CBN) recently outlined plans to launch an eNaira in October.

CBDCs operate just like the money you see when you check your bank accounts online, with the eNaira issued by CBN and held directly in citizens’ digital wallets.

While cryptocurrencies like bitcoin (BTC, 2.64%) are decentralized, unregulated and unbacked, CBDCs are regulated, centralized and backed by a central bank (the regulator).
Olumide Adesina is a Nigeria-based certified investment trader with more than a decade experience.

CBDCs are typically pegged to the fiat currency in place at the central bank. Compared to the wild volatility of crypto assets, the value of a CDBC is backed by the country’s monetary reserves.

“The eNaira is the Central Bank of Nigeria’s attempt to stay in tandem with other global central banks as decentralized modes of storing value and payment become more mainstream,” said Samuel Sule, a director with the Renaissance Capital investment bank.

But he cautioned that Nigerians could see the project as rendering decentralized digital assets as obsolete.

“There are underlying philosophical questions around the centralization of digital currencies, which could make it unappealing to a large section of its users. That said, monetary policy legally remains the exclusive realm of central banks. Thus, all work done around new modes of value storage and transmission is justifiable.”

Good

The CBN aims for the CBDC to increase financial inclusion rapidly and easily. Creating and holding funds for citizens in a central bank account could offer better access to financial services for the unbanked or underbanked.

Ben Constanty, co-founder of Smartlink, which brings applications to the decentralized web, highlighted some of the unique opportunities the CBDC can provide citizens of Africa’s biggest economy in regards to mobile accessibility:

“As Nigeria is still considered one the most ‘unbanked’ countries in the world, decentralized identity systems and CBDCs will provide the population with a way to prove their identity and get access to banking services directly from their smartphone. It also means that every transaction will go through that system in order to buy and sell things.”

The CBDC will also make remittances easier. With restrictions on foreign exchange and the high transaction fees associated with transferring money in and out of the country, many Nigerians are already using bitcoin to make domestic and international transactions cheaper and faster.

In addition, the central bank will be able to achieve its objectives of safeguarding people’s money, ensuring a safe and resilient payment system, and strengthening public confidence in the naira. As it provides transparency and is difficult to counterfeit, it could be a good way to combat economic crime and fraud.

With the eNaira, consumers can access low-risk and reliable payment options. By eliminating the need for third parties, the CBDC could contribute to efficient and low-cost transactions.The CBN will also be able to implement the cashless policy and numerous jobs will be created for Nigeria’s booming youth population as a result.

Taxes and transaction costs will increase the government’s revenue. And it should help to combat terrorism financing, illicit fund flows and criminal activities, and enhance oversight of fund movements and payments.

Bad

But the eNaira could give the CBN greater control. A growing user base for bitcoin and other cryptocurrencies has already made Nigerian financial regulators worry about losing control over the money supply. The momentum is considered by them as a threat to economic stability and money in general.

Some economists also believe the CBN can spend in deficit and shift funds directly to citizens without worrying about the national debt in times of economic hardship. In other words, a CBDC could present an obvious inflation risk.

The eNaira might disintermediate the banking sector if it becomes mainstream. Nowadays, Nigerian commercial banks serve as intermediaries between depositors and intermediaries so funds can be secure and are available when needed; the intermediary gives interest as a means of attracting funds for a specified period of time.

Nigerian banks might face a challenge when dealing with such digital assets. In the case of the CBN, for instance, offering everyone a virtual wallet where they can store their money, there would be little need for banks today. Unless the CBN grants the banks new licenses to do this you do not need a bank to administrate your wallet, thereby increasing the redundancy of the Nigerian banking industry.

The eNaira also raises big concerns when it comes to privacy, especially with a government that violates human rights on a regular basis. The centralized digital asset could also eliminate the privacy that cash provides. This could serve as a tool for financial regulators monitoring human rights organizations and what they do with contributions they receive.

“As central banks globally jump on the digital currencies wagon, the space is likely to witness more regulations, limitations and even censorship, as these will be controlled networks,” says Constanty.

Ugly

The hideous thing about the Nigerian digital currency is that it centralizes money even more and preserves the oligopoly power of the CBN. Unlike crypto assets, such as bitcoin and ethereum (ETH, 1.13%) that aim to democratize and decentralize finance, the Nigerian digital currency grants near-total control to the Nigerian apex bank.

The confidentiality and anonymity of transactions are reduced when central banks monitor and control transactions more closely. Each transaction can be monitored, recorded, analyzed and taxed using digital tools provided by the CBN.

This would also enhance control over the level of access a Nigerian citizen has to a financial system, particularly if the citizen attempts to engage in behavior considered threatening by the financial authority.

Inevitably, the Nigerian digital currency would cause centralization, a situation that would exacerbate already rife cyber vulnerabilities and increase attack surfaces and vectors, making the Nigerian central bank a target.

Will The CBDC Mean An End To Decentralized Currencies?

Not according to Jill Richmond, International Policy and Advisory Board member at the Global Digital Asset and Cryptocurrency Association.

“Regardless of [a] CBN digital currency, we believe that cryptocurrencies will still have a place in Nigeria’s emerging digital economy due to their public and permissionless nature.”

So Nigeria’s digital currency could be a huge plus for crypto enthusiasts and demonstrates Nigeria’s interest in leveraging the benefits associated with adopting digital currencies “Early adopters will gain big advantages in the long run.

Nigeria along with other “non-aligned movement” and “second world” countries have an opportunity to leapfrog into what is thought of as the first world economy, said Mayande Walker, chief executive officer at OpenCryptoTrust, a blockchain developer.

“Smart early adopters can begin offering financial services and applications that are in line with what is clearly the future of money. While bigger economies stumble past the complexity of adoption and change, Nigeria, Vietnam, Philippines, Turkey, Peru (along with Switzerland) can cut through to the future. Digital currencies make sense in all the ways that the fiat experiment has failed.”

Nigeria’s Central Bank Partners With Fintech Firm Bitt Inc For CBDC Rollout

The CBN considered Bitt Inc’s experience in the development of the Eastern Caribbean Central Bank’s DCash, launched in April.

Barbados-based fintech firm Bitt Inc will be working as the technical partner for the Central Bank of Nigeria for its proposed e-naira digital currency.

In a Monday announcement, the Central Bank of Nigeria (CBN) said it had chosen Bitt Inc based on the company’s “technological competence, efficiency, platform security, interoperability and implementation experience.” It also considered the fintech firm’s experience in the development of the Eastern Caribbean Central Bank’s digital currency, DCash, which it launched in April.

The partnership announcement comes the same day the CBN issued preliminary guidelines for its central bank digital currency, or CBDC, called the e-naira. The initiative from Nigeria’s central bank, called Project Giant, will be pegged to the value of the country’s fiat currency, the naira. The CBN reportedly plans to pilot the CBDC starting in October, though the central bank in nearby Ghana is also considering a digital currency rollout soon.

In February, the Central Bank of Nigeria prohibited commercial banks from providing account services to crypto exchanges. However, reports indicate that trading volume and interest in cryptocurrency in the country are still rising despite the crackdown.

 

Crypto Does Not Qualify As Currency, Says South Africa’s Central Bank Governor

South Africa’s top banker has said that cryptocurrencies are more akin to assets than actual currencies.

Lesetja Kganyago, governor of the South African Reserve Bank (SARB), has argued against classifying crypto as currencies.

According to a report by MoneyWeb, the central bank chief likened crypto to assets rather than currency during an interactive session at the Wits Business School Leadership Dialogues.

According to South Africa’s central bank governor, cryptocurrencies only meet two of the three currency criteria, stating:

“A cryptocurrency is a store of value. It is a medium of exchange, but is not generally accepted. It’s only accepted by those who are participating in it.”

Kganyago’s comments are a common criticism leveled by central bankers and other actors in the legacy financial system against Bitcoin (BTC) and cryptocurrencies.

However, crypto is gaining greater acceptance as a payment means, especially in retail markets. El Salvador also recently became the first country to adopt Bitcoin as legal tender, a move that could be replicated among other Central American nations.

Card payment networks such as Visa and Mastercard are also onboarding crypto payment options, given the widespread adoption of cryptocurrencies.

Commenting on SARB’s crypto mandate, Kganyago remarked that the central bank was looking to regulate the crypto market to protect investors. Crypto businesses in the country have previously warned that the lack of clear-cut regulations was harming the local cryptocurrency industry.

Indeed, the South African cryptocurrency scene has been rife with several fraudulent investment products that have siphoned millions of dollars from unsuspecting victims.

Back in July, operators of South African crypto company AfriCrypt reportedly absconded following the disappearance of $3.6 billion in Bitcoin from the firm’s coffers. Mirror Trading International, another well-known crypto Ponzi scheme, has attracted international attention, with the United States Federal Bureau of Investigation participating in the probe.

Kganyago also revealed that the central bank was interested in blockchain and that SARB experimented with the novel technology. As previously reported by Cointelegraph, SARB began the preliminary study of a possible retail central bank digital currency back in May.

Updated: 9-1-2021

Australia, Singapore, Malaysia And South Africa Launch Joint CBDC Pilot

The joint initiative will prototype shared DLT platforms enabling institutions to settle cross-border transactions using central bank digital currencies.

The central banks of Australia, Singapore, Malaysia and South Africa have announced a joint initiative to trial international settlements using central bank digital currencies (CBDC).

The initiative, dubbed Project Dunbar, will prototype shared platforms enabling direct transfers between institutions using digital currencies issued by multiple central banks. The pilot’s findings will be used to inform the “development of global and regional platforms” in addition to supporting the G20’s roadmap for improving cross-border payments.

Project Dunbar will be carried out in partnership with the Bank for International Settlements (BIS) Innovation Hub from its Singapore Center. The project will engage multiple partners to develop different distributed ledger technology (DLT) platforms and explore different designs that would enable central banks to share CBDC infrastructure.

A joint announcement emphasizes the efficiency savings associated with DLT-based payments, stating:

“These multi-CBDC platforms will allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions.”

Michele Bullock, assistant governor of the Reserve Bank of Australia (RBA), highlighted that “enhancing cross-border payments has become a priority for the international regulatory community,” adding that the RBA is “very focused” on the matter in its domestic policy work.

“Project Dunbar brings together central banks with years of experience and unique perspectives in CBDC projects and ecosystem partners at advanced stages of technical development on digital currencies,” said Andre McCormack, head of the BIS Innovation Hub Singapore Centre. He added:

“With this group of capable and passionate partners, we are confident that our work on multi-CBDCs for international settlements will break new ground in this next stage of CBDC experimentation and lay the foundation for global payments connectivity.”

The RBA has consistently downplayed the need for a domestic CBDC, however, citing the success of the New Payments Platform, which allows instant digital transfers 24-hours a day.

Project Dunbar is expected to demonstrate technical prototypes of shared DLT platforms at the Singapore FinTech Festival in November of this year.

The initiative expects to publish its complete findings in early 2022.

Central Bank Digital Currencies To Be Tested In BIS Experiment

The Bank for International Settlements will test the use of central bank digital currencies with Australia, Malaysia, Singapore and South Africa in an experiment that could lead to a more efficient global payments platform.

Codenamed “Project Dunbar,” the study aims to develop prototypes for a common platform that will enable international settlement in digital fiat currencies issued by central banks, BIS said in a release Thursday. The system would allow direct transactions in central bank digital currencies, or CBDCs, between institutions, while reducing time and cost, according to BIS.

Globally, central banks are trying to come to terms with emerging payment technologies pioneered by tech firms including China’s Ant Group Co. Additionally, Facebook Inc.’s Diem project, formerly known as Libra, is building out a global payments network that could service its own stablecoin or central bank digital currencies.

The rapid growth of cryptocurrencies — which are distinct from digital currencies issued by central banks — is posing a potential threat to existing monetary regimes and adding urgency to debates on handling cross-border money transfers.

“We are confident that our work on multi-CBDCs for international settlements will break new ground in this next stage of CBDC experimentation and lay the foundation for global payments connectivity,” said Andrew McCormack, head of the BIS Innovation Hub Singapore Centre.

Chinese Banks Explore E-Yuan For Selling Investment Funds And Insurance

Bank of Communications and China Construction Bank are working with fund managers and insurers to facilitate e-yuan payments for Chinese citizens.

Government-backed Chinese banks have reportedly started exploring new use cases for the digital yuan by allowing citizens to use it to buy insurance products and investment funds online.

The South China Morning Post reported on Tuesday that leading Chinese banks such as Bank of Communications (Bocom) and China Construction Bank (CCB) are working with fund managers and insurers to enable e-yuan payments for sectors beyond the retail landscape.

The report states that CCB has collaborated with an investment funds platform, Shanghai Tiantian Fund Distribution, for allowing citizens to make online fund investments with the digital yuan. JD.com, a China-based e-commerce company, will also be a part of this collaboration. CCB executive vice president Zhang Min said:

“We have since 2017 been participating in the research and development of the central bank digital currency, which we view as significant for our payment system due to its ability to enhance payment efficiency.”

CCB has reportedly opened a total of 8.42 million e-yuan wallets dedicated to 7.23 million individual users and 1.19 million companies. Bocom executive vice president Qian Bin said that the bank is currently exploring numerous use cases for the e-yuan in fund management and the insurance space.

The efforts of the state-backed banks go beyond the original blueprint of the central bank digital currency set by China’s central bank, which was intended to power the low-value, daily retail payments landscape only.

Despite China’s aggressive move to make the digital yuan mainstream, the government has been keen to rule out the use of Bitcoin (BTC) and other digital currencies within its jurisdiction.

Yin Youping, the deputy director of the Financial Consumer Rights Protection Bureau of the People’s Bank of China, recently stated that the government intends to maintain a “high-pressure situation” on crypto transactions.

Moreover, Chinese Bitcoin miners from Yingjiang County have also been delisted from the local hydropower grids as the crackdown continues.

Updated: 9-3-2021

Nigeria’s Securities Regulator Establishes Fintech Unit To Study Crypto

With much of the Nigerian crypto market underground or peer-to-peer due to government restrictions, the country’s securities regulator is looking into ways to make investors safer.

In 2021, financial institutions operating in Nigeria have been the subject of a government crackdown on cryptocurrencies, beginning with February’s notorious ban on lenders that provide services to crypto exchanges by its central bank. With much of the Nigerian crypto market peer-to-peer by necessity, Nigeria’s Securities and Exchange Commission (SEC) now aims to introduce regulations that could regularize the industry and offer investors better protection.

According to a Sept. 2 report, the SEC has established a dedicated fintech division tasked with studying crypto and blockchain investments and products — knowledge it could then marshal into a future crypto regulatory framework. Director-General Lamido Yuguda told Reuters this week that the agency is “looking at this market closely to see how we can bring out regulations that will help investors protect their investment in blockchain.”

Nigeria’s SEC, which says that all crypto assets ”are securities, unless proven otherwise,” will only be able to establish a regulatory framework if crypto is once again integrated into the country’s banking system. The agency is also reportedly looking to work with fintech firms to strengthen the domestic market for securities to dissuade capital flight, which continues to beset multiple sectors.

Crypto’s exclusion from banking channels has not dampened the enthusiasm for the asset class. On the contrary, in a year fraught with political and economic crises, including social and economic repression and rampant inflation, crypto adoption has continued to grow.

The Central Bank of Nigeria (CBN) is also partnering with a Barbados-based fintech firm as a technical partner for its proposed e-naira digital currency, for which it issued preliminary guidelines in August. At a meeting of the country’s Monetary Policy Committee in Abuja this spring, CBN Governor Godwin Emefiele expressed his confidence that cryptocurrencies like Bitcoin (BTC) will eventually be legal in the country but stressed that the government would do its best to prevent them from being used to finance illicit activities.

Updated: 9-7-2021

Project Giant: Nigeria’s CBDC Set For Pilot Rollout On Independence Day

Nigeria’s central bank digital currency will go into pilot testing on Oct. 1 with a tiered AML/KYC regime for the eNaira.

After four years of development, the Central Bank of Nigeria (CBN) is set to roll out its digital currency project. The launch will reportedly happen on the occasion of the country’s 61st Independence Day celebration on Oct. 1.

Nigeria’s central bank digital currency (CBDC) project comes amid significant anti-crypto policies from the CBN and negative cryptocurrency sentiments from several government officials. The digital naira is also coming at a time when its fiat counterpart has plunged to new lows, with the central bank enacting even tighter forex restrictions.

Details of the eNaira project circulated across commercial banks in the country show plans for strict identity verification mandates for utilizing the digital currency. The CBN plans to introduce a tiered ID verification system with different transaction limits for each tranche.

With CBDCs seen as governments’ response to cryptos and privately-issued stablecoins across the globe, there are concerns that more anti-cryptocurrency laws may emerge in Nigeria. Indeed, China upscaled its crypto crackdown activities as soon as its digital currency project moved into the public testing arena.

Bitcoin (BTC) adoption in Nigeria continues to expand, as cryptocurrencies offer easier remittance vehicles especially for the country’s diaspora population in supporting relatives and loved ones back home. Crypto also offers a means for the upwardly mobile and tech-savvy younger population to shield their wealth from the rapid debasement of the naira.
CBN selects Bitt Inc

As previously reported by Cointelegraph, the CBN selected Bitt Inc, a Barbados-based fintech outfit, as its technology partner for its CBDC project. According to the CBN, Bitt’s role in the development of the Eastern Caribbean Central Bank’s DCash digital currency project played a significant role in its decision to select the company.

In a press release issued on Aug. 30, the CBN identified Bitt’s “technological competence, efficiency, platform security, interoperability, and implementation experience” as among the reasons why the Barbadian tech company was the best candidate for the job. Indeed, Bitt was among 15 companies evaluated by the central bank for the tech partner role in the eNaira project.

All 15 companies in the evaluation process were reportedly accessed based on criteria such as Anti-Money Laundering protocols, technological efficiency, adoption, systems security architecture, and CBDC implementation experience, among others. Cointelegraph’s findings show that Bitt emerged with an aggregate score of about 82%, which was the highest among the 15 contenders.

Bitt was also the only company to score about 80% and was among only two firms with relevant experience in live CBDC operations. This fact also reportedly played into the sandbox evaluation stage conducted by the evaluators under Nigeria’s Public Procurement Act.

The CBN will likely be looking to leverage Bitt’s experience in the national digital currency space as well as the company’s CBDC management protocols to establish its eNaira project. Bitt has reportedly licensed its Digital Currency Management System to the CBN for the eNaira CBDC project.

While launching DCash back in April, Bitt CEO Brian Popelka identified the baked-in interoperability protocols in the design of the Eastern Caribbean CBDC. These features may likely prove pivotal in the central bank’s efforts to foster easier remittance flows for Nigerians using the eNaira digital currency.

Proposed eNaira Operations

While announcing Bitt as its technology partner for the eNaira project, the CBN highlighted the “unmistakable” global CBDC trend among central banks. Indeed, matters relating to sovereign digital currencies are now commonplace among central banks, with some countries already conducting pilot studies on CBDCs.

In late August, the CBN reportedly sent a 57-page sensitization document to commercial banks in the country detailing proposed operating models for the eNaira project. According to a copy of the draft guidelines seen by Cointelegraph, Nigeria’s CBDC, dubbed “Project Giant,” is designed to act as a complementary form of legal tender to the country’s fiat. As such, the eNaira will maintain parity of value with the naira but will function as a non-interest-bearing CBDC.

In terms of the operating model for the eNaira, the CBN has reportedly proposed a hierarchical structure for the CBDC with the central bank at the apex of the pyramid, servicing financial institutions and government agencies that, in turn, provide the digital currency to merchants and retail consumers. Based on the draft guidelines, the CBN is looking to onboard both banked and unbanked Nigerians.

At least a third of Nigeria’s adult population is reportedly unbanked, with the CBN’s June 2018 estimate putting the figure closer to 37%. Of the over 47 million verified bank account holders in Nigeria, only a third are reported to be active in terms of banking transactions, possibly indicating that the majority of the country’s addressable market is still largely underbanked.

While the CBN appears keen to broaden the scope of financial access in the country with the eNaira project, the CBDC will employ a tiered identity verification model with a transaction limit attached to each tranche. According to the sensitization document, Tier 1 (the unbanked) will have to provide National Identity Verified phone numbers as well as other ID documents to qualify.

As previously reported by Cointelegraph, Tier 1 will have a 50,000 naira ($120) daily transaction limit. Existing bank account holders will fall under Tier 2 and Tier 3, with the distinction being the extent of their ID verification process.

Tier 2 and Tier 3 will have daily transaction limits of 200,000 naira ($487) and 1 million naira ($2,438), respectively. Beyond Tier 3 are merchants with a similar daily limit, but entities in this group will reportedly have no restriction on the amount of eNaira that can be withdrawn to their bank accounts daily.

CBN’s Crypto Ban

In February, the CBN banned banks and other financial institutions from servicing crypto exchanges in the country. As a result, Nigerian cryptocurrency traders are unable to fund trading accounts from their banks.

At the time, the central bank clarified that the move was not geared toward prohibiting crypto trading in Nigeria but to prevent the flow of cryptocurrencies within the country’s banking sector. In subsequent Senate hearings after the fact, some lawmakers agreed with the CBN’s position, saying Bitcoin had made the naira almost useless.

Since the ban, several commentators in the crypto and broader fintech space have argued that the prohibition does more harm than good. With the CBN moving to roll out its CBDC, there are concerns that even more stringent anti-crypto policies might be on the horizon.

In a conversation with Cointelegraph, Chiagozie Iwu, CEO of Nigerian crypto exchange platform Naijacrypto, said that the emergence of harsher anti-crypto laws was a possibility, stating:

“Yes, we expect the CBN to champion even more anti-crypto policies, as it is clear it sees crypto as a hindrance to its monetary policy objectives even though data confirms that as a fallacy. Every crypto company in Nigeria should innovate ways to work within a restrictive system and think about jurisdictional changes.”

Fears over a possible crypto crackdown appear to be hinged on the expectation that Nigeria may follow China’s footsteps in restricting cryptocurrencies in the wake of its own CBDC. Indeed, the CBN has previously highlighted policies enacted by the authorities in China and India as a justification for its anti-crypto stance.

For Iwu, Nigeria’s crypto community must pivot toward jurisdictional independence to prevent being caught under restrictive government policies. “Crypto by its nature is decentralized, the push towards more decentralized methods of utilizing blockchain innovations should be the primary push,” Iwu added.

Updated: 9-10-2021

BIS Signals Central Banks To Start Work On CBDCs

The head of the BIS Innovation Hub says central banks must retain the ability to uphold financial stability.

The Bank of International Settlements (BIS) is signaling to central banks that they must prepare for the advent of central bank digital currencies (CBDC).

“Central bank money will have to evolve to be fit for the digital future,” Benoît Cœuré, head of the BIS Innovation Hub, said during a speech on Friday at the Eurofi Financial Forum in Ljubljana, Slovenia.

Cœuré dedicated his closing speech at the forum to discussing the role of central banks in the rollout of CBDCs and the challenges global stablecoins – cryptocurrencies linked to real world assets like the U.S. dollar – and decentralized finance (DeFi) platforms will set for existing banking models.

“We should roll up our sleeves and accelerate our work on the nitty-gritty of CBDC design. CBDCs will take years to be rolled out, while stablecoins and crypto assets are already here. This makes it even more urgent to start,” Cœuré said.

The speech came just a week after BIS announced it was working with central banks in Singapore, South Africa, Australia and Malaysia to test the efficiency of CBDCs in cross-border payments. Meanwhile, the European Central Bank (ECB) is preparing for a two-year investigation into a digital euro, set to kick off in October.

Crypto assets and distributed ledger technology (DLT) were also recognized as financial innovations that need deeper analysis and potential policy responses by the European Securities and Markets Authority (ESMA) in its risk analysis report for 2021.

Cœuré said these new developments come with different regulatory questions that require “fast and consistent” answers. He added that, through all this, central banks still have a job to do: deliver price and financial stability.

“And they must retain their ability to do it,” Cœuré said

Stablecoins And DeFi

Cœuré’s speech reinforced global regulators’ growing apprehension towards stablecoins and DeFi solutions.

According to ESMA’s risk report, regulators’ nervousness stems from the potential impact mass stablecoin adoption could have on existing financial systems, particularly in the wake of stablecoin issuer Tether revealing that almost half of its reserves were made up of unspecified commercial paper.

“Global stablecoins, DeFi platforms and big tech firms will challenge banks’ models,” Cœuré said.

Cœuré also said that central banks need to consider a number of implications including how public and private money should coexist in new ecosystems, and if central bank money, for instance, should be used in DeFi rather than private stablecoins.

“Stablecoins may develop as closed ecosystems or ‘walled gardens,’ creating fragmentation. With DeFi protocols, any concerns about the assets underlying stablecoins could see contagion spread through a system,” Cœuré said.

CBDCs are part of the solution to these concerns, he said, explaining that central banks must seriously consider consumer use cases, public policy objectives and technology when preparing to issue a digital currency.

A CBDC must meet expectations of users (in terms of usability and security), protect privacy and data, and improve financial inclusion among other things, Cœuré said. Central banks must also weigh different design choices that prioritize ease of use, low cost, convertibility, instant settlement and continuous availability along with resilience, flexibility and safety.

According to Cœuré, central banks around the world are coming together to work on CBDCs.

“A CBDC’s goal is ultimately to preserve the best elements of our current systems while still allowing a safe space for tomorrow’s innovation. To do so, central banks have to act while the current system is still in place – and to act now,” Cœuré said.

Updated: 9-14-2021

ECB’s Jens Weidmann Says Banks Shouldn’t Be Cosseted In Digital Money Plans

Central banks planning to issue digital versions of their currencies mustn’t treat commercial financial institutions as “endangered species” that can’t handle competition, according to European Central Bank Governing Council member Jens Weidmann.

“CBDC should be designed in a way that allows its users to reap its potential benefits as fully as possible, while keeping its risks and potential side effects at bay,” the Bundesbank president said at a conference on Tuesday. “This does not call for banks to be protected like an endangered species.”

The ECB is a frontrunner among major central banks exploring the possibility of digital currency. Some global monetary officials studying such plans are concerned that commercial banks’ business models could be undermined if people converted deposits held at those institutions to central bank money on a large scale.

Consumers should face usage limits to prevent doing damage to the financial system, Weidmann said, while also urging central banks not to be too protective.

“On the upside, CBDC could spur on competition among banks and promote new services, he said. “Some banks might also become more cautious and reduce the potential for banking stress.”

Global policy makers are toying with the idea of digital currencies to keep up with technological advances that spurred the rise of Bitcoin and other initiatives. The ECB, where Weidmann sits on the 25-member Governing Council, launched an investigation phase in July that could result in a digital euro being rolled out by the middle of this decade.

Updated: 9-8-2021

Central-Bank Digital Currencies Pave Way For Deeply Negative Interest Rates

If people can’t hoard physical money, it becomes much easier to cut rates far below zero.

Investors have been ignoring progress toward government-issued electronic money, even as many countries are progressing rapidly toward their own online cash. They should ask two questions: Will the Federal Reserve issue a digital dollar? And will it eventually replace physical bank notes?

I think the answer to both questions is yes, and those who agree should be assessing the impact on future monetary policy already, because dramatic change is likely within the timespan of the 30-year Treasury.

The main monetary power of the digital dollar comes from the abolition of bank notes. If people can’t hoard physical money, it becomes much easier to cut interest rates far below zero; otherwise the zero rate on bank notes stuffed under the mattress looks attractive. And if interest rates can go far below zero, monetary policy is suddenly much more powerful and better suited to tackle deflation.

Before going on, a quick definition: I’m talking here about central bank-issued money usable by you and me, just as bank notes are. It might (or might not) pay interest, but it is different to money in an ordinary bank account, which is created by the commercial bank; the existing central-bank digital money, known as reserves, are used only to settle debts between banks and certain other institutions, not available for ordinary use.

Deeply negative rates won’t come straight away. Initially, central-bank digital currencies will almost certainly be designed to behave as much like ordinary bank notes as possible, to make their adoption easy and minimize disruption, while use of physical cash will be allowed to wither away. But those close to the development agree that monetary caution is unlikely to last.

“Central banks are making lots of effort to make sure that CBDC isn’t seen as a possible monetary-policy instrument,” says Benoît Coeuré, head of the Bank for International Settlements’ innovation hub and a former European Central Bank policy maker. “My take is that that discussion will come only later.”

This matters for investors, because if rates can be taken deeply negative it would shift the long-term outlook for interest rates and inflation. The ECB has a rate of -0.5%, the Bank of Japan -0.1% and the Swiss National Bank -0.75%. But none think they can go below -1%.

The main limit is that deeply negative rates would encourage people to switch to bank notes to “earn” zero on their savings, instead of losing money. There are costs to hoarding large amounts of physical money, including storage and insurance against fire or theft, which allows slightly negative rates. But go deep enough, and negative rates would be applied to an ever-shrinking pool of savings, undermining their efficacy and draining the banks.

The monetary impact of removing, or at least reducing, this effective lower bound, as economists call it, is profound. Instead of turning to new and still unproven tools like the bond-buying of quantitative easing, central banks would be able to keep cutting rates when a crisis hit. And they would cut a long way—the trillions of dollars of QE and other experimental policies were equivalent to a “shadow policy rate” for federal funds of minus 5% by 2011, according to BIS research.

The bank note alternative isn’t the only thing preventing central banks from taking rates to -5%.

“It isn’t natural,” Mr. Coeuré told me. “Negative rates aren’t easy to understand. There will be a reluctance both by central banks and financial institutions to go there [deeply negative].”

Resistance from politicians and the public would make policy makers cautious about such radical policies, and some central bankers already worry about the side effects from prolonged periods of negative rates. But as Mr. Coeuré, who oversaw bond-buying while at the ECB, could tell you, what once seemed to be an impossibly extreme monetary policy can quickly become the norm.

Accept that interest rates might be deeply negative in serious recessions, and there is still a puzzle: Does that make long bond yields lower, or higher?

The argument for lower yields is basic mathematics. A 30-year bond should yield the average of the fed-funds rate over the period, plus or minus a risk premium. Take away the lower bound on rates, and the occasional negative rate should mean a lower average, all else equal.

As usual in economics, though, all else isn’t equal. The aim of deeply negative rates would be to stimulate the economy, creating a quicker recovery and allowing the central bank to raise rates again more quickly than if it was stuck at the lower bound for years, as the Fed was from 2008 to 2015 (the longest period without a rate change since at least 1954).

If negative rates worked, it might not mean a lower average over time. Instead, it might mean higher average inflation, and similar or even higher rates, as the economy could quickly be jerked out of the rut of secular stagnation, and rates and inflation return to normal.

“It is hard to say which way it would go,” says Eswar Prasad, a professor of economics at Cornell University and author of a forthcoming book on digital currencies, “The Future of Money.” “At times of extreme peril, it could make a difference.”

Making a decision comes down to how you view monetary policy. If you think it doesn’t really work as stimulus anyway, then negative rates would provide little to no extra support; a Japanified economy with even more negative rates might just have lower bond yields, and still no inflation.

If you agree with the central banks that interest rates are a powerful tool for reflating the economy, then digital money removes the asymmetry that prevents rates being used to tackle deflation. That should remove much of the risk of persistent deflation, justifying higher long-term bond yields.

Either way, interest rates matter for bond yields, and electronic money can give central banks more freedom with interest rates. How long it takes is up for debate, but some countries have already moved beyond the experimental stage, and policy makers are feeling the pressure from crypto developers, especially so-called stablecoins tied to the value of ordinary currency. It is time for long-term investors to start paying attention.

Updated: 9-9-2021

As Bitcoin Debuts In El Salvador, Honduras And Guatemala Study CBDCs

Honduras and Guatemala are studying central bank digital currencies and the value they could bring to their respective monetary systems.

Two Central American countries, Honduras and Guatemala, are taking a cue from their common neighbor’s adoption of Bitcoin (BTC), but they are taking a very different road.

Instead of embracing an existing cryptocurrency as a legal tender, like what El Salvador did, the central banks of Honduras and Guatemala are currently studying central bank digital currencies (CBDC).

Following the approval of the board of directors, the Central Bank of Honduras kicked off a study “to determine the feasibility of conducting a pilot test issuing its own digital money or a central bank digital currency,” according to Honduras central bank president Wilfredo Cerrato’s remarks at a forum event in Tegucigalpa.

He said that the Central American Monetary Council, or Consejo Monetario Centroamericano, the highest monetary authority in the region, should address the adoption of digital currencies.

In the northwestern corner of the region, the CBDC even has a name. Banco de Guatemala vice president José Alfredo Blanco said the digital currency — iQuetzal — would be named after the national bird of Guatemala, just like its fiat currency.

However, the central banks are not eager to integrate a new form of currency into their existing financial system without preparation. Blanco stressed that the committee to work on a central bank digital currency had been formed only six months ago, and it will take a long time to complete the investigation phase.

Central bank digital currencies have been gaining traction and interest in countries around the world. Nigeria’s CBDC, the eNaira, is set to launch on Oct. 1, on the country’s 61st Independence Day. The Ukrainian government is also moving forward with its CBDC plans by giving the National Bank of Ukraine authority to issue a digital currency.

Bitcoin Could Eventually Collapse, Swedish Central Banker Warns

The governor of Sweden’s central bank compared buying and selling Bitcoins to trading stamps, questioning the staying power of currencies without government backing.

“Private money usually collapses sooner or later,” Riksbank Governor Stefan Ingves said at a banking conference in Stockholm.

“And sure, you can get rich by trading in bitcoin, but it’s comparable to trading in stamps.

While Bitcoin has gained from endorsements by the likes of Elon Musk and Cathie Wood of Ark Investment Management, some central bankers have compared to the tulip bubble of the 17th century, which ended in collapse.

Ingves said earlier this year that Bitcoin and other cryptocurrencies are unlikely to escape regulatory oversight as their popularity grows.

Updated: 9-14-2021

Uzbekistan Has No Plans To Ease Crypto Payments Ban, Says Official

One official said that after banning crypto payments in late 2019, Uzbekistan won’t ever reconsider its decision.

The Republic of Uzbekistan will never adopt cryptocurrencies like Bitcoin (BTC) as a payment method, according to a central bank official.

Behzod Khamraev, deputy chairman of the Central Bank of Uzbekistan (CBU), predicted that local authorities will never allow residents to use Bitcoin as payment, alleging that BTC is backed by nothing.

In an interview with local business publication Spot.uz, Khamraev argued that Bitcoin is widely considered “speculative” and will never become equal to fiat currencies like the United States dollar, the euro, the Japanese yen or the Russian ruble.

The official pointed out that there are about 28 trillion Uzbekistani soms in circulation, and all of those are backed by the central bank’s assets.

“One can even see an inscription about the regulator’s obligations on the banknotes, while cryptocurrency is not backed by anything,” Khamraev added. The official’s comments came soon after El Salvador became the first country in the world to adopt Bitcoin as legal tender alongside the U.S. dollar on Sept. 7.

Uzbekistan officially banned its residents from making payments in cryptocurrencies like Bitcoin in late 2019 as part of an order of the director of the National Agency for Project Management (NAPM) under the president of the Republic of Uzbekistan. “Crypto assets cannot be used as a method of sending or receiving payments on the territory of the Republic of Uzbekistan,” the order said.

In April 2021, the NAPM proposed to legalize cryptocurrency trading in Uzbekistan to allow residents to exchange crypto assets against national and foreign currencies. The authority previously banned its citizens from purchasing cryptocurrencies in late 2019.

The CBU and the NAPM did not immediately respond to Cointelegraph’s request for comment.

Updated: 9-15-2021

Turkish Central Bank Taps Local Tech Firms For Digital Currency R&D

The Central Bank of the Republic of Turkey has signed agreements with various firms to form the Digital Turkish Lira Collaboration Platform.

The Central Bank of the Republic of Turkey (CBRT) has made a major step forward with a research and development project that could see the Turkish lira go digital.

On Wednesday, CBRT announced the signing of memoranda of understanding with three domestic research and technology companies that will form the “Digital Turkish Lira Collaboration Platform.” The pool of participants is expected to expand as the project moves forward.

The three original technology stakeholders are Aselsan, a major defense corporation, Havelsan, a software and systems developer operating in the defense and IT sectors, and TÜBİTAK Informatics and Information Security Research Center.

Project participants will aid CBRT in developing and testing the prototype digital lira network. While the announcement does not clarify the technological infrastructure underlying the project, it mentions the possibility that it will embrace “blockchain technology, the use of distributed ledgers in payment systems, and integration with instant payment systems” on a later stage.

Similar to the digital euro initiative, the digital lira project doesn’t make a commitment to the ultimate digitization of Turkey’s currency, as the document emphasizes that “The CBRT has made no final decision regarding the issuance of the digital Turkish lira.”

The results of the tests are expected sometime in 2022, after which CBRT will decide whether the technology meets the standards required for further implementation.

Earlier in the summer, the Turkish central bank banned cryptocurrency payments and limited the range of financial services available to crypto businesses. The bill designed to establish regulatory clarity around digital assets still awaits a parliamentary vote.

Digital Euro Isn’t Guaranteed After Experiment, ECB Advisor Says

The European bank’s two-year digital euro experiment will focus on a retail CBDC.

The upcoming two-year European Central Bank (ECB) investigation into a digital euro is not an assurance that the bank will issue a central bank digital currency (CBDC), according to an ECB official.

Speaking during a panel discussion at Bitkom’s first Digital Euro Summit on Wednesday, Jürgen Schaaf, advisor to the senior management of the Market Infrastructure and Payments business area of the ECB, said that the bank will experiment with a digital euro and use insights from this investigation as input for a decision on whether or not to actually create a CBDC.

“This is still not a decision to introduce or issue a digital euro. After these phases, we will have to assess properly whether the potential benefits outweigh the possible disadvantages and then take a profound decision,” Schaaf said.

Meanwhile, China is forging ahead with its digital yuan: In August, the digital yuan was used in the domestic futures market for the first time following multiple other test runs.

According to the Atlantic Council, in May 2020, only 35 countries were considering a CBDC, while now, at least 80 nations are exploring a CBDC, representing 95% of the global gross domestic product (GDP).

The ECB, which had been discussing the potential launch of a digital euro since the beginning of the year, is set to launch its much-anticipated experiment into a CBDC in October. The project follows comments made last year by ECB President Christine Lagarde that Europe had fallen behind in the global digital payments race.

“We are actually not the slowest,” Schaaf said.

Schaaf explained that the ECB cannot be compared to the central bank of the Bahamas, which was the first financial institution to issue a CBDC, the Sand Dollar, in 2020. He also cautioned against drastic nationwide experimentation like that of El Salvador.

El Salvador’s president Nayib Bukele kicked off a legislative process in June to make bitcoin legal tender in the country, and now it is an official currency in the Central American nation.

“Money and [the] provision of money is something you don’t play with. We cannot do huge scale experiments that rock the whole society and system. So whatever we’re going to provide, if we provide it, has to be really sound and safe,” Schaaf said.

Retail vs. Wholesale

During the panel discussion, Schaaf said the upcoming ECB experiment is focused on a retail digital euro (one that individual users can use to purchase goods and services) as opposed to a wholesale euro only for banks and financial institutions.

“We see this digital Europe project as provision of a retail payment instrument … The current setup is more focused on retail that’s embedded in the mandate,” Schaaf said, referring to the ECB mandate to safeguard price stability and ensure a digital euro is not disruptive.

He also added that a layer investigating a wholesale CBDC might be added to the experiment at a later stage.

Digital Euro Drivers

Schaaf said that the digitization of payments and other services, the declining use of cash and the risk that foreign players might introduce a more influential currency are driving the ECB’s own investigations into a digital euro.

“So there is a concern that the monetary stability of the euro area is a bit at stake when there could be a crowding out by big techs,” Schaaf said.

He also reiterated that a digital euro will not replace cash but will complement it, acknowledging that cash usage has been declining over the last few years, exacerbated by the pandemic.

“Having said that, we will not stop issuing and providing cash, the digital euro, when it comes, would be a compliment not a substitute for cash,” Schaaf said.

Updated: 9-17-2021

Digital Currency Clears A Path For Helicopter Money, Says Prasad

Bahamas has the ‘Sand Dollar’, Sweden is developing the e-krona and China is piloting the e-yuan. The evolution of central bank digital currencies, or CBDCs, is set to get supercharged in ways that will have profound implications both for economic policy making and for the societies around us, according to a leading expert.

Cornell University academic, Eswar Prasad, who once led the International Monetary Fund’s China team, this month publishes a new book titled ‘The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance,” which takes an in-depth look at how our wallets are set to evolve.

Advantages to CBDCs include more transparency and the ability to tackle organized crime, Prasad said in an interview. But the changes will go well beyond technocratic policymaking, with downsides including an erosion of privacy.

Here are excerpts of the conversation with Prasad, lightly edited for clarity.

Why Is There Such Urgency For Central Banks To Develop Digital Currencies?

The reality is that the end of physical cash is not too far away. We are seeing digital payments in various forms beginning to dominate in economies small and large, developing and advanced.

So I think for central banks, if you think about their money being used at the retail level, this is at some level an existential question. Central banks will still be able to conduct their main functions and maybe they can continue doing so without having their money being used for retail payments, but having a CBDC has a variety of advantages.

Can You Explain What Some Of Those Advantages Are?

It makes counterfeiting much harder, it reduces the use of cash for illicit purposes such as money laundering and terrorism financing. It brings a lot more activities out of the shadows and into the formal economy and into the tax net, so that is good for revenues. And in addition there are potential benefits in terms of increasing the maneuverability of monetary policy.

Is There A Risk Of Collateral Damage As These Currencies Get Rolled Out?

There is a risk that if the CBDC takes the form of a central bank account — which would certainly be a very effective way of setting up a CBDC because people in an economy would then have access to a digital payments system without having a debit card or a credit card or a commercial bank account — but it could disintermediate the banking system if people move their deposits into the central bank digital currency accounts rather than commercial bank accounts.

It could actually squelch innovation in terms of payments by the private sector because after all who can compete with the government? So there is a mix of advantages and disadvantages.

How Will These Digital Currencies Change Our Economies. Will They Be Mostly For Domestic Payment?

We are moving towards a world where we could have even broader access to digital payments than we do right now. In a country like China, digital payments are accessible to practically anybody on their phone. In the U.S. you still need a bank account or credit card or debit card and about 5% of adults in the U.S. are still unbanked or underbanked.

So even in an advanced economy there is potential for using a CBDC to increase accessibility to digital payments. So we are still going to be living in a world where most retail payments when we enter a coffee shop, when we go to a store to buy clothes or food, all of that is going to be mediated through some form of digital payments, provided either by a private payments provider or using a CBDC.

It’s likely that cash will organically wither away once CBDCs come into force but no central bank is talking about completely displacing cash.

Can They Be Used To Settle Cross Border Trade, Or Tourism?

Of course, once countries start issuing CBDCs it’s entirely possible we might move into a world where these CBDCs are also available for use outside the country.

Most cross-border payments are already digital, so the fact that we have a digital yuan for instance isn’t going to dramatically change the renminbi’s prominence in global finance, but certainly having a digital currency and more importantly, having a cross border payments system, CIPS, that allows more efficient use of the digital yuan outside the country could one day increase the yuan’s prominence as a payments currency.

You could well conceive of a digital version of the dollar if it was easily available around the world or even a stable coin if it was issued by a large corporation such as Facebook, if it was pegged to the U.S. dollar. That could displace the currencies of many small countries or countries with central banks that are not credible.

But as a store of value, or reserve currency, I don’t think its going to make a big difference whether a currency is digital or not, or whether it is available in digital form outside the country’s borders or not.

How Will They Impact Monetary Policy?

One should recognize that the CBDC creates new opportunity for monetary policy. If we all had CBDC accounts instead of cash, in principle it might be possible to implement negative interest rates simply by shrinking balances in CBDC accounts.

It will become a lot easier to undertake helicopter drops of money. If everybody had a CBDC account you could easily increase the balance in those accounts.

Fundamentally central banks will still have a role even if the use of their money disappears at the retail level. Central banks will still be able to run monetary policy because they can affect the cost of funds in an economy by managing interest rates, but it is going to be a much more uncertain world in terms of how monetary policy is implemented and also how it is transmitted to the variables that a central bank ultimately cares about such as employment, growth and inflation.

It is going to be a much more fuzzy area in an area which is already fuzzy.

Are There Any Downsides To That?

There is a risk because helicopter money on one level really is fiscal policy and if the central bank starts being seen as the agent of the government in terms of implementing fiscal policy, that poses risks to the central bank’s independence which ultimately might not be great.

Are There Any Privacy Concerns With Central Banks Controlling Digital Currencies?

The reality is that as we move into a world where payments are entirely digital, every transaction is going to leave a digital trace. So the privacy and confidentiality issues are going to become very important ones that we will have to deal with.

Having said that it looks like there are new technologies developing that might allow for some degree of privacy, at least in basic transactions.

If you think about how China is approaching this, they are setting up different grades of digital CBDC wallets where essentially very low-grade wallets for low value transactions will have a higher degree of privacy, whereas for high-value digital wallets you will have to meet ‘know your customer’ requirements and so on at the bank.

So it’s possible we will move to a world where in fact at least some privacy is possible. But in my view the ultimate reality we will face is that no central bank wants to allow its currency to be used for illegal purposes, so auditability and traceability of transactions are going to be a feature of CBDCs to some extent or another.

What what little privacy we may have left I think is going to be under threat which is why CBDCs go far beyond just thinking about economic and technocratic issues and go into ones much deeper about the organization of society.

Updated: 9-20-2021

‘We Are At War’ With Crypto, Says Turkish President Erdoğan

The Turkish government’s plans for cryptocurrencies draw a stark contrast to its central bank digital currency intentions.

Turkey is eager to become a blockchain hub as a country with one leg in Europe and another in Asia. However, the same passion doesn’t apply to cryptocurrencies, as Turkish President Recep Tayyib Erdoğan reiterated recently.

Erdoğan hosted a question-and-answer event in Mersin, Turkey with youth from across the country. An attendant referred to the Digital Turkish Lira Collaboration Platform announced last week and asked if the central bank would embrace cryptocurrencies. He also asked Erdoğan about his opinions on crypto.

“We Have Absolutely No Intention Of Embracing Cryptocurrencies,” Answered The President, Adding:

“On the contrary, we have a separate war, a separate fight against them. We would never lend support to [cryptocurrencies]. Because we will move forward with our own currency that has its own identity.”

Binali Yıldırım, Turkey’s former prime minister and Ak Party deputy chairperson, followed up by explaining that cryptocurrencies require strict supervision due to their potential risks. “It’s like a sale of a fictive future,” he said.

Turkey first announced plans for a national blockchain infrastructure in 2019. Since then, the government and the local authorities have taken a pro-blockchain stance. The government shared plans for a central bank digital currency (CBDC) with tests planned for late 2021.

The Central Bank of the Republic of Turkey made a big step toward its CBDC goals by establishing the Digital Turkish Lira Collaboration Platform with three local technology companies.

However, President Erdoğan’s latest comments on cryptocurrencies mark a possible end for Turkey’s crypto-friendly era, in which several global crypto exchanges such as Binance and Huobi set up operations in the country.

Central Banks vs. Private Currencies: ‘The Future of Money’ With Economist Eswar Prasad

Economist Eswar Prasad’s latest book is an ambitious overview of the changing nature of money.

The history of money is filled with conflict and competition. In some cases, bloodshed. In 13th-century China, for instance, Genghis Khan instituted what some consider to be the world’s first paper money. It was forced legal tender for all debts under his domain, backed by the Grand Khan’s decree, and the punishment of death.

“Is this true for all fiat currencies?” Eswar Prasad, a professor of trade policy at Cornell University, asks in his latest book, “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.” If it was before, it likely isn’t now.

Money is changing, Prasad notes. Cash is slowly being phased out. Digital representations of dollars are on the rise.

Cryptocurrencies are laying down roots. Money, in short, is becoming more voluntary. There are more choices in how to spend money – there are credit cards and mobile payments – and even more choices about what money to spend.

“We’ve certainly come to an era now where private currencies are in real competition with central bank currencies,” Prasad told CoinDesk in a video interview.

A large part of Prasad’s book considers how central banks will deal with this monetary revolution. The major trendlines, of private companies creating their own money, the rise of open-source crypto projects, the fintech stack, have not even begun to play themselves out.

To stay relevant, governments around the world will likely issue their own central bank digital currencies (CBDCs). This might be the most significant monetary event of all, which will have far-reaching consequences at every level of society.

Money will never have been more transparent, more programmable, more technocratic. In his evenhanded account, Prasad notes how CBDCs might give banks a run for their money as well as improve market access for the financially underserved. But they won’t solve every issue – like the perennial debate between security and privacy (more on that later).

It’s an ambitious book, covering the diverse landscape of digital money, and one that will remain relevant for years to come. That’s quite a feat considering the quickly changing nature of this field.

Who can fault Prasad’s attention on Facebook’s proposed digital currency, libra (now renamed diem)? Indeed, the world is undergoing a monetary revolution, where kings rise and fall in a matter of days. Let’s be happy it’s less severe than Genghis Khan’s fiat.

CoinDesk caught up with the author to discuss Bitcoin’s legacy, the problems with CBDCs and more recent events that might make the history books. The interview has been lightly edited and condensed.

You Wrote A Book Called “The Future Of Money.” Just To Start, In A Decade Will There Be More Or Fewer Currencies?

I suspect there is going to be a winnowing out of currencies. When money first came into being, it was largely private currencies circulating. With the establishment of central banks, private currencies were essentially driven out of business by government-issued currencies. We’ve certainly come to an era now where private currencies are in real competition with central bank currencies.

But in the world of decentralized and centralized cryptocurrencies, I think we are going to see a winnowing, which will leave a few decentralized ones and, more importantly, some centralized ones to continue competing with central bank currencies, at least as mediums of exchange.

Do You Expect Something Like The Digital Euro Or Yuan Would Cause Consolidation Among State-Backed Currencies?

In countries that are small, or where the central banks themselves are not that credible, and where their currencies suffer from a lot of volatility or possibly inflation or hyperinflation, the easy availability of digital versions of major currencies such as the dollar, the euro or even the Chinese renminbi, or even stablecoins issued by corporations such as Facebook, could lead to the decimation of some of the smaller currencies.

Many of these currencies already live in the margins of viability, because their central banks are not seen as very trusted. So if you have these digital currencies, either government-issued or private, easily available for the citizens of some of these countries, you can well see them displacing their local currency.

Libra, now diem, features prominently in your book. The original vision was battered beyond belief, but the project isn’t necessarily dead on arrival.

Will Another Private Company Ever Attempt To Do Something Of That Scope?

Diem was noble in its objectives. It’s a more efficient fiat currency that could bring low-cost digital payments to the masses and create a low-cost efficient payment system for cross-border transactions that are cheaper, quicker and easier to track. I think those are very worthy objectives.

And certainly there is a fundamental need even in advanced economies, such as the U.S., that diem is addressed to meet among people who lack easy access to low-cost digital payments. In the U.S., for instance, you need either a debit card or a credit card or a bank account to have access to most forms of digital payments.

In many emerging-market countries mobile payments are becoming the norm, but still there are many people left out of the formal financial system.

There is a question about whether one really trusts a corporation like Facebook to not end up monetizing the payment services it provides.

And there are also some financial stability considerations. You know, diem is supposed to be a stablecoin backed by reserves of dollars or other hard currencies. But the Diem Association indicates that the diem units will be issued against the backing of $1 cash or cash-like instruments.

One thing the global financial crisis taught us is that cash-like instruments that may seem very liquid in normal times may end up not being liquid in abnormal times. You could end up actually with something like diem becoming an unregulated, money-market mutual fund, which creates all sorts of financial stability risks.

And furthermore, if you have central bank digital currencies, that undercuts the user case for diem, because the central bank is providing a low-cost digital payment system. Why do you need Facebook to be able to do this? So I think they are facing some real, technical, conceptual and also policy challenges.

Over the past two years, two extreme economic views gained prominence. MMT, the idea that central banks can print without limit and something like “the Bitcoin mind” that the fiat system is teetering on collapse. Is it possible to square those views?

The aftermath of the global financial crisis was a very fertile time for Bitcoin to emerge. After all, that was a time when trust in government institutions, including central banks, and trust in traditional financial institutions, such as commercial banks, was breaking down.

So the notion of being able to conduct financial transactions without the intermediation of a central or commercial bank was a very attractive proposition.

One thing we have learned in the years since the financial crisis is that central banks still have a great deal of power to create money and provide liquidity to the financial system.

You might expect this sort of money creation to lead to a decrease in the value of the money, the dollar in particular, but other major reserve currencies have also held their value quite well. That makes people more willing to retain central bank money because they know, when the chips are down, the central bank will provide liquidity. That’s why fiat currencies retain their value.

This is a proposition limited to a very small number of reserve currency-issuing economies, including the United States, the eurozone, Japan, Britain and a handful of others. Smaller economies, developing countries certainly couldn’t get away with this lack of monetary discipline.

I think this raises the larger question about whether fiat currencies will be given a serious degree of competition by cryptocurrencies, especially ones that have restricted supply. That seems to be one of the key value propositions or something like bitcoin; they cannot be created at will.

Will Bitcoin Force Governments To Be More Fiscally Responsible?

The irony of bitcoin is it was supposed to serve as a medium of exchange without a trusted party intermediating that transaction. But it has not worked that well as a medium of exchange. It has a very volatile value relative to the unit of account in most economies. And, as we know, bitcoin is quite expensive to use, transactions are rather slow, and it is quite cumbersome.

Bitcoin has not delivered on its initial promise, but somewhat paradoxically, it has become a store of value, with people holding on to it as a speculative investment.

Bitcoins legacy is going to be a very rich one. The [generic] blockchain technology underpinning the network has enabled the creation of a vast array of new financial products and services. And I think it has shown a path towards more decentralized finance, which will bring many benefits.

The other ironic part of Bitcoin’s legacy is that bitcoin was meant to take the place of central bank money, while crypto might in fact spur central banks to create digital versions of their money to remain relevant at the retail level.

But certainly, as mediums of exchange, I think offshoots of bitcoin, especially stablecoins, but also more centralized cryptocurrencies, perhaps including ethereum, will start giving fiat currencies some degree of competition.

There’s an idea that currencies can’t be both decentralized and non-volatile [without a peg]. Some bitcoiners think money has to pass through several phases as a store of value, as a global unit of account before it becomes a medium of exchange.

Is That Something That You’ve Seen In The History Of Money?

In monetary history, it has actually worked the other way. Currencies that serve as mediums of exchange, because they’re effective in that function, start having intrinsic value that then allows them to be held as stores of value.

So it is not often the case that you have a store of value, that then starts playing a medium-of-exchange function. We do have other stores of value where the value seems to come from scarcity, like gold.

There are questions about whether something like ether – if Ethereum does adopt proof-of-stake – could serve as a more efficient medium of exchange, because it would then have lower latency and higher throughput. So maybe that might be a route to stability.

But it’s hard to see proof-of-work protocols successfully supporting mediums of exchange. Bitcoin’s Taproot upgrade is supposed to provide smart contract functionality, which might actually increase the value of bitcoin, and improve its case as a medium of exchange, by improving its utility. But we don’t know yet how effectively that upgrade will be implemented.

What Do You Think The Legacy Of El Salvador Will Be?

El Salvador is trying to do what many other countries with very poor policies and ineffective central banks have tried to do: export their domestic monetary policy to some foreign party. (They did it before, when adopting the U.S. dollar as their national currency.) The notion of using bitcoin seems to be twofold. First, to escape the hegemony of the U.S. dollar and second, to ride on the bitcoin wave.

After all, if El Salvador can accumulate bitcoin, and contributes to making bitcoin even more valuable by convincing other countries to also adopt it as a medium of exchange, then El Salvador could gain some advantages as an early adopter.

But I think this is the Salvadoran living in a bit of a fool’s paradise. As I said, bitcoin doesn’t seem to have the ability to serve effectively in day-to-day transactions. And, ultimately, if you think about its ability to pay for imports, to meet its debt obligations, the reality is that El Salvador is still going to require real money. Bitcoin isn’t quite going to do the trick.

The broader aspect is that the government is trying to make up for its weak central bank and economic policies by adopting a foreign payments system. Crypto, unfortunately, is not going to solve any of the fundamental problems the country is beset by.

A quick fix like this is not going to succeed in the long run, not even in the short term.

Do You Support Strong Privacy Rights For CBDCs?

This is a fundamental question that central banks that are contemplating the issuance of CBDCs are going to have to grapple with. No central bank wants its retail money to be used for nefarious purposes, such as money laundering, terrorism, financing or other illicit activities. And the good thing about a digital form of your currency is it allows for auditability and traceability of transactions.

But if you have auditability, that means the public will have to compromise on its privacy and confidentiality in basic transactions.

I happen to think we should preserve privacy and other basic human rights in modern societies, and that is going to factor into the design of CBDCs. It looks like the technology will allow for some of these compromises to be stuck.

So, for instance, if you think about what China is doing in its digital currency trials, it is setting up low-grade digital wallets. These wallets provide a greater degree of privacy and confidentiality and transactions, but you can use them for low-value transactions. For high-value transactions, you have to meet your customer requirements and so on.

We may end up in a world where there are these different possibilities with CDBCs, some of which give you not cash-like anonymity, but at least some degree of transaction privacy and other forms of CBDCs that are fully traceable and auditable so that a central bank can be assured it is not losing control over how its money is used.

The elimination of cash will be a consequence of digital payment systems proliferating. The reality is, you’re going to live in a world where every transaction will leave a digital trace, such that the transaction is either [viewable] by a private payments provider or by the central bank or some government agency.

There is a question whether we want to live in such a world. This is not just a purely technocratic matter. It’s not just a matter of economic policy. These conversations are going to have to happen at the level of society.

For instance, the Swedish central bank, the Riksbank, has made it very clear that while it can come up with the technical design for an e-kroner, the decision about whether or not to issue it will involve a decision by the country’s parliament.

There’s urgency in every economy to have these discussions, because the reality is the use of cash is withering away fast.

Updated: 9-22-2021

Fed’s Powell Says CBDC Report Coming ‘Soon’

The chair initially said the report would come out at the beginning of summer. Then he said it would come out in September. When asked if that was still happening, he said it would come ”soon.”

The Federal Reserve’s report on central bank digital currencies (CBDC), stablecoins and cryptocurrencies is coming “soon,” according to the central bank’s chair, Jerome Powell.

The report was initially slated to come out at the beginning of summer. Powell later revised that timeline to sometime in September. During a press conference Wednesday about the Federal Open Market Committee’s (FOMC) interest rate decision, Powell did not say whether the report would still come this month.

“We think it’s really important that the central bank maintain a stable currency and payment system for the public’s benefit. That’s one of our jobs,” Powell said.

“There’s extensive private innovation, a lot of which is taking place outside the regulatory perimeter,” Powell said. ”Where the public’s money is concerned, we need to make sure that appropriate regulatory protections are in place. And today there really are not, in some cases.”

HSBC CEO Backs CBDCs Against Crypto And Stablecoins

Banking giant HSBC echoes global stablecoin concerns, calling for regulation to be equivalent to its adoption level.

HSBC, the largest European bank with total assets of $3 trillion, maintains a skeptical stance on cryptocurrency while promoting the development of central bank digital currencies (CBDC).

HSBC Group CEO Noel Quinn penned an article titled “New forms of digital money could spur growth,” in which he outlined the firm’s commitment to supporting the concept of a CBDC, as it provides transparent legal tender designed to avoid “many risks” associated with cryptocurrencies and stablecoins.

Released on Tuesday, the piece argues that global CBDC efforts like the Chinese digital yuan are the “new form of digital money,” while private money itself, including forms of stablecoins, “is nothing new.” “Current commercial bank money is privately created and widely used. But commercial bank money is anchored by central bank money and closely regulated, reflecting its systemic importance,” Quinn wrote.

The CEO went on to say that stablecoins and cryptocurrencies will require regulation that is equivalent to the extent of associated risks as the industry adoption grows further. “Even then, only designs that are sufficiently well anchored to achieve price stability, and correspond with current approaches to financial crime prevention, are likely to be useful as a reliable and safe means of payment,” he added.

While expressing skepticism over crypto, Quinn emphasized that HSBC will continue deepening the experience of cross-border payments and the global CBDC development. He noted that the bank had been actively working with many central banks, including those in the United Kingdom, France, Canada, Singapore, mainland China, Hong Kong, Thailand and the United Arab Emirates to contribute to their CBDC projects.

HSBC is one of the world’s largest banking institutions, reportedly being one of the biggest debt buyers of troubled Chinese real estate developer Evergrande alongside investment giant BlackRock. In contrast to BlackRock, which has been actively moving into crypto recently, ​​HSBC has emerged as one of the biggest skeptics of Bitcoin (BTC) and the crypto industry in general.

In August, HSBC was among British banks that opted to cut payment channels to Binance over “concerns about possible risks” to its customers. HSBC previously blacklisted the stock of business intelligence firm MicroStrategy as part of its user policy prohibiting customers from interacting with crypto.

Quinn’s remarks come amid the growing scrutiny over private stablecoins by global financial regulators. On Tuesday, United States Securities and Exchange Commission Chair Gary Gensler once again called for tougher crypto regulation, calling stablecoins “poker chips” at the “Wild West” crypto casino.

 

Updated: 9-23-2021

Fed Still Undecided About Digital Dollar, Says Chair Jerome Powell

Fed Chair Jerome Powell says there is no pressure to rush any central bank digital currency development plans.

The United States Federal Reserve is still evaluating the prospects of introducing a central bank digital currency (CBDC) for the country but says it has not yet decided on the matter.

Speaking at a news conference on Wednesday, Powell stated that the Federal Reserve was studying the merits of creating a digital dollar and has plans to issue a paper on the matter.

“We are working proactively to issue a CBDC and if so, in what form,” Powell stated while fielding questions at the news conference, adding:

“We think it is our obligation to do the work both on public policy and technology to form a basis for making an informed decision. The ultimate test we will apply when assessing a central bank digital currency and other digital innovations is are there clear and tangible benefits that outweigh any cost and risks.”

Despite several central banks launching their own CBDCs, Powell declared that the Fed was not in a hurry to join the trend.

According to the Fed Chair, the emphasis is not on speed but on getting things right while stating that the U.S. was not behind the curve on CBDC innovation.

CBDCs have come to the fore in the anti-crypto narrative espoused by global banking regulators and government policymakers.

As previously reported by Cointelegraph, banking giant HSBC has recently come out in support of CBDCs against cryptocurrencies and stablecoins.

Indeed, crypto critics in Washington like Senator Elizabeth Warren have clamored for CBDCs as “legitimate digital public money” compared to crypto, which the Senator has been known to condemn.

Earlier in September, Wall Street Journal columnist James Mackintosh argued that CBDCs could trigger “deeply negative interest rates.”

Fed governor Chris Waller has previously argued against the value proposition of CBDCs, calling them “a solution in search of a problem.”

New Decentralized Stablecoin In China Targets International Trade

Conflux will provide the technology to launch an offshore RMB stablecoin pegged to China’s CBDC, the digital yuan.

As financial authorities around the globe become increasingly concerned about stablecoin regulation, a jurisdiction in China is preparing to pilot a new yuan-pegged stablecoin for international trade.

Chris Banbury, head of global operations at permissionless blockchain project Conflux, told Cointelegraph on Sept. 21 that the firm will provide its technology to launch an offshore renminbi (RMB) stablecoin pegged to China’s central bank digital currency (CBDC), the digital yuan.

“This is going to be pegged to the digital yuan in price only with no formal integration,” Banbury noted, adding that the project will be exploring how the token trades against other currencies.

The new stablecoin project will facilitate international trade in Shanghai’s Lin-gang Special Area after the Chinese government granted the free economic zone permission to explore free trade with an offshore RMB stablecoin in July.

“While the use case for the offshore RMB stablecoin has been approved by the government of China and Shanghai, the pilot program is not endorsed by or connected with the government,” Banbury noted.

In contrast to popular stablecoins like Tether (USDT) and USD Coin (USDC), the upcoming offshore RMB stablecoin will not be a private stablecoin because it is fully decentralized, Banbury said. The executive said that the new stablecoin is called the “offshore RMB stablecoin” because its functionality will be limited to global trading:

“The term ‘offshore’ refers to the RMB’s use for international trading purposes — not domestic trading. The digital yuan is used exclusively for domestic purposes. As such, the offshore RMB is not an ‘offshore yuan.’ The digital yuan is for domestic purposes overseen by the People’s Bank of China.”

According to Banbury, the offshore RMB stablecoin is being held through the Shanghai ShuTu Blockchain Research Institute, a branch of the Conflux Tree-Graph Institute for blockchain research and development. The stablecoin has not yet received a dedicated ticker as the development team is still determining when to launch, he added.

One of the world’s first nations to debut a CBDC, China has continued to crack down on cryptocurrency trading and mining, with local authorities shutting down multiple mining farms and suspending crypto trading transactions this year.

Updated: 9-24-2021

Crypto Adoption Is A ‘Huge Challenge,’ Says Chinese Central Bank Exec

PBoC maintains its anti-crypto stance despite local players experimenting with digital yuan-pegged stablecoins.

The rapid adoption of cryptocurrencies like Bitcoin (BTC) poses a major challenge for the traditional financial system, an executive at the Chinese central bank has warned.

Wen Xinxiang, director of the payment and settlement department at the People’s Bank of China (PBoC), has expressed concerns over the growing popularity of cryptocurrencies and fiat-pegged stablecoins.

Pointing to Bitcoin’s market value now surpassing $800 billion and the total stablecoin market capitalization exceeding $120 billion, Wen outlined major risks associated with the crypto market at a payment and settlement forum on Friday, the Shanghai Securities Journal reported.

According to the official, one of the main challenges of crypto is that the industry is capable of operating separately from the traditional payment system supported by commercial banks and payment institutions. Cryptocurrencies also cause issues for the payments services by banks, weakening the power of clearing organizations, Wen reportedly noted.

Wen also argued that the alleged anonymity of cryptocurrencies makes it an attractive tool for facilitating illegal transactions such as money laundering, urging for more measures for the traditional financial system to compete with crypto:

“The challenge of virtual currency is huge. When the traditional financial system responds to the competition in the financial industry from big tech companies, it can also rely on traditional methods such as law and supervision to increase anti-monopoly efforts and strengthen personal privacy and information protection.”

Wen’s remarks further reaffirm the anti-crypto stance of the Chinese government as China has continued to crack down on crypto trading and mining this year, with local authorities shutting down multiple mining farms and suspending crypto trading transactions.

PBoC deputy governor Fan Yifei previously expressed concerns over stablecoins in July, stating that the speed of the development in the private payments system was “very alarming.” Despite the Chinese government’s skepticism on stablecoins, some local players are experimenting with decentralized stablecoins pegged to China’s central bank digital currency, the digital yuan.

Italian Payments Giant Nexi Says It Is ‘Contributing’ To Design of Digital Euro

“We are starting to talk about a new version of cash,” Nexi’s CEO said. “That’s why we are engaging with the ECB.”

The head of Italian payments giant Nexi says his company is “engaging” with the European Central Bank (ECB) and “contributing” to the design of the bloc’s digital euro.

Speaking at the Money 20/20 conference on Thursday, Nexi CEO Paolo Bertoluzzo told CNBC’s Karen Tso a central bank digital currency (CBDC) could be a “force” in the evolution of digital payments.

“We are starting to talk about a new version of cash,” Bertoluzzo said. “That’s why we are engaging with the ECB.”

In July, the ECB said it would move to the exploration phase of its plans to develop a digital euro. Earlier this month, Jurgen Schaaf, an adviser to the ECB, said the two-year investigation period was not a confirmation that the plans would go ahead.

In the meantime, China has forged ahead with its digital yuan. In August, the digital yuan was used in the domestic futures market for the first time following multiple other test runs.

The U.S. has fallen behind China and the European Union, and has yet to consider exploring a digital dollar for its domestic and global markets. A U.S. report from the Federal Reserve on the benefits of CBDCs is expected sometime later this month.

Updated: 9-27-2021

Digital Dollar Advocate Will Retire As Dallas Fed President

At a November 2020 virtual conference, Rob Kaplan said “it is critical that the Fed focuses on developing a digital currency in the coming months and years.”

Rob Kaplan, the president and chief executive officer of the Federal Reserve Bank of Dallas will step down from his position after more than six years.

In a Monday announcement, the Dallas Fed said that Kaplan, its thirteenth president and CEO, would be retiring beginning Oct. 8. The 64-year-old cited recent attention to his “financial disclosure risks” in his decision to step down, likely referring to news outlet reports that he had traded stocks in companies including Apple, Alibaba, Amazon, Facebook, Google and Tesla in 2020 while casting his vote on United States monetary policy.

The Dallas Fed president has denied any allegations of impropriety, saying that he “adhered to all Federal Reserve ethical standards and policies.” He added his “securities investing activities and disclosures met Bank compliance rules and standards.”

Kaplan was also an advocate for the U.S. developing a central bank digital currency, or CBDC, as part of the country’s economy and fiscal policy. At a November 2020 virtual conference, the president said “it is critical that the Fed focuses on developing a digital currency in the coming months and years.”

On the national stage, Fed chair Jerome Powell said the government agency was still undecided on a digital dollar but planned to issue a discussion paper on the subject. Powell has often said it is more important “to get it right than it is to be first” when it comes to rolling out a CBDC in the United States.

How Digital Cash Can Lift Gross National Happiness

The tiny kingdom of Bhutan could prove the perfect electronic currency laboratory for giant neighbor India.

The tiny Himalayan kingdom of Bhutan, landlocked between the teeming multitudes of China and India, shot to global fame in the 1970s with gross national happiness: a broad measure of overall welfare it prefers over the more traditional metric of gross domestic product, which only includes production of goods and services, even those that ultimately leave us miserable.

More recently, the hydroelectric-powered nation decided to become not just carbon neutral — but carbon negative, its pristine forests acting as a sink-hole to absorb the greenhouse gases released by its coal-burning neighbors.

And now Bhutan wants a digital currency.

Will a new payment instrument make the 800,000-strong, mostly Buddhist society happier than it already is? My answer: It might.

Cash is a relatively new construct in Bhutan. Up until the 1950s, the people were still bartering in rice, butter, cheese, meat, wool, and hand-woven cloth. Even civil servants accepted their pay in commodities. Seven decades later, the Royal Monetary Authority has announced a pilot with San Francisco-based Ripple for a national currency running on distributed electronic account-keeping.

The open-source XRP ledger claims to be carbon neutral and 120,000 times more efficient than proof-of-work blockchains. Unlike El Salvador, which has chosen to use the volatile and energy-guzzling Bitcoin as money alongside U.S. dollars, Bhutan wants to retain the ngultrum, the national currency.

The bet is that a paperless version of the central bank’s liabilities would be a more attractive alternative to bank deposits for a sparse population scattered across a rugged, mountainous terrain.

Big gains are expected from the monetary authority making its IOUs available to the public directly, as electronic cash that can be spent or saved without requiring a commercial bank in the middle. The goal of 85% financial inclusion by 2023 is a substantial jump over the 67% of adult Bhutanese who have bank accounts. Only a fifth of the population has any credit facility.

Bhutan is moving to test wholesale, retail and cross-border applications of its central bank’s tokens, even as advanced nations are still debating their utility. The Federal Reserve is yet to make up its mind; research that will reveal its assessments of the pros and the cons of a digital dollar is eagerly awaited around the world. Among larger economies, China’s e-CNY plans are the most advanced.

That creates a bit of a problem for the government in Thimphu, the Bhutanese capital. The ngultrum is pegged 1:1 to the Indian rupee, which also circulates freely. Since India is the main trading partner by far, the arrangement works fine. But already, 97% of the population has access to the Internet, most of them via their mobile phones.

Any sudden preference among the people to use the e-CNY because it’s convenient to send and receive via smartphones could be destabilizing. With the Reserve Bank of India in no hurry to start offering a digital rupee, Bhutan is perhaps right to press ahead with its own plans.

In fact, the $2.5 billion economy would be doing its 1,000-times bigger neighbor a favor. Bhutan’s pilots would be extremely valuable to the Reserve Bank in Mumbai. That’s because the digital ngultrum will be an exact representation of the Indian currency — only twice removed.

Important questions about the future rupee tokens, such as whether they will rob commercial banks of deposits, can be answered by looking at how the Bhutanese people use them.

Digitizing the currency may only be the first step. A far more ambitious idea, which was discussed in a conference late last year attended by the local financial industry as well as United Nations officials, is to tokenize happiness.

A digital commodity in happiness could be like cap-and-trade carbon credits, with all 20 districts — or dzhongkhags — given quotas based on the gross national happiness index, an aggregate of nine indicators including education, health, psychological well-being, governance and culture.

The laggards would have to obtain tokens from the overachievers. The “price” of happiness could create an incentive for the strugglers to perform better.

Far fetched? For now, perhaps. But Bhutan is a neat little laboratory. With just five banks, there isn’t much by way of entrenched traditional finance. Only 6.5% of the population has all three: a savings account, insurance and some credit.

Bank of Bhutan Ltd., which had roughly 300,000 deposit accounts in 2019, more than any other lender, had only 140,000 mobile banking customers.

The central bank’s desire to take cash digital could create opportunities for blockchain-based decentralized finance. Hopefully, it won’t use up too much energy and will leave people happier than they are now. Especially in remote places like the northernmost dzhongkhag of Gasa, which has all of two ATMs.

Updated: 9-28-2021

CBDCs Can Cut Cross Border Remittance Costs By Half

A BIS report based on a multi-CBDC pilot also showed significant improvements in international remittance speed.

The Bank for International Settlements (BIS) has published a report touting the benefits of central bank digital currencies (CBDC), especially in reducing the cost of cross-border payments.

According to the report titled “Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments” published on Tuesday, CBDCs can reduce the transaction throughput of cross-border payments from three to five business days to only a few seconds.

The stated claim is part of the conclusions drawn from phase two of Project Inthanon-LionRock involving the central banks of China, the United Arab Emirates and the Hong Kong Monetary Authority.

“The prototype demonstrates a substantial increase in cross-border transfer speed from days to seconds, as well as the potential to reduce several of the core cost components of correspondent banking,” the report stated.

As stated in the report, a PricewaterhouseCoopers estimate based on the results of the phase two prototype showed a possible 50% reduction in the cost of cross-border payments.

The BIS report also stated that the speed and cost benefits of CBDCs can even be more significant among jurisdictions where robust correspondent banking relationships are non-existent.

With phase two completed, the project now dubbed “mCBDC Bridge” will move into the third phase, which will involve further pilot studies as well as the creation of a possible roadmap for large-scale testing.

The mCBDC Bridge project is one of many multi-central bank digital currency projects as the emphasis appears to be shifting toward more collaboration in the area of national digital currencies.

As previously reported by Cointelegraph, Australia, Malaysia, Singapore and South Africa recently announced a joint CBDC initiative.

These collaborative efforts are also being championed by entities such as the BIS and the International Monetary Fund as being more advantageous to the current financial landscape, especially amid the growing popularity of cryptocurrencies.

Indeed, the BIS has consistently advocated for CBDCs as a countermeasure to the proliferation of crypto and stablecoins in global payments.

Updated: 9-29-2021

Ukraine’s Central Bank Seeks To Hire A Blockchain Developer, Job Posting Reveals

The development marks another sign of the digital hryvnia project picking up steam.

The National Bank of Ukraine, the country’s chief monetary authority, has recently taken to professional social network LinkedIn to promote its blockchain developer job opening. The ad was published by the director of NBU’s IT department, Vladimir Nagornyuk.

The ad goes on to list “development, implementation and modification of infrastructure services […] and distributed systems” among the prospective employee’s duties, in addition to mentioning smart contracts and Hyperledger competencies among the requirements for the job.

The central bank’s interest in blockchain hires adds to other recent news coming out of Ukraine’s CBDC project, the e-hryvnia. Last week, speaking at a round table discussion on the opportunities and risks of virtual assets’ legalization, Ukraine’s deputy minister of digital transformation Oleksandr Bornyakov mentioned that the e-hryvnia pilot was underway.

NBU has been considering the possibility of issuing a central bank digital currency, or CBDC, since 2016, while pilot testing of the e-hryvnia as a means of blockchain-based retail payments began two years later, in 2018.

The work may have accelerated following the recent adoption of legislation designed to establish a transparent regulatory framework for digital assets and spur the development of the nation’s crypto industry.

 

Updated: 9-30-2021

New Zealand Central Bank Releases Issue Paper On Digital Currency

The central bank of New Zealand has outlined the major benefits of CBDC designs based on blockchain technology.

The Reserve Bank of New Zealand (RBNZ) published an issue paper providing its perspective on central bank digital currencies (CBDC).

The paper outlines CBDC purposes, designs, as well as the potential benefits and associated risks. The bank will be seeking comments on the proposed paper until Dec. 6.

The document focuses on a “general-purpose” CBDC that is a digital currency issued to “any individual or business that wants to use it.”

“Such a ‘general-purpose’ CBDC would be closer in function to cash and better placed to fulfil the role of central bank money than a ‘wholesale’ CBDC,” RBNZ wrote.

The central bank emphasized that a potential New Zealand CBDC would be digital money issued by the bank alongside cash. While the amount of cash in circulation has been growing in New Zealand, it is still used “proportionately less for transactions by most people,” the bank noted.

“We want people to know that the case for keeping cash is well understood and accepted by the Reserve Bank. Cash is here to stay for as long as some of us need it,” RBNZ Assistant Governor Christian Hawkesby said.

The paper also points out two major technological CBDC designs, including an “account-based” CBDC that relies on conventional account-based structures and a “token-based” CBDC, which is enabled by new technologies such as blockchain and public-private key cryptography.

According to the RBNZ, a token-based CBDC could enable the automatic execution of certain actions like rent or bill payments through smart contracts, thus reducing the need for manual or third-party involvement. A token-based CBDC could also support the development of new retail payment services, the bank added.

The central bank also said that its proposed CBDC offers an opportunity to design a form of money that balances interests of both privacy and traceability. “Users may want to retain full privacy in transacting, for either legitimate or unlawful reasons.

Meanwhile government agencies may want to retain some traceability of CBDC balances or tokens to reduce tax evasion or avoidance, or money laundering and financing terrorism,” RBNZ noted.

The RBNZ officially announced its plans to open up public consultations regarding a CBDC in July. Last year, Hawkesby claimed that New Zealand had “no imminent plans” to issue a CBDC.

Bank of England Unveils All-Star Payments And Tech Lineup For CBDC Forums

Executives and experts from Google, Amazon, PayPal and ConsenSys will be assisting Britain’s central bank with its CBDC research.

The United Kingdom’s central bank is ramping up its research into a central bank digital currency (CBDC) with the selection of a long list of banking and fintech experts to assist it.

On Thursday, the Bank of England announced the membership of its CBDC Engagement and Technology Forums and they include some big names in technology and finance including Google, Mastercard, Consensys — and even Spotify.

This week’s announcement is a signal that the central bank is taking its CBDC plans seriously. It stated that the Technology Forum draws resources from leading experts in the field of digital payments and cryptocurrencies.

“The Forum will help the bank to understand the technological challenges of designing, implementing and operating a CBDC.”

The Engagement Forum includes “senior stakeholders from industry, civil society, and academia,” that will assist the bank and Treasury to “understand the practical challenges of designing, implementing and operating a CBDC.”

Technology experts include PayPal’s blockchain and cryptocurrency chief technology officer, Edwin Aoki. Principal software engineer at Google, Will Drewry, joins him, as does CBDC and payments manager Matthieu Saint Olive from Ethereum software solutions firm ConsenSys.

The Technology Forum also includes executives and payments experts from Amazon Web Services, MasterCard, Visa, Stripe, IMB, R3 and music streaming platform Spotify.

The Engagement Forum is comprised of banking executives and business experts, including co-CEO of Global Banking and Markets at HSBC Georges Elhedery, Morgan Stanley’s chief operating officer Arun Kohli, and Stephen Gilderdale, chief product officer at interbank communication standard SWIFT.

The Bank of England began tentatively researching CBDCs in November 2020, as reported by Cointelegraph. In April, the central bank posted a list of vacancies related to CBDC research and development.

The Bank of England remains skeptical of cryptocurrencies, however, with its governor Andrew Bailey warning about the risks of trading cryptocurrencies in May, telling investors “buy them only if you’re prepared to lose all your money.”

Updated: 10-1-2021

Global CBDC Bridge Needs Public And Private Cooperation, Says BIS

Cooperation between public and private sectors would be vital for a global CBDC system, says a new joint report.

The Bank for International Settlements (BIS) continues investigating the development of the global central bank digital currency (CBDC), publishing a new joint report with seven central banks.

Released on Thursday, BIS’ latest CBDC report refers to joint efforts with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the United States Federal Reserve, Sveriges Riksbank and the Swiss National Bank to explore a retail CBDC.

The report provides an executive summary of progress made by the investigation since the October 2020 publication of a report that pointed out the common foundational principles and core features of a CBDC. The BIS also published three detailed CBDC reports related to CBDC system design and interoperability, user needs, adoption and financial stability implications.

According to the new report, an effective CBDC system would “need to involve both public and private actors to ensure interoperability and coexistence with the broader payment system.”

The central banks participating in the report agreed that any CBDC ecosystem would involve the public and private sectors in a balance to provide “desired policy outcome and enable innovation that meets users’ evolving payment needs.” The ability to bridge between CBDCs and traditional payment systems would be crucial for the financial system, the report stated:

“Yet a theme that cuts through almost every consideration is interoperability. Domestic interoperability would be key to ensuring a CBDC system coexists with other national payment systems and contributes to broader accessibility, resilience and diversity.”

The central bank group will continue to explore CBDC issues and plans to increase global and domestic outreach to maintain an open and informed dialogue on CBDC. “Collectively, we are sharing insights from our work with other central banks, including in developing economies,” the banks noted.

The new joint central bank report comes amid payment giant Visa officially introducing its own blockchain interoperability project on Thursday, aiming to bring a “universal adapter” connecting multiple cryptocurrencies, stablecoins and CBDCs.

Previously, tech giant Microsoft won a blockchain patent describing a cross-chain system that allows individuals and organizations to create and manage tokens across multiple distributed ledger networks and platforms.

Brazil Stock Exchange Wants To Provide Oracles For Digital Real

“We are looking at it and evaluating the best ways to interact and participate in this ecosystem,” a B3 executive said.

Brazil Stock Exchange (B3), one of the world’s few exchanges trading Bitcoin (BTC) exchange-traded funds, is exploring ways to provide data inputs for the country’s central bank digital currency, or CBDC.

Luis Kondic, managing director of listed products and data at B3, claimed that the stock exchange is considering providing oracles to bridge external data with Brazil’s projected CBDC, the digital real. The executive provided his remarks at a CBDC-related online event hosted by the Central Bank of Brazil on Thursday, Cointelegraph Brasil reported.

“We are looking at it and evaluating the best ways to interact and participate in this ecosystem. However, I believe this is something for us to evolve and move forward to meet the future needs of this programmable cash payments system,” Kondic said.

Oracles are a crucial part of smart contracts, providing data feeds from external sources to execute smart contacts under specific conditions. According to Kondic, smart contracts can potentially enable several benefits for the Brazilian CBDC, including implementing automatic profit distribution based on B3’s oracle inputs.

“There are numerous applications, such as, for example, you can schedule the money to be distributed among shareholders automatically according to the company’s profits; schedule the money for automatic settlement of issuance and payment of receivables or pay suppliers automatically within a distribution chain,” the executive explained.

Other banks like the Reserve Bank of New Zealand have also outlined potential smart contract applications for CBDCs, including automatic execution of rent or bill payments.

The news comes amid the Brazilian central bank progressing with the CBDC development after forming a ​​dedicated group to study the crypto industry in October 2020. On Sept. 9, the Central Bank of Brazil issued a presentation stating that the authority is studying potential smart contracts and decentralized finance applications as part of its CBDC investigation.

The regulator expects to roll out the first digital real pilots in 2023 after coming up with a proof-of-concept in 2022.

Updated: 10-2-2021

Actions Speak: China’s Crypto Ban May Reveal Digital Yuan CBDC Goals

China’s ban on cryptocurrencies causes a mild slump, but recovering from this FUD is not new for crypto as China’s motives come under the scanner.

Chinese regulatory authorities gave yet another shock to the cryptoverse by imposing a ban on all cryptocurrency transactions on Sept. 24. This measure came just as the market was beginning to recover from the government’s June prohibition on cryptocurrency mining activities.

The fear, uncertainty and doubt (FUD) that resulted from the ban caused Bitcoin (BTC) to crash nearly 9% within five hours, from exchanging hands in the $45,000 range to bottoming out at $41,142. Soon after, Alibaba announced that it would be banning any sale of cryptocurrency rigs and related accessories starting Oct. 8.

However, the flagship cryptocurrency has since recovered to trading above pre-ban levels of around $45,000. At the time of writing, BTC is exchanging hands in the $47,300 range.

This recovery could be on the back of two favorable developments: the chairman of the United States Federal Reserve, Jerome Powell, mentioning that there is no intent to ban Bitcoin or cryptocurrencies in the United States and Iran’s lifting of its temporary Bitcoin mining ban.

This is not the first time that BTC or the market as a whole has recovered from FUD caused by China. As per an analysis by Cointelegraph, the cryptoverse has bounced back from China’s crypto bashing over a dozen times. This instance marks another of these inevitable recoveries.

In addition to the falling price of tokens as an immediate consequence of the ban, the long-term impact on crypto businesses and investors in China is enormous. Huobi Global, the most widely used cryptocurrency exchange in China by trading volumes, immediately stopped crypto transactions for its Chinese investors per the regulator’s guidelines.

Additionally, the exchange outlined a plan for their users in China that ensures users can safeguard their assets before their accounts are permanently closed on Dec. 3. Du Jun, a co-founder of Huobi Global cryptocurrency exchange told Cointelegraph on the matter:

“Customers will be able to transfer their assets to other exchanges or wallets over the next few months. If customers don’t or cannot see our latest announcements, we will provide other ways to protect customer assets and wait for them to be withdrawn.”

In contrast to the previous instances in which China has thrown shade on cryptocurrencies or announced “bans,” this time there seems to be no gray area or loopholes that allow crypto businesses to continue to offer their services in the country.
China’s motive

As is the case with many countries, China’s hostility toward crypto seems to juxtapose the promotion of its own central bank digital currency (CBDC), the digital yuan.

Ariel Zetlin-Jones, associate professor of economics at Carnegie Mellon University’s Tepper School of Business, told Cointelegraph:

“China clearly wants to promote the digital Yuan. Removing its competitors by banning crypto activities is one way to do this so it seems reasonable to consider this motivation as one rationale for their policies.”

Kristin Boggiano, co-founder and president of cryptocurrency exchange CrossTower, told Cointelegraph: “China seems to be choosing control over innovation, and its actions indicate that crypto could be a threat to the digital yuan as much of crypto is permissionless.”

The government has been pushing its CBDC initiative throughout various provinces to the extent that the Xiaong’an New Area enabled the country’s first blockchain-based salary transaction in June this year.

This shows immense belief and commitment to the digital currency initiative, as compared to other major economies where the point of discussion is still around the safety and reliability of digital currencies. Thus, this move could definitely be an effort to curb the proliferation of “private” cryptocurrencies and push users in China toward the digital yuan.

China’s Loss, America’s gain?

Huobi’s Jun further mentioned that, since the exchange has been expanding its footprint across various countries in recent years, business outside of China already accounts for nearly 70% of the firm’s entire portfolio.

In July, after a series of crackdowns on Bitcoin mining in China, the Bitcoin mining difficulty was impacted immediately, dropping 30%. Zetlin-Jones said similar outcomes are now emerging on the Ethereum blockchain where large Ether (ETH) mining pools in China are now going offline. Zetlin-Jones continued:

“The reduction in mining difficulty reduces the entry costs for mining and creates opportunity for new entrants to mining. While I believe this could be beneficial in driving decentralization in mining, it is unclear this is an opportunity for the U.S. in particular.”

Charles Allen, CEO of BTCS Inc. — a publicly-traded company offering blockchain infrastructure — remains optimistic. He told Cointelegraph: “Blockchain technologies have the power to change the world in the same way the internet did. Simply put, they are the future of finance and beyond.”

Allen said that if China doesn’t want a hand in development and innovation, it is 100% an opportunity for the United States in the long run.

U.S. Senator Pat Toomey is of a similar opinion, writing on Twitter, “China’s authoritarian crackdown on crypto, including #Bitcoin, is a big opportunity for the U.S. It’s also a reminder of our huge structural advantage over China.”

The opportunity for the United States and other major economies here is huge, as various sectors of crypto businesses, like exchanges and mining, need to relocate out to China and thus, would contribute to the surrounding economy with employment opportunities and a consistent capital flow.

Even though there is absolute clarity about the law for crypto business and services, individual investors and cryptocurrency holders are still uncertain about whether the possession of cryptocurrencies is illegal.

Boggiano claimed that, even though China-based investors cannot transact in cryptocurrencies over exchanges, the over-the-counter access to the crypto market remains relatively unaffected.

Updated: 10-3-2021

IMF Recommends CBDC And Global Crypto Standards For Financial Stability

The new policies recommended by the IMF aim to curb down the financial risks associated with global crypto adoption.

The International Monetary Fund (IMF) released a set of policies for the emerging markets and developing economies to ensure financial stability amid global crypto adoption.

The IMF believes in the potential of crypto assets as a tool for faster and cheaper cross-border payments, citing the dramatic increase in the value of the crypto markets despite the bearish trends from May 2021. The report attributes high returns, transaction costs and speed and reduced Anti-Money Laundering (AML) standards as the primary drivers for crypto adoption.

To counter the resultant financial stability challenges as a result of increased trading of crypto assets, IMF recommends that:

“Policymakers should implement global standards for crypto assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps. Emerging markets faced with cryptoization risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies.”

The IMF report shows that the crypto market valuation has expanded beyond Bitcoin (BTC), along with a sharp increase in stablecoin offerings. Three years of IMF data suggests that risk-adjusted returns of non-stablecoin crypto assets such as Bitcoin are comparable to other mainstream benchmarks like S&P 500, as detailed in the figure below:

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

Besides central bank digital currency (CDBC) issuance, the IMF further recommends “proportionate regulation to the risk and in line with those of global stablecoins.” In addition to CBDC implementation, de-dollarization policies will help governments tackle macro-financial risks.

Back in July 2021, Cointelegraph reported on the IMF’s plan to “step up” the monitoring of digital currencies. Highlighting the benefits of digital assets, an older IMF report read that “payments will become easier, faster, cheaper and more accessible, and will cross borders swiftly. These improvements could foster efficiency and inclusion, with major benefits for all.”

The IMF has also previously planned to meet Salvadoran President Nayib Bukele for discussing the implications and possibilities of mainstream Bitcoin adoption.

Federal High Court Of Nigeria Approves eNaira CBDC Rollout

eNaira will continue to circulate alongside its fiat counterpart, promising a faster, cheaper and more secure option for monetary transactions.

The Nigerian Federal High Court joins the growing list of regulators across the globe to approve the rollout of a central bank digital currency (CBDC) as a legal tender. Named eNaira, the digital currency will be issued by the central bank and supported by a homegrown eNaira wallet.

Nigeria’s CBDC issuance approval was revealed in a federal court hearing held on Oct. 2 led by Justice Taiwo Abayomi Taiwo, according to a report by Voice of Nigeria. The official eNaira website says that the digital version of the Nigerian naira will be made available universally, stating “anybody can hold it.”

As previously reported by Cointelegraph, the launch of the Nigerian CBDC was dedicated to mark the country’s 61st Independence Day. While eNaira will continue to circulate alongside its fiat counterpart, it is marketed as a faster, cheaper and more secure option for monetary transactions.

It is important to note that the move to introduce digital naira also coincides with the falling value of the nation’s fiat currency, currently standing at its lowest point since 2003.

A recent Cointelegraph report shows that Kenya, South Africa, Nigeria and Tanzania have seen the highest crypto adoption among the African nations, resulting in a 1200% market growth between July 2020 and June 2021.

Supporting data from Chainalysis suggests that peer-to-peer platforms, banking restrictions and fear of inflation have contributed to the growing market in Africa. As a result, the region continues to attract investments, with the latest leading to a $15 million Series A funding for Yellow Card crypto exchange.

Central Banks Want To Issue Digital Coins But There’s A Major Trade-Off

CBDCs have the potential to disrupt the world of money as we know it and lots of people are trying to figure out how to preserve the status quo.

From the Federal Reserve to Bhutan’s Royal Monetary Authority in the Himalayas, central banks are working on digital currency studies or projects. There are several reasons for this.

Most importantly, private cryptocurrencies and so-called stablecoins are rapidly becoming popular rivals to traditional money; Central bank digital currencies (CBDCs) would not only keep governments in the game but could help make payments and monetary policy more efficient and direct.

CBDCs have the potential to destabilize everything from traditional banking to the power of the U.S. dollar — and authorities are wary of too much disruption to global financial stability. There is a tricky trade-off: The more limits and oversight get built into state-backed cryptocoins the less likely they are to be used.

Privacy Is Part Of It: Unlike traditional paper money, CBDCs can be constantly tracked because the identity data of owners and their transactions are kept in the blockchain — the cryptographic form and function of all digital coins. It will be up to central banks whether or how closely they keep tabs on people.

For the U.S., CBDCs pose a geopolitical concern. The threat doesn’t come from China’s digital yuan taking the dollar’s place as the world’s currency of choice for international trade.

It’s from digital currencies’ ability to shortcut the systems for cross-border payments. The Bank for International Settlements — the central bankers’ central bank — touched on this in a study released on Sept. 30.

Right now, if you want to send dollars around the world — which many people and businesses do daily — you need to use an international payments network, like SWIFT. At some point in the process, your money has to pass through an American-licensed settlement bank.

This gives the U.S. power beyond its borders because it can demand that banks refuse to handle any dollar payments for foreign banks (or whole countries). That’s how financial sanctions against countries like Iran and Russia, or bad individuals anywhere, are enforced.

Digital currencies, including ones created and controlled by central banks, bypass all of this. CBDCs could easily be sent across borders directly between any users. They could then be locally exchanged into and out of dollars if someone else in the same country owns greenbacks — which many people and banks do.

That’s not a bad outcome for governments around the world that want to lessen U.S. financial influence. That includes European nations, as Josh Younger, an analyst at JPMorgan Chase & Co., noted in the tail-end of a report on CBDCs in May last year.

“For high-income countries and the U.S. in particular, [creating a] digital currency is an exercise in geopolitical risk management,” he wrote. That’s one strong motive for the U.S. to develop its own digital currency. It can’t defend its interests if it isn’t in the game and people everywhere use other digital currencies. The same concern holds for almost all other countries.

But introducing a CBDC creates threats to ordinary banking and financial stability. CBDCs might make a very good alternative to holding cash in bank deposits.

Runs on banks could be faster and more ruinous if people can simply swap a private bank deposit for a central bank’s digital cash. People could also decide it’s wiser to hold money in CBDCs if their funds exceed amounts covered by government-backed deposit insurance.

If banks start losing lots of deposits to digital cash that could seriously disrupt their role in the economy and their business models. They would have to look elsewhere for funding that matches their lending: Longer-term bonds, or commercial paper for example. That would likely increase their funding costs and mean they would charge higher interest on loans, or cut back lending. Or both.

There are ways to manage these risks. Central banks can impose limits on how much any individual is allowed to either hold, or transfer at any time. And they possess this information because of the very nature of digital coins.

CBDCs can also be made less attractive by applying an interest rate to them that is lower than bank deposits. A central bank could even apply negative rates to its coin at times of potential panic, or if demand for them is higher than it likes.

But there’s the rub: The more you restrict the use of a currency, or spy on its users, or change the costs of owning it and paying for things with it, the less attractive it will be. Private cryptocurrencies are popular partly because they are off the grid of government oversight.

Managing the CBDC threat isn’t necessarily hard. The difficulty lies in deciding how heavy-handed to be.

Updated: 10-4-2021

Fed To Launch CBDC Review As Early As This Week

Officials at the Fed are set to release a paper soliciting public comment on a central bank digital currency.

The U.S Federal Reserve is set to initiate a review of the risks and opportunities in introducing a central bank digital currency (CBDC) as early as this week, according to a report by the Wall Street Journal.

* Officials at the Fed will release a paper soliciting public comment on the matter, the WSJ reported Monday.

* A decision is unlikely to be taken quickly given the difference in opinion between Fed officials on the benefits and risks that a CBDC could offer.

* Such a report exploring these further was initially expected in September. Fed Chair Jerome Powell stressed on Sept. 22 that one was coming “soon.”

* However, the decision to launch a CBDC would only be made if there are “clear and tangible benefits that outweigh any costs and risks,” he said.

* Powell referred to the development of a digital dollar as “critical work” last week during a Senate Banking Committee hearing, adding that it would require legislation from Congress in order to proceed.

Hong Kong Exploring CBDC As Part Of Fintech Strategy

A new study from Hong Kong regulators is expected to present initial thoughts and findings on CBDCs during the summer of 2022.

On Monday, the Hong Kong Monetary Authority (HKMA) released an official white paper exploring the potential of a retail-focused central bank digital currency (CBDC), the digital Hong Kong dollar (e-HKD).

According to the document, the HKMA will seek to understand the “potential architectures and design options” from a technical and regulatory policy perspective, with the ambition of creating a dual-tier system — the first being designed for a “central bank to issue and redeem CBDC,” and the second being retail-centric for “commercial banks to distribute and circulate either rCBDC or CBDC-backed e-money.”

Hong Kong debuted its investigation into CBDCs in 2017 with Project LionRock, and in early 2020, it embarked on a seven-month collaboration with the Bank of Thailand, prospecting the “potential of wholesale CBDC for cross-border payments.”

The initiative soon evolved into Multiple CBDC Bridge in February 2021 following the introduction of the Central Bank of the United Arab Emirates and the Digital Currency Institute of the People’s Bank of China.

This “m-CDBC” will aim to use distributed ledger technology to deliver a proof-of-concept model for a unified payments network.

In June of this year, the HKMA announced Fintech 2025, a financial technology initiative focused on five areas of innovation, including offering support to central banks in the adoption of a CBDC, developing a skilled workforce, as well as the initiative introduced today. HKMA chief executive Eddie Yue said:

“The Whitepaper marks the first step of our technical exploration for the e-HKD. The knowledge gained from this research, together with the experience we acquired from other CBDC projects, would help inform further consideration and deliberation on the technical design of the e-HKD.”

“We also look forward to receiving feedback and suggestions from the academia and industry to enrich our perspectives,” Yue added.

Despite issuing a blanket ban on all crypto-related activities alongside Hong Kong, the People’s Republic of China has been consistently ambitious in its pursuit of a CBDC, establishing itself as a prominent leader in the burgeoning global market.

Nigeria Court Approves CBDC Rollout

The court ruled that the rollout of the CBDC was a matter of national interest and should proceed.

A federal court in Abuja, Nigeria, approved the rollout of the country’s central bank digital currency (CBDC), the eNaira.

* The decision was disclosed Oct. 2 by Justice Taiwo Abayomi, state-run broadcaster Voice of Nigeria reported Sunday.

* The Central Bank of Nigeria had previously received a cease and desist letter concerning the name “eNaira” from ENaira Payment Solutions, which claimed a trademark infringement.

* The court ruled that the rollout of the CBDC was a matter of national interest and should proceed. However, it also set a date for a further hearing on Oct. 11, Voice of Nigeria said.

* The digital currency was originally set to be launched on Oct. 1 but was postponed until Oct. 4 in deference to the former date coinciding with the country’s 61st anniversary of independence.

Updated: 10-5-2021

Crypto’s Future Could Soon Look A Lot Like The U.S. Dollar

The dollar is entering the crypto age, and the U.S. government is poised to give its clearest signal yet on how that will happen.

The guidance will come through a trio of pending reports related to public and private efforts to digitize the world’s global reserve currency. First, the Federal Reserve Board will release a paper as soon as this month on the U.S. payments system that’s expected to provide direction on whether the country should issue a so-called central bank digital currency.

Soon after, the Fed Bank of Boston will publish long-awaited research and open-source computer code on technology that could underpin a digital dollar. Finally, the President’s Working Group on Financial Markets is set to issue policy recommendations on how to regulate stablecoins, which are in effect digital dollars created by private companies.

When put together, the three reports will provide a road map for the broader financial community on how the Fed and Biden administration see the dollar’s crypto future playing out, the extent to which they embrace adoption of a digital currency and the guardrails they may see as necessary to protect individuals and investors in what’s now a largely unregulated corner of the market.

What was once seen as a distant project has taken on an increased sense of urgency as the value of digital assets has exploded to about $2 trillion and other countries, such as China, move forward rapidly with plans for their own sovereign digital currencies.

“This has gone from, ‘It’s an interesting idea,’ a few years ago to, ‘We need to have a pilot project,’” said Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center, of a Fed-issued digital dollar.

The Fed Board’s paper is expected to focus on the U.S. payments system as well as the potential prospects of a Fed-issued digital currency. Over the past several months, U.S. central bankers have been divided over whether creating a digital dollar is wise, with Fed Vice Chair for Supervision Randal Quarles describing its benefits as “unclear” and its risks “significant and concrete.”

Proponents of creating central bank digital currencies, or CBDCs, say they can speed up payments, reduce their cost, and increase access to the financial system for the underbanked. There are also risks, though.

A group of world central banks including the Fed, the Bank of England, and the European Central Bank last week issued a report warning that CBDCs could exacerbate bank runs by making it easier for depositors to clear out their cash during a crisis.

The ultimate issuance of a CBDC would take years and the Fed would prefer Congress to pass legislation authorizing its issuance, Fed Chair Jerome Powell has said.

Recent Reports On Crypto And Central Bank Digital Currencies:

The second paper, from the Boston Fed, could begin to set technological standards that would be important not just for the rollout of a U.S. digital currency, but for others already being developed around the world, said the Atlantic Council’s Lipsky.

Integration with the U.S. payments system is crucial to most countries’ economies, which means any guidance the Fed gives on what to do about privacy tradeoffs and other attributes could end up molding foreign efforts, Lipsky said.

While an official U.S. digital currency — if it happens — will take years to come about, a cadre of private companies, including Tether International Ltd. and Circle Internet Financial Inc., have launched their own versions, with tokens in circulation now worth more than $120 billion.

That trend is what will be addressed by the third paper, which will be released by the President’s Working Group on Financial Markets, a collection of the leaders of U.S. agencies including the Fed and the U.S. Treasury Department.

Federal officials have expressed concern that the reserves of some stablecoins are invested in assets such as corporate bonds and related securities that could experience severe stress if investors were to lose confidence and attempt to cash in their stablecoins all at once.

Powell and Securities and Exchange Commission Chair Gary Gensler have likened the coins to money market funds, which also seek to maintain a value of one dollar but during times of stress have sometimes failed.

The report is expected to recommend banklike regulation for stablecoin providers and for Congress to pass a bill establishing a new, limited type of charter to allow crypto banks to manage stablecoins as deposits, said a senior official involved with the report.

Such regulation could limit what stablecoin providers can do with their reserves, potentially constraining their profits in the name of greater investor protection.

Some U.S. stablecoin companies such as Circle and Paxos Trust Company either plan to seek or already have a certain type of bank charter. In contrast, Tether — the issuer of the largest U.S. dollar stablecoin — has thus far chosen to try to avoid U.S. regulation and closes its platform to most U.S. customers.

Treasury officials briefed Congressional staffers on their work as recently as last week and said they were targeting the release of their report for the coming weeks, said a person familiar with the briefing.

The Fed would have an “enormous competitive advantage” over private tokens if it launches its own digital dollar, Barclays Plc said in a September research report analyzing the case for a U.S. digital currency.

“Together with regulations, a Fed CBDC could crowd out private issue crypto,” the Barclays report said.

IMF Managing Director: 110 Countries Are ‘At Some Stage’ Of CBDC Development

Kristalina Georgieva said that stablecoins “fill the digital gap in privately issued money,” but labeled Bitcoin and other cryptocurrencies as assets rather than a form of money.

International Monetary Fund, or IMF, managing director Kristalina Georgieva said more than half of all central banks in the world are exploring how to launch digital currencies.

Speaking at a virtual conference hosted by Bocconi University on Oct. 5, Georgieva said the IMF was looking at central bank digital currencies, or CBDCs, and digital currencies as a whole from the perspective of macroeconomic stability.

She said the technology had given people the opportunity to make “seamless, and less costly” transfers, and called CBDCs the most reliable form of digital currency, given they had “backing of the state” and were generally regulatory compliant.

“We did a survey of our membership, and it was very impressive: 110 countries are at some stage of looking into CBDCs,” said the managing director.

Georgieva added that stablecoins “fill the digital gap in privately issued money,” but labeled Bitcoin (BTC) and other cryptocurrencies as assets rather than money. She highlighted price volatility as one of the main concerns for the latter and said public trust as well as established legal and regulatory frameworks would be necessary for CBDCs to take off.

Currently, the Bahamas is the only nation with a state-backed digital currency — the Sand Dollar, which the Central Bank of the Bahamas launched in October 2020. The People’s Bank of China has been piloting its own CBDC in different provinces, and completed cross-border tests in collaboration with the central bank of Hong Kong.

However, the largest economy in the world, the United States, is still seemingly ambivalent about the matter.

A recent IMF report asked emerging markets and developing economies to “consider the benefits of issuing central bank digital currencies” in an effort to ensure financial stability.

The statement follows the fund saying in April it would “step up” monitoring projects in the crypto space, including CBDCs, stablecoins, and digital currencies, to see how the IMF might be able to “keep pace with policy challenges” around the technology.

Updated: 10-6-2021

National Bank of Georgia To Test CBDC Next Year

The pilot program will initially focus on retail payments.

The National Bank of Georgia, which in May said it was exploring the possible development of a central bank digital currency (CBDC), plans to launch a pilot program next year.

* Initial testing will be aimed at retail use, Interfax reported, citing Papuna Lezhava, a vice governor at the central bank.

* A digital lari is not crypto currency, but is the evolution of cash, Lezhava said. It will improve the efficiency of the payments system and broaden financial inclusion.

Laos Partners With Soramitsu On CBDC Research As Regulated Crypto Mining Begins

Soramitsu, the firm that helped build Cambodia’s Bakong digital payments system, will work with the Laos government to research what a Laotian CBDC might look like.

Laos has become the latest nation to begin exploring a central bank digital currency (CBDC), announcing upcoming research on the subject in a partnership with Japanese distributed ledger technology (DLT) firm Soramitsu.

According to a Sunday report from Nikkei Asia, the project is expected to begin this month and follows the signing of a memorandum of understanding between Laos’ central bank and the Japan International Cooperation Agency to study the development of CBDC.

The study will assess the operations of banks and other financial intermediaries within the financial system in addition to assessing the broader transactional needs of the Laotian public

The report states that a CBDC would offer Laotian policymakers better economic data and could pave the way for cross-border CBDC-based settlements with its neighbor and second-largest trading partner, China.

Soramitsu worked with Cambodia to develop its Bakong digital payment system, a DLT-based payments network that was designed to reduce the country’s reliance on United States dollars for domestic trade.

The Bakong app has been downloaded roughly 200,000 times since its launch in October 2020 and is currently supported by approximately 2,000 stores.

The Laos government’s move to research a CBDC appears to have come amid a push to explore more permissive digital asset regulation.

On Sept. 11, the administration officially approved a public-private pilot exploring cryptocurrency mining and trading in a bid to capitalize on China’s latest crackdown on the mining sector and the resulting exodus of industrial-scale miners.

Six companies, including banks and construction firms, have been granted permission to mine crypto assets as part of the project.

Several government ministries led by the Ministry of Technology and Communications in partnership with the Bank of Laos and national power utility Electricite du Laos have also begun working toward drafting regulations governing the use of digital assets in Laos.

However, the country’s central bank issued a notice warning the public against the risks associated with unregulated crypto assets, including Bitcoin (BTC) and Ether (ETH).

Updated: 10-8-2021

Stablecoins Added To Agenda Of U.S. Financial Stability Watchdog

Stablecoins have become official business of the Financial Stability Oversight Council, the U.S. uber regulator responsible for heading off dangers to the financial system.

The FSOC is considering the cryptocurrencies at its next meeting, according to an agenda released Friday.

The group of financial regulators is set to hear “an update on the report on stablecoins being developed by the President’s Working Group on Financial Markets” in a private session at their Oct. 18 meeting.

That report is expected to favor oversight of stablecoins as a kind of banking deposit, people familiar with the effort have said, and the working group’s members have also discussed whether the FSOC should look into the tokens as a financial stability risk.

The working group — including the heads of the Federal Reserve, Securities and Exchange Commission and other agencies — shares members with FSOC, and both are led by Secretary of the Treasury Janet Yellen.

The FSOC members are also scheduled to issue a report about addressing climate-change risks, which is a response to an executive order from President Joe Biden.

Updated: 10-13-2021

Global Finance Watchdog Says $133B Stablecoin Sector Remains Niche

The Financial Stability Board, a G20 entity that provides recommendations for the global financial system, found stablecoins are not being used at any significant scale for payments at present.

A Financial Stability Board (FSB) survey has found that stablecoins, or cryptocurrencies pegged to real-world assets, are currently not being used at a significant scale for mainstream payments.

The finding was mentioned Wednesday in an FSB progress report for enhancing cross-border payments. The FSB published its first targets for improving cross-border payments in October of last year.

Wednesday’s progress report acknowledged the market capitalization of existing stablecoins has continued to grow in the last two years, and that stablecoins could contribute to facilitating better cross-border payments.

The FSB is a Bank for International Settlements-funded entity that provides input into the global financial system. It is currently chaired by Federal Reserve Vice Chair Randal Quarles.

Overall, stablecoin issuers have minted more than $133 billion worth of tokens, according to CoinGecko.

“From a policy perspective, there is value in assessing whether and how the use of well-designed global [stablecoins] could enhance cross-border payments. An action to that extent has been added,” the report said.

Large players in cross-border payments, like MoneyGram, are already looking to use private stablecoins such as USDC in speeding up cross-border transactions, and regulators are getting nervous.

The FSB roadmap is only the latest institutional document to consider the role of private stablecoins in cross-border transactions, and how they should be regulated. Last week, the BIS published guidance on how international payments laws could be applied to stablecoins.

Meanwhile, global financial institutions are encouraging central banks to explore CBDCs. The Bank for International Settlements (BIS) along with the International Monetary Fund (IMF) and the World Bank (WB) said central banks must consider the cross-border implications of CBDCs.

Last month, Benoit Cœuré, the head of the BIS Innovation Hub, signaled central banks should speed up work on CBDCs in light of stablecoins.

“CBDCs will take years to be rolled out, while stablecoins and crypto assets are already here. This makes it even more urgent to start,” said Cœuré.

The FSB roadmap also said the implementation of stablecoin regulations across its member jurisdictions is still at a very early stage, and that countries are considering varied approaches.

Authorities in jurisdictions have identified several issues that might be getting in the way of making “concrete recommendations,” including redemption rights, wallet providers and the management of stablecoin reserve assets, according to the report.

“As a next step, the FSB will review, in consultation with other relevant [standard-setting bodies] and international organizations, the FSB high-level recommendations and how any gaps identified could be addressed by existing frameworks, and update recommendations if needed, by July 2023,” the report said.

The roadmap also refers to the latest research and studies in CBDCs, and how they might contribute to improving cross-border payments. A recent BIS study concluded that CBDCs could potentially slash costs and processing time for cross-border settlements.

The FSB roadmap says the IMF and WB should be prepared to provide technical assistance on how to facilitate cross border use of CBDCs if requested as early as July 2022.

Proposed Bank Jewel Wants To Become A Global Stablecoin Issuer, With Bermuda’s OK

The bank submitted an application for a combined banking and digital asset license earlier this year.

Jewel, a proposed Bermudian bank and aspiring stablecoin issuer that is looking to provide services to digital asset businesses worldwide, has hired Nick Lepetsos, a veteran of First Western Trust Bank, as CEO.

He is coming on board at a time when the proposed bank is waiting to see whether its application for a banking license in the British island territory of Bermuda will be approved, according to a press statement shared with CoinDesk.

If approved, the combined bank and digital asset license will allow Jewel to serve as the custodian for digital assets, facilitate crypto-collateralized lending and issue its own stablecoins, which are cryptocurrencies whose value is pegged to other assets like the U.S. dollar, the statement said.

Lepetsos, who will officially start as CEO on Friday, will bring his expertise in traditional banking to the digital asset world.

“What I really want to do for Jewel going forward is to be the person that can be in that mesh point between the traditional fiat currency commercial banking business and the digital asset business, both of which are important,” Lepetsos said.

Chancellor Barnett, Jewel’s founder and chairman, said Jewel is preparing for an early 2022 launch.

Banks around the world are exploring the prospects of offering crypto and other digital asset custody services. In 2020, U.S. financial regulators began allowing national banks to be the crypto custodian on behalf of customers. In April, Paxos became the third regulated crypto trust charter in the U.S. after Anchorage and Protego.

Earlier this year, CoinDesk reported that Deutsche Bank is working on a digital asset custody platform for institutional clients. In September, Swiss bank SEBA obtained a license from the local financial watchdog to be the custodian of and offer digital assets to Swiss-based clients.

Barnett told CoinDesk that his staff worked with Bermudian financial regulators for almost two and a half years to assemble the application before it was submitted in June to the Bermuda Monetary Authority (BMA).

“We got to actually go through a collaborative process to create a bank application that was of no surprise to [Bermudian regulators] so that puts us in a really great position … We feel extremely confident about where we’re headed, and the future of the bank,” Barnett said.

A spokesperson for the BMA told CoinDesk that the agency doesn’t comment on pending applications.

“If the BMA is aware of false statements, we will request that the information is corrected, removed or [publish] details regarding the falsehood on its website’s ‘Warning List’,” the spokesperson said in an email to CoinDesk.

Despite the BMA’s statement, Bermuda Premier David Burt appeared to have endorsed the proposed bank, saying, “The introduction of Jewel as Bermuda’s first dedicated digital asset bank can provide the critical infrastructure to further drive the growth of Bermuda’s digital asset economy.”

Genesis of Jewel

Before he founded Jewel, Barnett was the founding CEO of equity crowdfunding platform crowdfunder.com (which Barnett is no longer associated with). According to his LinkedIn profile, he also co-founded cryptocurrency wallet CoinCircle and worked as an adviser to software company Orchid Labs.

About four years ago, Barnett met Lepetsos, who has around three decades of experience in traditional banking. The two became interested in exploring use cases for stablecoins and were approached by the U.S. Office of the Comptroller of the Currency’s (OCC) Office of Innovation to discuss ideas.

“We realized that the U.S. wasn’t ready to move with clarity in any aspect, and that sent me offshore looking for other progressive jurisdictions to do something similar,” Barnett said, explaining what led him to Bermuda.

In 2018, Bermuda established the Digital Asset Business Act (DABA), a legal framework for governing digital assets.

The territory became one of the first jurisdictions in the world to test a COVID-19 stimulus token designed to help deliver pandemic aid swiftly through smartphones. Earlier this year, Bermuda tested a digital dollar for retail payments.

“But one of the pieces of missing infrastructure was really a dedicated digital asset bank in Bermuda to provide services where companies can really come and grow. And that was the genesis of Jewel,” Barnett said.

Bermuda’s Banks and Deposit Companies Act of 1999 (which lays out licensing requirements for local banks) was amended in 2018 to include a restricted banking license that would allow banks to provide banking services to Bermuda-based digital asset and fintech firms.

Barnett says Jewel initially went for the restricted license for digital asset banking but felt it was too limiting. Instead, Barnett chose to pursue the existing Bermudian bank license, which will allow Jewel to offer fiat or crypto-collateralized lending and serve global clients in non-sanctioned jurisdictions – not just Bermuda based clients.

According to Barnett, Jewel raised capital from Bermudan family offices (investment management firms for the ultrawealthy), former bank owners and investors in the digital asset market. Jewel’s first outside funding round was led by Sir John Swan, a former premier of Bermuda, and his family office, Barnett said.

But Barnett said finding investors to get Jewel off the ground wasn’t easy.

“Early on, it was a different equation for people to try and wrap their heads around. We didn’t go to just the traditional private equity, traditional bank funding round, and there’s a few reasons for that, but the largest one is, we’re doing something that combines a bank into a scalable technology company. So it’s not a traditional bank trajectory,” Barnett said.

Stablecoins

Stablecoins will be a core service for Jewel, as Barnett said the Bermuda digital asset license under DABA will allow the bank to issue its own stablecoins.

In DABA, “digital asset business” is defined as any business “issuing, selling or redeeming virtual coins, tokens or any other form of digital asset.” The act doesn’t mention stablecoins by name.

Stablecoins are drawing attention from regulators in the U.S. and Europe because of concerns about their potential impact on financial stability and the integrity of their reserves.

Barnett says not all stablecoins are “bad,” explaining that private banks are in the best position to function as stablecoin issuers.

“The big challenge that happens, let’s say there was a run, let’s say there was a bankruptcy or some major issue. The holder of the stablecoin has no contractual claim on the funds in custody. The only one who does, who has any say, and can control the whole thing is the underlying issuer, which is not the custodian,” Barnett said. He said that such a crisis can be avoided if a private bank is both the issuer and the custodian.

Barnett and Lepetsos confirmed that Jewel’s proposed product set includes issuing USD and other single fiat currency stablecoins. That will enable Jewel clients to settle and manage liquidity with trading partners within the bank in real time, according to the press statement.

Barnett later said in an email that Bermuda’s combined bank license and digital asset license application will help move stablecoin issuance from today’s non-bank-issued model, to a bank issued stablecoin model.

Jewel also plans to offer custody and banking services to crypto businesses from around the world.

“We’re talking not just large exchanges, but even hedge funds … The need is, in many ways, very basic, like finding a bank that can service digital assets companies with core banking and treasury needs,” said David Riker, Jewel’s chief development officer.

According to Riker, these core services include providing crypto exchanges with fiat currency on-and-off ramps, offering real-time transaction settlement and providing access to systems that are compatible with distributed ledger technology.

Updated: 10-15-2021

CFTC Fines Tether And Bitfinex $42.5M for ‘Untrue or Misleading’ Claims

The U.S. regulator issued an order “simultaneously filing and settling charges against Tether,” the issuer of the crypto industry’s largest stablecoin.

The Commodity Futures Trading Commission (CFTC) fined Bitfinex and Tether more than $42 million on allegations the USDT stablecoin was not fully backed at all times and that Bitfinex violated a previous agency order.

The federal commodities regulator settled charges with the sibling crypto companies on Friday, barring both firms from “any further violations of the Commodity Exchange Act (CEA) and CFTC regulations.”

According to a CFTC press release, Tether’s stablecoin was fully backed by reserves for only one-quarter of the time over a 26-month period between 2016 and 2018. Further, Tether comingled reserve funds with the company’s corporate funds and held reserves in non-cash products.

“At various times, Tether maintained some of the Tether Reserves in bank accounts other than the Tether Bank Accounts. Tether represents that, at times, it also included receivables and non-fiat assets among its counted reserves; and further represents that Tether has not failed to satisfy a redemption request for tether tokens,” an order attached to the release said.

The New York Attorney General’s office reported similar findings in an investigation into Tether and Bitfinex that was settled earlier this year.

“The order also finds that, instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves,” the press release said.

Spokespeople for Tether and Bitfinex did not immediately return a request for comment.

In a statement published shortly after the CFTC release, the firm contested the claims.

“As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times – simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times. As Tether represented in the Order, it has always maintained adequate reserves and has never failed to satisfy a redemption request,” Tether wrote.

The CFTC said it also settled commodities charges against Bitfinex in a simultaneous action.

“The order finds Bitfinex engaged in illegal, off-exchange retail commodity transactions in digital assets with U.S persons on the Bitfinex trading platform and operated as a futures commission merchant (FCM) without registering as required,” a press release said.

Bitfinex will pay $1.5 million and institute “additional systems” to ensure it does not facilitate unlawful commodities transactions again, the press release said.

In a concurring statement, CFTC Commissioner Dawn Stump said she agreed with the agency’s findings but expressed concern about the CFTC’s role in regulating stablecoins specifically.

“We should seek to ensure the public understands that we do not regulate stablecoins and we do not have daily insight into the businesses of those who issue such,” Stump said. “But in pursuing and settling this matter, do we provide users of stablecoins with a false sense of comfort that we are overseeing those who issue and sell these coins such that they are protected from wrongdoing?”

Updated: 10-15-2021

Japan Will Prioritize Simplicity In CBDC Design, Says Central Bank Executive

The Bank of Japan is keen to ensure the seamless integration of its central bank digital currency with the existing payment architecture.

While Japan’s CBDC plans are still in the research stage, Shinichi Uchida, an executive of the Bank of Japan (BOJ), has said simplicity will drive the central bank’s design thesis for the digital yen.

According to Reuters, Uchida made this known during a speech delivered on Friday calling for modalities to be put in place to ensure the CBDC co-exists with existing private payment channels.

For Uchida, vertical integration of the digital yen within the private sector payment matrix will require a simple CBDC design.

Part of this simple design could involve creating a framework for people to use both the CBDC and electronic payment services from one wallet, thereby enabling seamless switching between both channels.

According to Uchida, vertical integration will incentivize the private sector to adopt Japan’s CBDC and thus lead to more valuable services.

As previously reported by Cointelegraph, the BOJ has begun preliminary proof of concept studies on the possibility of issuing a CBDC. The second phase of the digital yen studies will reportedly commence in Q2 2022.

Japan is one of many nations in the Asia Pacific financial theater examining the merits of floating a central bank digital currency, especially in the wake of China’s digital currency electronic payment project.

In March, the BOJ announced the creation of a Liaison and Coordination Committee that draws from public and private sector participants tasked with collaborating on the digital yen CBDC pilot.

Japan’s CBDC studies may also involve examining modalities for cross-border compatibility with other sovereign digital currencies, possibly as a counter to China’s digital yuan on the international stage.

Cooperation on CBDC matters across international lines is also becoming a significant focus point for several countries developing their national digital currencies.

Meanwhile, global finance bodies like the Bank for International Settlements continue to push for CBDCs to counter the proliferation of cryptocurrencies.

Updated: 10-16-2021

Asian CBDC projects: What Are They Doing Now?

Governments in Asia are quickly researching or implementing CBDCs. What does this mean for the region’s overdependence on the U.S. dollar?

The rapid growth of mainstream attention toward cryptocurrencies has forced the hands of numerous governments to create their digital alternatives. Over the past few years, interest from various jurisdictions has been pointed towards central bank digital currencies (CBDCs) — digital versions of government-issued fiat.

Given their capacity to use blockchain technology to facilitate a simplified fiscal policy — not to mention calibrate privacy features and even provide cross-border banking services to the unbanked — CBDCs continue to gain even more attention from various governments worldwide.

Already, surveys show more than 80% of central banks are researching CBDCs, with some working on proofs of concept that could eventually lead to the introduction of fully functional CBDCs. Out of the surveyed central banks, 10% plan to offer a retail version of a CBDC in the next three years, with another 20% set to make the move in under six years.

In Asia, these efforts have been compounded by China’s release of the world’s first CBDC after setting up a task force as early as 2014. By 2016, the People’s Bank of China (PBoC) had already established a Digital Currency Institute, which developed a prototype CBDC.

Major Asian banks have shown great interest in CBDCs as reports show collaborative efforts by Thailand’s, Hong Kong’s and China’s central banks to create a digital ledger technology (DLT) for a CBDC prototype designed to bridge cross-border gaps.

In this article, we give you a brief look at some developing CBDC projects on the Asian continent.

China

China ranks among the world’s top economies to embrace digital currencies with the release of the digital yuan — a CBDC project issued by the PBoC.

Dubbed the Digital Currency Electronic Payment (DCEP) China’s digital yuan (e-CNY) is set to completely replace cash payments and has been rolled out in the country’s major cities since April 2020.

China’s DCEP, while sporting some anonymity features, is controlled, tracked and registered on smartphone apps by the Chinese government, giving them the ability to freeze accounts at will.

Perhaps one of its advantages is the fact that users on China’s DCEP network can reverse or correct erroneous transactions, which is one of the features that is non-existent on decentralized digital currencies like Bitcoin (BTC).

As China’s CBDC takes shape, various countries (especially the United States) have grown increasingly concerned that the new CBDC initiative will help China tighten increased surveillance on its citizens and private companies.

The move is also seen as an attempt to supplant the dominance the U.S. dollar enjoys in international trade. Even so, China’s e-CNY remains highly localized with no significant attempts by the Asian nation to take its CBDC international.

Hong Kong

Just recently, the Hong Kong Monetary Authority (HKMA) released a white paper discussing plans to experiment on the benefits of retail CBDCs for the city’s cross-border markets.

Hong Kong is now governed under a one-country, two-system framework where it maintains its own financial and judicial system separate from mainland China. However, HKMA is working with China’s central bank to explore the infrastructure development of its digital Hong Kong dollar (e-HKD).

According to the white paper, “The architecture proposed in Hong Kong’s e-HKD features a flexible and efficient two-tier distribution model of a CBDC that enabled privacy-preserving transactions, traceability and cross-border synchronizations of ledgers.”

The white paper is the result of CBDC research by Hong Kong’s major financial authority that has been ongoing since 2017 under the aegis of “Project LionRock.” The HKMA considered the opinions of academic and industry experts and plans to conduct more trials to ensure the readiness of both a retail and wholesale CBDC.

South Korea

South Korea’s latest move towards a CBDC has seen the Bank of Korea (BoK) make calls for a technology partner to help pilot a CBDC program set to run till the end of the year.

In a report published by BoK in February this year, the central bank announced plans to test and distribute a digital won while outlining the legal challenges that accompany a state-issued digital currency.

Apart from selecting a technology partner to help with the project, BoK has also announced that its CBDC will first operate in a limited test environment in order to analyze the functionality and security of the CBDC.

According to previous remarks by a BoK official, South Korea’s cash transactions are on the decline, and the central bank is only taking steps in preparation “for the expected changes in payment settlement systems [worldwide].”

The Philippines

In the summer of 2020, the central bank began to consider the creation of a CBDC by forming a committee task force to study the issue.

Bangko Sentral ng Pilipinas had confirmed in a virtual briefing that a committee was set up to look into CBDCs. In the briefing, Governor Benjamin Diokno explained that a feasibility test and an evaluation of the policy mechanisms of issuing a CBDC were underway.

Like most governments and traditional financial institutions, the officials in the Philippine government were not shy to admit to the significance of blockchain technology. Diokno said, “Cryptocurrency for us has always been beyond the asset itself but more on the blockchain technology that underpins it.”

In line with these remarks, the Philippine Bureau of the Treasury, in partnership with the Philippines’ Digital Asset Exchange and UnionBank, had launched a mobile application built on blockchain tech for distributing government-issued treasury bonds.

A few months later, however, saw the Philippines’ central bank reject the possibility of issuing a CBDC any time soon. Citing the need for ongoing research and study, the country’s central bank noted that its CBDC research so far could benefit from looking at established use cases of digital currencies in the private sector as well as other industrial applications.

Singapore

From as early as 2016, the Monetary Authority of Singapore had been looking into CBDC initiatives and is now seeking commercial partners to help develop the currency.

By setting up challenges and competitions to discover and develop a retail CBDC, Singapore was able to establish a healthy diversity of solutions with the participation of more than 300 individuals.

Singapore’s move to launch a CBDC began as a joint project with an institute dubbed “Project Dunbar” that mainly focused on building an in-house retail CBDC for the country.

Soon after, the Singaporean central bank announced cash prizes for participants issuing digital currency ideas. Finalists in the challenge included ANZ Banking Group, Standard Chartered Bank, Criteo, Soramitsu and HSB Bank Limited, to mention a few.

Throughout 2021, the Singaporean authorities have maintained a crypto-friendly stance with approvals given to crypto exchange platforms to operate similar to other digital payment token services.

Cambodia

Cambodia’s “Project Bakong” is probably one of the few fully operational retail CBDCs out there. The country’s blockchain-enabled money transfer project was originally launched in October 2020.

By June 2021, the project was reported to have amassed over 200,000 users with an overall indirect outreach of over five million users. What’s more, the first half of 2021 saw Cambodia’s CBDC project hit a transactional throughput of 1.4 million transactions valued at $500 million.

Developed on a hyper ledger platform, the Cambodian CBDC features mobile connectivity that allows users to connect to financial institutions and make payments without a centralized clearing entity.

Apart from the declared goal of using the CBDC to wean off dependence on the U.S. dollar, officials also disclosed that plans are underway to explore a cross-border transaction capability through a partnership with Thailand’s central bank and Malaysia’s largest bank.

Japan

In Japan, the country’s central bank joined hands with a group of other seven central banks in October 2020 to publish a report that examined CBDCs.

Since then, the Bank of Japan (BoJ) has begun a proof-of-concept to test the core CBDC functions. While the testing phase was scheduled to end by March this year, officials from Japan’s panel on digital currencies have said that the digital yen should be compatible with other CBDCs and that the BoJ is still ironing out its key functions.

An offline capability of the CBDC is one of Japan’s core considerations as it strives to establish a digital currency that is resilient to disruption given Japan’s vulnerability to natural disasters, earthquakes, floods and tsunamis.

At the start of 2020, Japan’s parliamentary vice-minister for foreign affairs said that Japan’s digital currency could be a joint venture with public and private partners to align Japan’s goal with global changes in fintech.

Thailand

Since 2019, Thailand has joined forces with Hong Kong’s HKMA to test the use of a CBDC that would be used in cross-border payments between financial institutions in both countries.

According to a press release by the Bank of Thailand, “The development of a CBDC is a key milestone with the potential to alter the financial infrastructure and ultimately the financial landscape which could cause many changes in the roles of many stakeholders.”

Similar to other CBDC initiatives, the Bank of Thailand will seek out consultations and feedback with the general public as well as with the private and public sector on the “development and issuance of retail CBDC.”

The Bank of Thailand plans to start pilot tests for the usage of its CBDC in the second quarter of 2022.

Vietnam

Previously, the Vietnamese government had requested the State Bank of Vietnam to investigate blockchain-based currencies. It appears that Vietnam has joined the growing list of jurisdictions looking into CBDCs despite its previous harsh stance on cryptocurrencies.

In May 2020, the country’s ministry of finance announced plans to research and formulate a regulatory law for the crypto industry, even as the country experienced high levels of growth in digital currencies.

In July, the Vietnamese government decided to investigate CBDCs with plans to issue a pilot CBDC, given its utility for a small country in a global financial system that is dominated by the U.S. dollar.

Rep. Tom Emmer Wants Stablecoins Over CBDCs – Interview

The Minnesota congressman is fighting what he sees as the “over-regulation” of the crypto industry and he’s no fan of a central bank-issued digital dollar.

There’s nothing that screams techno-optimist about U.S. Rep. Tom Emmer, the four-term Republican member of Congress from Minnesota. The 60-year-old is a collector of toy trains and tractors.

He first learned about cryptocurrency in a book. In a memorable scene from the coronavirus pandemic months, Emmer appeared upside-down on video during a congressional hearing.

But Emmer understands cryptocurrency better than most – especially among his peers in office – and has emerged as one of the industry’s fiercest political advocates. Decentralized technology is “inevitable,” he says, and elected and appointed officials can either support the growth of a homegrown U.S. crypto sector or see it advance elsewhere in the world.

“I’ll go down any rabbit hole when it comes to this because you’ve got to learn it, you’ve got to understand it,” Emmer said last week in a phone interview, reprinted below, on his legislative efforts in the House of Representative. “You do have to play with it a little bit. You got to touch it, you got to smell it, you got to manipulate it, see if you can throw it, catch it.”

Emmer is a powerful ally to have on Capitol Hill. In addition to co-chairing the Congressional Blockchain Caucus, which works to educate other legislators, he is chairman of the National Republican Congressional Committee (NRCC), which works to elect more Republicans to Congress, and is a ranking member of a powerful financial oversight subcommittee.

But his crypto-related work can be seen as an uphill battle. Emmer has spoken at length about how the digital asset industry is already “over-regulated.” Among policymakers, he’s also identified something of a bias against digital privacy and private monies.

And now that Congress sees the $2 trillion (and counting) cryptocurrency industry as a potential tax revenue source and a driver behind a growing ransomware problem, there are risks of heightened oversight or misinformed policy being shoehorned into unrelated legislation.

Emmer recently put forward or co-signed a series of bills looking to clarify cryptocurrency regulation. His “Securities Clarity Act” would work with the “Digital Commodities Exchange Act” to answer once and for all when a cryptocurrency network or company should be overseen by federal securities regulators.

Crypto is one of the few areas that seems to transcend partisan, left versus right, politics. Many Democrats and Republicans see the technology as transformative, hold bitcoin and incorporate it into their brands (check out these campaign non-fungible tokens [NFT] – from blues and reds).

Emmer is a leading voice in this pro-tech camp, but like all decent politicians he knows this policy issue isn’t about him. Crypto, he says, is for the people.

I’m absolutely opposed to the [Oregon Sen. Rob] Portman amendment in the [Biden administration’s] bipartisan infrastructure bill, because I think it was based on, I don’t want to say a false premise, but I just don’t think the $28 billion they expected to collect off of this tax [would be forthcoming].

First, let’s back up. Americans realize the value of crypto and blockchain innovation – and it’s those people who could be harmed by misguided legislation.

That debate over on the Senate side of the Capitol seems to have awakened some elected officials and their staff. When a Senate office receives 40,000 calls in one day, Daniel, like they did during the debates over the infrastructure bill, it really forces those elected representatives to care.

It started with the idea of taxing the industry as a revenue source but it turned into a lot more. A lot of heads are popping up out of the sand saying, “What is this crypto thing?”

You know, I had no idea 55 million Americans are now involved in crypto. It’s got a market of more than $2 trillion. It’s one of the fastest-growing things that we’ve seen in decades. Because of all of that, the government is taking notice.

Along those lines, it looks like the “crypto provision” is going to be passed intact within the infrastructure bill. Do you think that matters?

We’ll have to see what happens with the bill. Depending on what room you’re in and with whom you’re talking, it’s either coming together slowly or it’s going farther apart.

If we start with the hypothetical that the bill finds its way back to the floor and passes the House, gets signed by the president’s office and becomes law, that provision would be in there.

But it’s not effective until 2023, so we will have time to change it. Is it the optimal situation, Daniel? No, I prefer that [language] never got there. But I’m confident that cooler heads will prevail – that amendments will be made – and we will be able to take action.

What Does Overregulation Look Like And How Big Of A Risk Is It?

Just take a look at our [U.S. Securities and Exchange Commission] Chair Gary Gensler if you want to know what overregulation is all about or why creating laws, if you will, through enforcement or regulatory enforcement is bad.

As I told him during a hearing [earlier in October], his conclusory public statements and threatened enforcement actions hurt everyday investors the most. Gensler actually believes that most tokens are securities – or at least he claimed to believe that most tokens are securities – because people buy them and expect to profit off of the work of developers and computer scientists.

Since he thinks that most tokens are securities, he also believes that crypto exchanges that trade securities should be under SEC jurisdiction. These are his words.

I asked him specifically if someone who issued a token goes to register it with the SEC if they can trade on the New York Stock Exchange or Nasdaq. The answer right now is no. It couldn’t. I believe the most tokens are commodities or currencies once the project is decentralized.

We’ve got to remember this technology is decentralized after a project is fully developed, there’s no centralized group behind it, whose work investors would be profiting on. So at that point it should not be a security.

I’m going to suggest to you that Gary Gensler and other members of the [Biden] administration are ignorant as to how this area works, which is a big problem for the industry. I don’t believe that, though, I believe he’s very smart and he’s trying to expand his jurisdiction.

I’ll give you an example. He talks about “stable-value” coins. There is no such thing as a “stable-value” coins – they’re stablecoins. He used this term in his testimony before the Banking Committee in the Senate and in his testimony before the Financial Services Committee in the House.

Why would he use that term? Did he just fumble with the words? No. Stable value funds are under the SEC’s jurisdiction, which might suggest “stable value” coins would be, too.

This throws the whole investment marketplace into a confused state. That is bad for individual investors and, frankly, I believe violates his mandate, which is to protect individual investors.

If You Were In Gensler’s Shoes, What Would You Do About Stablecoin Regulation?

I’ve got a bill out there right now called the Securities Clarity Act to try and deal with this problem of the overreaching regulator. A little clarity would go a long way towards solving this jurisdictional question between the SEC and its sister agencies. [Ed. note: Namely, the Commodity Futures Trading Commission.]

The bill would help token issuers easily determine when a token is actually part of a securities contract and when it’s not. You wouldn’t do this by amending the existing securities law, but in creating a new definition called an “investment contract asset.”

This particular bill would help the SEC understand what its jurisdiction is and encourage it to work with the industry to develop a bigger framework that we can all operate under. Then there is the sister bill carried by former Ag Chair [Kenneth Michael] Conaway (R-Texas).

My office has been working with Republican ranking member “GT” Thompson (R- Pa.) of the [House Agriculture Committee] on this bill, which would give the CFTC the authority to regulate crypto spot markets, which are the crypto exchanges, obviously.

This way, crypto exchanges can have one federal regulator rather than going through the burdensome process of getting 53 different licenses to operate across the United States.

The Securities Clarity Act in combination with the Digital Commodities Exchange Act, which is that other bill, will clear up jurisdictional boundaries and allow the marketplace to do what it does best: allow investors to do their homework, get involved in projects and grow new opportunities for themselves and others. That’s what makes this country great.

Shifting gears a little bit, do you think the United States needs a central bank digital currency (CBDC). And, if so, how can we guarantee strong privacy rights in digital public money?

By now people have to know that I am absolutely, adamantly opposed to the United States government or Federal Reserve, specifically, creating a central bank digital currency.

If it’s permissionless and maintains the privacy of cash, I suppose that’s workable. But until you can prove that would work, I adamantly oppose one. The Federal Reserve should never be competing with private business.

There are two main forms of a CBDC. One would impose central bank accounts, users would have bank accounts at the Fed. The Fed would collect KYC [know your customer] information on users and then be able to track their transactions. This is modeled, I would argue, after the Communist Party of China.

This is the United States of America. Why would we ever want to emulate the Communist Party of China? I just disagree that we should never mobilize the Fed into retail banking.

The second way would have financial institutions like banks maintain all KYC information and serve as access points. [CBDC supporters will] probably try to argue this is better for financial institutions – but the Fed would still be able to track all transactions on the blockchain.

Bottom line is, CBDCs aren’t much different than swiping a credit card or a debit card, besides the fact that the central bank is involved and can oversee transactions. Neither one of these examples would maintain any element of privacy.

[Meanwhile], stablecoins actually maintain certain elements of cash because they run on open, permissionless and private blockchains. That’s probably your best solution. The government should allow private citizens to develop this thing.

You said in an interview last spring that crypto is succeeding in part because people are losing faith in the system.

Is there a way to square the support of crypto with the American Dream?

Crypto started, right, with Satoshi’s white paper released after the 2008 crash. I think this all comes out of the fact that the United States’s monetary policy, as well as the monetary policy around the globe, is suspect. When a government has a floating currency, when it can seemingly print as much cash as it wants, that’s good until it’s not.

We’re going to back this up. The people who started the crypto craze, way back when, they’re kind of like the financial preppers of our day. They were trying to anticipate a country where you couldn’t trust the currency. Bitcoin is a lot like gold. It holds its value.

I do think it’s compatible with the American Dream because Americans have always been pushing the frontier. Americans have always been free to innovate and this is what our government is going to have to understand: This is going to happen. It’s not a matter of if, it’s a matter of how far.

If our government wants to continue to put up roadblocks because of ignorance, because of fear, if you will, and the desire to control, [the crypto sector will] develop elsewhere.

You’re going to have very intelligent, creative Americans and others that continue to develop new methods for transacting between individuals and or entities. Crypto is not going away.

It’s just a matter of whether we will have a light touch regulatory framework that recognizes the potential crypto presents. This is an entirely new opportunity for different groups of people who may never have had access to the financial system.

That’s why I’ve been so outspoken, I want to see that happen right here in this country.

How Far Down The Rabbit Hole Have You Gone? Do You Hold Bitcoin, Play Around With Decentralized Finance?

Well, every time they open another door or trap door, if you will, I fall into it. Personally, I’m going to be careful, because I can tell you I know people very close to me that are actively involved in this marketplace.

I will tell you, on an official level, more policymakers need to understand this industry.

A while back we started accepting cryptocurrency for campaign contributions. We did that in selfish self-interest. But if you think about it, we’re trying to appeal to my colleagues and their selfish self-interest, who might notice I started accepting cryptocurrency in my campaign and ask, “What is he getting that we’re not?”

I’ll go down any rabbit hole when it comes to this because you’ve got to learn it, you’ve got to understand it. You do have to play with it a little bit. You got to touch it, you got to smell it, you got to manipulate it, see if you can throw it, catch it.

For some of us my age – we weren’t built the same way you were, Daniel, so it takes us a little bit longer – a virtual wallet is something that you really need to get used to.

Updated: 10-19-2021

The Techno-Anarchists of Crypto Were Dead Wrong

Stablecoin may not be the unregulated form of money some digital-currency pioneers had hoped. But that’s why it’s here to stay.

The techno-anarchist pioneers of cryptocurrencies believed they were creating a new form of unregulated, decentralized money. They couldn’t have been more wrong.

While Bitcoin and Ethereum did succeed in spawning a highly speculative alternative asset class that has come to enjoy wider use and popularity, the innovation that’s really set to challenge fiat cash is stablecoin: the less turbulent corridor through which investors reach volatile digital tokens.

Far from being an alternative to state-issued money, the likes of Tether and USD Coin are pegged to government-backed legal tender such as the dollar.

These tokens allow investors to switch into and out of their cryptocurrency assets without having to interact each time with a bank wary of unwittingly enabling money-laundering, terror financing, child pornography or extortion hacking.

Indeed, blockchain-based clones of national currencies started becoming popular as crypto exchanges took off in late 2017; many of them did not have licenses to accept fiat money.

But with payment networks like Visa Inc. allowing customers to settle claims using USD Coin, stablecoins have begun to acquire mainstream appeal, clocking $3 trillion in transactions in the first half of 2021, according to McKinsey & Co.

Although this is a fraction of the money moving through state-blessed banking channels — annual cross-border payments alone were $130 trillion before the pandemic — private-sector players now have a “first mover” advantage over governments, the consulting firm says.

In China, the monetary authority’s pilot has at least made a modest start, distributing the equivalent of $40 million of digital yuan via lottery ahead of an expected debut around next year’s Beijing Winter Olympics.

Most other major central banks are nowhere near coming up with their own official digital cash for widespread, public use.

How much more ground will authorities surrender before offering competing products, or introducing regulation to clip the wings of the private sector? The answer has broad implications both for the payment industry and beyond.

Funds parked with Tether have grown by 230% this year, according to Fitch Ratings, which reckons that on current trends, stablecoins could become a bigger holder of short-term U.S. commercial paper than money market mutual funds in two or three years.

While Diem, the upcoming, Facebook-backed stablecoin, has said that it will invest predominantly in government securities, alternative allocation strategies are possible and, “depending on its scale, the operator may become an important participant in other short-term markets,” Fitch says.

Stakes are high for overall financial stability, especially if a large number of people decide to simultaneously cash out of a popular stablecoin amid skepticism about its true exchange value.

Tether, which had claimed for years that its digital tokens were fully backed by fiat currencies, will pay $41 million to settle allegations that they weren’t.

From June to September 2017, there was never more than $61.5 million backing Tether, even as roughly 442 million coins were circulating at one point.

Money is valuable only when those who have it and those who want it in exchange for something else aren’t plagued by unnecessary doubts.

This “no questions asked” property of sovereign currencies may not hold for unregulated stablecoins, according to Yale School of Management finance professor Gary Gorton and Federal Reserve attorney Jeffery Zhang.

The researchers recently drew a parallel with the pre-Civil War era of wildcat banking, when a Tennessee lender’s bank notes were discounted by as much as 20% in Philadelphia.

Unsurprisingly, regulatory scrutiny is now squarely directed at stablecoins. Within its own borders, each country may decide how it wants to regulate these odd creatures, which settle claims even though they’re neither a commercial bank’s money nor a sovereign’s IOU.

Consultations are ongoing on a set of international rules to govern any stablecoin arrangement that is “systemic or is likely to become systemic.”

Stablecoins are here to stay. Since they provide liquidity and a perceived “safe haven” for investors during times of heightened crypto volatility, McKinsey expects their recent growth spurt to continue, at least as long as the overall market for digital tokens is expanding.

Central banks’ own paperless cash may, therefore, have to learn to coexist with private money.

That’s bound to cause friction. The state playing second fiddle in monetary affairs may be anathema to Beijing, which at least partly explains why the Chinese central bank is more determined than any of its peers to get the digital yuan out the door.

Other countries, however, appear to be still largely complacent about their ability to domesticate the wildcats. One can only hope they aren’t already too late.

Gensler For A Day: How Rohan Grey Would Regulate Stablecoins

Stablecoins make use of the same shadow banking carveout that imperiled the financial system in 2008. That can’t continue, says the co-author of the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act.

On paper, the concept of a “stablecoin” is relatively simple. Cryptocurrencies are notoriously volatile, and traders like being able to cash out quickly.

Stablecoins are cryptocurrencies that allow for just that. Tied 1:1 to the price of a particular fiat currency (usually the U.S. dollar), they’re a way for traders to turn volatile crypto into highly liquid digital cash. The value of a dollar-pegged stablecoin is always just about a dollar – hence, “stable.”

At least in theory. A chorus of regulators, politicians and academics has been raising the alarm about the potential instability and risk stablecoins represent to the broader crypto market.

Chief among those voices is Rohan Grey, an Australia-born, Columbia University-educated attorney who’s now an assistant professor at Willamette University College of Law.

Grey described the role of stablecoins in crypto trading with a metaphor that feels very “Scooby Doo”:

“It’s the slices of bread in between a 12-foot-high sandwich. You’ve got the sandwich, then the meat, then bread, then the meat, then the bread, then the meat. It’s the stuff in between every layer.”

In other words, stablecoins are infrastructure. The issue is that they’re virtually unregulated; most stablecoins claim to be “backed” by cash and cash equivalents, but there’s no requirement that they prove it.

A two-year investigation by the New York State Attorney General’s Office found that the shadowy array of companies behind tether stablecoin issuer Tether, with a market capitalization of $69 billion – didn’t even have a bank for most of 2017.

Just last week, the U.S. Commodity Futures Trading Commission (CFTC) determined Tether was only fully backed about 26% of the time between 2016 and 2018. Where was the money? And who’s running the show?

Late last year, Grey worked with U.S. Rep. Rashida Tlaib (D-Mich.) on a bill called the STABLE Act – short for “Stablecoin Tethering and Bank Licensing Enforcement” – which proposed that stablecoin issuers be subject to greater regulatory scrutiny.

To hear him tell it, the shady tactics of stablecoin issuers are a threat not just to crypto, but also to the traditional financial system.

Here’s my conversation with Grey, edited and condensed for clarity.

So, The Name Of This Series Is “Gensler For A Day” – How Would You Approach Gensler’s Role, Specifically?

I would tell him to have a phone call with all of the banking regulators and tell them to do their jobs, because it shouldn’t be his job to fix the stablecoin industry.

I think the securities regulation framework is already a losing framework. If you start at that point, you’re at best getting a half loaf, or putting it within a framework that is not actually able to deal with the major problems of the industry, which is that it’s fueled by shadow money.

Say more about “shadow money.”

The industry relies on liquidity at the off-ramp/on-ramp margins. And that liquidity is being provided right now by shadow banking institutions like the stablecoin issuers. It’s that liquidity, and those stablecoin issuers that allow the rest of the market to work the way that it does.

But the reason that those stablecoin issuers are able to do that is they’re not being regulated like banks, which have quite strict requirements on the kinds of instruments and actors that they can engage with.

So if you’re engaging with stuff that isn’t allowed, or is an unregistered security – or could be – or even just is a not particularly reputable industry, then banks will often say, “We don’t want to let you do business.”

Imagine if everybody had to put in all of their crypto trading through their bank account. Would the crypto market look the way that it does right now? No, because all of those actors would be held accountable as fiduciaries for facilitating that kind of activity.

How did we arrive at this point where Tether is doing $70 billion a day in volume and the companies behind it have never been audited?

Historically speaking, the SEC has done a pretty [awful] job of navigating the margins of the “Wild West” of securities regulation. But the banking industry, at least since the 1930s [when the U.S. Federal Deposit Insurance Corporation was established], has done a pretty good job of keeping most people’s money safe.

The biggest reason that stablecoins haven’t already been dealt with is because there has been a loophole – a kind of carveout at the center of banking law that has been a serious problem, and in part led to the rise of the money market fund industry and some of the problems with shadow banking in 2008.

The law defines the concept of deposits in a very circular fashion. It says, “No one can issue a deposit unless you’re a bank,” but then it defines a deposit as “that which is issued by a bank” rather than functionally. [Per Grey: Banks “issue” demand deposits when they “accept” currency from a depositor.]

So you have actors that issue something that by all accounts looks like a deposit, and by all definitions is functionally a deposit. But because it isn’t issued by a bank, they say, “Oh, it can’t be a deposit.”

This happened with money market funds. When money market funds first rose to prominence in the 1970s, there was a debate at the Office of the Comptroller of the Currency (OCC) and elsewhere about whether or not they should be considered depository institutions.

And [the funds] lobbied extremely hard, and finance-friendly actors gave them an exemption. So they became this sort of parallel, separate category even though everybody was using their money market fund accounts as equivalent to a bank account.

Liquidity from the money market fund industry is the thing that’s still today driving a huge amount of the hedge fund industry. Because it would be very difficult to do all the [stuff] that they do if they had to do it through a regular bank account.

This isn’t even just a unique problem with crypto, it’s just the next iteration of this longstanding problem. And of course, what happened? The money market fund industry needed a massive bailout in 2008.

I was surprised to see Sen. Cynthia Lummis (R-Wyo.), who’s been such a friend to the crypto industry, say that stablecoins should be regulated.

I think they’re skating to where the puck is going, and they see the writing on the wall.

So What Can Securities Regulators Do About All This? If You’re Gensler, How Are You Beginning To Chip Away At The Problem?

I would be very clear that some of these things are securities, I would launch a series of high-profile investigations on some of the worst actors and I would put pressure on other agencies.

Everybody assumes that everything can be done through securities regulation, which is the product of an extremely successful, decades-long strategy of lobbying, because it’s the weakest of all the financial regulatory frameworks.

Everybody who doesn’t want any regulatory scrutiny or accountability says, “First, I don’t want any.

Second, if I have to have some, I want it to be securities law.”

Who Are The Worst Actors, In Your Opinion?

The exchanges. And I would say the stablecoin issuers, but I would make a really big point and shame the other banking regulators that they should be doing this.

When you say “the exchanges” and “the stablecoin issuers,” do you mean all the major crypto exchanges and all the major stablecoin issuers?

Yeah. Is there a single one that we can honestly say is not trading unregistered securities?

I think Gensler has even said that.

Exactly.

What do you say to the argument that regulators have bigger fish to fry than these somewhat arcane crypto concepts?

My view has always been that as technology evolves, existing categories and existing practices get refracted through those technologies. When the first STABLE Act came out I said, “I think 50 years from now, there’s a good chance that people will be saying, ‘What’s a bank deposit?’ And we’ll say, ‘It’s the thing that we used to call stablecoins.’ And they’ll say, ‘What’s the stock exchange?’ ‘Well, it’s a thing that existed that was sort of a primitive version of the crypto exchanges we have now.’”

I’m not saying that because I think all of these new things are amazing new solutions or doing innovative new things. I think it’s because our language and our legal categories evolve with our technology. And for better or worse, this is the new digital native language, a new digital native technology.

It’s not just Tether, it’s not even just [USDC issuer] Circle, it’s literally every bank out there that will go, “Oh, we can issue something called a different name and suddenly we get to exempt ourselves from all those deposit laws that we’ve been hamstrung by for decades? Sweet! Let’s do that.” JPMorgan is issuing its own stablecoin; do they want that to be classified as a deposit? Of course not.

Updated: 10-19-2021

French Central Bank Pilots Blockchain-Based CBDC For Debt Market

Led by Belgian financial services firm Euroclear, the latest French CBDC trial involved a system by tech giant IBM.

The central bank of France continues actively exploring a central bank digital currency (CBDC), completing a significant trial of a blockchain-based CBDC in the country’s debt market.

Over 500 institutions in France have participated in a 10-month experiment testing a CBDC issued by Banque de France for government bond deals, the Financial Times reported on Tuesday.

The CBDC trial was led by Belgium-based financial services firm Euroclear and used a system developed by American technology giant IBM. The CBDC test also involved the French public debt office alongside the central bank and a consortium of major financial companies operating in France, including firms such as BNP Paribas, Credit Agricole CIB, HSBC and Societe Generale.

As part of the trial, the participants traded government bonds and security tokens, settling them using a CBDC supplied by the central bank. The project tested use cases of a CBDC in a range of everyday activities, such as issuing new bonds, using them in repurchase agreements, as well as paying coupons and redeeming deals.

“We have together successfully been able to measure the inherent benefits of this technology, concluding that the central bank digital currencies can settle central bank money safely and securely,” Euroclear executive Isabelle Delorme said.

According to Soren Mortensen, global director of financial markets at IBM, the project “went well beyond previous blockchain initiatives” because it successfully trialed “most central securities depository and central bank processes” while cutting off existing interim steps such as reconciliation between market intermediaries.

After launching an experimental CBDC program in March 2020, the central bank of France has been consistently testing various CBDC use cases.

In June, Banque de France tested a CBDC to simulate the settlement and delivery of listed securities in collaboration with Swiss cryptocurrency bank SEBA. Previously, the central bank piloted a CBDC to issue $2.4 million worth of simulated shares using a private blockchain platform.

Ghana To Explore Offline Transactions For Upcoming CBDC

Offline CBDC functionality will help bring financial services to Ghanaians who lack access to bank accounts or an internet connection.

Ghana is working to develop offline capabilities for its forthcoming central bank digital currency (CBDC) in a bid to promote its use across all segments of Ghanaian society.

According to a Monday report from Bloomberg, Kwame Oppong, head of fintech and innovation at the Bank of Ghana (BoG), revealed that the country’s digital currency “e-cedi” will support offline transactions during the Ghana Economic Forum on Monday.

Oppong emphasized that offline functionality will allow Ghanaians who lack reliable access to electricity and internet connectivity to embrace the country’s CBDC, stating:

“The e-cedi would also be capable of being used in an offline environment through some smart cards.”

A smart card is a plastic credit card-sized card with a chip that allows its user to transact using a pre-loaded balance. A similar system has been trialed by Oxfam to facilitate payments using the decentralized stablecoin Dai to provide relief from environmental disasters.

According to World Bank data published in 2019, 84% of Ghanaians then had stable access to electricity, while just 53% were connected to the internet.

In August, the BoG announced it had partnered with German financial firm Giesecke+Devrient to pilot a retail CBDC in Ghana.

The announcement came just one month after Ghanaian Vice President Mahamudu Bawumia advocated for African governments to embrace digital currencies as means to bolster trade across the continent during the Fifth Ghana International Trade and Finance Conference in July.

Local adoption of decentralized cryptocurrencies is also on the rise, with analytics firm Chainalysis reporting that Africa’s cryptocurrency market has grown by more than 1,200% since 2020 as of last month.

Updated: 10-20-2021

Mashinsky Says USDT Is Minted For Crypto As $1M Bounty Offered To Unpick Reserves

Hindenburg Research is offering a $1-million bounty for information on Tether’s reserves, with the firm stating that Tether is yet to disclose virtually anything “about its counterparties.”

A bounty of up to $1 million has been offered to anyone who can cast light on the precise backing of Tether’s reserves.

That backing just got a little bit murkier after Celsius Network CEO Alex Mashinsky reportedly said that Tether mints new Tether (USDT) in exchange for crypto assets — which appears to conflict with Tether’s own terms and conditions.

Forensic financial research firm Hindenburg Research tweeted on Wednesday to its 171,000 followers that it holds “doubts about the legitimacy of Tether” and offered a reward of up to $1 million for important details on Tether’s reserves, which it claims could pose a threat to investors on a “systemic” scale.

“Tether is a key underpinning of the multi-trillion-dollar crypto market. Yet despite its repeated claims of transparency, its disclosures around its holdings have been opaque.”

“The company claims to hold a significant portion of its reserves in commercial paper yet has disclosed virtually nothing about its counterparties,” Hindenburg Research added.

But as more than a few observers noted, $1 million isn’t a lot of money to dish the dirt on a token with a $70-billion market capitalization.

Tether has been the subject of intense scrutiny, with regulators taking action against the firm on multiple occasions over the composition of its reserves. In May, Tether published a loose reserve breakdown that showed a large amount of unspecified commercial paper, along with minimal cash or bank deposits.

On Friday, Tether and its sister company, Bitfinex, reached a settlement to pay $42.5 million to the Commodity Futures Trading Commission, which claimed Tether did not have sufficient cash reserves for two-thirds of the period between 2016 and 2018.

Tether settled, but it denied the claims, noting there was “no finding that Tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times.”

It went on to say, “As Tether represented in the Order, it has always maintained adequate reserves and has never failed to satisfy a redemption request.”

Meanwhile, Mashinsky is facing his own regulatory issues after the New York Attorney General’s office began looking into his firm and another stablecoinlending platform this week.

In a subsequent interview, Mashinsky told the Financial Times on Tuesday that as part of a lending agreement, Tether minted new USDT tokens in exchange for digital assets:

“If you give them enough collateral, liquid collateral, Bitcoin, Ethereum and so on . . . they will mint Tether against it.”

“New USDT is issued for such loans,” he added, stating that the new USDT is later destroyed after the loan is closed in order not to “permanently increase USDT in circulation.”

Such a lending structure on the face of it would appear in violation of Tether’s terms of service, which state:

“Tether will not issue Tether Tokens for consideration consisting of the Digital Tokens (for example, Bitcoin); only money will be accepted upon issuance.”

UPDATE: Tether has since responded to Hindenburg’s $1 million bounty offer, with the firm labeling it a “pathetic bid for attention,” and an attempt to not only discredit Tether, but the entire crypto movement:

“Thankfully, everyone sees through their opportunism as Bitcoin approaches another all-time high.This is not the first time Hindenburg Research has orchestrated an apparent scheme in pursuit of profit. Nor will it be the last. Tether abhors and denounces their actions and transparent motives.”

Tether did not respond to Cointelegraph’s questions about Alex Mashinsky’s comments.10-20

Updated: 10-23-2021

Nigeria To Launch Its ENaira Digital Currency On Monday

The launch was originally set for the start of October.

The Central Bank of Nigeria (CBN) will launch its digital currency, the eNaira, on Monday, Bloomberg reported.

* The eNaira, which is intended to complement the physical Naira rather than replace it, will “make financial transactions easier and seamless for every strata of the society,” the CBN said in emailed statement on Saturday, according to the report.

* The launch had originally been set for Oct. 1 to Oct. 4 but was delayed in deference to the 61st anniversary of Nigerian independence on Oct. 1.

* Nigerian financial officials have struggled with cryptocurrency’s rising use in the country. Nigeria banned crypto transactions within the banking sector in February and four months later announced plans to introduce the eNaira.

* The eNaira will be accompanied by a wallet sanctioned by the CBN that users can either link to their bank accounts or pay as they go with a prepay option, according to the CBN web site.

Updated: 10-24-2021

What CBDCs Mean For The Future Of DeFi and Stablecoins

Central bank-issued digital currencies are an existential threat to permissionless stablecoins and finance.

Over the last year, the narrative surrounding central bank digital currencies (CBDCs) has advanced considerably. From an almost entirely conceptual discussion, CBDCs are now in various stages of research and development to ascertain how they could work in practice.

China’s digital yuan is currently leading the pack. Following several pilots, the Chinese government is expected to roll out its CBDC to a population of over a billion people in 2022. While no other country has yet reached the same stage of CBDC development, there has been surprisingly rapid progress.

Recently, G7 finance heads met and reached a consensus over some defining principles for CBDCs. But outside China, some of the most significant results have also been emerging from Asian countries.

The efforts of the Hong Kong Monetary Authority (HKMA) and its collaborative endeavors are of particular note. Since 2017, the HKMA has been investigating the idea of a CBDC. In the first instance, dubbed Project LionRock, it researched the concept of a so-called “wholesale” CBDC, a digital currency for settlement between banks.

By 2019, it had joined forces with the Bank of Thailand to study CBDCs for cross-border payment. After the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People’s Bank of China and the Bank for International Settlements (BIS) became involved, the collaboration entered a new phase to develop a multiple CBDC bridge, dubbed mBridge.

However, the newest development is the one that could have the biggest impact on the status quo. In particular, CBDCs are an existential threat for permissionless finance to which crypto has grown accustomed.

An Invitation To Consult On A Retail CBDC

In early October, the HKMA published a CBDC white paper, calling for input regarding the prospect of an electronic Hong Kong dollar (e-HKD) from experts in monetary policy, banking and distributed ledger technology.

The paper poses many questions, such as how monetary responsibility will be divided between central banks and the financial sector. But for those of us in the blockchain and cryptocurrency community, there’s plenty more to chew on.

While the paper is agnostic regarding the technological infrastructure needed for a CBDC, it invites consultation on seven “problem statements.” They are privacy, interoperability, scalability and performance, cybersecurity, compliance, operational robustness and resilience, and the technology-enabled functional capabilities offered by a retail CBDC.

A Familiar Set Of Conundrums

Any enterprise or organization that has considered implementing blockchain or decentralized ledger technology has been faced with some or all of these questions. Ultimately, they come down to this: Do the benefits of a permissionless, open and decentralized public network such as Ethereum outweigh the drawbacks? Or would a permissioned implementation be a better option?

In the context of CBDCs, there are far-reaching implications in deciding between permissioned and permissionless ledgers. Providing an adequate solution to one of the problem statements inevitably creates issues in another.

For instance, we could make a safe assumption that a central bank wouldn’t want a CBDC to offer the same level of pseudonymity as a cryptocurrency like bitcoin (BTC) or ether (ETH) and would seize on an opportunity to build compliance-based measures into the architecture. Requiring a user to undergo know-your-customer (KYC) and anti-money laundering (AML) checks to open an account is one obvious example.

But, in turn, introducing identity checks generates legitimate questions around government surveillance and user privacy, which need to be balanced against the need to accommodate financial law enforcement and prevent CBDCs from being used in criminal activity.

Strength In Numbers

There’s a similar trade-off in balancing operational robustness and resilience with cybersecurity. Permissionless blockchains such as Ethereum and Bitcoin have proven over many years that they are robust against attacks, thanks to the sheer size of their networks.

The permissionless nature encourages participation and creates a highly resilient architecture that’s prohibitively expensive to attack.

However, from the CBDC perspective, there are drawbacks; most significantly, a lack of control over performance and scalability. The process of upgrading public blockchain networks can also be protracted, particularly where it requires consensus from a majority of participants in a decentralized network.

There are arguments for and against on-chain governance, but it seems unlikely a central bank would want to cede full governance control of national currency to a decentralized network, even if it could somehow verify that all of the network participants were honest and the span of control was limited.

Ultimately, it seems likely that a permissioned implementation of some description may prevail. However, central banks will need to solve privacy and security challenges without compromising on their need for compliance, control and performance.

An Uneasy Future For Stablecoins

One aspect missing from the HKMA paper, and in fact, the CBDC debate in general, is the opportunities in decentralized finance (DeFi). DeFi emerged and evolved due to the specific features and advantages inherent in crypto; for instance, the ability to create programmable money with automated transactions governed by smart contracts.

Traders can take advantage of arbitrage in the moment and settle payments of any value almost instantaneously, 24/7, from anywhere in the world. As such, CBDCs offer truly transformative potential to the broader global asset markets.

However, this raises many difficult questions about the future of stablecoins. As the value in crypto and DeFi markets has grown and institutional interest rises by the week, regulators have become increasingly vocal in urging caution. U.S. Securities and Exchange Commission head Gary Gensler recently referred to stablecoins as “poker chips” and it seems as if some kind of legislation governing dollar-like digital equivalents could be a matter of time.

It’s a matter that’s becoming more prominent to lawyers, analysts and consultants from across the spectrum of crypto, finance and technology. McKinsey recently issued its own view on the situation, stating that although regulated stablecoins could co-exist with CBDCs, it’s equally plausible that one will prevail over the other.

An Unfair Advantage?

It’s worth noting that CBDCs have two distinct advantages over stablecoins from the outset. Firstly, as outlined previously, CBDCs offer the ability to embed compliance and digital identity features from the outset. In contrast, stablecoins such as tether (USDT), issued across multiple blockchains, operate within the confines of the platform rules.

In its current format, Tether couldn’t unilaterally insist on KYC checks to use USDT. However, such a feature would lower the compliance burden and cost to financial institutions, which can swallow up to 5% of banking revenues.

Secondly, CBDCs could also automate the collection and distribution of taxes, reducing another headache for banks. In many jurisdictions, such as Switzerland, banks withhold tax from some transactions, such as those for foreign residents, at the source. In all countries, banks are compelled to comply with disclosure orders from the authorities in cases of tax evasion.

In light of these advantages, given a choice between CBDCs and regulated stablecoins, CBDCs would be a no-brainer for virtually all financial institutions.

The many dilemmas involved in launching a retail CBDC mean that it could still be several years before the true impact is clear. However, it’s already apparent that CBDCs will bring substantial opportunities for the financial system but could ultimately represent an existential threat to stablecoins and the current DeFi landscape.

Updated: 10-25-2021

Nigerian President To Unveil eNaira Central Bank Digital Currency

The Nigerian central bank digital currency was originally slated for launch earlier this month, but it has been delayed.

Nigerian President Muhammadu Buhari is set to officially introduce the country’s central bank digital currency (CBDC), the eNaira.

The Central Bank of Nigeria (CBN) has published a document in which it reaffirmed its intention to introduce the eNaira after previously attempting but failing to do so on Oct. 1. According to the design paper for the eNaira, the CBN now considers itself prepared to implement Nigeria’s CBDC.

The CBN is working on a global cryptocurrency that will be used as a means of payment and a store of value in addition to replacing cash.

The CBN, in its own statement, downplayed the risks of missing a deadline. Rather, the bank emphasized the value of getting things right the first time and how doing so contributes to long-term success for digital currencies. The CBN stressed the need to get off on the right foot rather than rushing to release a digital currency that has not yet received all necessary approvals.

As previously reported by Cointelegraph, the Nigerian Federal High Court approved the rollout of a CBDC as a legal tender on Oct. 2.

The CBN published the document containing its design principles for the eNaira together with an overview of what is expected of the Nigerian digital currency. The two documents are available on the bank’s website in English and were also provided in Hausa and Yoruba.

According to the CBN, rather than concentrating all of its efforts on launching the eNaira on time, it has spent its effort on designing and architecting the eNaira. It has also allocated a lot of time to educate potential users about the currency’s capabilities, risks, and how they will be mitigated.

The central bank stated that these key facts should reassure Nigerians that the eNaira, which will be accessible to offline users, has been carefully planned and prepared for launch.

How To Use Stablecoins To Earn A Higher APY

Platforms are offering investors several opportunities to earn from stablecoins, some of which extend far beyond cryptocurrency lending.

Many are quick to flock to stablecoins for their ability to de-risk cryptocurrency positions. A stablecoin can be pegged to any perceivably stable asset, for instance, a digital asset like Bitcoin (BTC) or a fiat currency like the US dollar.

In theory, if a digital asset was pegged to the US dollar, $100 worth of the digital currency should mean $100 in the backed asset is held in a secure reserve like a bank account.

Stablecoins are broad in utility; their uses include moving tokens between exchanges and protocols securely, lending out tokens or making payments. For this reason, they have also quickly become an entry point into the cryptocurrency world for first-time users.

Unlike Bitcoin, Ethereum (ETH) or other cryptocurrency projects, the price of a stablecoin is, well, stable and won’t always provide a significant opportunity to earn. In this case, earning will typically come down to new innovative products entering the market, such as peer-to-peer lending.

With peer-to-peer lending, users can leverage a crypto loan platform to lend their stablecoins out. Interest rates, in this case, will often be significantly more than what is earned in a traditional savings account.

Users choose a platform that specifies a high-interest rate, higher than the rate the end-user is paying, the difference being known as the spread. The spread is how a loan platform will pay its lenders.

Consider that the process can be likened to storing your assets in a normal bank account. After depositing your funds, traditional banks will invest funds or loan them out to others. With the earnings they collect, they then redistribute a portion to you, either daily, weekly, or monthly.

A Happy Medium

Some platforms offer a similar user interface to your traditional bank; the only difference is that higher interest rates are often offered. Although this may be riskier than storing your money in a traditional bank, stablecoins are also more attractive as an investment than traditional cryptocurrencies since there is lower chance funds will be pulled out at an amount less than a user started with.

To further illustrate this concept, say you purchased a cryptocurrency intending to earn a 10% interest rate each year on a given platform. This is an attractive rate and is more than you would likely earn with funds sitting in your traditional high-interest savings account.

However, the underlying asset also holds a higher risk, suggesting to users that they may end up losing their money if the price dips (and it likely will at some point).

Even if a buffer of 10% exists, it is not uncommon for a wild price swing to decrease the price of these assets far below what you were expecting if your timing is off.

Stablecoins, on the other hand, almost guarantee that the amount you’ve invested is the same amount you will get back. For example, 850 USDC tokens, each priced at $1, will always result in your 850 tokens worth $1. The prices should theoretically always move in a sideways pattern, as the assets that back them (in this case, the USD) will always be worth $1.

Earning From Sideways Prices

While crypto lending provides an opportunity for stablecoin holders to earn higher yields, they do little in the way of allowing users to accumulate digital assets like Bitcoin. To address this concern, Matrixport is released a new user-friendly cryptocurrency investment project known as the “BTC-U Range Sniper.”

Matrixport’s new product offers users an annualized yield (APY) from anywhere between 6 and 200%, which can be paid out in USDT, BTC or USDC. The amount is determined by the price of BTC on settlement.

At the time of the settlement, if the price is above the given range, a minimum of 6% APY will be paid out to the user in USDC.

However, if the settlement falls below the set range, the principal investment will be transferred back to Bitcoin, and the same minimum of 6% APY will be paid to the user. In an ideal scenario, the price will fall within the predetermined raise allowing users to earn up to 200% APY.

When asked about their new offering, John Ge, the co-founder and CEO of Matrixport, summarizes this initiative as, “Stablecoins are an important fiat on-ramp pathway and has been a great entry point for the crypto curious. However, many stablecoin holders now desire to accumulate BTC while earning higher yields.

BTC-U Range Sniper is a user-friendly crypto investment product where we empower users to continue to earn attractive stablecoin yields or ride BTC’s innate volatility to accumulate more BTC.”

As a result, USDC holders looking for a suitable time to enter the market will likely benefit from Matrixport’s latest product offering.

Updated: 10-26-2021

Has The SEC Won The Battle To Regulate Stablecoins?

Bloomberg is reporting that a forthcoming U.S. Treasury Department report will give the Securities and Exchange Commission broad powers to regulate the $131 billion part of the crypto industry.

SEC Expected To Head US Stablecoin Regulation And Enforcement

The report is also expected to clarify the regulatory jurisdiction of the Treasury Department and CFTC with regards to stable tokens.

United States regulatory bodies have reportedly agreed that the Securities and Exchange Commission will lead the U.S.’ efforts to regulate the stablecoin sector.

According to a Tuesday Bloomberg report citing anonymous sources “familiar with the matter,” the SEC has reached an agreement with other U.S. agencies to take the reins on proposing legislation and overseeing the stablecoin industry.

The sources add that the SEC’s newfound “significant authority” over the sector will be formally announced in the Treasury Department’s forthcoming stablecoin report that is scheduled to be published this week.

The report will also clarify the regulatory jurisdiction of the Commodity Futures Trading Commission and the Treasury Department with regard to stable tokens.

The Treasury’s report was announced during a meeting of The President’s Working Group for Financial Markets (PWG) in July, with the PWG stating its intention to explore creating a new type of banking charter for stablecoin issuers among other regulatory measures at the time.

The PWG comprises representatives from top U.S. regulatory agencies, including Treasury Secretary Janet Yellen, SEC Chair Gary Gensler, Federal Reserve Chair Jerome Powell and acting CFTC head Rostin Behnam.

Bloomberg’s sources claim that Gensler has been pushing for further expansion in the SEC’s regulatory domain over stablecoins, including allowing the commission to pursue enforcement actions against issuers. Gensler also reportedly sought to clarify what powers the SEC has to oversee stablecoin-based investment transactions.

The report is also expected to call on Congress to enact similar regulations to those overseeing bank deposits for the stablecoin sector.

Last month, Gensler called on Congress to assist the SEC and CFTC in regulating stablecoins, with Gensler likening the dollar-pegged assets to “poker chips at the casino.”

The stablecoin market has seen significant growth in 2021, and the market capitalization of leading stablecoin issuer Tether (USDT) has exploded this year, with its market cap growing by 229% since the start of the year to sit at $69.5 billion.

Second-ranked USD Coin (USDC) has also seen meteoric growth, with its capitalization growing 706% year-to-date to tag $32.52 billion as of this writing.

Tether Trials Notabene’s New Travel Rule Technology To Combat Financial Crimes

The “Travel Rule” aims to bring reporting standards for virtual asset service providers in line with other traditional financial institutions.

Tether Operations Limited, the firm operating Tether (USDT), announced on Tuesday that it will use Notabene, an end-to-end solution for cryptocurrency Travel Rule compliance.

Tether will begin testing Notabene’s cross-border transaction monitoring system for virtual asset service providers (VASP) to combat financial crimes such as money laundering.

Notabene is a new technology for monitoring cryptocurrency transactions in real-time, making the blockchain more transparent and allowing regulators to keep better track of cash flow.

The Know Your Customer infrastructure stack at the firm is built to span jurisdictions with little or no regulation of financial services.

Notabene claims to offer a low-risk environment to test sophisticated crypto use cases. Tether will use Notabene’s technology to determine whether it can securely transmit identifying data for clients in other VASPs.

In particular, as it pertains to transactions conducted by VASPs, Notabene’s solution will help Tether protect its consumers.

The Financial Action Task Force, a worldwide group that sets Anti-Money Laundering standards, has determined that VASPs should adhere to the same rules as regulated financial institutions.

The “Travel Rule” advises VASPs to exchange specific client information between counterparties for transactions worth more than a certain amount.

These procedures are meant to assist nations and service providers in preventing money laundering, terrorist financing and complying with sanctions laws. Commenting on the new development, Tether chief compliance officer Leonardo Real stressed the importance of working with other VASPs, stating:

“As pioneers of blockchain technology and leaders in transparency, we are dedicated to not only keeping up with new rules but helping shape them.

Because the Travel Rule traditionally applies to financial institutions, we see this as an opportune moment to foster cooperation across traditional and digital channels in order to create better services for customers globally. We are proud to lead the charge.”

According to a recent report from Cointelegraph, the United States Securities and Exchange Commission will be in charge of U.S. stablecoin regulation and enforcement. In 2021, the stablecoin market has seen tremendous development, and Tether’s market capitalization has soared this year, increasing by 229% since the start of the year to $69.6 billion.

Updated: 10-26-2021

Central Banks Are Getting Serious About Digital Money

The rise of Bitcoin and other cryptocurrencies has prompted a major push among central banks to develop their own digital currencies. This week, Nigeria’s central bank joined those of the Bahamas and the Eastern Caribbean region in launching the world’s first digital versions of cash. China is likely to be among the countries to follow next as it prepares a digital yuan trial in time for the Beijing Winter Olympics in 2022.

Updated: 10-27-2021

European Central Bank Announces Digital Euro Advisory Group Members

The group consists of 30 high-ranking financial professionals from organizations, including BBVA, CRIF and Stripe, among others.

The European Central Bank (ECB) has announced the formation of a market advisory group for the purpose of exploring the infrastructural and circulation potential of the digital euro from the perspective of industry spearheads.

The group also aims to uncover the digital euros optimal function within the pan-European currency’s vast payments ecosystem.

The group includes a number of well-established experts from the banking and financial sector, including Aleksander Kurtevski, managing director of Bankart; Antonio Macías Vecino, head of payments discipline at BBVA; and Axel Schaefer, payment regulation and innovation specialist at Ingka Group (Ikea), among others.

It is expected that initial consultation meetings will commence in November 2021 and will operate on a monthly basis. The 30 members will work in advisory roles and report their findings for consideration in retail payments discussions within the Euro Retail Payments Board.

In mid-July this year, the Governing Council of the ECB disclosed plans to commence a two-year preliminary research initiative into the feasibility of the digital euro project, assessing parameters, such as infrastructure creation, distribution and design, with an assured intention to “complement cash, not replace it.”

ECB board member Fabio Panetta expressed his high expectations for the project’s success:

“I am pleased that many high-quality experts from the private sector are willing to contribute to the digital euro project. Their expertise will facilitate the integration of prospective users’ and distributors’ views on a digital euro during the investigation phase.”

Over the past year, the ECB has made progressive steps in its pursuit of a digital euro, an initiative that implies its desire to foster growth within the digital asset space. However, the institution has also expressed, seemingly paradoxically, concerns around the rapid advancement of the space, with its vice president claiming that crypto has “very weak fundamentals” in a May 2021 interview.

In an interview with the World Economic Forum in early September, Christine Lagarde, President of the ECB, scrutinized the vague categorization of dollar-pegged digital assets within the crypto sphere, concluding that stablecoins are “pretending to be a coin” but, in truth, are “completely associated with an actual currency.”

Coupling this assessment, she advised that assets of this nature should be “checked, supervised, regulated” to ensure transparency, liquidity and operation that best support the safety of the consumer.

Updated: 10-28-2021

Mastercard Is Preparing Its Infrastructure For The Deployment Of CBDCs

The world’s third-largest consumer payment processor remains bullish on the adoption of CBDCs.

During an earnings call with investors and stakeholders, Michael Miebach, CEO of Mastercard, discussed his positive outlook on the cryptocurrency industry.

The company has not only seen sizable volume growth in consumers using their Mastercards to purchase crypto but has also secured several partnerships with cryptocurrency firms. But Miebach’s most ambitious viewpoint emerged during a discussion regarding central bank digital currencies, or CBDCs, saying:

“We are saying at this point in time, the most likely chance for this kind of technology to work for payments is if it’s issued through a government in the form of a CBDC. We said that on a couple of calls before, and we said that we will make our network ready to do that as and when a government is ready to put out a CBDC that will exist alongside the dollar or the euro as a settlement currency in our network.”

Miebach remained confident on Mastercard’s role in the matter, stating “We can provide a safe space for government and private sector banks to figure out how that will actually work.”

Talk of CBDCs has continued to rapidly gain traction over the past year. On Oct.21, the Bahamas became the first country in the world to issue a CBDC — known as the “Sand Dollar”. Just a few days later, Nigerian President Muhammadu Buhari announced plans to unveil its own eNaira CBDC in the country.

According to Statistica, Mastercard processed 113 billion transactions across the globe last year — just behind Visa’s 188 billion and Union Pay’s 151 billion.

The world’s third-largest payment processor has taken a keen interest in the cryptocurrency space in recent months. On Monday, Mastercard announced it would partner with cryptocurrency marketplace Bakkt to enable its U.S. customers to trade digital currencies.

In September, the company declared that it would acquire blockchain analytics firm CipherTrace to track illicit transactions across 900 different cryptocurrencies. However, CEO Miebach has taken a more risk-averse approach to the industry as a whole, as stated in the company’s third-quarter earnings call:

“Questions like the last mile — how do you bring utility into the hands of your citizens if you put out a CBDC. Acceptance questions and so forth. So, facilitating investments as an asset class, we do that, and we get ready for CBDCs. Should there be a private sector stablecoin? We might also do that. But we have very strict principles on when to do this and when not.”

Thailand’s Biggest Shopping Center Trialing Digital Currency

Central Retail Corp, a major Thai retail company, has announced a test of its virtual currency, “C-Coin.”

Central Retail Corp, a leading firm in Thailand’s retail industry, is testing a digital currency among its employees. After the sandbox phase is finished, the retail giant plans to extend the service to customers and the general public, according to a report by Bloomberg.

The “C-Coin,” a blockchain-powered cryptocurrency, is being offered to 80,000 Central Retail Corp employees around the world as a reward for exceptional performance as a bonus to their usual salary.

While holders can use C-Coin to pay for meals and buy items and services from Central Retail’s partners using it, this is just a test project for Central Retail Corp. The long-term objective of the firm is to transition to cashless societies and venture into the e-commerce industry.

According to Kowin Kulruchakorn, chief innovation officer of Central Tech, the currency may be made available to the general public once all employees have signed up and the firm understands more about its performance. Central Retail’s Central Tech is the unit that created the C-Coin and manages all of Central Retail’s omnichannel and e-commerce systems.

Central Retail Corp is Thailand’s biggest shopping mall owner, comprising more than 40 department stores and high-end retail outlets. It also operates Central Festival, Big C Supercenter and Seacon Square. Outside Thailand, it runs the Italian department store La Rinascente, Danish brand Illum and Vietnam’s Big C supermarket chain.

Central Retail Corp is not the only entity developing a digital currency in Thailand. As reported by Cointelegraph, the Bank of Thailand announced it was considering a central bank digital currency. In Q2 2022, the initial testing phase for the digital baht is set to commence.

Updated: 11-2-2021

Public or Private? With Digital Cash, It May Be Hard To Tell

Hong Kong’s colonial-era tradition for printed banknotes could hold the key for making official electronic currencies work at the retail level.

Even official money is quasi-private in Hong Kong, with people interchangeably using the IOUs of its three note-issuing banks. But as central banks around the world plan to take cash digital, can this arrangement hold up? Or will the city’s 7.5 million residents have to deal in a brand new currency, a direct liability of the Hong Kong Monetary Authority?

The answer may be of global interest. Governments everywhere are under pressure from technology. Stablecoins, pegged 1:1 to the dollar or the euro, are emerging as a haven of value for those who trade volatile cryptocurrencies. Synthetic private cash might go mainstream when social-media giants put the power of their networks behind stablecoins.

For instance, Meta Platforms Inc. (formerly Facebook Inc.) is backing Diem, a yet-to-be-launched token that can be sent instantaneously to anyone, anywhere with an entry-level smartphone and a data connection.

To preempt the risk to financial stability from too-big-to-fail stablecoins, central banks are contemplating their own versions of official digital cash. But they’re hesitant to open their ledgers to the entire population and track in real time whether anyone is trying to spend the same money twice.

Regulatory authorities that have historically only worked with a limited number of banks simply aren’t equipped to take on the extra work that comes from being consumer-facing institutions.

How Hong Kong navigates the world of digital cash could offer useful pointers.

Three years after it officially became a British colony in 1843, bills issued by designated commercial lenders started to circulate as the medium of exchange in Hong Kong’s local transactions.

The tradition has continued. Shortly before the city’s 1997 handover to the People’s Republic, Bank of China (Hong Kong) Ltd. joined the two U.K.-based institutions, HSBC Holdings Plc and Standard Chartered Plc, as the island’s third money-printer.

Since all their pieces of paper are fully backed by assets deposited at the HKMA, nobody except first-time tourists even notices the name of the issuer of banknotes.

Can a similar public-private partnership work with a retail e-HKD?

The city’s monetary authority is currently only studying the feasibility of retail digital cash, but one of the design options laid out in a technical white paper looks promising. The proposal is to create two blockchain-based layers: wholesale and retail.

The central bank will operate only in the wholesale domain, and here, too, will only issue new currency or redeem it. Banking intermediaries will decide by consensus if one of them is entitled to receive wholesale digital cash from the HKMA based on whether it’s surrendering 1:1 value in backing assets.

The central bank will have no presence in the retail layer. Intermediaries will convert their wholesale digital cash into e-HKD and hand them over to customers in single-use envelopes, known in the crypto world as unspent transaction output, or UTXO. When a customer spends, she’ll tear open one or more envelopes and store any change in a new one.

By tracing these cryptographically marked packets, transactions could be followed all the way back to the original source: the wholesale money that entered the retail system.

The advantage of this traceability feature is that if an intermediary in the retail layer goes bankrupt, payment disputes don’t need to head to court. Code can settle them, with the blockchain forging a consensus on which stuck e-HKD holder has a bona fide claim on backing assets parked with the central bank.

On the flip side, the anonymity of physical cash will be lost forever. The public key in a blockchain-based payment system is like a postbox address. People can use new ones to avoid their identities being unmasked by intruders. But banks, which will have to run know-your-customer checks as a safeguard against money-laundering, must register all the public keys of their clients.

They’ll know.

However, for transactions where absolute anonymity is not crucial and a payer would voluntarily use a debit card — or a digital wallet — instead of having to shell out cash, e-money will be a welcome addition as a convenient, smartphone-based payment option. Such a version of digital cash will nominally be a private-sector liability, but because of ironclad backing, it will be indistinguishable from state-printed currency.

Separating out the wholesale and retail layers will reduce the “attack surface” for hackers. So it’s conceivable that even Hong Kong’s new-age virtual banks — such as Mox Bank Ltd. and ZA Bank Ltd. — may also be allowed to issue e-HKD alongside the established trinity of the note-printing institutions, making the financial system more competitive.

No large country can emulate Hong Kong’s currency-board system of a fixed exchange rate. But when it comes to tokenization of money, the Asian financial center may have a valuable message for the rest of the world: Rather than going head-to-head against the private sector, the public sector should try to coopt it as much as possible.

It may be a less cumbersome route to digital cash than taking on every individual depositor as the central bank’s customer.

JPMorgan Report Says CBDCs Can Save Firms $100B A Year In Cross-Border Costs

The report considers a network of multiple central bank digital currencies across the ASEAN region.

A central bank digital currency (CBDC) network could save global corporations over $100 billion a year in transaction costs when it comes to cross-border payments.

So says a report published Wednesday by consulting firm Oliver Wyman and JPMorgan called “Unlocking $120 Billion Value in Cross-Border Payments.”

The report estimates that of the nearly $24 trillion in wholesale payments that move across borders each year, banks incur more than $120 billion in total transaction costs; this excludes potential hidden costs in trapped liquidity and delayed settlements.

“The case for CBDCs to address pain points in cross-border payments is very compelling,” said Jason Ekberg, an Oliver Wyman partner, in a statement. “The bulk of today’s wholesale cross-border payments process remains sub-optimal due to multiple intermediaries between the sending and receiving banks, often resulting in high transaction costs, long settlement times, and lack of transparency on the status of the payments.”

Conversations around CBDCs, driven by the march of cryptocurrency and blockchain technology, can be about either retail issuance or the type of wholesale transactions that are the focus on the report.

There have been several wholesale banking initiatives in recent years led by private companies, commercial banks and central banks, the report points out, but nothing like a full-scale, multiple central bank digital currency (mCBDC) network.

As an example, the report uses the ASEAN region and its corridors, comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, which operates across a diverse set of 10 currencies and contributes 7% of global cross-border trade.

JPMorgan and Oliver Wyman suggest a model for the ideal mCBDC that considers the process from minting and redeeming of CBDCs to foreign exchange conversion and settlement. The report also cites new opportunities for players in the correspondent banking world who might be disrupted by a full-scale CBDC rollout.

“The development of CBDCs brings new, tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services,” said JPMorgan Global Head of Coin Systems Naveen Mallela.

Indeed, Mallela’s Onyx division was involved in one such trial connecting France and Singapore.

 

Updated: 11-3-2021

China’s CBDC Has Been Used For $9.7B of Transactions

Some 140 million people have opened wallets for the “eCNY.”

China’s central bank digital currency (CBDC) has been used to conduct 62 billion yuan ($9.7 billion) of transactions as of the end of October.

* A People’s Bank of China (PBOC) official said Wednesday that 140 million people had opened wallets for the digital yuan, or “eCNY,” according to a report by Reuters.

* Mu Changchun, director-general of the digital currency institute of China’s central bank, told Hong Kong’s Fintech Week conference that over 1.5 million merchants could accept payments using eCNY wallets.

* In addition, 10 million corporate accounts have been created, Bloomberg reported.

* The figures compare with those at the end of June, when there were 34 million individual and corporate eCNY wallet users who had conducted transactions worth $5.4 billion, according to Bloomberg.

* There is no official launch date for the CBDC, Mu said. The eCNY has been undergoing trials in cities across China over the last year.

Over 140 Million People Have Digital Yuan Accounts, Says PBoC Head

China’s CBDC hit 62 billion yuan in total transactions processed, according to PBoC’s digital currency head.

China’s trials with central bank digital currency (CBDC) show no signs of slowing down, as the updated numbers for October 2021 were revealed at Hong Kong Fintech Week.

Set out to replace cash in day-to-day transactions, the digital yuan (e-CNY) is gaining traction among individuals and corporates alike, according to the People’s Bank of China’s (PBoC) Digital Currency Institute head Mu Changchun. Speaking at the conference on Wednesday, Mu said the number of individual digital yuan accounts hit 140 million, while corporates created another 10 million accounts.

While the official launch date is still unclear for the e-CNY, China has continued to expand the rollout of trials to more than a dozen regions. With a wide range of merchants from utilities, catering services and transportation to retail and government services accepting the CBDC, people spent 62 billion yuan ($9.7 billion) using e-CNY wallets as of October 2021, Reuters reports.

The PBoC executive also detailed different types of e-CNY wallets. The base wallet with an annual transaction cap of 50,000 yuan ($7,800) only requires a phone number to activate. If users want to open an e-CNY wallet for unlimited transactions, they need to go to a bank counter with personal identification.

China is looking to replace cash payments completely with the digital yuan, and the country has been continuing its extensive trials in major cities since April 2020. China’s CBDC is controlled, tracked and registered on smartphone apps by the Chinese government.

One year ago, during the same conference, PBoC Governor Yi Gang said the digital yuan pilot saw 2 billion yuan ($299 million) spent by people in 4 million transactions across four cities. Last year’s numbers mean the e-CNY saw a 3,000% increase in transaction volume in 12 months thanks to the geographically expanded trials and rising popularity of CBDCs.

Updated: 11-4-2021

Chinese Police Raid What May Be The Nation’s First Scam And e-CNY Money-Laundering Case

Police crack a tele-fraud case related to digital yuan money laundering, potentially thanks to the CBDC’s ‘managed anonymity’ feature.

A Chinese police force is investigating what could be the first scam and money laundering case involving the country’s new digital yuan — the e-CNY — and has arrested 11 suspects.

The police in Xinmi, a county-level city in central China’s Henan province, revealed on Tuesday that the victim, surnamed Qu, in September received a phone call from a suspect who claimed there was a quality issue with an item that Qu ordered online and that they would compensate Qu with money three times the value of the item.

Prompted by the requests of the suspect to “verify identification,” Qu transferred over 200,000 yuan, via multiple transactions, to the accounts provided by the suspect, but Qu later became suspicious.

During the investigation, the local police found the money flowed to a specific electronic wallet, but the wallet’s transaction model was different from traditional online payment. After multiple visits to banks and third-party payment companies, the investigators discovered the digital wallet contained e-CNY and belonged to a 26-year-old suspect surnamed Lin from the southeastern province of Fujian.

The police subsequently arrested 11 suspects, on suspicion of facilitating money laundering through the e-CNY for a fraud ring based in Cambodia.

The case could be the country’s first scam and money laundering case involving the highly-anticipated digital yuan, the police said.

China is pioneering the world’s first major central bank digital currency. The e-CNY, alternately called the digital renminbi or e-RMB, is issued by the People’s Bank of China (PBOC). Many expect the digital currency to be formally launched in time for the Beijing Winter Olympics in February.

In a white paper released in July, the PBOC noted the e-CNY is not a 100% anonymous system, but supports “managed anonymity” with tiers of complexity based on know-your-customer needs.

The PBOC wrote in the white paper: “It is necessary to guard against the misuse of e-CNY in illegal and criminal activities, such as tele-fraud, internet gambling, money laundering, and tax evasion by making sure that transactions comply with [anti-money laundering/combating of financing of terrorism] requirements.”

Specifically, the PBOC said the e-CNY system collects less transaction information than traditional electronic payment and does not provide information to third parties or other government agencies “unless stipulated otherwise in laws and regulations.”

Mu Changchun, director-general of the PBOC’s digital currency institute, said Wednesday at Hong Kong Fintech Week that there are four types of digital wallets depending on how much personal information is required as well as transaction caps.

The least-privileged wallet can be opened with just a phone number and is “fully anonymous even to the PBOC and authorized operators because — according to the Personal Information Protection Law — the telecom operators are forbidden to provide any ID information to other third parties, such as the PBOC and other authorized operators,” Mu said.

As pointed out in the white paper, users can open least-privileged anonymous wallets by default and upgrade them to higher-level real-name ones as needed.

However, such “managed anonymity” design has raised eyebrows internationally. For example, in July, three United States senators wrote to the country’s Olympic and Paralympic Committee to urge it to “forbid American athletes from receiving or using digital yuan during the Beijing Olympics,” due to privacy concerns.

In the joint letter, senators Marsha Blackburn, Roger Wicker and Cynthia Lummis wrote: “The digital yuan is entirely controlled by the [People’s Bank of China],” adding that the details of what and where someone used the currency could be tracked and traced by the central bank.

Set up in 2016, the PBOC’s digital currency institute started to launch e-CNY pilots in late 2019 in several major cities and areas across the country, according to Mu.

Mu said that as of October, about 140 million individuals have opened their wallets, and 10 million corporate wallets have been created. Meanwhile, the e-CNY transaction value amounted to 62 billion yuan (US$9.7 billion), and 1.55 million merchants now accept e-CNY payment, including utilities, catering services, transportation, shopping and government services, Mu added.

There was no official launch date yet for the digital currency, the PBOC official said.

However, the nation has appeared to speed up its digital yuan trials as the Beijing Winter Olympics approaches. In September, Fan Yifei, a deputy governor of the PBOC, said the infrastructure construction for e-CNY use during the Winter Olympics has entered a “sprint stage,” according to a PBOC statement.

Shanghai has also outlined its plan to expand digital yuan pilot programs into the city’s five-year plan, in a recently released policy statement,Shanghai’s Five-Year Plan of Comprehensive Promotion of Urban Digital Transformation.”

mBridge Reveals 15 Use Cases And 22 Heavyweight Participants

Goldman Sachs, HSBC, Société Générale, and China’s biggest state-owned banks are part of the project.

mBridge, a multilateral project by four monetary authorities to build infrastructure for connecting central bank digital currencies (CBDC), revealed 15 use cases and 22 participants for the project at Hong Kong Fintech Week on Thursday.

* The project is a collaboration between the Bank of Thailand, the Central Bank of the United Arab Emirates, Hong Kong’s Monetary Authority (HKMA), the People’s Bank of China and the Bank of International Settlements (BIS). It aims to lower costs and improve the speed of international transactions using CBDCs.

* According to the announcement, major financial institutions like Goldman Sachs, HSBC, Société Générale and China’s six biggest state-owned banks are also involved.

* A total of 22 industry participants across jurisdictions will test the 15 use cases during a pilot that will start in 2022, said a brochure posted by Bank of Thailand that also revealed the specific projects.

* Goldman Sachs Asia will test tokenized bond issuance and atomic settlement, DBS Bank Hong Kong will trial cross-boundary insurance payments between mainland China and Hong Kong, HSBC will try out “feature-rich” programmable trade finance, and Société Générale subsidiary FORGE will look into issuing digital native corporate bonds.

* Already, “testing of sample trade settlement transactions across 11 industries has commenced on the trial platform,” according to a video presentation of the project at the Hong Kong conference.

* The project’s steering committee has given priority to trade settlement because of the potential of mCBDC to lower costs and improve speed in the massive industry, according to the presentation. Trade between the four was more than $730 billion in 2019, the presentation noted citing World Bank data.

* In September, the participating banks revealed that they had built a phase 2 prototype.

* Head of the Hong Kong Centre of the BIS Innovation Hub, Bénédicte Nolens, described the project as a “massive undertaking.” Colin Pou, executive director at the HKMA, explained it is better to build a new system for CBDC settlement rather than try to recalibrate the existing infrastructure.

Updated: 11-5-2021

EU central Banks Working On DLT-Based Asset Settlement

Banca d’Italia and Deutsche Bundesbank shared experiences on distributed ledger technology-based settlements in a workshop.

European central banks have been ramping up their efforts to utilize distributed ledger technology (DLT), the foundation of blockchain, in central bank money settlements.

Banca d’Italia and Deutsche Bundesbank, the central banks of Italy and Germany, respectively, joined forces to work on settlements in central bank money of DLT-based asset exchanges.

The official announcement stressed that the primary goal of the joint workshop was not to use DLT as a replacement for conventional systems. Instead, the initiative aims to complement the current central bank money settlement practices with a programmable trigger mechanism that connects the DLT-based asset, like a tokenized security, and cash to be settled via conventional payments systems.

The proposed system would minimize the counterparty risk for both sides by preserving the delivery-versus-payment mode of settlement, the announcement reads. The programmable trigger would complement the digital euro and serve as a technical bridge between existing payment systems used by Eurosystem central banks and the DLT-based settlement of tokenized assets.

DLT has the potential to usher in new products and services, generate additional revenue streams, reduce the cost of operations and make organizational structures more efficient, said Italian central bank governor Ignazio Visco. He underscored that an infrastructure-level DLT adoption in traditional markets would take time “because of the necessary in-depth investigations and cost and risk assessment.”

“If market participants want to reap the benefits of new technologies like DLT for the settlement of tokenized assets, central banks should support that by enabling the settlement of the responding cash leg in secure central bank money,” said Deutsche Bundesbank President Jens Weidmann. He added:

“The tested trigger solution could well serve the market’s need and keep central bank money in the systems run by central banks. In comparison to creating wholesale central bank digital currency, a trigger solution could be operational in a much shorter time frame.”

Deutsche Boerse, Deutsche Bundesbank and Germany’s Finance Agency conducted a pilot test with the participation of Citibank, Barclays, Goldman Sachs, Commerzbank, DZ Bank and Societe Generale, bridging traditional finance with distributed ledger technology in March 2021.

The German Finance Agency issued a 10-year federal bond via the DLT trigger system and tested securities trading on primary and secondary markets as part of the pilot.

Updated: 11-7-2021

5 Central Bank Unknowns That Will Shape Markets In 2022

Pronouncements from the Fed, BOE and ECB reveal a wide disconnect between market expectations and monetary policy.

Covid has thrown traditional macroeconomics out of its comfort zone.

Last week’s policy pronouncements from the Federal Reserve, the Bank of England, the Reserve Bank of Australia and even the European Central Bank revealed the latest surprise — a wide disconnect between markets’ rate expectations and central banks’ guidance across major currencies.

The real “taper shock” came not with the ending of the biggest concerted monetary expansion in history, but with a “tapering” of market confidence in what the future may look like.

Now markets are struggling with two fundamental issues: the sense that economies can’t get back to where they were before the pandemic and an inability to forecast what lies ahead.

This echoes the message that central banks shared last week — that there is sizable uncertainty about future output, employment and inflation, and that these “unknowables” will be consequential for both economic trajectories and for market rates and returns. The result, as the Chinese proverb goes, is a shared policy desire to “cross the river by feeling the stones.”

There are no less than five major areas of “unknowable uncertainty” that remarks from Fed Chair Jerome Powell, BOE Governor Andrew Bailey, ECB President Christine Lagarde and RBA Governor Philip Lowe have identified. These are:

When the pandemic will end. Waves of Covid variants have upended central banks’ ability to predict the duration of supply-demand imbalances.

At the same time, there’s increased anxiety that the longer these imbalances persist, the greater the risk of secondary wage-price inflation, which would necessitate policy intervention in the shape of faster stimulus withdrawal and inverted yield curves in 2022. The more-tempered-than-tapered signaling on future rate rises shows this is an outcome policy makers are keen to avoid.

Future growth. The structural legacy of the pandemic raises questions about future trend growth and economies’ capacity for sustained, non-inflationary expansion. Although higher-than-anticipated labor costs are still in line with past productivity gains, the net effects of pandemic-induced advances in digital business models and global supply infrastructure will take years to assess.

In other words, there’s still a long way to go before we see where the new normal for economic productivity lies, and whether wage gains through the pandemic are, indeed, inflationary.

The energy price shock. The surge in energy prices has highlighted the tension between the international transition to low-carbon economic models and the resilience of traditional supply networks.

The potential for structurally higher future energy costs poses risks to both future growth and inflation, by lowering the real purchasing power of consumers and future demand while pushing up production costs.

It has also reminded economists and markets of the limitations of monetary policy to address short-term supply-demand imbalances, especially when these are triggered by global structural disruptions.

Inflation is transitory but not short-lived. Central bank chiefs have been at pains to address market inflation anxiety by qualifying what “transitory” means in analyses of elevated inflation readings.

Policy makers expect that widespread port congestion, shipping delays and supply bottlenecks — all of which have marred economies’ capacity to satisfy consumer demand for goods — cannot last indefinitely. But they admit that there’s no quick logistical fix to the disruptions either.

What’s more, market pressures on companies to address supply chain resilience — from on-shoring capacity to abandoning just-in-time inventory models — mean that some of the historic benefits from globalization that have kept consumer costs low may be permanently lost after the pandemic.

This creates considerable uncertainty about the future balance between growth and inflation, and therefore also about the distribution of welfare gains between employers and workers, consumers and producers, and creditors and borrowers in the post-Covid recovery.

The clear message of the last week is that central banks are not keen to play arbiter of the long-term social legacy of Covid at this stage.

Labor supply. The single biggest unknowable variable concerning central banks is the evolution of labor markets after Covid. The long-term supply of labor holds the key to policy makers’ thinking about the degree of capacity in economies and the risk of a prolonged period of high consumer prices affecting worker pricing power and company wage- and price-setting behavior.

This uncertainty has united the Fed, the BOE, the ECB and the RBA in making a future policy rates lift-off conditional not on top-line consumer price readings, but on behavior — on wages moving higher in markets where demand for workers and skills continuously outstrips supply, as that would lead to stickier future inflation.

Where does this leave us? For now, central banks’ willingness to put up a wall of cash will help insulate markets from the unpleasant arithmetic of trying to predict the unpredictable.

By keeping market rates below the rate of inflation but also moving higher — i.e., by sustaining negative real rates in an ongoing expansion driven by excess demand — central banks hope to thread the needle around labor supply uncertainty while hedging market anxiety about inflation and keeping the pandemic legacy of elevated fiscal debt sustainable.

Yet, none of these issues are in the hands of monetary policy to resolve or predict. This makes the calm among markets all the more fascinating. Here’s hoping that the ample central bank liquidity doesn’t wear off too soon.

Updated: 11-8-2021

France Sees Merits In A Wholesale Central Bank Digital Currency

The Bank of France called for further research on a central bank digital currency for wholesale use in the financial sector after finding efficiency advantages for markets and payments.

Testing showed a CBDC could maintain standards for securities settlements and avoid potential fragmentation from the existence of multiple private versions, according to the bank. It could also make cross-border payments “faster, cheaper, more transparent and more inclusive,” it said in its first report since starting to look into the subject in 2020.

The findings are part of a flurry of work by regulators seeking to keep up with the fast-pace development of crypto-assets and digital payments that’s been further fueled by the arrival of the world’s largest tech companies into the sector.

They come with some governments fretting that sovereignty over money and payments is at stake, and central banks worried about how they can anchor financial systems.

The French experiments into a wholesale digital currency complement a two-year research project by the European Central Bank into issuing a digital euro for retail.

It’s still early days for the wholesale version. The Bank of France said more work is needed on how monetary policy and the economy would be affected by issuing a CBDC to more intermediaries. It said central banks should also assess the technology required for such a project, including its energy-efficiency and scalability.

Updated: 11-9-2021

UK Treasury And Central Bank Will Consult On CBDC, Potentially Launching By 2030

“The earliest date for launch of a U.K. CBDC would be in the second half of the decade,” said the Bank of England, adding no final decision has yet been made.

The Bank of England and the United Kingdom finance ministry are planning to launch a consultation on the possible rollout of a central bank digital currency starting in 2022.

In a Tuesday statement, the Bank of England said the digital pound consultation with HM Treasury would consider design features, benefits and implications for users and business, as well as other relevant issues. The results of the 2022 consultation will determine whether U.K. authorities intend to move forward with a central bank digital currency, or CBDC.

“If the results of this ‘development’ phase conclude that the case for CBDC is made, and that it is operationally and technologically robust, then the earliest date for launch of a U.K. CBDC would be in the second half of the decade,” said the central bank.

The Bank of England added that “no decision has been made” on whether the U.K. would be introducing a CBDC in the future. However, any digital pound project would be aimed at existing alongside cash and bank deposits, rather than replacing them.

In April, the Bank of England and the finance ministry established a task force aimed at exploring the rollout of a CBDC, including issues associated with the design as well as its possible implementation and operation in the United Kingdom.

Chancellor of the Exchequer Rishi Sunak said in July local officials would be consulting on pioneering reforms “to support the safe adoption of crypto assets and stablecoins” and explore the case for a CBDC in the country.

While many countries with the world’s largest economies have yet to launch a CBDC, some have begun pilot programs. China’s digital yuan rollout continues with trials in multiple regions, with the country’s central bank reporting there were more than 140 million individual accounts holding the digital currency as of October.

PBoC Governor Says Digital Yuan To Be More Privacy-Enhanced Than Payment Apps

Making the e-CNY more privacy-orientated aside, the PBoC already has ambitions to bring the CBDC onto the world stage.

During a virtual video session at the Bank of Finland Institute for Emerging Economies’ 30th Anniversary Conference, People’s Bank of China governor Yi Gang discussed recent developments regarding the country’s central bank digital currency, or CBDC, known as the digital yuan (e-CNY).

Yi specifically addressed the issue of privacy surrounding the Digital Yuan in the following statement, as translated by Cointelegraph:

We are taking a high degree of focus on issues surrounding the security of personal information and the digital yuan and have made relevant regulatory and technological adjustments to meet this objective. We have adopted a principle of anonymity for small transactions regarding the digital yuan and will only step in to regulate under the law for large transactions.

When it comes to collecting personal data, we seek only to collect what is necessary and the minimum of what is legally required, which is far less than electronic payment apps of today.

Yi spoke on the storage and utilization of personal information belonging to users of the technology adding:

At the same time, we seek to control the storage and use of personal information strictly. Unless the law demands it, the PBoC will not hand over such information [on e-CNY users] to any third-party or government agency. In recent years, China has passed multiple laws to facilitate the safety and protection of personal data from a regulatory standpoint.

In recent months, the number of people with e-CNY accounts has ballooned to over 140 million. At the same time, its transaction volume surpassed 62 billion yuan ($9.7 billion) in October. When discussing the next steps forward for the CBDC, Yi explained that while the e-CNY remains confined mainly to consumer spending in China’s retail sector, there are plans for cross-border expansion:

The PBoC wishes to cooperate with central banks, international agencies, and cryptocurrency entities across the globe. We have already launched an mCBDC Bridge with the Bank for International Settlements, The Bank of Thailand, the Central Bank of the United Arab Emirates, and the Hong Kong Monetary Authority. We have also begun technical discussions with the European Central Bank regarding the design of CBDCs.

Bank of England And UK Treasury To Assess Case For A CBDC Next Year

The earliest time a digital pound could be rolled out is the second half of the decade.

The Bank of England and the U.K. Treasury will begin a consultation next year to assess the case for a central bank digital currency (CBDC).

* Should it conclude that there is a case for a digital pound, the earliest that one could be rolled out is the second half of the decade, the Bank of England announced Tuesday.

* The consultation will explore design features, benefits and implications for users to determine whether a CBDC that is operationally and technologically robust can be developed.

* The announcement of the consultation follows the formation of two forums to explore the issue. The members were named in September and included Asos, PayPal, Spotify, Mastercard, Visa, HSBC and Standard Chartered.

* The Bank of England and the Treasury said no decision has been made yet on whether a CBDC will introduced. Such a digital currency would exist alongside cash and bank deposits rather than replacing them.

Retail-focused Singaporean CBDC To Hedge Against Privately Issued Stablecoins

The retail CBDC will be developed in partnership with private entities, which “would be the digital equivalent of today’s notes and coins.”

The Monetary Authority of Singapore (MAS) has ramped up efforts to research and develop a central bank digital currency (CBDC) for retail use under the Project Orchid initiative.

According to MAS managing director Ravi Menon, Singapore’s retail CBDC will be developed in a partnership with private entities, which “would be the digital equivalent of today’s notes and coins.”

Speaking at the Singapore FinTech Festival, Menon highlighted the benefits of retail CBDCs in aiding faster and secure online transactions and building an inclusive payment ecosystem.

He also believes that building an in-house retail CBDC can reduce the inherent investment risks when dealing with privately issued stablecoins or foreign CBDCs within Singapore’s payments landscape:

“A digital Singapore dollar issued by MAS that is congruent with the needs of a digitalized economy could go some way to mitigate this risk. But issuing a retail CBDC is not a straightforward decision.”

Citing no urgency to the need for a retail CBDC, Menon warned that if people were to hold a majority of their assets in the form of digital Singapore dollars, central banks would not be in a position to provide sufficient loans:

“But we can likely manage these risks by designing the retail CBDC with sensible safeguards, such as stock and flow caps on the amount of digital Singapore dollars that anyone is allowed to place with MAS.”

MAS previously experimented with wholesale CBDCs under the name Project Ubin, which was aimed at identifying various use cases in cross-border payments. The initiative saw the launch of Partior, a blockchain-based interbank clearing and settlement network jointly established by DBS Bank, JP Morgan and Temasek.

According to Menon, Singapore will facilitate regulatory sandboxes based on existing frameworks for market testing low-risk activities in a pre-defined environment.

“With crypto-based activities, it is basically an investment in a prospective future, the shape of which is not clear at this point.”

Just last week on Nov. 2, Menon highlighted MAS’ proactive efforts to implement “very strong regulation” in place to reduce foreseeable threats accompanied by crypto adoption:

Back in August, Singapore-based DBS Bank was awarded regulatory approval for launching a crypto exchange, DBS Digital Exchange. As Cointelegraph reported, the new license warrants the institutional trading of major cryptocurrencies, including Bitcoin (BTC), Ether (ETH), XRP and Bitcoin Cash (BCH).

Russia To Change Laws For Digital Ruble, While Central Bank Mulls 2022 Prototype

Russian lawmakers will reportedly begin working on the legal adjustments needed to implement the digital ruble plan scheduled for early 2022.

On Tuesday, Elvira Nabiullina, governor of Russia’s central bank, said that the country will have a prototype of its digital rouble platform ready by early 2022 and will roll it out for trial use next year before making a final decision on whether or not to release its own digital currency, according to a Reuters report.

Meanwhile, Russian lawmakers will reportedly begin working on the legal adjustments needed to implement the digital ruble plan to accommodate the digital currency. According to Izvestia, the head of the State Duma Committee on the Financial Market, Anatoly Aksakov, stated that these legal modifications would begin as soon as a central bank digital currency (CBDC) trial is implemented.

At least eight federal laws and five codes, including the Civil Code, Tax Code, Budgetary Code, Criminal Code and Administrative Code, must be changed for the digital ruble to take effect. The new rules will address several themes, such as the Central Bank of Russia’s (CBR) authority to establish circulation for the new currency, its acceptance as a means of payment and so on, the report noted.

The trial will be conducted in several stages as per the report. During the first stage, the CBR will provide digital currency. The size of the pilot project’s network will scale up, starting with 12 banks.

The CBR established a group of financial firms to examine its CBDC, according to previous reports. However, according to recent reports, the banking system’s reach will be extended even further.

Participating banks include Russia’s major banks, such as state-backed Sberbank and VTB, as well as powerful private banks such as Tinkoff Bank. The Bank of Moscow, Transneftbank, Gazprombank, Promsvyazbank, Rosbank, Ak Bars Bank, Dom.RF, SKB-Bank, TKB and Soyuz bank are among banks that have signed up for digital rouble’s pilot program.

The Bank of Russia announced its CBDC strategy in late 2020. In January, the Association of Russian Banks criticized the project, stating that any of the Bank of Russia’s proposed models might entail several cybersecurity and fraud risks.

In response to the growing use of Bitcoin (BTC) and declining usage of cash, several central banks throughout the world have been researching the possibility of issuing CBDCs. These include the European Central Bank and the People’s Bank of China, among others.

Chinese Retail Giant JD Accepts Digital Yuan Payments For Singles Day

Some 450,000 JD.com customers have used China’s digital yuan for payments as of June.

E-commerce giant JD.com took payments in China’s central bank digital currency (CBDC) at a massive local ​​shopping event.

JD.com accepted digital yuan, also known as e-CNY, for payment on its e-commerce application for the Singles Day promotion period that began on Oct. 31 and ended on Thursday, the firm confirmed.

Singles Day is an unofficial shopping holiday in China that celebrates people who aren’t in a romantic relationship.

“100,000 people had used e-CNY on JD.com’s app during the Singles Day promotion period as of today,” a spokesperson for JD.com told Cointelegraph.

“We will continue to work with related parties to explore the application,” the spokesperson added. The representative declined to specify the value of the digital yuan processed during the promotion.

The representative noted that JD.com became the first Chinese e-commerce company to accept digital yuan in December 2020.

As many as 450,000 customers used e-CNY for payment on the JD.com app from Dec. 11, 2020 to June 18, 2021, with total sales in digital yuan netting over 100 million yuan ($15.6 million), the spokesperson stated.

Founded in 1998, JD.com is a major e-commerce company in China, positioning itself as China’s largest online retailer, in addition to being China’s “biggest internet company by revenue.” The company has been actively adopting China’s CBDC, debuting the digital yuan for salary payments in April.

After rolling out the first CBDC tests in 2020, the People’s Bank of China has been actively promoting the use of its digital currency in the country. As of October, over 140 million people have registered digital yuan accounts, with nearly $10 billion in digital yuan spent despite the CBDC not yet being launched officially.

Updated: 11-11-2021

Nigerian Banks Tracking Customer Accounts For Crypto Trading

Personal accounts with large multi-day inflow and outflow are being tracked at the behest of the country’s central bank.

In Nigeria, commercial banks have begun monitoring accounts that appear to be utilized for cryptocurrency trading.

The action is in response to an order from the Central Bank of Nigeria (CBN) demanding all commercial banks freeze accounts belonging to at least two individuals engaged in cryptocurrency trading.

According to a report by local publication Leadership, an internal memo in one of the banks instructed employees to start monitoring accounts with significant transaction volumes or those that are believed to be used for cryptocurrency trading. The memo, according to Leadership, reads:

“We wish to reiterate that the CBN is strictly monitoring non-compliance with the directive on the closure of all accounts involved in cryptocurrency for high impact regulatory sanction. In view of the above, all staff are hereby advised to identify entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.”

The document emphasized that employees who intentionally neglect to disclose an account’s involvement in cryptocurrency trading would be penalized. All of the workers are now required to participate in monitoring accounts, transactions and customers to guarantee that the bank is fully compliant with CBN requirements, as per the internal communication.

Accounts that could be flagged include those of fintech firms with a large volume of daily transactions without a payments license or any that contain cryptocurrencies in their memorandum or expression of business.

Personal accounts with large multi-day inflow and outflow, as well as small companies whose daily sales are more than what they should be, are also to be red-flagged. In addition, accounts that receive a lot of money from multiple payees and make numerous payments to several beneficiaries will also be under suspicion.

The CBN claims in the letter, which began circulating on social media less than a week after the eNaira launched, that the accounts are being utilized for cryptocurrency trading and thus violate the central bank’s Feb. 5 order.

In a message on Twitter, Senator Ihenyen, who leads the Stakeholders in Blockchain Technology Association of Nigeria, slammed the CBN’s decision as illegal and unjust. According to Ihenyen, it is only the Nigerian legislature that has the authority to oversee Bitcoin (BTC) regulation.

Stablecoin Payment App Reserve Helps Individuals Protect Their Savings Against Inflation In Latin America

“Our long-term vision is to create a currency that is stronger than any fiat currency that exists now,” said Reserve community manager Yens Michiels.

One under-the-radar cryptocurrency-powered payment app that has been gaining traction across Latin America is Reserve. The platform acts as a convenient way for people to convert their local currencies, which may be undergoing high inflation levels, to U.S. dollars via the Reserve (RSV) stablecoin. The network also features the Reserve Rights (Rtoken (RSR), which is used for protocol governance.

Since its launch in March, the platform says it has seen 367,000 total sign-ups. Meanwhile, it number of weekly active users has surpassed 100,000, with most located in Argentina, Venezuela, and Colombia. In the past 30 days, the app has handled approximately 547,000 transactions. In addition, over 8,000 businesses, predominantly based in Venezuela, now accept Reserve as a payment method for goods and services.

In a live demonstration of the Reserve app to Cointelegraph, Reserve CEO Nevin Freeman withdrew dollars from a U.S.-dollar personal app account into a Venezuelan bolivares bank account, with RSV acting as the intermediary. The transaction was near-instantaneous, and the app does not charge any fees.

Freeman claimed that users could immediately spend the bolivares, such as in online transactions, or swipe one’s debit/credit cards to use the cash.

However, liquidity providers, which are vetted by Reserve, charge a spread on the initial foreign exchange transaction. Below is the full interview between Cointelegraph, Freeman and Reserve community manager Yens Michiels.

Cointelegraph: With the rise of the blockchain industry, there are numerous crypto-to-crypto and crypto-to-fiat money payment solutions out there. In your view, what makes the Reserve protocol unique?

Nevin Freeman: The Reserve app is a cloud-custody stablecoin wallet. We hold the crypto in the background, and users transact on our database. We will switch to users transacting on-chain in the future, but because of [high] Ethereum gas fees, this way the only way we could offer this use case in countries like Venezuela. In answer to your question of what makes it different, it’s the ability to deposit and withdraw with all these different currencies.

These top five [options in the app] are different Venezuelan bank methods to deposit or withdraw; Argentine pesos, dollars in Panama, PayPal, Zelle, Uphold, Colombian Pesos, our token [RSV] on-chain, and a bunch of other crypto options that people use. We’ve also recently added Axie Infinity tokens, as many people in Venezuela play Axie Infinity. So it’s an easy way to get that money into dollars.

CT: How is the Reserve app helping customers protect against inflation in the aforementioned countries?

NF: It’s a really common practice for Reserve app users to get paid and convert their money into our dollar stablecoin so that they don’t have to worry about the devaluation of their money. And then, throughout the week or the month, they will periodically make small transactions back into the local currency to transact with the local economy.

And then, increasingly, because of the growing number of merchants, we are seeing more and more transactions where people don’t have to convert back; they can just pay directly in U.S. dollar stablecoins.

So it’s not really rocket science. The concept is very basic. It’s just, like, save in dollars and live your life in dollars, which is something a lot of people want to do, but the change here is making that [task] significantly easier to do and more accessible.

Let me add one more interesting point here: In Venezuela, for example, a lot of transactions happen via Zelle, which is like the U.S. banking way to send money quickly between U.S. bank accounts. The 1% in Venezuela all have American bank accounts, and they all have a lot of their money in their American bank accounts. So there are a lot of transactions happening back and forth with Zelle.

So everyone in Venezuela would love to have a Zelle account. The thing is that you can’t get a Zelle account unless you fly to the U.S. and create an account physically in the United States.

And a lot of Venezuelans don’t have the opportunity to do that. So the way that a lot of our users perceive the service is like, oh, it’s like a Zelle account, but anyone can open one, so that’s part of the appeal.

CT: Up until now, we’ve been primarily discussing RSV and fiat money, but what about the RSR token? What are your development plans for it?

NF: The primary role of the Reserve Rights token is governance. The basket that backs any R-token, which is our name for Reserve stablecoins, will have to evolve over time. And you need a very secure and robust method for handling that evolution in a decentralized way in the long term.

So RSR has a key role to play in governance. The other main role that RSR plays is offering insurance to some Reserve stablecoins. The fundamental mechanism, economics, and purpose, of how this all works have stayed the same, but the exact mechanism of how RSR provides this insurance has evolved a little bit in the version of the protocol that we are close to launching.

The way that it all works is, as an RSR holder, you can choose any Reserve stablecoin, or combination of them, to stake your RSR tokens on. And when I say stake, I truly mean stake; you are actually putting them at stake.

Because what you are doing is, you are saying, okay, I’m willing to provide my capital as a backstop in the event that any collateral asset that backs this Reserve stablecoin defaults and loses value. And in exchange for putting up my capital and risking it, I will get a portion of the revenue or the yield that stablecoin is generating.

It is truly a decentralized method of insurance, where many blockchain protocols require the token holders to vote and decide how they want to pay out; that’s not how it works in this case.

There are actually on-chain mechanisms, where in the event that there is a depreciation, and tokens are replaced with other tokens, the Reserve Rights tokens that have been staked are automatically seized and traded to make up for that value. So it is truly a more decentralized version of blockchain insurance.

CT: Would you like to include a vision or mission statement about the future of the Reserve protocol?

Yens Michiels: What we do now is providing a solution to hyperinflation via a U.S. dollar stablecoin. However, in the long term, we think the U.S. dollar could also lose a part of its value. Because when you look at the history of currencies, whenever a major empire issues a currency, and loses power, or gives that power to the next empire, that currency loses a lot of its value.

So right now, I think we have the solution for these countries, like Venezuela and Argentina, as we have that strong U.S. dollar stablecoin to provide an escape from hyperinflation from them. But then you can also think in the future, what will happen, if the currency that we are relying on, the U.S. dollar, loses its value. And then, no one has an escape currency to turn to.

So the long-term vision is to create a currency that is stronger than any fiat currency that exists now. In our vision, that currency is obviously a cryptocurrency, which will be backed by more than 50 assets on-chain, ranging from digital currencies, maybe even fiat currencies in the beginning, and commodities such as gold, perhaps even equities.

So it will be a super large basket. Lastly, the idea is that value of that basket would follow the global GDP [gross domestic product].

If you look at the global GDP, you will find that it is very stable; even during the financial crisis of 2008, it only dipped 2%. If you can create a currency as stable as the global GDP, it would be superior to any fiat currencies that exist now. We are starting to focus on that now in small steps, but obviously it’s going to take a few years [to accomplish].

Updated: 11-12-2021

Two Firms Account For The Majority Of Tether Received: Report

A new study by Protos claims that Tether flow is dominated by just two firms — Alameda Research and Cumberland.

Tether (USDT) has gone from being a renegade cryptocurrency to becoming the industry’s primary crutch during the last seven years, according to a new report.

Essentially, USDT is a bridge between traditional currencies like the United States dollar and decentralized digital currencies operating on open blockchain networks.

Independent crypto outlet Protos provided an in-depth insight into the most common stablecoin and the liquidity providers who supply it to cryptocurrency platforms.

According to the report, issued USDT is primarily acquired by just two market makers. Between 2014 and October 2021, Alameda Research and Cumberland received a projected $60.3 billion in USDT, accounting for almost 55% of all outbound volume ever. According to Protos, the closest competitor minted a few hundred million USDT.

Alameda Research, which is led by 29-year-old cryptocurrency billionaire Sam Bankman-Fried, acquired $36.7 billion or nearly a third of all Tether produced. Cumberland Global, the world’s largest crypto liquidity provider, comes in second with $23.7 billion received.

Cumberland is a DRW Holdings subsidiary, which was founded in 1992 and is regarded as one of the world’s major financial traders.

Protos states that Tether’s Treasury transferred $36.7 billion in USDT to Alameda Research, with $31.7 billion (86%) of it received in the last 12 months. This number equals approximately 37% of all outbound USDT volume.

According to the report, Tether sent over $30.1 billion (87%) of Alameda’s USDT to its cryptocurrency and derivatives exchange, FTX. However, Alameda also has wallets on a variety of different cryptocurrency exchanges.

The company received $2.1 billion (6%) on Binance, $1.7 billion (5%) on Huobi, and $115 million on OKEx. The remaining $705 million was transferred to non-exchange addresses.

Cumberland, on the other hand, received $23.7 billion in USDT. In the previous year alone, $17.6 billion in USDT (74%) was received from Tether’s Treasury. This figure accounts for 22% of all outbound USDT volume ever recorded.

Protos notes Cumberland’s importance as a liquidity source and market maker for Binance, having been on the exchange since at least early 2019. Tether issued Cumberland $18.7 billion (79%) in USDT to Binance, with the rest going to other exchange platforms.

The liquidity provider received $131.5 million (less than 1%) on Poloniex, $9 million on Bitfinex and another $30 million on both Huobi and OKEx.

Tether remains the world’s largest stablecoin by market capitalization. However, the company’s token has been under scrutiny by regulators in recent times.

As reported by Cointelegraph, the U.S. Commodity Futures Trading Commission levied fines totaling $41 million and $1.5 million against sister crypto firms Tether and Bitfinex, respectively, for breaches of the Commodity Exchange Act and a prior CFTC order, respectively, on Oct. 15.

USDC Issuer Circle Supports Proposal To Regulate Stablecoin Issuers As Banks

“There’s a real recognition that as these payment stablecoins grow, they could grow at internet scale relatively quickly,” Circle CEO said.

Issuers of stablecoins like Tether (USDT) and USD Coin (USDC) may soon be required to work under the same regulations as banks, but that seemingly doesn’t frighten the CEO of the USDC-issuer Circle.

Commenting on the Biden administration’s proposal to work on a bank-like regulation for stablecoin issuers, Circle CEO Jeremy Allaire took a supportive stance for the recommendation.

He highlighted that the proposal’s aim to regulate dollar stablecoin issuers in the United States financial system as banks at the federal level by the Federal Reserve represents significant progress for the industry’s growth.

Allaire noted the current steps would upgrade the current money transmission-focused regulations “to a much more fundamental infrastructure at the core of what potentially the future of banking and capital markets look like.”

“There’s a real recognition that as these payment stablecoins grow, they could grow at internet scale relatively quickly,” Allaire commented. When the stablecoin market grows into the hundreds of billions in circulation and trillions in transactions, the risks to financial markets and financial stability become much more significant, he added.

As Cointelegraph reported, the Biden administration’s proposal aims to create a new “special-purpose charter” for stablecoin issuers, putting them in the same category as banks.

Allaire believes that the details on a bank charter for a crypto company might need to get worked out over time with both the FDIC and other agencies that oversee banks.

Stablecoins have become a central talking point for regulators. In September, the U.S. Treasury reportedly held several meetings to examine the risks of stablecoins for users, markets and the financial system.

Updated: 11-12-2021

Naira Gains In Parallel Market As Central Bank Sells Dollars

Nigeria’s currency rebounded in the illegal market as the central bank boosted sales of dollars to commercial banks, according to traders.

The currency strengthened to an average 540 to a dollar on Friday from about 570 a week ago in the unauthorized markets in Lagos and other cities where the foreign currency is freely traded, according to Abubakar Mohammed, chief executive officer for Lagos-based Forward Marketing Communications bureau de change Ltd. It gained 0.2% to 413.48 a dollar at the spot market as of 2 p.m. in Lagos.

The Abuja-based Central Bank of Nigeria increased dollar sales to banks for distribution to businesses and individuals, which helped cut the number of customers that resort to buying foreign currency from unauthorized money changers. Nigerians buy the greenback from traders to pay for business travels, school fees and medical bills abroad, Aminu Gwadabe, president of the Association of Bureau de change Operators of Nigeria said by phone.

In July, the regulator halted dollar supply to bureau de change operators, accusing them of aggravating the shortage of foreign currency by selling it on the black market. That didn’t stop the naira’s slide. In the past weeks, the regulator increased supply to banks and allowed more flexibility for the currency to weaken in order to attract more inflows.

The central bank didn’t reply immediately to phone calls and messages seeking comments.

The market is just seeing the impact of larger central bank dollar sales on the naira in the parallel market, said Samir Gadio, London-based head of Africa strategy at Standard Chartered Bank.

Africa’s largest crude producer has been forced to devalue its currency three times since March 2020 after lower oil prices put pressure on dollar reserves. Last month, Vice President Yemi Osinbajo called on the central bank to adopt a market reflective exchange rate to improve foreign currency supply and stabilize the naira.

“Continuous appreciation of the naira will depend on liquidity,” Gwadabe said. “If the central bank continues to put framework and structure that will ensure liquidity, definitively we’ll see appreciation at the parallel market.”

 

Updated: 11-14-2021

Stablecoin Tether Crashes On Indian Exchanges, Traders Buy The Dip

A single tether is supposed to be worth $1 or rupees 74.37 as per the current dollar-rupee exchange rate.

Tether (USDT), the world’s largest stablecoin by market value, has turned volatile on Indian exchanges amid renewed regulatory uncertainty. And savvy traders are profiting from the price instability.

The cryptocurrency launched to help mitigate volatility associated with other digital assets should always be worth $1 or rupees (₹) 74.37, as per the current dollar-rupee or USD/INR exchange rate.

However, on Tuesday, USDT crashed on prominent local platforms, hitting as low as ₹60 on the Mumbai-based WazirX exchange while maintaining the 1:1 peg with the dollar on western exchanges.

The move happened after the Lok Sabha (lower house of the Parliament) bulletin said the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, seeking to ban all private cryptocurrencies, could be discussed during Parliament’s impending winter session scheduled to begin on Nov. 29.

Some traders took advantage of the mispricing and bought tether at a discount. “There was an arbitrage opportunity in buying USDT at Rs. 60 to sell it at the peg or premium,” trader Swarang Tanksali told CoinDesk in a WhatsApp chat. “I purchased tether around ₹62 on CoinDCX exchange.”

At press time, tether is changing hands around ₹74 on Indian exchanges, according to data source gadgets.ndtv.com.

MintingM, an India-based crypto asset management company, said many traders could not take advantage of the mispricing as a sudden spurt in trading volumes in the wake of regulatory news led to technical glitches on major exchanges.

“Many investors were unable to transfer money to exchanges,” MintingM said. “Those holding INR on exchanges could take the gambit.”

Blockchain security researcher Mudit Gupta said it’s primarily small traders taking advantage of the mispricing. “Since crypto is in the grey area [in terms of lack of regulatory clarity], no big market maker touches it in India,” Gupta said in a Twitter chat.

While tether has recovered to trade pretty much in line with the USD/INR exchange rate, it is still short of the price of ₹80 observed ahead of the crash. Tether typically trades at a premium of around 5% on Indian exchanges due to high demand.

Not The First Crash

In late January, tether suffered a similar meltdown, falling from ₹80 to ₹61 after the then-Lok Sabha bulletin cited the bill for banning cryptocurrencies as part of the government’s parliamentary agenda.

As seen above, the decline was quickly reversed, and the bill was never scheduled in the Parliament.

The draft of the bill to be introduced in the winter session seems to be the same as in January. The bill seeks to ban private cryptocurrencies while facilitating the development of a digital rupee to be launched by the Reserve Bank of India.

Still, tether crashed along with bitcoin and popular meme tokens dogecoin and shiba inu. The market reaction suggests recent media reports about the government softening its stance on crypto had built expectations for a friendlier language in the bill.

The details of the bill are not available in the public domain. Nishcal Shetty, CEO of WazirX, told CNBC TV-18 early today that the definition of the word “private cryptocurrencies” used in the bill is not clear. Gupta added that lawmakers do not want cryptocurrencies that compete with the rupee.

 

Updated: 11-15-2021

Nigeria’s E-Naira Lures About Half A Million People Weeks After Its Launch

Nigerian central bank’s digital currency has lured about half a million users three weeks after it was introduced in a move to entice people away from crypto currencies.

Adoption rate for the Central Bank of Nigeria digital currency called eNaira “has been excellent,” according to Osita Nwanisobi, spokesman for the Abuja-based lender. More than 488,000 people have downloaded the consumer wallet — that’s needed to transact eNaira — while about 78,000 merchants from more than 160 countries have enrolled, Nwanisobi said by phone.

The central bank is opposed to crypto currencies but that hasn’t stopped Nigerians from using virtual currencies as a hedge against the nation’s capital controls and to remit money. Demand is so large that individuals in the West African nation hold the world’s highest proportion of such assets per capita, according to a survey by Statista.

About 62 million naira ($150,000) of the virtual currency have been traded since it was introduced, according to Nwanisobi. The nation has traded 60,215 Bitcoins since 2017 to the end of last year — valued at $3.9 billion as of Monday — the largest volume outside the U.S., according to Paxful, a peer-to-peer Bitcoin marketplace. It has also the largest proportion of retail users conducting transactions under $10,000, according to Chainalysis.

Updated: 11-17-2021

Indian Central Bank Governor Says Blockchain Technology Can Thrive Without Cryptocurrencies

There are far deeper issues involved with cryptocurrencies, RBI’s Shaktikanta Das said.

While the Indian government has recently softened its stance on cryptocurrencies, the country’s central bank, the Reserve Bank of India (RBI) remains against them.

* “The blockchain technology has been there for 10 years and can grow without cryptocurrencies,” RBI Governor Shaktikanta Das said at the SBI Banking and Economics Conclave on Tuesday. “When the central bank says we have serious concerns from the point of view of macroeconomic and financial stability, there are far deeper issues involved.”

* Das criticized industry players for cursory discussions on the issues involving cryptocurrencies and called for serious analysis.

* The RBI’s anti-crypto stance is well known by now. The central bank had banned all regulated lenders from holding or facilitating cryptocurrency transactions in April 2018. However, the decision was set aside by the Supreme Court of India in March 2020.

* Das’ latest comments come on the heels of the Indian government’s assurances to take progressive and forward-looking steps on cryptocurrencies and blockchain technology. Das had also said earlier that the number of Indians reported to be investing in crypto could be “exaggerated.”

* The Indian government is looking to ban the use of crypto as a payment method, but will allow and regulate trading of crypto as assets, according to a report.

* The government may table a crypto regulation bill in the upcoming winter session of the parliament, scheduled to start from Nov. 29 and end around Dec. 23.

US Is Not Moving Fast Enough To Develop A CBDC, Says Former CFTC Chair

“We should act now to improve access to financial services through other means as well — the need is too great,” said Tim Massad.

Tim Massad, who served as chair of the Commodity Futures Trading Commission until 2017, said the United States is too slow in developing a plan to modernize its payment systems.

In a Wednesday hearing of the Joint Economic Committee on the role of digital assets in government, Massad said a central bank digital currency, or CBDC, could be one solution for the United States to improve its existing payments systems, which he referred to as “slow” and “expensive.”

In addition, the former CFTC chair said while stablecoins could be used for this purpose, they also presented some of the most urgent challenges for U.S. regulators and pose significant risks.

Massad said that people using stablecoins like Tether (USDT) to move funds between exchanges was a good example of why the U.S. payment system needs to be modernized. However, he added the stablecoin issuer’s reserves were likely not invested in “highly safe liquid assets” like the dollar and thus not insured in the same way as funds in traditional financial institutions.

The former CFTC head said his recommendation would be to adopt “bank-like” regulations but also prevent issuers from making loans to eliminate the need for deposit insurance.

“CBDCs, stablecoins and digital assets generally are often cited as a means to achieve greater financial inclusion, and we should consider their potential for doing so,” said Massad. “We should act now to improve access to financial services through other means as well — the need is too great.”

Coin Center director of research Peter Van Valkenburgh, also in attendance at the hearing, called stablecoins an “interesting area” in the crypto space but voiced concerns about the seeming lack of regulatory clarity for issuers.

“There are certainly some stablecoin issuers who are violating the law,” said Van Valkenburgh, adding:

“There are also regulated stablecoin issuers and there is also the possibility of creating more of a federal home for regulation of stablecoins. We don’t have a legal gap there, I think — we just have an enforcement gap.”

The comments from both Van Valkenburgh and Massad come following a report from the President’s Working Group on Financial Markets suggesting that stablecoin issuers in the U.S. should be subject to “appropriate federal oversight” akin to that of banks. The group said legislation is “urgently needed to comprehensively address the prudential risks posed by payment stablecoin arrangements.”

Bank-Only Stablecoins Limit Innovation, Fed’s Waller Says

Federal Reserve Governor Christopher Waller broke with a report from regulators earlier this month and said he disagrees with the idea that stablecoins should only be issued by banks because it would limit payment-system innovation and competition.

Earlier this month, the Treasury Department, Federal Reserve and other regulators urged lawmakers to let them police stablecoin issuers like banks with robust capital requirements and constant supervision, and said their issuance should be limited to banks.

“I disagree with the notion that stablecoin issuance can or should only be conducted by banks, simply because of the nature of the liability,” Waller said in remarks prepared for delivery at the Cleveland Fed and Office of Financial Research’s conference on financial stability Wednesday. “It serves as a viable competitor to banking organizations in their role as payment providers.”

Waller raised numerous risks and benefits with stablecoins, in particular the lack of a regulatory framework to ensure that they aren’t subject to runs and that their systems remain sound.

“Strong oversight, combined with deposit insurance and other public support that comes with it, is what makes bank deposits an acceptable and accepted form of money,” he said. “Today stablecoins lack that oversight, and its absence does create risks.”

The coins are called “stable” because they have a value tied to that of another asset, such as the U.S. dollar. Stablecoin issuers say they achieve that peg by keeping an amount in reserves that’s equivalent to their tokens in circulation, and they typically guarantee that investors can exchange their tokens for actual currency at any time.

But regulators have long been concerned that that pledge could ring hollow, particularly during a crisis.

“The regulatory and supervisory framework for payment stablecoins should address the specific risks that these arrangements pose – directly, fully and narrowly,” Waller said. “It does not necessarily mean imposing the full banking rulebook, which is geared in part toward lending activities, not payments.”

Updated: 11-18-2021

Peru To Partner With India, HK And Singapore Central Banks On A CBDC

The president of Peru’s central bank has indicated that the country will be joining forces with India, Singapore and Hong Kong to develop its own central bank digital currency.

The president of the Central Reserve Bank of Peru, Julio Velarde, announced that his country will be entering the global race to develop a central bank digital currency (CBDC).

At the Annual Conference of Executives with business leaders in Lima on Tuesday, he said:

“I think the payment system we are going to have eight years from now in the world is going to be completely different from the current one… Even the financial system will probably be quite different.”

Velarde stated that Peru will partner with the central banks of countries more advanced in their development of CBDCs including India, Singapore and Hong Kong. A CBDC is a digital form of a country’s fiat currency, issued and controlled by the respective nation’s central bank.

“We won’t be the first, because we don’t have the resources to be first and face those risks,” Velarde said, adding, “But we don’t want to fall behind. We are at least at the same level or maybe even further ahead than similarly-sized countries, although behind Mexico and Brazil.”

According to Atlantic Council, 87 countries (representing more than 90% of global gross domestic product) are now researching a CBDC, and seven have launched one. Comparatively, in May 2020, only 35 countries were considering developing a CBDC.

Although it doesn’t have a CBDC, El Salvador’s adoption of Bitcoin as a legal tender on Sept. 7 has put a renewed focus on digital assets in the region.

Mexico and Brazil are planning to implement CBDCs sometime before 2023, and the Bahamas already has a Sand Dollar CBDC.

As for Peru’s upcoming CBDC development partners, the Reserve Bank of India plans to launch a trial implementation of the digital rupee before the end of the year, but it is also taking its time to ensure the rollout goes smoothly.

“We are being extremely careful about it because it’s a completely new product, not just for RBI but globally,” Reserve Bank of India Governor Shaktikanta Das told CNBC in August.

Hong Kong’s Monetary Authority continues to explore the possibility of introducing a digital Hong Kong dollar in a bid to capitalize on potential benefits for retail trading across the city’s cross-border markets.

The Monetary Authority of Singapore has also shared plans for a privately developed retail CBDC under its “Project Orchid initiative.” They are all racing to catch up with China, however, which now has processed a total of 62 billion digital yuan, according to the head of digital currency at the People’s Bank of China.

Bank Of Russia Plans To Take Fees For CBDC Transactions

The Bank of Russia views CBDCs as a responsible alternative to Bitcoin and wants to take fees from CBDC transactions.

The Russian central bank continues to disclose more details about its upcoming digital currency and is now reportedly planning to take commissions for the digital ruble transactions.

The fees for Russia’s central bank digital currency (CBDC) transactions will be lower than those of wire transfers, Bank of Russia’s director of financial technologies department Kirill Pronin reportedly said.

Pronin elaborated that the CBDC transactions’ commissions will not be higher than those implemented within Russia’s Faster Payments System (FPS), a service that lets individuals make instant interbank transfers, the local publication Prime reported Wednesday.

The FPS system was launched in 2019, allowing users to transfer up to 100,000 rubles ($1,360) with zero commissions. For transfers beyond this amount, the system charges a 0.5% fee of the transfer amount, but no more than 1,500 rubles ($20) per one transfer.

As previously reported, the Russian central bank plans to launch the first pilot tests for a digital ruble in early 2022. The digital currency is designed to act as a third form of money alongside cash and non-cash; the potential reduction in the cost of payment services has been touted as one of its key benefits.

Bank of Russia’s governor Elvira Nabiullina believes that adopting CBDCs should serve as a good option for governments to replace private cryptocurrencies like Bitcoin (BTC). The official reportedly argued that a “responsible government should not drive the adoption” of crypto, speaking before the Russian State Duma on Thursday.

Nabiullina blasted crypto for allegedly being anonymous and not being backed by anyone, stating:

“We maintain an extremely negative stance on cryptocurrencies as private currencies that claim to be money. But as people need alternatives, we should work on this with the help of our projects. We should develop the digital ruble as I have already said.”

While the Bank of Russia has continued taking a hard stance on crypto, a number of ministries and government-linked organizations have been exploring the industry, with the Duma creating a working group to regulate Russia’s growing crypto mining market. Despite Russia’s ban on crypto payments, the Russian State Hermitage Museum raised over $400,000 in a nonfungible tokens auction on Binance crypto exchange in September.

Last month, Russian President Vladimir Putin said that private cryptocurrencies like Bitcoin “can act as a unit of account,” but they are “very unstable.”

 

Updated: 11-19-2021

Chinese Digital Yuan Is Used By Criminals Just Like Bitcoin (Hahahah!!)

Fed. Coin Will Be No Different!

Earlier in November, 11 people were arrested for using the e-CNY to launder money from Cambodia.

Xiongan New District warned citizens of telecom fraud using the digital yuan, according to a Nov. 18 notice signed by the local government and central bank branch.

* Fraud cases involving China’s central bank digital currency have been making headlines. Just this week, police arrested a woman for defrauding RMB 300,000 ($40,000) using the CBDC. Earlier in November, another 11 people were arrested in Henan province for using the digital yuan to launder money for Cambodian gangs.

* The use of CBDC to commit fraud undercuts the narrative that digital currencies issued by nation states will be a better, less-prone-to-fraud alternative to crypto. That this is happening in security-conscious China, which has severely cracked down on crypto is bound to engender a certain about of schadenfreude amongst crypto advocates.

* The news could also indicate that China’s CBDC is still not ready for a full rollout as security issues get fixed.

* The Xiongan authorities warned not to use unauthorized sources to download e-CNY apps, not to fall for scammers pretending to be government authorities, or invest in “digital yuan exchanges.”

* Xiongan district, near Beijing, was one of the first places to pilot the e-CNY.

* China is expected to be the world’s first major economy to roll out a CBDC. The digital yuan has been used for $9.7 billion worth of transactions, Mu Changchun, the head of the digital currency research institute at the People’s Bank of China, said on Nov. 3.

Digital Currencies Won’t Impact US Sanctions, Treasury Exec Says

Russia’s digital ruble won’t help the country avoid U.S. sanctions because the global economy is “interconnected,” an official said.

Central bank digital currencies (CBDC) like Russia’s digital ruble do not pose any threat to United States sanctions, according to U.S. Deputy Treasury Secretary Wally Adeyemo.

In a CNBC interview on Wednesday, Adeyemo argued that the U.S. dollar “will remain the dominant currency in the world” despite the increasing popularity of cryptocurrencies.

Adeyemo pointed out that digital assets provide an “opportunity in lots of ways” for the U.S. economy, but it’s also associated with many challenges such as money laundering. However, there are ways to combat this in order to benefit from the growing industry. The official said:

“We do think that ultimately working together with countries around the world, we can address this risk by calling on the creators of digital assets to follow the rules around Anti-Money Laundering more closely.”

Adeyemo also suggested that digital currencies by global central banks are not associated with any risks in terms of U.S. sanctions.

“We believe that even if a digital ruble or other digital currencies come into place, there will still be scope for our sanctions to have an impact on their economies simply because the global economy is still inter-connected,” he said.

The official went on to say that companies in Russia do a lot of business around the world, with much of it being done in U.S. dollars with American financial institutions because the “American economy remains the biggest economy in the world.”

“As long as that is the case, and as long as we make the investments that are needed, we are still going to have the ability to use our sanctions regime to make sure that we prevent the thing that it was created to prevent,” the official noted.

Adeyemo’s remarks come shortly after sanctioned Russian oligarch Oleg Deripaska called on the Russian government to adopt Bitcoin (BTC) as a tool to avoid U.S. sanctions and weaken the U.S. dollar.

“The U.S. had realized long ago that uncontrolled digital payments are capable of not only nullifying the effectiveness of the entire mechanism of economic sanctions but also taking down the dollar as a whole,” he argued last month.

In October, the deputy minister of Foreign Affairs of Russia also reiterated Russia’s plans to reduce the U.S. dollar share in Russia’s international reserves as part of the country’s plan to avoid challenges posed by sanctions from the U.S. government.

The U.S. has imposed a number of sanctions on Russia in recent years for reasons such as suspected poisoning of opposition politicians, election interference and cyberattacks.

Crypto Could Destabilize Nations, Undermine Dollar’s Reserve Currency Status, Hillary Clinton Says.

Clinton called for a joint effort by nation-states to monitor cryptocurrencies’ rise.

Former U.S. Secretary of State and Democrat presidential candidate Hillary Clinton slammed cryptocurrencies on Friday, calling on nation-states to keep a tab on their rise.

“One more area that I hope nation-states start paying greater attention to is the rise of cryptocurrency because what looks like a very interesting and somewhat exotic effort to literally mine new coins in order to trade with them has the potential for undermining currencies, for undermining the role of the dollar as the reserve currency, for destabilizing nations, perhaps starting with small ones but going much larger,” Clinton said during a panel discussion at the Bloomberg New Economy Forum in Singapore.

While crypto fanboys have long hailed bitcoin as a better alternative to the U.S. dollar, traditional market pundits suggest otherwise.

“Bitcoin is unlikely to replace the dollar as a global reserve currency,” Marc Chandler, chief market strategist at Bannockburn Global Forex and author of the book “Making Sense of the Dollar,” told CoinDesk last year. “Backing the dollar is the world’s biggest, deepest and the most transparent government bond market.”

Clinton’s comments come in the wake of controversial crypto tax reporting requirement that was part of the $1 trillion bipartisan infrastructure bill signed into law by U.S. President Joe Biden on Monday.

Per the bill, from 2023 brokers will need to disclose customers’ names, addresses, phone numbers, capital gains, and losses to the Internal Revenue Service. Entities receiving crypto payments worth more than $10,000 will have to reveal the sender’s identity to the government.

Earlier this week, India’s Prime Minister Narendra Modi called for a joint effort by democratic nations to ensure cryptocurrencies do not “end up in the wrong hands, which can spoil our youth.”

Is US Politics Divisive Enough To Make Crypto A Partisan Issue?

While no longer the leader of the Democratic Party, Hillary Clinton’s comments on crypto could have the potential to create more partisanship among lawmakers regulating digital assets.

As the perceived legitimacy of blockchain technology increases, politicians in the United States have shown a growing interest in turning this non-partisan technology into a topic of political divisiveness.

Speaking via video to an audience of the Bloomberg New Economy Forum in Singapore on Friday, former presidential candidate Hillary Clinton said while cryptocurrencies were an “interesting” technology, they also had the power to undermine the U.S. dollar and destabilize nations — “perhaps starting with small ones but going much larger.”

While no longer the leader of the Democratic Party, Clinton’s sentiment on crypto resembles that of top Democrat and senator Elizabeth Warren, who has often criticized the crypto market during committee hearings.

Clinton’s comments came while discussing Russian President Vladimir Putin, whom she accused of being behind a disinformation and cyberwarfare campaign — seemingly also referring to ransomware attacks and some of the crypto payments associated with them.

While the former presidential candidate’s intentions are unknown, a prominent Democratic voice like Clinton’s further connecting Russia to a seemingly apolitical financial tool like crypto may have the potential to do damage among U.S. lawmakers trying to enact policy on both sides of the aisle.

Party politics in the United States are, at times, comically divisive. For example, many Republican voters destroyed their own property — Nike shoes and Keurig brewing machines, to name a few — after lawmakers spoke out against former NFL quarterback Colin Kaepernick taking a knee during the U.S. national anthem.

The entire discussion surrounding masks and vaccines in the U.S. is often framed not as a scientific matter, but one of “freedom,” largely stoked by social media posts and statements from conservative mouthpieces.

Former President Bill Clinton spoke at Ripple’s Swell conference in 2018, saying that the “permutations and possibilities” of blockchain were “staggeringly great,” but he had been out of office for roughly 17 years when he made those statements.

When a more current Democratic figure like Hillary Clinton speaks out against crypto, could it affect how the issue is handled by lawmakers in office now?

On Monday, President Joe Biden signed a $1 trillion infrastructure bill into law that also implemented tighter rules on businesses handling cryptocurrencies and expanded the reporting requirements for brokers to include digital assets.

While passing the bill through both chambers of Congress was accomplished mostly along party lines — 69–30 votes in the Senate, 228–206 in the House — the language on crypto was seemingly more of a bipartisan issue.

Cynthia Lummis is a Republican senator who has largely voted with her party on controversial issues, including against a commission to investigate the Jan. 6 attack at the U.S. Capitol and not to impeach the former president — yet, even she is crossing the divide when it comes to crypto.

Lummis voted against the infrastructure bill in the Senate and is currently working with Democratic Senator Ron Wyden to pass new legislation changing the law’s tax reporting requirements so that they will not apply to certain individuals.

Other efforts between Democratic and Republican lawmakers suggest common ground for now — at least as far as crypto and blockchain are concerned. Texas’ Democratic Party is planning to pilot a program aimed at raising money for candidates and causes using nonfungible tokens, while the National Republican Congressional Committee and many of the party’s candidates for state and federal offices now accept donations in cryptocurrency.

Updated: 11-22-2021

WEF Releases Resource Suite For CBDCs And Stablecoins Aimed At Regulators And Businesses Leaders

The publication contains eight separate white papers exploring topics including the impact of lawmakers regulating stablecoins and central bank digital currencies as well as informing readers about the risks, benefits and alternatives.

The World Economic Forum, or WEF, has published a resource suite aimed at informing lawmakers and individuals in the private sector about digital assets including central bank digital currencies and stablecoins.

On Friday, the WEF announced its Digital Currency Governance Consortium White Paper Series, a resource suite created by 85 organizations from 40 countries around the world.

The publication contains eight separate white papers exploring topics such as the impact of lawmakers regulating stablecoins and central bank digital currencies, or CBDCs, as well as informing readers about their risks, benefits and alternatives. In addition, the suite addresses regulatory gaps for digital assets and their potential uses in further financial inclusion and cross-border aid.

“Investor and consumer protections continue to be imperative for cryptocurrency and stablecoins,” said Anne Richards, CEO of Fidelity International, one of the companies that contributed to the publication. “The Digital Currency Governance Consortium focuses on this important topic, making a valuable contribution in mapping consumer risks and regulatory gaps to inform future policy-making.”

According to the WEF, different world governments could benefit from collaborations on CBDCs and stablecoins in addressing the prevention of illicit activity, consumer protection and cross-border arrangements regarding CBDCs where regulatory gaps might exist.

The organization’s white paper on addressing regulatory gaps specifically cites a potential lack of cybersecurity having the ability to create a “full-blown systemic financial crisis” should a digital currency be compromised by a bug or other exploit.

The framework the WEF proposes to prevent and address gaps and inconsistencies in stablecoins and CBDCs involves having agencies form a task force composed of senior leaders focused on certain risk areas and those involved in setting some of the current standards on digital assets.

According to the white paper, this approach could “lay the foundation for sustainable innovation, align regulatory frameworks and foster greater levels of international collaboration.”

The new resource suite follows the WEF releasing guidance for regulators and policy-makers concerning regulations in decentralized finance in June. The organization said at the time the publication offered a foundational basis for examining critical factors concerning DeFi regulations.

Brazil’s Central Bank To Launch CBDC Pilot In 2022: Report

The final version of the central bank digital currency is expected to come in 2024.

The Central Bank of Brazil (BCB) plans to start a pilot program of a digital currency next year, BCB President Roberto Campos Neto said on Friday, according to local media outlet Estadao.

* In September, the BCB told the Brazilian Senate that it planned to launch the final version of a digital real in 2024, according to estimates made by Fabio Araujo, an economic adviser to the BCB, who added that the monetary authority would conduct initial tests in 2022.

* Brazil’s central bank has also been discussing a bill to regulate digital assets as an investment vehicle, Campos Neto also said on Friday, without disclosing further details.

* “[Crypto] is already starting to affect even the national accounts, which means it has become a relevant investment instrument,” Campos Neto noted, adding that crypto purchases are affecting Brazil’s import figures.

* According to the BCB, Brazilians have acquired $4.27 billion in cryptocurrencies so far in 2021. In August, Campos Neto said that Brazilians held about $40 billion in cryptocurrencies.

WEF Releases Resource Suite For CBDCs And Stablecoins Aimed At Regulators And Businesses Leaders

The publication contains eight separate white papers exploring topics including the impact of lawmakers regulating stablecoins and central bank digital currencies as well as informing readers about the risks, benefits and alternatives.

The World Economic Forum, or WEF, has published a resource suite aimed at informing lawmakers and individuals in the private sector about digital assets including central bank digital currencies and stablecoins.

On Friday, the WEF announced its Digital Currency Governance Consortium White Paper Series, a resource suite created by 85 organizations from 40 countries around the world.

The publication contains eight separate white papers exploring topics such as the impact of lawmakers regulating stablecoins and central bank digital currencies, or CBDCs, as well as informing readers about their risks, benefits and alternatives.

In addition, the suite addresses regulatory gaps for digital assets and their potential uses in further financial inclusion and cross-border aid.

“Investor and consumer protections continue to be imperative for cryptocurrency and stablecoins,” said Anne Richards, CEO of Fidelity International, one of the companies that contributed to the publication.

“The Digital Currency Governance Consortium focuses on this important topic, making a valuable contribution in mapping consumer risks and regulatory gaps to inform future policy-making.”

According to the WEF, different world governments could benefit from collaborations on CBDCs and stablecoins in addressing the prevention of illicit activity, consumer protection and cross-border arrangements regarding CBDCs where regulatory gaps might exist.

The organization’s white paper on addressing regulatory gaps specifically cites a potential lack of cybersecurity having the ability to create a “full-blown systemic financial crisis” should a digital currency be compromised by a bug or other exploit.

The framework the WEF proposes to prevent and address gaps and inconsistencies in stablecoins and CBDCs involves having agencies form a task force composed of senior leaders focused on certain risk areas and those involved in setting some of the current standards on digital assets.

According to the white paper, this approach could “lay the foundation for sustainable innovation, align regulatory frameworks and foster greater levels of international collaboration.”

The new resource suite follows the WEF releasing guidance for regulators and policy-makers concerning regulations in decentralized finance in June. The organization said at the time the publication offered a foundational basis for examining critical factors concerning DeFi regulations.

Stablecoin Advocates Make Their Case To U.S. Banking Regulators

* Backers Of A New Coin Talking To Fed, Other Agencies
* USDF Coin To Be Directly Supported By Regulated Bank Deposits

Blockchain startup Figure Technologies Inc. and other firms held talks with U.S. regulators about how to issue a stablecoin that satisfies watchdogs amid deep Washington skepticism over the fast-growing corner of the cryptocurrency market.

Senior officials of the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. met last week with Figure and its partners in an emerging crypto effort known as the USDF Consortium, according to people familiar with the meetings who requested anonymity because the discussions were private. Spokespeople for the agencies declined to comment.

The meeting with regulators comes after the President’s Working Group on Financial Markets recommended earlier this month that stablecoin issuers become insured depository institutions subject to the same supervision and regulation as banks.

The USDF effort is among the first to start making the case for stablecoins that the firms hope satisfy not-yet-written rules, and others are expected to follow as the agencies try to catch up to a crypto market already surging toward $3 trillion.

“As the policy on stablecoin evolves, we believe the USDF Consortium is well-positioned to comply and continue to grow,” Ashley Harris, Figure’s general counsel, said in a statement. The group’s approach is “consistent with the recommendations of the President’s Working Group that stablecoin be minted exclusively by insured depository institutions.”

The consortium’s new coin, USDForward, differs from widely used stablecoins such as Tether and USDC because it would be issued by banks and backed by dollar deposits in a system that banking regulators already oversee.

While stablecoins such as Tether are backed by reserves meant to ensure each token can be redeemed for a U.S. dollar, critics contend those reserves are opaque and unregulated. Bank-issued digital tokens — such as JPMorgan Chase & Co.’s JPM Coin — are backed by dollars actually held by the lender.

In the case of USDF, New York Community Bancorp Inc. and other partner banks will take on deposits from customers who want to use the tokens.

The banks will mint digital markers tied to those deposits, and the customers can deploy the markers to pay for transactions, which will be recorded on the public Provenance Blockchain.

Figure, a blockchain-lending startup, is managing the plumbing behind the consortium. The effort is also backed by JAM FINTOP, a partnership of JAM Special Opportunity Ventures — an affiliate of financial-services investor Jacobs Asset Management — and financial-technology firm Fintop Capital.

The three banking agencies and the markets regulators — the SEC and Commodity Futures Trading Commission — are still in the early days of working out what to do with crypto.

A group of agency chiefs known as the Financial Stability Oversight Council is weighing whether to consider stablecoins enough of a threat to the wider financial system that they warrant intervention.

Brazil’s Central Bank To Launch CBDC Pilot In 2022: Report

The final version of the central bank digital currency is expected to come in 2024.

The Central Bank of Brazil (BCB) plans to start a pilot program of a digital currency next year, BCB President Roberto Campos Neto said on Friday, according to local media outlet Estadao.

* In September, the BCB told the Brazilian Senate that it planned to launch the final version of a digital real in 2024, according to estimates made by Fabio Araujo, an economic adviser to the BCB, who added that the monetary authority would conduct initial tests in 2022.

* Brazil’s central bank has also been discussing a bill to regulate digital assets as an investment vehicle, Campos Neto also said on Friday, without disclosing further details.

* “[Crypto] is already starting to affect even the national accounts, which means it has become a relevant investment instrument,” Campos Neto noted, adding that crypto purchases are affecting Brazil’s import figures.

* According to the BCB, Brazilians have acquired $4.27 billion in cryptocurrencies so far in 2021. In August, Campos Neto said that Brazilians held about $40 billion in cryptocurrencies.

Updated: 11-23-2021

Bank Of America Sees Stablecoin Regulation As Catalyst To Mass Adoption

Stablecoins are viewed as a systemically important asset with a market value of around $141 billion.

The publication of the U.S. Treasury report, “Report on Stablecoin” (RoS), earlier this month is an “indication of urgency” for the regulation of stablecoins, given their potential to become a viable payments method, Bank of America said in a research note published on Tuesday.

* Institutions are waiting for rules to be defined before increasing exposure to digital assets, and a “regulatory framework should incentivize payments companies to integrate blockchain technology and stablecoins into their platforms,” the bank said.

* Mastercard, Signature, Visa and Western Union could see an increase in market value from stablecoin regulation, Bank of America said. It has a buy rating on the stocks of those companies.

* Oversight is needed for stablecoins, because they are now a “systemically important asset” with a market value of around $141 billion with a quarterly transaction volume of over $1 trillion in 2021, the bank said.

* Despite the size and growth of the market, stablecoin issuers aren’t regulated under a sweeping framework and “provide varying levels of transparency into the composition of reserves that back their stablecoins,” BofA said in its report.

* The Treasury Department’s report notes that the “potential for rapid stablecoin growth creates systemic risk” as “digital assets and traditional financial markets are more connected than many realize.” The stablecoin report recommended that the U.S. Congress pass legislation swiftly to integrate stablecoins into the banking system, allowing for federal oversight.

* If regulators decide that all stablecoin issuers are required to be insured depositories, it could lead to banks issuing their own stablecoins, Bank of America added.

Updated: 11-23-2021

Bank Of England Sees CBDCs As A Revolution For The Future Of Money

The Bank of England estimates that 20% of retail and consumer deposits could potentially move toward CBDCs.

In an event streamed live on Wednesday, Bank of England governor Andrew Bailey and deputy governor for financial stability Sir Jon Cunliffe answered questions from lawmakers from the Economic Affairs Committee. When asked about the growth of innovation surrounding digital currencies in the country, Sir Cunliffe gave the following comment:

“It’s quite difficult to predict how innovators will take money and actually use money going forward. But we are starting to see programmable money being used in the crypto world. And I would expect we would see a similar revolution in the functionality of money driven by technology.”

The Bank of England is currently exploring options to implement a digital pound CBDC for retail payments. A task force behind the CBDC is also investigating the use of a digital pound for distributing payrolls, pensions, etc.

In supporting the initiative, Sir Cunliffe cites the rapidly declining use of cash in the United Kingdom in recent years — which was greatly accelerated by the advent of the COVID-19 pandemic that discouraged physical contact in transactions. An estimated 30% of transactions in the country now occur via e-commerce.

When asked about the potential demand of a digital pound CBDC, Sir Cunliffe said:

“We’ve modeled a very prudent assumption, which is that basically 20% of [household and corporate transactional] deposits based in the banking system could move out of the banking system and into central bank digital money.”

Nevertheless, Sir Cunliffe admitted that the current state of crypto affairs could potentially threaten financial stability within the country. The market cap on cryptocurrencies has surged to $2.6 trillion in a very short time, with an estimated 95% of digital assets being unbanked and 5% consisting of stablecoins.

On the opposite side of the Atlantic, the United States has less of a positive outlook, saying that regulated stablecoins designed by the private sector make CBDCs redundant.

Updated: 11-24-2021

Japanese Consortium Plans To Issue Bank Deposit-Like Digital Yen by End of Next Year

Mitsubishi Corp. will lead a trial that is expected to start in January.

A consortium of 74 Japanese firms is planning to issue a digital yen that will work similar to bank deposits by the end of 2022, the consortium’s secretariat, DeCurret, said in a white paper and a progress report published on Wednesday.

* To ensure the stability of the digital currency, the consortium, dubbed Digital Currency Forum, is proposing a model similar to how bank deposits work, according to the white paper. The digital yen will be issued by banks as their liability, the paper added.

* Members of the Digital Currency Forum, include such banks as MUFG Bank, Sumitomo Mitsui Banking Corp., Mizuho Bank, Japan Post Bank, industry heavyweights like the Nippon Telegraph & Telephone Corp., East Japan Railway, and Mitsubishi Corp., as well as local governments. The Bank of Japan, Financial Services Agency of Japan and three ministries are observing its activities.

* The consortium plans to experiment with large business transactions using the digital yen as early as January, according to the progress report. The consortium’s subcommittee on Settlement in Industrial Distribution, led by Mitsubishi, will be testing “the automatic execution of contracts using digital currency in the settlement of maritime transportation for transactions,” the progress report said.

* The consortium will also be releasing a beta version of the digital currency marketplace for non-fungible tokens (NFTs) by 2022, the progress report said.

* The focus on business transactions is a marked difference from China’s digital yuan, set to be the first central bank digital currency (CDBC) to be rolled out by a major economy, which has focused on retail transactions up to this point, with some exceptions.

Palau Partners With Ripple On Climate-Friendly National Digital Currency

The partnership will help Palau be climate-friendly while enhancing its cross-border payments and digital currency technologies.

Ripple, the digital payment network, has partnered with the Republic of Palau to help the Pacific island nation develop its own digital currency.

The initial focus of the partnership will see the development of a United States dollar-backed digital currency to help facilitate cross-border payments for the nation. The collaboration “could see the implementation of the world’s first government-backed national stablecoin in the first half of 2022,” according to Ripple’s announcement.

Ripple suggested the national digital currency may not necessarily be just another central bank digital currency (CBDC):

“Ripple would provide Palau with technical, business, design and policy support. Meanwhile, exploring a USD-backed stablecoin and associated use cases —such as a corporate registry— on the XRP Ledger could provide a viable alternative to central bank digital currencies (CBDCs) for countries like Palau.”

Palauan President Surangel Whipps Jr. said the national digital currency would “provide the citizens of Palau with greater financial access.”

As an island nation, Palau is especially vulnerable to some of the effects of climate change, and Ripple said this was one of the reasons it was chosen for the job. The firm said the XRP Ledger is “carbon-neutral and 120,000X more energy-efficient than Proof-of-Work blockchains.”

“We are excited to be working with Palau to achieve its financial and climate-related goal,” said James Wallis, vice president of central bank engagements at Ripple.

“We have a wonderful opportunity to bring together our technology and experience with the unique characteristics of Palau to make a real economic and social impact for the country.”

Ripple is no stranger to climate and environmental considerations. In February of this year, it announced its goal of becoming carbon net-zero by 2030, starting by making XRP carbon net-zero with the help of the EW Zero tool.

EW Zero is an open-source solution from Energy Web that allows businesses to purchase tokenized renewables to help them become carbon net-neutral. Ripple also led a $44-million funding round for fintech provider Nelnet Renewable Energy to help fund environmentally conscious initiatives across the United States.

Ripple has been busy putting to bed its case with the U.S. Securities and Exchange Commission over whether XRP tokens were issued an unregistered security in 2013. Brad Garlinghouse recently said that he believes the case has made good progress and will be over in 2022.

XRP is currently trading at about $1.05. That is up 0.42% this week but is down 5.47% through November.

Updated: 11-26-2021

Stablecoin Issuers Poised To Be Banks Of The Future On Road To Adoption

Stablecoins are destined to grow, experts suggest, but are regulations the only way for the market to reach its full potential?

There is no denying the fact that the crypto market has grown from strength to strength over the course of 2021, as is best highlighted by the total capitalization of the industry recently hitting the $3-trillion mark, albeit for a relatively brief period of time.

That said, stablecoins, a class of cryptos that have their value pegged to a fiat currency, have seen their usage increase dramatically in recent months thanks, in large part, to their ability to help investors get their feet wet with digital currencies while eliminating many of the core issues — such as daily price volatility — currently affecting the crypto market.

Since 2020, the stablecoin sector has expanded by a staggering 500%, rising from a total market capitalization of around $20 billion to over $125 billion.

As one can imagine, this monumental rise has not gone unnoticed by regulators globally, so much so that the Biden administration is actively looking to devise a bank-like regulatory setup for stablecoin issuers.

And even though digital currency backers are known for their anti-regulatory outlook, issuers of stablecoins such as USD Coin (USDC), Circle CEO Jeremy Allaire recently took a supportive stance regarding the issue.

In a recent interview, he said that proposals to regulate dollar stablecoin issuers in the United States at the federal level signified progress for the industry’s growth. “There’s a real recognition that as these payment stablecoins grow, they could grow at internet scale relatively quickly,” Allaire commented.

Are Regulations The Way To Move Forward?

Upon reaching out to Circle, a spokesperson for the company told Cointelegraph that the firm, for a long time now, has been fully supportive of U.S. Congress establishing federal supervision for issuing stablecoins, adding:

“The rapid scaling and strategic importance of this to dollar competitiveness in the age of crypto and blockchains is critical. We also know that, much like with the creation of the internet, it’s only through a rigorous public-private sector collaboration that people everywhere will be able to tangibly benefit from public blockchains.”

The spokesperson said that Circle will continue to welcome any regulation that helps make consumers and businesses safer while also supporting innovation and development that improves economic competitiveness and national security. “We believe this can lead to a radically more efficient, safer, and more resilient financial system,” they said.

Ryan Matovu, CEO and founder of Ardana — a Cardano-based asset-backed stablecoin protocol and decentralized exchange — told Cointelegraph that as calls for regulations continue to garner momentum, there has to be an acknowledgment of the different stablecoin models in the space and the spectrum of decentralization they exist along. He said:

“Regulation on centralized custodial-type stablecoins makes sense, as they operate within the traditional finance space of holding fiat U.S. dollars in accounts. Decentralized stablecoins sit outside of this and existing as purely on-chain assets should be treated as such as peer to peer platforms as opposed to ‘issuers.’”

Is Oversight A Foregone Conclusion?

Steven Parker, CEO of cryptocurrency wallet app Crypterium and former general manager of Visa’s Central and Eastern Europe network, told Cointelegraph that there is absolutely no future stablecoin environment that does not end in regulations that are, at least, on par with the rules that banks are subject to today.

He highlighted that Sir John Cunliffe, deputy governor of the Bank of England, recently commented that the continued growth and use of digital currencies could lead to a major financial meltdown. Parker added:

“The reaction of policymakers to Libra, now Diem, a form of stablecoin, was swift and had a major regressive step on its implementation. Anybody who thinks that the regulators will simply allow a new non-regulated currency to take a leading role in economic finance is not familiar with how financial regulation works. There is a battle for control of regulation, but once that is resolved, stablecoins and their creators and managers will be regulated hard.”

Not everyone is convinced about the need for increased regulations. Steve Gregory, CEO of trading platform Currency.com’s US subsidiary, told Cointelegraph that not all stablecoins are created equal, and unlike banks, they are not underwritten with the full faith and credit of a sovereign nation like the United States.

That said, the exponential growth rate of stablecoin adoption seems to indicate that the market is unphased by the lax regulation around stablecoins, Gregory noted, adding:

“Ultimately, much like how crypto exchanges function, in the future, there will be two types of stablecoin issuers: those that purposely avail themselves to regulated jurisdictions and offer transparent accounting, clear rules for redemption, and investor protections in one basket, and conversely, there will be other issuers which have a robust secondary market but remain functional without clear rules that may be synonymous with financial institutions.”

Gregory said that the first basket will be the likely venue for regulated financial institutions engaging in crypto-specific financial products and the latter being more for cross-border trading from countries with stringent currency controls, peer-to-peer marketplaces and access to offshore exchanges.

Lastly, in terms of how the stablecoin market would best be governed, Gregory believes that the free market should run its course, something that will allow regulated stablecoins to find their place in the global economy and grow accordingly.

He believes unregulated stablecoins will continue to grow and evolve into their own niche: “Overall, it’s a global asset class, and differing regulations in each particular country make it difficult to conform the utility of stablecoins into a regulatory framework.”

The Path Ahead

As part of its future plans, it appears as though the Biden administration is looking to devise a new “special-purpose charter” for stablecoin issuers, which will effectively put them in the same category as banks.

In this regard, Allaire believes that the details on a bank charter for a crypto company need to be ironed out over time so that the rules make sense for players operating in this evolving space.

It is also worth noting that, over the course of the last few months, stablecoins have become a central talking point for regulators. Back in September, the U.S. Treasury reportedly hosted a number of meetings to delve into the risks stablecoins pose to their users as well as the financial system they are operating within.

Updated: 11-29-2021

BIS Innovation Hub Partners With Fed To Support Analysis Of Digital Assets

Jerome Powell cited CBDCs and digital assets in his speech to open the New York Innovation Center at the Federal Reserve’s local offices.

The Federal Reserve Bank of New York has announced it will be partnering with the Bank for International Settlements Innovation Hub as part of the launch of its New York Innovation Center, an initiative aimed at exploring technology used to develop the global financial system.

In a Monday speech for the opening of the New York Innovation Center, Federal Reserve chair Jerome Powell said the partnership would support the agency’s analysis of digital currencies, including the rollout of a central bank digital currency, or CBDC. The center plans to support analyses aimed at improving cross-border payment systems.

“The pace of technological change and innovation over the last decade has led some to argue that we are on the brink of a fourth industrial revolution — a digital revolution,” said Powell. “Certainly, rapid innovation, including through the application of advanced digital technologies, machine learning, artificial intelligence, and big data, is revolutionizing the financial sector.”

Per von Zelowitz, former PwC director of banking transformation, will be leading the innovation center. With locations in Hong Kong, Singapore, Toronto, London, Stockholm and more, BIS Innovation Hubs have supported some research projects aimed at integrating CBDCs into different countries’ payment systems as well as other infrastructure used by central banks. A BIS survey from January showed that 86% of major central banks were actively exploring the introduction of CBDCs.

Powell’s comments came as he awaits a hearing from the Senate Banking Committee to consider his nomination for a second term as Fed chair. He said in September that the Fed was “working proactively to issue a CBDC” but was unlikely to support a blanket ban on cryptocurrencies.

Updated: 11-30-2021

CBDC Is A Tool To Combat Bitcoin, Says Bank Of Indonesia Exec

“CBDC would be part of an effort to address the use of crypto in financial transactions,” Central Bank of Indonesia assistant governor Juda Agung said.

Central bank digital currencies (CBDC), digital versions of national currencies introduced in response to growing cryptocurrency adoption, would be an essential tool for combating crypto, according to the Central Bank of Indonesia.

The Central Bank of Indonesia is considering launching a digital rupiah to “fight” against cryptocurrencies like Bitcoin (BTC), Bank of Indonesia assistant governor Juda Agung said at a recent parliamentary meeting.

“A CBDC would be one of the tools to fight crypto. We assume that people would find CBDC more credible than crypto. CBDC would be part of an effort to address the use of crypto in financial transactions,” Agung stated, according to a Tuesday Bloomberg report.

The official noted that cryptocurrencies like Bitcoin are currently traded alongside commodity futures and regulated by the trade ministry despite severe impacts on the financial system.

The news comes shortly after the National Ulema Council (MUI), Indonesia’s top Islamic scholarly body, reportedly found cryptocurrencies like Bitcoin to be haram, or forbidden, by the tenets of Islam. The East Java branch of one of MUI previously issued a statement deeming the use of the cryptocurrency haram in late October.

As previously reported, the Indonesian government has taken a mixed stance on crypto regulation. Despite banning cryptocurrency payments back in 2017, local authorities have opted to keep cryptocurrency trading legal.

In April 2021, Indonesia’s Commodity Futures Trading Regulatory Agency of the Ministry of Trading reportedly announced plans to launch a government-backed crypto exchange in the second half of 2021.

While maintaining a mixed stance on crypto, Indonesian regulators have been increasingly looking at a potential CBDC. In May, the Bank of Indonesia Governor Perry Warjiyo announced plans to launch a digital rupiah as a legal payment instrument in Indonesia.

CBDCs such as the Chinese digital yuan are apparently designed to curb cryptocurrency adoption as one of their key features. Indonesia is not alone in thinking that CBDCs can help governments combat crypto. In mid-November, Bank of Russia governor Elvira Nabiullina said that CBDCs should serve as a good option for governments to replace decentralized cryptocurrencies like Bitcoin.

Yellen Says Stablecoins Require Proper Regulations

The Treasury Secretary also said she agreed with current Financial Crimes Enforcement Network (FinCEN) guidance that crypto firms and providers that don’t custody customer funds should not be regulated.

U.S. Treasury Secretary Janet Yellen said stablecoins could lead to greater efficiencies and contribute to easier payments, but required proper regulation.

* “There are significant risks associated with them, including risks to payment systems and risks related to the concentration of economic power,” she said.

* Yellen and Federal Reserve Chairman Jerome Powell testified before a Senate banking committee on Tuesday.

* In response to a question from Senator Patrick Toomey about guidance from the Financial Action Task Force (FATF) regarding the regulation of crypto providers that never take custody or control or customer’s assets, Yellen said that she agreed with updated FinCEN guidance and believed the FATF does, too.

* Yellen noted that in its updated guidance, the FATF clarified that its intent was not to regulate as virtual asset providers (VASPs) people or providers that “provide only ancillary services or products to a virtual asset network, including hardware manufacturers, providers of unposted wallets, software developers, or miners that are not otherwise engaged in covered activities.”

* During the discussion, Powell noted that inflationary pressures remain high.

* “It is time to retire the word ‘transitory’ regarding inflation,” Powell told the panel.

US Policymakers Are Still Evaluating Stablecoins

Consumer protections are front and center in questions lawmakers have about stablecoins.

We are rapidly approaching the end of 2021 but policymakers are not letting up in terms of their approach to crypto. Last week’s letter to stablecoin issuers is yet another step in this ongoing story.

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When Stablecoin Rules?

The Narrative

Last week, U.S. Sen. Sherrod Brown (D-Ohio) sent letters to a handful of stablecoin issuers asking for more information about their issuances, governance, consumer protection policies and more.

It’s the latest move in an escalating effort by lawmakers, particularly the Senate Banking Committee chairman, to understand and evaluate stablecoins.

Why It Matters

Lawmakers are grappling with stablecoins worldwide, but we’re starting to see movement from just asking questions to the beginnings of actual policy proposals and potential laws. In that light, the questions Brown is asking stablecoin issuers could identify what issues might fall into the explicitly defined regulatory landscape.

Breaking It Down

Brown sent letters to Circle, Coinbase, Gemini, Paxos, TrustToken, Binance.US, the Centre Consortium (which Coinbase and Circle jointly operate) and Tether, asking for information about the respective stablecoins they issue.

Roughly Summarized, The Questions Ask:

* How customers can acquire the stablecoins;
* How customers can redeem the stablecoin;
* How much of the stablecoin has been issued;
* What might prevent a customer from purchasing the stablecoin;
* Whether any trading platforms have “special arrangements” with respect to the stablecoin;
* How specific levels of redemption might impact the issuer;
* How an exchange might evaluate forks.

Some letters had more questions than others, such as those to Coinbase and Gemini.

“I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms,” Brown wrote in several of the letters.

The letters came a month after Brown, with a handful of other Democrat senators, wrote to Facebook, ordering it to halt its announced Novi pilot program as well as any work on the diem stablecoin project.

At the time, the lawmakers wrote that Facebook could not be trusted with customer data although, interestingly, this was not an issue discussed in last week’s letters.

Brown’s letter referenced the President’s Working Group on Financial Markets’ report on stablecoins, which the group published at the beginning of November.

In a similar vein, the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and Federal Reserve published their joint sprint team timeline last week, announcing when they plan to announce further clarity around bank interactions with crypto, including stablecoin issuance.

Given a) the PWG’s recommendation that stablecoin issuers be regulated similarly to national banks and b) the PWG’s recommendation that Congress cement this proposal through legislation, it’s very possible that last week’s letters are a first step toward this regulation.

Hedera And Korea’s Shinhan Bank Partner On KRW Stablecoin Pilot

A new proof-of-concept will be tested to send fiat-backed stablecoins between banks to reduce fees and transaction times on international payments.

South Korea’s Shinhan Bank and Hedera Hashgraph (HBAR) have completed a proof of concept that is designed to conduct international remittances using stablecoins on the Hedera Network.

The new proof of concept by South Korea’s Shinhan Bank for remittances can send money internationally within seconds for a fraction of a cent on the Hedera Network.

Hedera claims that the average fee per transaction on its network is $0.0001, and the average transaction time is 3–5 seconds, both vast improvements from what is currently available from traditional remittances.

In a Monday announcement, Hedera stated that it aims to determine whether it is possible to issue and distribute stablecoins for financial use cases with lower fees and shorter completion times than existing systems, while also making transactions traceable.

Hedera Hashgraph is a proof-of-stake, high-security public distributed ledger technology (DLT) network. The proof of concept, which is proof that a certain method or idea is practicable, utilizes the Hedera Token Service (HTS) and Hedera Consensus Service (HCS).

Shinhan Bank is planning on minting Korean Won (KRW) backed stablecoins while international partner banks participating in the pilot will issue stablecoins in local currency. Bank clients who receive KRW stablecoins will be able to redeem them for local currency stablecoins, which can be exchanged for local fiat currency.

Reducing fees on international remittances is a pertinent use case for blockchains. The global average cost of sending $200 across national borders via traditional banks in Q4 2020 was 6.51% ($13.02), according to Remittance Prices Worldwide’s Dec. 2020 report. The average is expected to fall to 3% ($6) by 2030.

Hedera CEO and co-founder Mance Harmon said: “There is a massive opportunity to cut out the middleman and make this process dramatically more efficient and cost-effective, getting the most money possible to people who often need it urgently.”

Shinhan Bank has been a member of the Hedera Governance Council since April 2021. It has also been on Klaytn’s blockchain governance council since July 2021.

Hedera’s native token HBAR reacted strongly to the news posting a 10% gain over the past 12 hours, according to CoinGecko.

Updated: 12-3-2021

Digital Dollar Needs Broad Consensus Among Authorities, Says US Treasury Secretary

Such a move would require broad consensus among Congress, the U.S. central bank and the White House.

U.S. Treasury Secretary Janet Yellen has given her opinions on the potential of a digital dollar but is hesitant to come to any conclusions at this stage in proceedings.

Yellen said on Thursday that she had not formed a view on whether the Federal Reserve should create a digital version of the dollar, but such a move would require broad consensus among Congress, the U.S. central bank and the White House.

This follows the recent reports that the Federal Reserve is currently researching whether an electronic version of the greenback would be beneficial. Yellen said that she sees both pros and cons to the digital dollar. Although she does have thoughts on its implementation, she feels more research needs to be done before coming up with any definite answers.

According to Yellen, the advantages of a central bank digital currency need further study, including its effects on banking institutions.

In contrast, Federal Reserve Governor Lael Brainard, whom President Biden has chosen for vice-chair of the US central bank, has called for urgency in establishing a digital dollar. She suggested that she can’t fathom not having one when China and other nations are developing their own central bank digital currencies, which she considers a race to the top.

According to the Fed secretary, a consensus is required before moving forward. Yellen said that the Federal Reserve was working on a study of the issue and that it would be available soon, and they are cognizant that broad agreement among authorities would need to take place before they could move forward.

“This is a decision that’s important and needs to command consensus. There are some benefits, but there are also meaningful costs.”

As Cointelegraph reported in September, Fed Chair Jerome Powell stated that there was no need for the central bank to hurry their digital currency development plans. Despite several central banks creating their own CBDCs, Powell said the Fed was not rushing to embrace the movement.

Updated: 12-6-2021

Zimbabwe Central Bank Mulls Digital Currency, Spurns Crypto

* Work On E-Zimbabwe Dollar Underway, Says Central Bank Governor
* State Paid U.S. Dollar Bonuses To Workers To Save Local Unit

Zimbabwe’s central bank is exploring the use of a digital currency rather than allowing cryptocurrencies as legal tender, according to the nation’s central bank Governor John Mangudya.

“As a central bank we don’t believe in cryptocurrencies,” said Mangudya in an interview with publisher Trevor Ncube broadcast Monday. “We believe in central bank digital currency which is basically trying to say ‘how do we have an e-Zimbabwe dollar as opposed to cryptocurrency’.”

The southern African nation plans to send a team to Nigeria to learn from their experiences in launching the first digital currency in Africa in October.

“We have got our fintech group and they are working very hard,” he said. “Most central banks in the world are working on this CBDC and we are definitely almost there.”

Mangudya also said the government had decided to pay annual bonuses to civil servants in U.S. dollars instead of the local currency as using the Zimbabwean dollar could have added to its recent depreciation.

The official rate for the Zimbabwean currency was last at Z$105, having weakened by 29% this year. It trades at Z$185 per U.S. dollar on the parallel market.

The government made $120 million in bonus payments to state workers, state-owned Herald newspaper reported on Monday, citing Finance Minister Mthuli Ncube.

Updated: 12-8-2021

Central Banks Of France And Switzerland Announce Successful Trial Of Digital Euro, Swiss Franc

Although the project was a success, the central banks warned that significant rulebooks, contingency procedures and monitoring capabilities were needed to ensure the success of a CBDC.

On Wednesday, the Banque de France (BdF), the BIS Innovation Hub (BISIH) and the Swiss National Bank (SNB) announced the success of a pilot run of a wholesale central bank digital currency (wCBDC), titled Project Jura.

The project, which aimed to investigate cross‑border settlement with euro and Swiss franc wCBDCs, was launched on a third‑party distributed ledger technology platform.

The experimental technology explored in Project Jura consisted of a decentralized peer‑to‑peer network of computer nodes (Corda) to validate transactions while simultaneously ensuring that all legal, regulatory and business rules of governing nations are satisfied.

Then, there was the tokenization of the aforementioned fiat currencies and the Negotiable European Commercial Paper, a short-term maturity (one year or less) debt instrument denominated in euros. Finally, Project Jura looked into infrastructure networks that enable real‑time gross settlement of transactions, bond digitization and a digital assets registry.

Although the trial was successful, it does not guarantee the issuance of a wCBDC by Swiss, French or European Union authorities. The report concluded that “wCBDCs could be incorporated into novel settlement arrangements that could change the structure and functioning of capital markets, money markets and foreign exchange markets,” saying that:

“Broadening the use of central bank money through wider access or increased cross‑border settlement could catalyse these changes, as could deeper integration of currencies with other digital assets and securities.”

Updated: 12-9-2021

Eastern Caribbean CBDC Expands To Another Two Territories

Two more Eastern Caribbean nations have begun using the DCash system, which allows payments and transfers of the digital EC dollar CBDC.

The Eastern Caribbean Central Bank (ECCB) rolled out its digital payment system to the Commonwealth of Dominica and the British overseas territory of Montserrat on Tuesday, leaving Anguilla as the last of the eight countries planning to implement it.

The ECCB launched the “EC dollar” Central Bank Digital Currency (CBDC) in March 2021 in collaboration with DCash to Antigua and Barbuda, Grenada, Saint Christopher (St Kitts) and Nevis, and Saint Lucia. In August, it was expanded to Saint Vincent and the Grenadines.

DCash is a payment system designed specifically for use with the digital EC currency. The wallet app allows holders to make purchases and person-to-person transfers of the CBDC within the Eastern Caribbean Currency Union (ECCU).

The use of this digital payment system is part of an initiative led by ECCB Governor Timothy N.J. Antoine. He said on Tuesday that traditional payment systems are too slow and that the digital EC dollar “should work for all, except for illicit actors.”

“All these goals are aimed at boosting economic growth, but ultimately at propelling our agenda of socioeconomic transformation for the shared prosperity of the people of our Currency Union.”

The DCash wallet and CBDC payment system were in development for at least two years before their official launch in 2021. The pilot, titled DXCDCaribe, was rolled out in March 2019. It was the preliminary model for the DCash system. XCD is the international ticker for the EC Dollar, the fiat currency issued by the ECCB.

There are now nine countries using a CBDC across the world, according to atlanticcouncil.org. Seven nations are from the ECCU, along with The Bahamas and Nigeria. There are 21 other jurisdictions in the pilot or development phase and 40, including the USA, conducting research on the technology.

Only nine countries or jurisdictions are not exploring their options with a CBDC in some way, according to the site.

Kazakhstan To Decide Whether To Launch CBDC By Late 2022

One of the world’s biggest Bitcoin mining countries is still thinking about whether it needs a central bank digital currency.

Kazakhstan, one of the world’s largest countries in terms of Bitcoin mining hash power, is continuing to explore a potential central bank digital currency (CBDC).

The National Bank of Kazakhstan has completed a prototype of a digital tenge platform, governor Erbolat Dossayev announced, according to a report by local news agency Kazinform.

The central bank is now preparing to publish preliminary results of digital currency testing and a pilot CBDC project on Wednesday, Dossayev said. He noted that the pilot involved local financial companies and some international partners.

Despite actively moving forward with CBDC testing, Kazakhstan is yet to decide on whether to launch a digital representation of the national currency. According to Dossayev, the central bank expects to make such a decision in December 2022.

The National Bank of Kazakhstan has been increasingly paying attention to CBDC developments abroad, as multiple countries around the world develop their own digital currencies, the governor added.

Kazakhstan opened a public consultation on the potential CBDC in May 2021 after local authorities began considering a national digital currency the previous year.

Kazakhstan’s approach to launching a CBDC follows a similar plan by Russia, which is looking to roll out the first pilot tests for a digital ruble in early 2022.

Australian Reserve Bank’s ‘Project Atom’ CBDC Research Finds Numerous Benefits

Following Treasurer Josh Frydenberg’s “payments and crypto reform plan,” the RBA has published a report exploring DLT tech and wholesale CBDC issuance.

The Reserve Bank of Australia (RBA) published a report into its two-year research project into wholesale central bank digital currencies (CBDCs) that emphasized the benefits of digitizing and autonomizing manual, paper-based banking processes using distributed ledger technology (DLT).

The report marks the conclusion of the two-year project named “Project Atom,” conducted in partnership with the Commonwealth Bank of Australia, National Australia Bank, Perpetual and ConsenSys, along with additional input from King & Wood Mallesons.

Commenting on Project Atom, the RBA’s assistant governor (Financial System) Michele Bullock noted that it “demonstrated the potential for a wholesale CBDC and asset tokenization to improve efficiency, risk management and innovation in wholesale financial market transactions.”

A wholesale CBDC refers to a central bank-issued digital currency that is designed for the settlement of interbank transfers and transactions between financial institutions, as opposed to a retail CBDC intended for public use.

The CBDC research was published on Wednesday, the same day Treasurer and Deputy Liberal Leader Josh Frydenberg unveiled an ambitious “payments and crypto reform plan” for fintech and crypto regulation in Australia. The government has indicated it is in favor of at least six crypto reform proposals recommended by a Senate Committee, and is investigating others.

The project consisted of a proof-of-concept for the issuance of a “tokenized form of CBDC” that could be utilized in a digitized wholesale syndicated loan market. The testing took place on an Ethereum-based distributed ledger technology platform.

The report found that a wholesale CBDC backed by DLT technology could significantly increase efficiency and reduce operational risk by “replacing highly manual and paper-based processes related to the origination and servicing” of data, transactions, loan payments and settlements, to name a few.

Some issues that the RBA highlighted, however, concerned “transaction privacy, finality, throughput and efficiency” of CBDC and DLT usage, particularly in relation to blockchains that are not designed for wholesale purposes.

The proof-of-concept experimented with a two-tier model for the issuance and distribution of a CBDC, wherein the RBA issued the digital currency to the participating commercial banks, and then the banks opened up availability to “eligible wholesale market participants that they sponsor onto the platform.”

The RBA said that it has explored the concept of CBDCs since 2018 despite playing down their importance on multiple occasions, but has gradually ramped up its focus on a digital currency since 2020 amid growing interest from governments across the globe, citing China in particular as already having rolled out numerous public trials of the digital yuan.

Bullock outlined that the RBA “will continue its research on CBDCs as part of its strategic focus area on supporting the evolution of payments.”

Speaking with the Australian Financial Review on Dec. 8, Sophie Gilder, the CBA’s head of blockchain and digital assets, emphasized the “high-level benefits” of using a CBDC, noting that an interoperable register and payments system could provide greater transparency for payments, data and auditing:

“I think of it as ‘operational alpha’: greater efficiency and greater transparency, which means you don’t have to separately audit and report on activities, and you can have better AML [anti money laundering] procedures because you have a real-time check.”

“That would be beneficial for the economy and make it easier for regulators to do their job, while the programmability would be a giant leap forward and highly beneficial,” she added.

 

Updated: 12-10-2021

Russia Prioritizes CBDC Ruble As Overall Crypto Outlook Seems Positive

What is the future of cryptocurrencies in Russia, and can a digital ruble really be introduced in the coming years?

After the Chinese authorities introduced a complete ban on cryptocurrency transactions in September by equating them to illegal financial activity, local cryptocurrency miners either dropped off the radar or moved to other countries in order to continue with their business.

The United States subsequently became the leader in terms of Bitcoin (BTC) mining volumes with a share of 35.4%. Modest Kazakhstan is currently in second place (18.1%), and the bronze spot was secured by Russia (11.23%).

It’s not surprising because Russia has several advantages, meaning that conducting crypto business in the country is extremely lucrative for almost any miner. There is cheap electricity and, at least for now, friendly legislative regulation.

According to analysts in spring 2021, the price of electricity in Russia was $0.06 per kilowatt-hour for household use and $0.08 for business. To compare, in France, a kWh of electricity costs $0.2 for householders and $0.14 for business, which is four times more expensive than in Russia. Other estimates suggest that the difference in the cost of electricity when mining Bitcoin in Russia and Europe is actually closer to 7.5 times.

Many private crypto farms and mining companies have emerged in the country. Of course, as in the rest of the world, many Russian miners did not survive the “crypto winter” in 2018, when Bitcoin’s price dropped to almost $3,500, making crypto mining unprofitable. But COVID-19 has forced many to look for additional income and search for alternative ways to replenish their capital.

Favorable conditions for mining even contributed to the fact that state oil companies suggested crypto mining at their fields and using associated gas to generate electricity. By the way, Gazprom Neft, the largest gas supplier to European countries, launched a data center for mining at its facility in Siberia back in 2020.

Vitaliy Borshenko, co-founder of industrial mining operator BitCluster, is sure that even with high power consumption, mining in Russia will find support not only from private companies but also from the authorities:

“The Bitcoin mining industry is a unique purchaser of electricity. The uniqueness comes from the highly flexible nature of the sector in terms of payment method location indifference and electrical load distribution. Huge facilities are built in remote parts of the country, giving tax revenues to local budgets and jobs to local residents. And since there is no shortage in electricity, the authorities can only support this process.”

Is Crypto Legal In Russia?

Each state today regulates the crypto industry based on its own interests and in completely different ways. Some countries fully prohibit cryptocurrencies, while others have made steps to legalize them.

There are already rules and regulations governing the circulation of cryptocurrencies in the Russian market. But as is the case with many other countries, there are problems with regulating cryptocurrencies since the industry is very young and not all the regulators are familiar with it.

Like many countries, Russia followed the global trends, and in 2014, there were early signs of various proposals for bills to regulate the industry. The first distinct steps toward regulation began in 2018, and in 2019, the federal law “On Digital Rights” came into force, which provided the procedure and rules for using digital assets and tokens.

A full-fledged law “On Digital Financial Assets” also began to be discussed. Finally, in January 2021, the still very “crude” and unfinished piece of legislation came into effect. This was the first law that aimed to specifically regulate cryptocurrencies and mining, as well as introduce taxation, but it still didn’t recognize cryptocurrencies as a means of payment.

Russian banks and stock exchanges are able to conduct transactions of purchase, sale and exchange of assets if they are included in a special register of the central bank.

Nevertheless, the state doesn’t have a mechanism to track profits derived from cryptocurrencies. When applying this law to ordinary users, a person who wants to store Bitcoin and doesn’t tell anyone about it, they can safely do it thanks to the network’s anonymity. Deanonymization occurs when cryptocurrencies get exchanged for rubles, dollars or any other fiat currencies, making it possible for the state to intervene in these transactions and create obstacles.

In general, regulators in Russia cannot find a consensus, not only regarding the adoption of cryptocurrencies but how to even label and subsequently regulate them. Recently, the Russian Ministry of Economic Development proposed to understand mining as a business activity in accordance with the civil code. The proposal was supported by the Ministry of Finance, the Ministry of Energy and the lower house, the State Duma.

The Ministry of Energy specified that consumers must indicate the level of power consumption for business or for personal spending. The State Duma also proposed to increase the electricity tariff for miners since they do not pay any taxes.

But the Central Bank of Russia did not support this initiative and called mining a “monetary surrogate.” In September, the Central Bank suggested banks slow down payments of Russian users in crypto exchanges to combat “emotional purchases” of cryptocurrencies.

For Valeriy Petrov, vice president of the Russian Association of Cryptoeconomics, Artificial Intelligence and Blockchain, this suggests that the Central Bank is stalling to make a decisive regulatory move despite the desire from the local industry to work with the regulators:

“Regulation of mining is required only in two issues: recognition of its entrepreneurial activity and the legalization of the sale of earned crypto assets outside the Russian Federation in order to organize an inflow of foreign exchange funds into the country and determine the procedure for paying taxes to the state treasury. The crypto community has developed all the questions for a long time.”

A Digital Ruble

What if the Russian Central Bank does want to get involved in the young and uncontrolled financial sphere but only to become a monopolist and create its own cryptocurrency?

Back in 2020, the Central Bank announced that it was studying the possibility of a digital ruble. The new currency would potentially be used both online and offline and would be stored in a special wallet. The regulator emphasized that its digital currency will be an equivalent form of the national currency.

The digital ruble will become a project of a new payment infrastructure that will increase the availability and reduce the cost of payments and transfers for citizens and businesses. According to the Central Bank, in 10–30 years, the digital ruble should completely replace cash.

This summer, the bank clarified that the development of a prototype of the platform for the digital ruble is planned to be completed in December 2021. Testing of the currency is planned for January 2022, which will take place in several stages throughout the year. After this test, the regulator will define a plan for its implementation.

In addition to the usual means of payment, in the future, the digital ruble can be used to pay taxes, which can only be paid in a non-cash form in Russia.

Since the Central Bank hasn’t yet disclosed all the details about the digital ruble, some financial organizations such as the Association of Banks of Russia have raised questions and suspicions. The critics cite the security of transactions. It isn’t yet clear how the regulator will ensure the safety of data in the digital ruble system and protect it from unauthorized access and data leaks.

The Central Bank reports that settlements using the digital ruble will be reasonably safe and stable. In particular, through a hybrid of systems based on the principles of centralization and decentralization, data protection of the system must be ensured.

The regulator has outlined plans to introduce multi level protection against unauthorized transactions and appeals against disputed transactions. Perhaps, a digital citizen profile, biometric data and other tools will be used.

Security issues are not limited to questions about the digital ruble itself. Some see it as another instrument of monetary control over the population and business. The role of commercial banks in the digital ruble system is also questionable. With the growth of the circulation of the digital ruble, the volumes of their assets may decrease.

Due to the fact that they will become intermediaries in the system, the role of their own products may be diminished. This can lead to a general drop in the stability of banks, which could harm the economy.

Is Russia A Threat To Crypto?

It is too early to speak about the consequences of the introduction of the digital ruble. The entral Bank has not yet disclosed all plans for a new payments instrument and details on its implementation. But if the system is launched successfully, then it could seriously change the financial sector, weakening the role of banks and making control of settlements more stringent.

The regulator hopes that the launch of the digital ruble will become another impetus for the development of financial technologies in the country and will help to ensure additional stability of the economy.

However, some economists in Russia are afraid that the introduction of the digital ruble on the Russian market may turn into a ban on cryptocurrencies. The overall interest in cryptocurrencies is caused by a whole range of advantages that the technology brings, including the possibility of making cross-border payments.

The Russian government may be wary that the ban on cryptocurrencies could lead to an outflow of funds from the country and the departure of many miners and crypto activists to the black market. Borshenko believes that Russia will not prohibit cryptocurrencies when introducing the digital rouble:

“The authorities are currently showing a positive attitude. Vladimir Putin, in the middle of October, said that cryptocurrencies may exist as a means of payment.”

Updated: 12-16-2021

French Central Bank Completes First Stage of Its CBDC Experiments

The final stage of the first tranche of experiments consisted of the issuance of a digital bond on a blockchain with settlement in CBDC.

The Banque de France said it completed the first stage of its experiments into a wholesale central bank digital currency (CBDC) and plans to move on to the next phase, focusing on cross-border payments.

* France’s central bank has been exploring the use of a CBDC for the exchange of money between financial institutions since March 2020.

* The final stage of the first tranche of experiments consisted of the issuance of a digital bond on a blockchain with settlement in CBDC, which was conducted with numerous partners, including banking giant HSBC.

* “The experiment successfully tested an end-to-end transactional lifecycle of digital assets,” Banque de France said Thursday. “All transactions occurred across different blockchain environments operated by HSBC for the custody of the assets, and by the Banque de France for the securities settlement and the CBDC.”

* Central banks across the world are exploring the development of digital currencies, in part to address the decline in the use of cash just as interest in private cryptocurrencies is gathering steam. Exploration of wholesale CBDCs is, however, confined to a smaller group attempting to use a CBDC to address some of the inefficiencies and complications of exchanging central bank money between financial institutions.

* A wholesale CBDC is a digital currency issued for use by financial institutions to exchange central bank-issued money. It is different from a retail CBDC, which is intended for use by the public as a form of digital cash.

* The Banque de France is also exploring a retail CBDC as part of the European Central Bank’s broader work on the potential development of a digital euro.

Kazakhstan’s Central Bank Reports Results On CBDC Pilot Project

The National Bank of Kazakhstan said it plans to present some of the results of the CBDC study to stakeholders in July 2022 and reaching a decision on launching a digital tenge by December.

Kazakhstan, the country behind one of the largest sources of Bitcoin mining hash power, has released the results of a pilot program for its digital tenge.

According to a Wednesday report, the National Bank of Kazakhstan, or NBK, said it had confirmed the possibility of implementing a retail central bank digital currency, or CBDC, based on distributed ledger technology. In addition, the central bank tested how Kazakhstan’s citizens might use a digital tenge for offline payments as well as its programmability.

In a series of hypothetical scenarios, the central bank tested how a CBDC could be used between second-tier banks and other external participants. The tests also explored how a digital tenge would work for cross-border transactions under Kazakhstan’s regulatory framework.

The results of the report suggested expanding the CBDC pilot program to include market participants and infrastructure players for different scenarios, as well as proposing clarifying language to be used by the country’s regulators. In addition, the bank proposed launching a Digital Tenge Hub allowing market participants to assist in the development of a CBDC.

“The NBK of the Republic of Kazakhstan will ensure the development of a final model to decide on the introduction of the [digital tenge] and perform a presentation of interim results of the study and discussion with all stakeholders in July 2022,” said the report. “A decision on the need for the [digital tenge] introduction will be made in December 2022, taking into account the final results of a comprehensive study based on the developed model.”

Kazakhstan originally opened a public consultation on the possible rollout of a digital tenge in May, with the central bank saying at the time a CBDC would not be intended to replace cash or cashless payments. Since that time, many crypto miners fleeing a regulatory crackdown in China have set up shop in Kazakhstan, leading to reports of additional revenue as well as possible strains on the country’s power grid.

Updated: 12-20-2021

From eNaira To eHryvnia, A Caribbean Fintech Develops CBDCs Around The World

“We’re also excited that when working with central banks, we can do it in a way that is through regulation and compliance,” said Bitt CEO Brian Popelka.

Barbados, a paradise island in the West Indies, is known for its azure beaches, tidal waves, shipwrecks, homegrown grown Barbadian hospitality and, more recently, an influx of remote workers. Now, one can add cryptocurrency innovations to that list as well.

Bitt, a Barbadian fintech firm developing blockchain technology, has successfully created the eNaira central bank digital currency (CBDC) for Nigeria and is on the path to creating an electronic hryvnia for Ukraine.

In an exclusive interview with Cointelegraph, Brian Popelka, CEO of Bitt, discussed the technology behind the eNaira and the roadmap for the firm going forward.

Cointelegraph: Would you please describe the technology behind the eNaira digital currency that you created?

Brian Popelka: It’s really a stablecoin minted by the Central Bank of Nigeria. Unlike any of the typical cryptocurrencies or even a stablecoin, this […] is a digital version of the fiat currency within Nigeria. So, this is government money.

It can be transacted by a user who has downloaded a wallet through the various app stores and at participating merchants. The ecosystem that we’ve worked with the CBN, the Central Bank of Nigeria, to deploy our technology allows the central bank to have minting and all the rights around minting.

Then, they distribute the digital version of that coin to participating financial institutions. Afterwards, those financial institutions can transact with merchants and consumers using the eNaira. So, a little bit different than Bitcoin in that it is a fiat currency.

And while we certainly utilize smart contract technology, […] we’re built on a Hyperledger transaction network. So, it’s a closed loop within the Nigerian government.

CT: Why did the Nigerian government select you, a crypto firm that’s based in Barbados, out of all the fintech firms in the world to embark on this project?

BP: Certainly born in Barbados, we have an office out of the U.S., and we are very proud of our Caribbean roots. Because really, the idea for digital currency was hatched in a […] developing region, where the ability to move funds around digitally can have a significant impact in the Caribbean.

For example, 95% of all transactions are done physically through notes and coins — 95% of them. So, part of the mandate in the Caribbean, similar to Nigeria, was to […] sort of do fewer transactions, using notes and coins, which, of course, helps to eliminate some costs related to the printing and management of notes and coins.

But the Central Bank of Nigeria has been on this project for a long, long time. For several years, they have done a lot of work to educate themselves on the process. But the reality is that we’ve been six years in the business, we have a mature product already built, we didn’t have to build it to suit Nigeria — we already have a product built.

And we were already deployed in the Eastern Caribbean with the Eastern Caribbean Central Bank. We were one of several, and they cut it down to a dozen.

And one of the key reasons that they landed on us was, of course, we’d already had it out; [we] had the deployment, and they had a very tight timeline for being able to deploy this. So, we met about an eight-week timeline to be able to go live.

CT: Interesting. So, what are some new features you plan to deploy?

BP: The Central Bank of Nigeria has a long laundry list of feature sets they’re interested in providing. And we’re just there to help facilitate as the service provider. I think what you’ll see is a lot of stuff you would typically see in electronic transactions. So obviously, there’s the point of sale. Also, wallets that will be made available for people who don’t have bank accounts. Financial inclusion is a key issue that we would like to help solve. Remittances, interbank transfers and cross-border payments are ultimately part of the roadmap. Microlending or peer-to-peer lending, those types of financial instruments could always be added to the network in the future.

CT: Are there any other cryptocurrency projects you are currently working on?

BP: We are working on one in Eastern Europe [the digital hryvnia] that we’re pretty excited about. It’s a project that we’re working with the Stellar Foundation on. We are also in a private pilot with, there’s no public announcement, but we are working with the National Bank of Belize on a project. It’s not a CBDC, but it’s a stablecoin project. So yeah, there’s plenty of work, and then, you know, the entire market is picking up steam, so we’re seeing inquiries and RFPs coming from all corners of the world. We’re very excited about the opportunities that are revealing themselves right in front of us.

Updated: 12-21-2021

Secure America’s Financial Strength With Stablecoins, Not Central Banks

Stablecoins are already expanding the reach of the U.S. dollar, but if the government were to restrict stablecoins in favor of a CBDC, that trend could quickly reverse.

As they say, change is hard. In a dynamic digital world, it’s tempting to protect ourselves from the pressure of change by simply refusing to acknowledge it and clinging to the status quo. But while that approach may feel comfortable, it’s a poor way for policymakers to manage a national strategy.

Thankfully, there’s another way: embrace change and use it to our advantage.
Jake Chervinsky is head of policy at the Blockchain Association.

When it comes to stablecoins, a rapidly developing type of digital asset, Americans are at an inflection point. Many of us want to embrace stablecoins and use them to improve both the financial system and our competitive standing in the world.

Others – particularly those working for legacy institutions – want to stop stablecoin innovation in favor of a central bank digital currency (CBDC) built and controlled by the federal government.

It’s imperative that we support stablecoins and reject a CBDC. Here’s why.

Stablecoins, like other digital assets, run on decentralized public blockchains, meaning anyone can use them without having to rely on a middleman or trusted third party.

Unlike other digital assets, stablecoins are designed not to fluctuate in value, instead seeking to track the value of a fiat currency like the US dollar. This means stablecoins aren’t subject to market volatility; they work as a digital version of cash.

CBDCs are similar to stablecoins in tracking the value of a fiat currency, but the similarities more or less end there. Rather than running on permissionless public blockchains, CBDCs are managed by a single central authority with the power to surveil, censor and exclude users.

And rather than being developed openly by the private sector, CBDCs are the proprietary creations of government entities.

At last count, more than 80% of central banks were weighing their own form of digital currency, and some had already launched pilot projects.

One of the most notable examples is China, which recently cracked down on bitcoin and other digital assets in favor of its CBDC, the digital yuan. Already, roughly 140 million people have opened wallets for the digital yuan.

Some policymakers in Washington are considering whether we should copy China’s example and launch our own competing CBDC. While it’s critical for us to maintain our competitive edge in the digital era, a CBDC is the exact wrong way to achieve that goal.

First, to strengthen the dollar’s dominance as the global reserve currency, our main priority should be to spread dollars far and wide – to make them available to anyone and everyone around the world.

For generations, central banks and financial institutions have held dollars more than any other currency. Yet, in 2020, that number dwindled, falling below 60% for the first time in over 20 years.

This drop led famed investor Stan Druckenmiller to warn that he believes the dollar could lose its global reserve status within 15 years.

Stablecoins, on the other hand, are booming. The total supply of stablecoins in circulation grew from under $6 billion at the start of 2020 to nearly $140 billion today. Stablecoins are already expanding the reach of the U.S. dollar, but if the government were to restrict stablecoins in favor of a CBDC, that trend could quickly reverse.

If our priority is to spread dollars to every corner of the planet, the best way to succeed is to support the proliferation of stablecoins developed by the next generation of innovative American companies.

Second, we should seek to maximize the contribution of our vibrant and experienced private sector, rather than sidelining it in favor of a centrally-planned government project. While other nations like China might give their central governments total control over emerging industries and technologies, that is decidedly not the American way.

We owe much of our geopolitical strength – and the robustness of our financial markets – to our economic principles of free and open markets, in which our entrepreneurs and companies compete to develop the best products and services possible.

That’s exactly what we’re seeing in the stablecoin market now, with the vast majority of leading stablecoin projects home-grown here in the U.S.. This is what our private sector does best.

As Federal Reserve Governor Randal Quarles explained, “A global U.S. dollar stablecoin network could encourage the use of the dollar by making cross-border payments faster and cheaper, and it potentially could be deployed much faster and with fewer downsides than a CBDC.”

Rather than stifling private sector innovation, the government should set common-sense rules of the road that enable innovators to build a responsible, efficient system.

Third, a financial system subject to total control by the government would jeopardize Americans’ fundamental rights to financial freedom and privacy.

These issues have come to the forefront in recent years, as the combination of cybersecurity breaches and surveillance capitalism have revealed a dire need for data privacy protection.

The last thing we need now is put all of our financial transactions in a centralized database maintained by the government, particularly after the SolarWinds hack showed that even government-held data may not be secure.

This isn’t just a minor concern; it’s an issue of constitutional import. Except in limited cases, the Fourth Amendment to the U.S. Constitution requires the government to obtain a warrant before it can search a person’s records.

The fundamental right to privacy is a prized American civil liberty and an essential feature of a functioning free society.

It’s what separates a nation like the U.S., which respects its citizens’ autonomy and dignity, from one like China, which has exploited technology to create a dystopian surveillance state.

Not everyone sees it this way. For some policymakers, stablecoins – like other digital assets – represent a threat to what they perceive as their rightful hegemony over the financial system.

For example, SEC Chair Gary Gensler recently said that “the use of stablecoins . . . may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system.” In this instance, Chair Gensler has it backwards: The best way to achieve our public policy goals is to support stablecoins, not slow them down.

We’re at the beginning of a revolutionary change to the global financial system thanks to the rise of digital assets running on public blockchains. Although it may not feel comfortable, the best way for us to safeguard America’s financial future is to embrace this new technology and put it to work on our behalf.

Stopping stablecoin innovation to make way for a CBDC would not only contradict our principles. It would harm American consumers, companies and competitiveness.

Binance CEO Warns Against Isolating CBDCs From Broader Crypto Ecosystem

Changpeng Zhao described CBDCs as an “additional option” and warned central banks against their “walled-garden” approach.

Changpeng Zhao, the CEO of cryptocurrency exchange Binance, believes the contribution of central banks digital currencies (CBDC) will be broadly positive to the crypto world, but warns issuers against isolating them from the broader ecosystem.

* CBDCs are an “additional option,” which is usually better than not having one, Zhao said in a blog post on Tuesday.

* “However, as governments and regulators look to create their own CBDCs, I caution them against their very walled-garden nature,” he wrote.

* The CEO expects CBDCs to require consumers to ask for permission to use them for certain things, such as investing in projects in different countries. A lengthy approval process to obtain permission would mean it takes longer for CBDCs to be integrated into exchanges, hindering their interoperability with other crypto.

* He pointed to the possible role of CBDCs in increasing digital currency adoption by merchants and the potential educational tool they could prove for the masses: “You can’t learn about blockchain without learning about bitcoin. And when you learn about bitcoin, you learn about the valuable fundamental properties of money – scarcity, freedom to transact and low fees,” Zhao wrote.

* Although central banks across the world are exploring the development of CBDCs, the crypto industry has not completely gotten on board with CBDCs. This is in part due to CBDCs being at odds with the ethos of other digital currencies, which are outside the purview of mainstream finance.

Updated: 12-23-2021

Banks’ Swift Messaging System To Experiment With Tokenized Assets In Early 2022

The interbank messaging network’s experiments will use central bank digital currencies as well as established forms of payment.

Global interbank messaging network Swift plans to explore how it can support interoperability in the tokenized asset market.

* Swift is planning a series of experiments in the first quarter around improving the exchange of information between the participants and systems that interact during the lifecycle of tokenized assets, according to a Tuesday announcement.

* The experiments will use central bank digital currencies (CBDCs) as well as established forms of payment.

* The organization, which links more than 11,000 institutions, aims to support the issuance, delivery-versus-payment and redemption processes, demonstrating how it could support “a frictionless and seamless tokenized digital asset market.”

* Following the example of the crypto world, banks and securities firms are offering services whereby fractions of assets are sold as digital tokens to allow for greater liquidity and accessibility.

* Swift is a global messaging network connecting banks and other financial institutions for cross-border payments. There have been suggestions its usefulness could decline because of the growth in use of digital currency – be it crypto, stablecoins or CBDCs.

Updated: 12-24-2021

Thai Central Bank To Delay CBDC Test Till Late 2022

The bank will look at CBDC as a cash substitute.

The Bank of Thailand will delay its test of a central bank digital currency (CBDC) from the second quarter to late next year, Reuters reported Friday.

* The retail CBDC will be tested as an alternative payment method for “cash-like activities within a limited scale,” Vachira Arromdee, an assistant governor at the bank, said in August.

* Thailand will be slow and prudent in testing the digital currency “as it does have a problem with fund transfers or payments as some other countries,” Bank of Thailand director Kasidit Tansanguan said, according to Reuters.

* The bank will test deposits, withdrawals and transfers, and the pilot program will include about 10,000 users, Reuters reported.

Updated: 12-28-2021

India’s Central Bank Recommends Basic Version of CBDC

The bank calls the currency a “convenient alternative” to cash.

As India grapples with uncertainty around cryptocurrency regulation, the Reserve Bank of India (RBI), the country’s central bank, said it is inclined to offer a basic central bank digital currency (CBDC) initially before implementing a more sophisticated version.

A report titled “Trend and Progress of Banking in India 2020-21″ released on Tuesday elaborates on the thinking of the RBI on a CBDC.

In a major step away from the RBI’s stance in the past toward anything cryptocurrency-related, the report says, “In its basic form, a central bank digital currency (CBDC), provides a safe, robust and convenient alternative to physical cash. In comparison with existing forms of money, it can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement.”

The RBI is charting ways to implement a CBDC in phases and its initial recommendation is to ”adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system.”

While the bank said it is concerned about the “dynamic impact” of a CBDC “on macroeconomic policy making,” the report points to “India’s progress in payment systems” and how that “will provide a useful backbone to make a state-of-the art CBDC available to its citizens and financial institutions.”

The report raises questions about several aspects of CBDCs including “design elements” that “need to be navigated before” a CBDC is introduced. The design elements include exploring the rollout and navigating “whether the CBDC would be general purpose and available for retail use (CBDC-R), or would it be for wholesale use (CBDC-W)?”

T Rabi Shankar, the RBI’s deputy governor, has stated that “two types of CBDC are in the works,” wholesale and retail, and that “a lot of work has been done” on the wholesale CBDC but that “the retail-based CBDC approval is more complicated and it will take some more time.”

He also said that “the moment it is ready, whichever is ready first, we will release it for pilot testing.”

In the past, the RBI has sought a total ban on cryptocurrencies, arguing that a partial ban wouldn’t work. In April 2018, the RBI notified banks not to support or engage in crypto transactions, effectively banning crypto trade in India, until the Supreme Court overturned the ban two years later.

The Indian government’s current bill to regulate cryptocurrencies, a draft of which has not been made public, has also reportedly evolved from prohibiting “all private cryptocurrencies” while allowing “for certain exceptions to promote the underlying technology,” to enabling cryptocurrency to be used as an asset, but banning its use as currency or payment.

CoinDesk has reported that India’s draft cryptocurrency bill probably won’t become law until after next year’s Budget Session ends in April, adding to uncertainty about the state of crypto regulation in the nation.

Updated: 12-30-2021

Mexico Confirms Plans To Roll Out CBDCs In 2024

New technologies and a next-generation payment infrastructure would help Mexico become more financially inclusive.

Mexico has announced that it would introduce a new national central bank digital currency (CBDC) in 2024, according to a tweet posted on Thursday. The tweet by an account representing the Mexican presidency highlighted that “new technologies and next-generation payment infrastructure” will help Mexico become more financially inclusive.

The plans for a CBDC follow the recent statement by Mexico’s President Andrés Manuel López Obrador that Mexico is unlikely to follow El Salvador’s footsteps and use cryptocurrencies like Bitcoin (BTC) as legal currency.

At least two lawmakers in Mexico have suggested that the country embrace digital assets to spearhead the “shift to crypto and fintech.” Ricardo Salinas Pliego, a billionaire and one of Mexico’s wealthiest men, has also stated that Banco Azteca would consider accepting cryptocurrencies.

In a two-minute festive video, the billionaire recently called on his 957,200 Twitter followers to leave fiat money behind and invest in BTC, asking them to retweet and share the message.

Although numerous people in the public and business sectors advocate the use of crypto, authorities in the nation stated in 2020 that cartels were using digital currencies to launder money.

With the growing popularity of cryptocurrencies, it should come as no surprise that governments worldwide, including Mexico, are considering establishing a CBDC. As reported by Cointelegraph, the Central Bank of Indonesia thinks that digital versions of national currencies could be a valuable weapon to combat the growing adoption of cryptocurrencies.

* Mexican Government Discusses Banxico’s Plans On Twitter
* Measure Is Seen As An Alternative To Cryptocurrencies

Mexico’s central bank will have its own digital currency in circulation by 2024 as part of efforts to boost financial inclusion.

“These new technologies and next-generation payment infrastructure are extremely important,” the federal government posted late Wednesday on its Twitter account, confirming the bank’s plan.

Central banks around the world are developing similar alternatives to cryptocurrencies such as Bitcoin. In Mexico, financial regulation blocks banks from dealing with them. Outgoing Banco de Mexico Governor Alejandro Diaz de Leon said in a Dec. 21 interview that policy makers were looking at a digital currency issued by the central bank.

Banxico, as the central bank is known, laid out a plan to create a digital currency platform based on aspects of its SPEI interbank payment system in a report it published Dec. 17 on its website, but the report doesn’t establish a firm launch date. The plan would create the currency that could be used by people without bank accounts, the report said.

 

Updated: 1-3-2022

Bank of Jamaica Completes First CBDC Pilot

The Bank of Jamaica initially partnered with the Irish cryptography firm eCurrency Mint for its CBDC project in March 2021.

he Bank of Jamaica (BoJ) has successfully completed its f central bank digital currency (CBDC), targeting a national rollout in the first quarter of 2022.

After proceeding with initial CBDC prototype testing in March 2021, Jamaica’s central bank finished an eight-month-long pilot last Friday, the Jamaica Information Service reported.

As part of the pilot, the BoJ minted 230 million Jamaican dollars (JMD) ($1.5 million) worth of the CBDC for issuance to deposit-taking institutions and authorized payment service providers on Aug. 9, 2021.

The central bank then issued 1 million JMD ($6,500) worth of digital currency to the staff at BoJ’s banking department. On Oct. 29, the bank also issued 5 million JMD ($32,000) worth of CBDC to the National Commercial Bank (NCB), one of the ​​largest financial institutions in Jamaica.

According to the report, the NCB was the first wallet provider in Jamaica’s CBDC pilot, onboarding 57 customers, including four small merchants and 53 consumers. Customers were able to conduct person-to-person, cash-in and cash-out transactions at an NCB-sponsored event in December 2021.

The BoJ now plans to proceed with a nationwide rollout in Q1 2022, expecting to add two new wallet providers. These providers have already been conducting virtual simulation testing and will be able to order CBDC from BoJ and then distribute it to their customers.

The central bank also plans to focus on interoperability by testing transactions between customers of different wallet providers, the report notes.

As previously reported, the central bank of Jamaica selected the Irish cryptography security firm eCurrency Mint as the technology provider for its digital currency project in March 2021.

The firm is known for being involved in the CBDC development in countries such as Senegal. The BoJ previously invited technology providers to submit applications for its CBDC project in July 2020.

 

Updated: 1-4-2022

China’s Central Bank Releases Pilot Version Of Digital Yuan Wallet

The “e-CNY (Pilot Version)” app was made available for download in the Chinese Android and Apple app stores on Tuesday.

As China’s central bank steps up its effort to create a digital currency, the country has released a pilot edition of its digital yuan wallet application on mobile phone app stores.

The People’s Bank of China (PBoC) digital currency research institute developed the “e-CNY (Pilot Version)” app, which was available for download on Chinese Android and Apple app stores on Tuesday in Shanghai.

According to a tweet from BlockBeats, a local news source, individual users in China now can download an earlier version of the app to test opening and managing a personal wallet, as well as digital yuan transactions.

However, according to a report from Reuters, the app claims it is in an experimental research and development phase and is only accessible to select individuals through authorized e-CNY service providers.

In late fall 2021, PBoC Governor Yi Gang stated that the country would continue to develop its central bank digital currency (CBDC) and improve design and usage, including enhancing interoperability with current payment systems.

The PBoC announced in a year-end meeting that it would continue to push for the further development of the digital yuan.

China has taken a significant lead in developing a CBDC for public use, outstripping the majority of countries, which are still in the research stages of a CBDC. The People’s Bank of China said the digital currency could be used during the Beijing Winter Olympics in 2022.

However, senators from the United States have expressed concern over this claim, stating that American athletes should not utilize the currency at an event hosted in China.

The U.S. Federal Reserve, meanwhile, is still contemplating whether or not to introduce a CBDC for the United States. As reported by Cointelegraph in September, the United States’ central bank stated that it was studying the benefits of creating a digital dollar and would eventually present a paper on the subject.

 

Updated: 1-6-2022

Major Payments App Wechat To Add Support For China’s Digital Yuan

While WeChat isn’t as popular outside of China as WhatsApp, it is ubiquitous on the mainland.

WeChat, China’s largest messaging app and one of the country’s most popular payment services, will start supporting the Chinese government’s digital currency.

On Wednesday, Tencent announced that it will begin accepting digital yuan payments via its proprietary mobile wallet WeChat Pay, according to a local news report. China has been developing a digital yuan since 2014, and it has yet to be implemented nationwide.

If people start paying for goods and services with WeChat, which has more than 1 billion users, it will give it a significant boost.

WeChat’s enormous user base and innumerable wrapped services have earned it the moniker of a “mega-app.” Users can use WeChat Pay to chat, pay bills, and order food or transportation. There are over 800 million monthly active users on WeChat Pay.

Linghao Bao, an analyst at consultancy firm Trivium China, told CNBC, “Chinese consumers are so locked in WeChat Pay and Alipay, it’s not realistic to convince them to switch to a new mobile payment app. So it makes sense for the central bank to team up with WeChat Pay and Alipay as opposed to doing it on its own.”

So far, the People’s Bank of China (PBoC) has conducted limited tests of the digital yuan in several cities involving small quantities of the currency in commercial and consumer environments.

Despite the fact that there is no timetable for a nationwide rollout, there are indications that the PBoC is interested in expanding usage of the digital currency.

China has established a significant lead in developing a central bank digital currency for public use, exceeding the majority of countries that are still in their respective research phases. Earlier this week, the country’s central bank released a pilot version of a digital yuan wallet app on the Chinese iOS and Android stores.

Updated: 1-7-2022

BIS Names CBDC Expert As Head of Euro Region Innovation Center

Raphael Auer is now an economist in the organization’s innovation and digital economy unit.

The Bank for International Settlements, the umbrella group for central banks, named Raphael Auer, an expert in central bank digital currencies (CBDCs), as the head of its innovation center for the euro region.

  • Auer is now an economist in the innovation and the digital economy unit of the BIS’ Monetary and Economic Department, the Basel, Switzerland-based organization said in a statement Friday.
  • He will start his new role in February. The BIS Innovation Hub Eurosystem Center is scheduled to open in the first half of the year and will join existing hubs in locations such as Hong Kong, London and Switzerland. The hub system was established in 2019 to foster collaboration among central banks on developments in financial technology.
  • Auer has published many papers on CBDS, stablecoins and cryptocurrencies.

Updated: 1-8-2022

India’s Central Bank Creates Fintech Department As Challenges Posed by Crypto, CBDC Grow

According to an internal document viewed by CoinDesk, the upgrading of the unit into its own department is aimed at promoting innovation in the sector.

India’s central bank has created a dedicated department for fintech challenges, which includes a pair at their doorstep: framing cryptocurrency regulations and a central bank digital currency (CBDC).

The move by the Reserve Bank of India (RBI) comes a fortnight after CoinDesk had reported about India’s framing of crypto regulations saying that “while the RBI is adequately staffed with specific departments to discharge these tasks, it still does not have a fintech department, just a division, leaving questions about efficiency and long-term commitment unanswered.”

The RBI is working on two types of CBDCs, wholesale and retail, and the new department will now be tasked with overseeing their development. Meanwhile, India’s parliament is set to consider regulations of cryptocurrencies. The RBI has unsuccessfully tried to “prohibit” banks from dealing with crypto exchanges in the past.

The new department will be overseen by Ajay Kumar Choudhary who was appointed by the RBI as executive director, saying he “will look after Fintech Department, Risk Monitoring Department and Inspection Department.”

“You can expect much more action from Mr. Ajay Kumar Choudhary towards the Central Bank Digital Currency. This may signify a shift from the RBI’s stance towards fast-tracking CBDC piloting,” said a source with knowledge of the matter.

The move is a long-in-coming recognition by the RBI to allocate resources and dedicated focus to the fintech sector. Experts had long complained that India’s institutions did not have an adequately equipped and dedicated team focused on fintech challenges such as the burgeoning crypto-sphere in India.

“It’s a positive signal of intent to build real regulatory capacity to oversee the fast-paced fintech industry,” said Vivan Sharan, a technology and policy expert who has worked with the government in the past.

“It is also a reflection of the central bank’s desire to deepen digital payments through a focus on innovation, and a recognition of the growing importance of various forms of digital money that will require supervisory bandwidth,” Sharan said.

In June 2018, the RBI had formed a FinTech Unit in the Department of Regulation for acting as a central point of contact in the bank for all activities related to fintech.

According to an internal administrative circular viewed by CoinDesk, the upgrading of that unit into its own department is aimed at promoting innovation in the sector, identifying the challenges and opportunities associated with it and addressing them in a timely manner, and providing a framework for further research on the subject that can aid policy interventions by the bank.

“All matters related to the facilitation of constructive innovations and incubations in the fintech sector, which may have wider implications for the financial sector/markets and falling under the purview of the Bank, will be dealt with by the FinTech Department,” said the document.

 

Updated: 1-10-2022

CBDC Wallet Tops Mobile App Store Charts In China

The pilot version of China’s official digital yuan wallet app has become the most downloaded app in local mobile app stores.

The official digital yuan wallet app that was released as a pilot version to be used in select cities has still managed to top app store charts in its first week.

Developed by the Digital Currency Research Institute of the People’s Bank of China (PBoC), the app became available for download on Chinese Android and Apple app stores last Tuesday.

The app is still in an experimental phase and is only accessible to select individuals through authorized e-CNY service providers. While anyone in China could download the app, its usage is limited to select cities.

Despite these limitations, the South China Morning Post reported that e-CNY managed to become the most downloaded app on Apple’s App Store one day after its launch, surpassing Tencent’s super app WeChat. It was dethroned by video-sharing app Kuaishou on Saturday.

The app enjoyed similar success in Xiaomi’s mobile app store, a popular platform for Chinese Android users. It topped the list within a day before falling to the second spot on Monday, according to market researcher Qimai. The app ranked 43rd on Huawei’s mobile store on Monday, jumping 10 spots in a day.

After years of development, China started digital yuan pilots in April 2020 and has since become a pioneer in central bank digital currency (CBDC) development, to the point where the country plans to enable CBDC payments at the 2022 Winter Olympic Games in Beijing, scheduled for next month.

The digital yuan even became a topic of debate for several United States senators, who have signed a letter urging Olympic officials to forbid American athletes from using the digital yuan during the event.

Central Bank Of Bahrain Trials JPMorgan’s Blockchain And Token

Bahrain’s central bank initially announced its JPM Coin trial in May 2021.

Bahrain is the latest nation to explore blockchain technology by American investment bank JPMorgan, with the country’s central bank trialing JPMorgan’s proprietary digital currency.

The Central Bank of Bahrain (CBB) has successfully completed a digital payments test in collaboration with JPMorgan’s blockchain and cryptocurrency unit Onyx, according to an official announcement published on Thursday.

The trial involved two other major institutions, Manama-based international bank Bank ABC and Bahrain national aluminum smelter Aluminium Bahrain, also known as Alba. The test enabled Bank ABC to settle real-time payments to Alba’s counterparts in the United States using JPM Coin, a blockchain-based payments system and stablecoin pegged to the United States dollar.

According to the announcement, the CBB was responsible for supervising the trial.

CBB governor Rasheed Al Maraj said that the trial has been crucial for the government of Bahrain to address and potentially eliminate existing inefficiencies in the traditional cross-border payments industry.

“We are pleased to announce the success of this test, which is in line with our vision and strategy to develop and enrich the capabilities provided to stakeholders in the financial services sector in the Kingdom using emerging and pioneering technologies,” Al Maraj said.

The CBB previously disclosed plans to test out JPM Coin in May 2021, stating that the trial could potentially extend to its central bank digital currency development.

Originally announced in 2019, JPM Coin was commercially launched in October 2020.

The investment bank has been actively promoting its blockchain tech for global use, partnering with Singapore’s largest bank, DBS, to pilot a blockchain payments system. JPMorgan previously provided its Liink blockchain technology to the State Bank of India to reduce transaction costs and improve cross-border payments.

Updated: 1-12-2022

Why 2022 Should Be the Year Of The Govcoin

We need a third way between fiat currencies and dangerous cryptocurrencies, argues a leading U.K. entrepreneur.

In true form, Western governments have suffered from decision paralysis in relation to cryptocurrencies. Meaningful regulation of the cryptocurrency market remains a pipe dream whilst average investors continue to suffer at the hands of the crypto Wild West.

It’s time for our leaders to do what they were elected to do: lead. The market cap of the cryptocurrency market is not in the billions, it’s in the trillions, soaring above $3 trillion in the bull run last year. The crypto genie cannot be put back into the bottle, people clearly want digital finance that is fit for the digital age.

That’s why it’s time for government-backed digital currencies to reign supreme. The days of endless money printing must end; governments must finally deliver a currency that their populations can use and trust.

I can empathize with the crypto vision. Simple mathematics will tell you that fiat currency is flawed; artificially creating money with reckless abandon will inevitably devalue the currency. As currency became untethered from the real value of gold, I understand why many feel that fiat is only worth the paper it is printed on.

Satoshi Nakamoto’s white paper is a logical conclusion of widespread disillusionment with the financial status quo. After all, currencies are the building blocks of our economy; they should not be subject to the whims of a handful of the government’s fiscal fiddlers.

Yet we can’t have a clean break with the past financial system without a robust alternative to fill the void; bitcoin is not it. Any bitcoin believer will tell you that its scarcity, like gold, makes it an inherently deflationary store of value.

Yet bitcoin, and the host of cryptocurrencies biting at its heels, are leaving a trail of destruction in their wake. In a dot-com era style gold rush, many civilians are seeing their life savings being wiped out overnight. The wild lack of regulation is an obvious open door for scammers like Ruja Ignatova of the infamous OneCoin to rush through.

When approximately 1,000 people own a 40% share of all bitcoin, average retail investors are merely krill to the “pump and dump” schemes of a handful of bitcoin whales. When Elon Musk moves entire markets with single tweets, it becomes clear that the cryptocurrency market in its current form is a dangerous beast that Western governments have no idea how to contain.

Cryptocurrency opportunists exploit a stunning lack of governance. The American regulatory framework has been trying to understand and regulate cryptocurrencies for years, with nothing to show for it.

Legislation of cryptocurrency remains blocked in Congress, whilst many industry leaders have predictably described the most prominent proposal to date, the STABLE Act, as a disaster.

The U.K., where I’m from, isn’t doing much better. The Bank of England’s backed “Britcoin” is only set to launch in 2025, a lifetime away in crypto years.

The government has issued piecemeal regulations on exchanges, while our regulator, the Financial Conduct Authority (FCA), continues to issue confusing and often contradictory “warnings” on the volatility of the crypto market. In the U.K., cryptocurrencies remain largely unregulated financial instruments to this day.

Western governments need to stop sitting on the fence. They need to choose a path and stick to it. While crypto innovators continue to baffle government employees in endless hearings, our populations remain prey to the wild crypto volatility.

This decision-making vacuum has not been echoed everywhere. In true form, China flexed its top-down force and exerted a muscular crackdown on bitcoin, and issued their own digital yuan to run in parallel. On the other end of the spectrum, El Salvador adopted bitcoin as legal tender.

Regardless of the strength of these two opposing positions, what they have in common is decisive leadership; that is precisely what both the U.S. and the U.K. are missing.

I don’t suggest we follow either the Chinese or Salvadoran route. Rather, the Bank of England and U.S. Federal Reserve should marry the benefits of the cryptocurrency revolution with the strength, trust and security of the central banks.

That’s why they should issue their own, blockchain-based digital currency that has its own, fixed quantity. Such a digital currency, if instigated correctly, should relegate the irresponsible practice of money printing to the history books.

We might ask whether governments or central banks are best placed to create their own cryptocurrency. Yet we must remember, they are not being asked to re-invent the wheel. There are more than 8,000 cryptocurrencies, most of which are open source. This should serve as an exhaustive recipe book for any government coder.

Of course, government-issued digital currencies will never win over the crypto diehards. However for those who simply want to transfer fees instantly across borders, a government-backed digital currency is long overdue.

Dither and delay won’t cut it anymore. It’s time for our governments to accept that people want the benefits of digital finance, without the volatility and financial risk that is built into bitcoin and its contemporaries.

Our governments need to take their heads out of the sand and step into the 21st century. That means offering their citizens a third way between archaic fiat currencies and dangerous cryptocurrencies. That’s why 2022 should be the year of government-backed digital currencies.

Digital Currency Race Prompts Trials, Scrutiny by Bank of Israel

* Policy Makers Expand Research On Central Bank Digital Currency
* Regulators Worldwide Confront A Future Without Physical Cash

The Bank of Israel, already used to testing the limits of monetary policy, is eager not to fall behind in crossing a new frontier for central banks.

Policy makers in Jerusalem are expanding their research into central bank digital currencies, or CBDCs, and sounding out stakeholders about risks and benefits, according to Yoav Soffer, head of the bank’s digital shekel project. But its roll-out still remains hypothetical given questions that range from the token’s cost to the impact on the banking system, Soffer said.

After running experiments using Ethereum, the central bank is planning further technical studies in the year ahead to assess the viability of different types of digital money, Soffer said in an interview.

“Right now, we are increasing the resources devoted to the digital shekel project, both in terms of finances and people,” he said. “A digital shekel has great potential to increase competition and innovation within the payment industry.”

Analysts at Bank of America Corp. have argued that central banks will inevitably launch their digital coins to ward off the risk of losing monetary control in a world of decentralized cryptocurrencies and the potential for a widely adopted digital dollar.

In fits and starts, Israel is coming around to explore the idea of a CBDC after shelving its initial effort in 2018, when a team set up by the central bank recommended against issuing a digital version of the shekel.

Although the central banks of the world’s biggest economies are actively exploring the prospect of digital tokens that could eventually replace physical tender, it’s the small island nations in the Caribbean and Western Atlantic that have taken the lead.

The Bahamas launched one of the world’s first central bank digital ­currencies in 2020 -– just weeks ahead of the Eastern Caribbean Central Bank. Nigeria followed last year, and the People’s Bank of China could soon become the first major central bank to issue a digital version of its currency. The U.S. Federal Reserve plans to publish a report on digital currencies in the coming weeks.

Risks Ahead?

A token like the digital shekel could “reduce the risk to financial stability and monetary sovereignty” if the public adopts private coins or digital currencies issued by other central banks, according to a May 2021 report by the Bank of Israel.

In Israel, whose shekel staged one of the world’s biggest rallies against the dollar last year, the central bank has been intervening heavily in the foreign-currency market to hold back the exchange rate.

The bank restarted research on its own digital currency in late 2020, led by Soffer, who works for Deputy Governor Andrew Abir. The program will also be looking at the impact that a digital shekel might have on the Israeli economy, payments systems, the banks, and the credit markets.

Israeli policy makers have spoken with a wide range of stakeholders over the last year, including tech companies at home and abroad as well as other central banks, according to Soffer.

While the majority of the responses have been “very favorable,” some concerns were raised about the bank’s proposal that a future CBDC could be completely or nearly fee-less.

“Many, many private sector institutions are interested to contribute to our work,” he said. “We need to take our steps and see what we need, and when.”

House of Lords Committee Sees ‘No Convincing Case’ For UK CBDC

“While a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy,” the committee said.

There is “no convincing case” for the U.K. to have a central bank digital currency (CBDC), a House of Lords committee has concluded.

The Economic Affairs Committee of the U.K.’s upper house set up the enquiry in September to explore how a CBDC might affect the role of the Bank of England, monetary policy and the financial sector.

The report published Thursday found that “while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy.”

The Bank of England, in common with central banks of almost every other major economy across the world, is exploring a potential CBDC as a means of addressing the decline in the use of cash, expediting the implementation of monetary policy and future-proofing fiat currencies from the rise in use of privately issued digital currencies.

It is set to begin a consultation alongside the Treasury later this year to explore design features, benefits and implications for users.

The House of Lords committee said it would be “inevitable” that consumers would transfer money from their bank accounts into CBDC wallets. Therefore safeguards would be required on the amount of CBDC individuals could hold to avoid financial instability being exacerbated during turbulent economic times by people replacing bank deposits with digital banknotes.

The Bank of England would also risk being drawn into “controversial debates on privacy” were it to add design features to the CBDC to counter its use for criminal activity.

“While there are design options that would provide some privacy safeguards, technical specifications alone may be insufficient to counter public concern over the risk of state surveillance,” according to the committee.

The potential benefits of a CBDC are “overstated or achievable through less risky alternatives,” Lord Forsyth of Drumlean, chair of the committee, said.

The Bank of England established two forums last year to discuss some of the issues with representatives from companies such as Paypal, Spotify, Mastercard and Visa among the members.

Should the bank proceed with the development of a digital pound, it has said the earliest that one could be rolled out is the second half of the decade.

US Lawmaker Proposes Bill Aimed At Limiting Fed’s Ability To Issue CBDC

Having the Fed require users to open accounts to access the benefits of a digital dollar would put it “on an insidious path akin to China’s digital authoritarianism,” according to Tom Emmer.

Minnesota Representative Tom Emmer has announced he will be introducing a bill intended to prevent the Federal Reserve from acting as a retail bank in the potential issuance of a digital dollar.

In a Wednesday announcement, Emmer said the bill would prohibit the Fed from issuing a central bank digital currency, or CBDC, directly to U.S. consumers. According to the Minnesota representative, having the government entity require users to open accounts to access the benefits of a digital dollar would “put the Fed on an insidious path akin to China’s digital authoritarianism.”

“The Fed does not, and should not, have the authority to offer retail bank accounts,” said Emmer. “Regardless, any CBDC implemented by the Fed must be open, permissionless and private. This means that any digital dollar must be accessible to all, transact on a blockchain that is transparent to all, and maintain the privacy elements of cash.”

 

In addition to claims of potential financial surveillance, the U.S. lawmaker criticized a CBDC rollout from the Fed as being too centralized, leaving users’ personal information vulnerable to attack. According to Emmer, a digital dollar should be aimed at protecting financial privacy, maintaining the dominance of the country’s fiat currency, and encourage innovation.

The introduction of the bill came just one day after Jerome Powell said the Fed would be releasing its report on CBDCs in the coming weeks after several delays. In a confirmation hearing before the Senate Banking Committee, the Fed chair also answered in the affirmative when Senator Pat Toomey questioned the Federal Reserve’s ability to act as a retail bank.

“Some have advocated, as you know, that a central bank digital dollar be used and developed in such a fashion that individual Americans have retail accounts with the Fed, and the Fed becomes the retail banker for America,” said Toomey. “It seems to me that there is absolutely nothing in the history, the experience, the expertise, the capabilities of the Fed, that lend the Fed to being a retail bank.”

Emmer has previously advocated for greater regulatory clarity of digital assets in the U.S. through legislation, introducing bills in May and July 2021. He and other lawmakers have also questioned the Securities and Exchange Commission’s decision not to approve a Bitcoin (BTC) exchange-traded fund, appealing directly to SEC chair Gary Gensler.

Updated: 1-13-2022

BIS, Swiss National Bank, SIX Exchange Complete Wholesale CBDC Trial

Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS also took part in the test.

Switzerland is practically ready to launch a wholesale central bank digital currency (CBDC).

Working in concert, the Bank for International Settlements (BIS), the Swiss National Bank (SNB) and the country’s stock exchange, SIX, have test-driven the integration of wholesale CBDC settlement.

Also included in the prototype were five commercial banks: Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS.

Wholesale CBDC is not to be confused with a digital currency issued by a central bank that would find its way into retail bank accounts, something Switzerland has already ruled out.

“Wholesale” in this context is all about connecting financial market infrastructures and streamlining transactions so that a digital cash token can be instantly swapped with a token representing another financial asset, for instance, and done in such a way that any credit risk is removed from the system.

When CBDC?

So far, no one at the SNB or SIX has said the launch of a wholesale CBDC in Switzerland is imminent, despite seeming to have stolen a march on most of the world. That said, most countries have begun at least kicking the tires on CBDCs in some form.

A report issued earlier today by the U.K.’s House of Lords Economic Affairs Committee concluded that a retail-facing CBDC might be “a solution in search of a problem.”

However, the Lords report was more optimistic about the introduction of a wholesale CBDC, which could “enhance efficiency in securities trading and settlement,” adding that “further exploration and experimentation are necessary.”

Back in Switzerland, stalwarts of traditional finance are giving their stamp of approval.

“We have demonstrated that innovation can be harnessed to preserve the best elements of the current financial system, including settlement in central bank money, while also potentially unlocking new benefits,” BIS Innovation Hub head Benoît Cœuré said in a statement.

“As [distributed ledger technology] goes mainstream, this will become more relevant than ever.”

Still, it’s unclear whether Switzerland will begin a third phase of its wholesale CBDC prototype, dubbed “Project Helvetia.”

The testing, which took place over three days at the start of December 2021, proved that issuing a wholesale CBDC on a DLT platform operated and owned by a private-sector company (Swiss stock exchange owner SIX, in this case) was both operationally possible and feasible under Swiss law, according to a press release.

Pending Decision?

In previous interviews with CoinDesk, executives from the Swiss National Bank and SIX had hinted that testing of a wholesale CBDC was close to completion and really just required a policy decision to give it the green light.

“Project Helvetia […] allowed the SNB to deepen its understanding of how the safety of central bank money could be extended to tokenized asset markets,” Andréa M. Maechler, a member of the governing board of the Swiss National Bank, said in a Thursday statement.

The second phase of Helvetia explored the settlement of domestic interbank transactions, plus monetary policy transactions between the central bank and commercial banks. Cross-border transactions were also tackled, involving a transaction from a Swiss bank to Citigroup in London.

This involved connecting the SIX Digital Exchange (SDX) distributed ledger (built using the R3 Corda blockchain) with the existing Swiss real-time gross settlement system – SIX Interbank Clearing, which has been operated on behalf of the Swiss National Bank since 1987 – as well as the respective core banking systems.

“To continue fulfilling their mandates of ensuring monetary and financial stability, central banks need to stay on top of technological change,” Maechler said.

Swiss Central Bank Tests Wholesale CBDC With Commercial Partners

The Swiss National Bank integrated a wholesale CBDC into the banking systems of five commercial banks as part of the second phase of Project Helvetia.

Switzerland took another step to clarify its roadmap for integrating central bank digital currencies, or CBDCs, into the current financial system.

The Swiss National Bank (SNB), the country’s central bank, completed the second phase of Project Helvetia with its partners by integrating a wholesale CBDC into the existing back-office systems and processes of five banks: Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS.

The Bank for International Settlements and Swiss financial infrastructure service provider SIX joined as partners of SNB in Phase 2 of Project Helvetia, which took place during the fourth quarter of 2021.

Envisioned as a multi-phase investigation into the settlement of tokenized assets in central bank money, Project Helvetia aims to prepare central banks for a future where distributed ledger technology-based tokenized financial assets are the norm.

The project focuses on solving operational, legal and policy-related issues regarding settlements. The official announcement states that the lack of an existing systemic DLT-based platform doesn’t mean that there won’t be such platforms in the future.

Switzerland was an ideal country to proceed with the experiment since issuing a wholesale CBDC — which is specifically used to settle interbank transfers and related wholesale transactions — on a distributed DLT platform operated and owned by a private company is possible under the law.

The second phase of Project Helvetia explored the settlement of interbank, monetary policy and cross-border transactions on the test systems of SIX Digital Exchange, SIX Interbank Clearing — the Swiss real-time gross settlement system — and core banking systems, according to the announcement.

“To continue fulfilling their mandates of ensuring monetary and financial stability, central banks need to stay on top of technological change,” noted SNB governing board member Andréa Maechler. She continued:

“Project Helvetia is a prime example of how to achieve this. It allowed the SNB to deepen its understanding of how the safety of central bank money could be extended to tokenized asset markets.”

The first phase of Project Helvetia took place in December 2020 and focused on issuing a wholesale CBDC.

UK Economic Affairs Committee Unconvinced By Prospect Of Retail CBDC

A new report highlights private-sector innovation and greater financial inclusion with CBDCs, but raises concerns around the descending hegemony of the U.S. Dollar.

The House of Lords Economic Affairs Committee — an investigative governing body representing the economic interests of the United Kingdom — has released an official report assessing the pertinence of a government-issued central bank digital currency (CDBC).

Titled “Central bank digital currencies: a solution in search of a problem?,” the 52-page publication covers a litany of areas in relation to domestic CBDC endeavors and regularly cites the preliminary research taskforce established by Bank of England and HM Treasury in April 2020.

Over 50 individuals, including financial experts, university professors from elite institutions and managing directors of large corporations as well as entire organizations consulted on the feasibility and nuances of a digital asset in written and oral formats at panel discussions, hearings and online submissions in the months prior to its release.

Andreessen Horowitz, the Blockchain Association and Crypto UK submitted written appraisals, while Charlotte Hogg, CEO at Visa Europe, Andrew Bailey, Governor at the Bank of England, Ripple (XRP) and Standard Chartered provided verbal accounts.

The overwhelming conclusion of the report determined that there is no immediate need for the United Kingdom to strive for first-mover advantage in the CBDC space, arguing that a number of questions and challenges are still prominent, including geopolitical influences, Meta’s vast user network, China’s innovation and cyber security in what could become a “vulnerable single point of failure,” among others.

In addition, it was stated that improper planning and careless safety precautions could have “far-reaching consequences” and “pose significant risks” dependent the asset’s infrastructural design and intention of usage in the public domain.

The 13-Member Committee, Chaired By Lord Forsyth Of Drumlean, Concluded:

“While a CBDC may provide some advantages on speed of settlement and cheaper and faster cross-border payments, it would present significant challenges for financial stability and the protection of privacy.”

Speaking on China, the committee noted that progressions to compete with the traditional economic infrastructure could “erode the US dollar’s sanctions leverage, helping countries seeking to evade economic sanctions to bypass US dollar-dominated systems such as SWIFT”.

It also raised concerns that this could have wider consequences in the European markets, specifically in terms of the strength and adoption of the British sterling and euro.

The UK would derive most long-term benefit by ensuring global standards and rules on governance, privacy, security and interoperability are compatible with the national interests and values of the UK and its allies.

The Joint Taskforce overseen by the Bank of England and HM Treasury is expected to publish their findings later this year, having previously stated that a digital pound could be minted into virtual circulation in the second half of this decade.

The House of Lords committee has stated that “Parliament should have the opportunity to vote on any final decision” following the results of the Joint Taskforce, and has issued a 10-point public questionnaire to further investigate the matter.

Updated: 1-17-2022

Malaysia’s Central Bank Studies Need For A Digital Currency

Malaysia is assessing the potential benefits of adopting a digital currency, the nation’s central bank said.

Bank Negara Malaysia “is actively assessing the value proposition of central bank digital currency (CBDC) to Malaysia,” it said in an emailed response to a query from Bloomberg.

“While a decision has not been made to issue CBDC, we have focused our research on CBDC via proof-of-concept and experimentation to enhance our technical and policy capabilities, should the need to issue CBDC arise in the future.”

Malaysia in September last year joined forces with the Bank for International Settlements, Australia, Singapore and South Africa to test the use of central bank digital currencies for international settlements via a shared platform in a project dubbed Project Dunbar.

Several countries, most notably China, have been testing the use of central bank-issued digital currencies as a way to make everything from interbank transfers to consumer purchases cheaper and more efficient. China is offering athletes and spectators the use of its digital yuan ahead of the Beijing Winter Olympics, which starts next month.

70% Of Jamaica Population To Adopt CBDC In 5 Years, Prime Minister Says

The Caribbean country expects a nationwide CBDC rollout by the end of the first quarter of 2022.

Central bank digital currency (CBDC) evolved into a hot topic in Jamaica when the country’s central bank successfully completed the first pilot test in early January.

Following the tests, the country’s prime minister, Andrew Holness, spoke confidently about CBDC adoption in the country.

Holness has predicted the majority of the Jamaican population would be quick to adopt the digital currency, with over 70% using the CBDC within five years. The Jamaican prime minister highlighted reduced banking costs and inclusivity of CBDC in a Bloomberg interview, adding that digital currency would ensure greater government accountability thanks to easier public resources tracking.

While admitting the initial challenges of a nationwide CBDC launch, which is aimed for the first quarter of 2022, Holness added that the government has to “figure out how to give people access to digital devices and the internet in general.”

The Bank of Jamaica, the country’s central bank, has become a pioneer in CBDC efforts with one of the first completed nationwide pilot projects in the world. After partnering with the Irish cryptography firm eCurrency Mint in March 2021, the central bank has conducted an eight-month-long pilot.

As Cointelegraph reported, the bank has minted 230 million Jamaican dollars (JMD) ($1.5 million) worth of the CBDC for issuance to deposit-taking institutions and authorized payment service providers. BoJ then issued 1 million JMD ($6,500) in CBDC to the staff at BoJ’s banking department and another 5 million JMD ($32,000) to the National Commercial Bank, a major financial institution in the country.

BoJ aims to add two new wallet providers for its CBDC, followed by a nationwide rollout in the first quarter of this year. The central bank also plans to focus on interoperability by testing transactions between customers of different wallet providers.

CBDCs And Stablecoins: EY Advises Banks To ‘Prepare For What’s Coming’

A new report from EY highlights the need for a policy change for banks to overcome business uncertainties regarding digital assets.

Big Four accounting firm Ernst & Young has recommended that banks should change their regulatory perimeter to address the oncoming launches of state-backed central bank digital currencies (CBDC) and private stablecoins.

EY’s “2022 Global Regulatory Outlook” highlighted the need for a policy change that can help financial services firms overcome business uncertainties amid mainstreaming of digital assets and cryptocurrency. While acknowledging the uncertainty regarding the digital assets market, the report states:

“If customers can keep their money with a central bank, they have no need for a retail bank, and firms will see their interest rate margins contract precipitously.”

EY recommended banking firms collaborate with regional and national regulators to foresee possible crypto adoption and proactively assess its impact on their business. The report also identified digitalization — alternative data sources and digital assets — as a potential factor to impact the regulatory environment:

“The macroprudential or international implications of a major currency having a retail coin could be very significant for retail banks and the dollarization of smaller economies. For that reason, most central banks are likely to pursue a wholesale version.”

Highlighting the potential of CBDCs to complement or replace fiat currency, EY warns banks to think about the implications for their balance sheets amid the possible interaction between CBDCs and stablecoins. Conceding the difficulty in gaining regulatory clarity, EY concluded:

“By understanding the broad direction of regulation, firms can take proactive steps to prepare for what’s coming.”

Just last week, the Central Bank of Bahrain (CBB) collaborated with American investment bank JPMorgan to pilot the country’s CBDC test.

As Cointelegraph reported, the CBB completed a digital payments test using JPMorgan’s blockchain and cryptocurrency unit Onyx. Citing the development, CBB governor Rasheed Al Maraj said that the trial has been crucial for the Bahrainian government to address and potentially eliminate existing inefficiencies in the traditional cross-border payments industry.

Updated: 1-18-2022

‘The Risks Outweigh The Benefits’ Of A Swiss CBDC, Says SNB Governing Board Member

“This does not mean the SNB is not interested in CBDC, but our focus is to look at the role that wholesale CBDCs could play,” said Andréa Maechler.

Andréa Maechler, a member of the governing board for the Swiss National Bank, or SNB, has reportedly altered her position on the central bank issuing a digital franc.

According to a Tuesday report from Reuters journalist John Revill, Maechler said officials at the country’s central bank “believe the risks outweigh the benefits” when it comes to CBDCs.

The governing board member said having the general public use a digital franc in day-to-day transactions would likely not help to promote financial inclusion in Switzerland, where almost all the working population already have access to bank accounts.

“This does not mean the SNB is not interested in CBDC, but our focus is to look at the role that wholesale CBDCs could play,” said Maechler, adding the central bank needed to consider privacy concerns and the potential for the digital currency to be used for illicit transactions.

The governing board member’s statement comes following the SNB announcing it had integrated a wholesale CBDC into the banking systems of five commercial banks in Switzerland. At the time, Maechler seemed to encourage the rollout, saying “central banks need to stay on top of technological change“ in an effort to ensure monetary and financial stability.

Testing the introduction of a wholesale CBDC was part of the second phase of Project Helvetia, an initiative aimed at preparing central banks for distributed ledger technology-based tokenized financial assets. During the fourth quarter of 2021, the SNB integrated the wholesale CBDC into the existing systems and processes of Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS.

Switzerland was also a testing ground for many crypto projects and products in 2021. In September, the Swiss Financial Market Supervisory Authority approved one of the first crypto funds to operate in the country, the Crypto Market Index Fund.

The SIX Swiss Exchange currently lists several crypto exchanged-traded products in addition to its own plans to launch a digital asset marketplace and central securities depository.

Bank of America Says UK CBDC Would Be More Than A Digital Form Of Cash

BoA says it’s likely a BOE digital currency would also replace checking accounts as the way in which consumers hold the majority of their funds.

Bank of America (BoA) is challenging the Bank of England’s assertion that a U.K. central bank digital currency (CBDC) would act just as a form of digital cash, saying it’s more likely to replace checking accounts as the way in which consumers hold the majority of their funds.

The BOE sees a possible CBDC – referred to colloquially as Britcoin – as fundamentally a substitute for cash, BoA says. “Such a construct could [however] potentially be a 15x bigger amount replacing £440 billion ($598 billion) of current accounts not just £30 billion in cash,” it wrote in its research paper “Digital Money in the U.K.”

The BOE has yet to decide whether to develop a digital pound. Its most recent move was to establish two forums in September last year to explore the key issues around a CBDC. The U.K. central bank has said that should it proceed, the earliest a CBDC could be rolled out is the second half of this decade.

Given that consumers hold only small amounts in cash, there would be greater convenience in switching a current account into Britcoins, BoA said. That could be an area of concern for commercial banks. Checking accounts, or current accounts as they are called in the U.K., are the lifeblood of commercial banks’ business models, providing them with stable funding over a long term.

“This makes the BOE assumption that users would only substitute a digital sterling for their cash holdings a risky one for banks,” BoA said, referencing concerns recently aired by the House of Lords Economic Affairs Committee in its report exploring a potential U.K. CBDC.

That committee described it as inevitable that consumers would transfer money from their bank accounts into CBDC wallets.

‘Rebundling’ Money

BoA concludes that Britcoin would represent a “rebundling” of money. Should consumers hold substantial amounts in a Britcoin wallet, banks would not be able to rely on the stability or duration of checking account deposits. Nor would they be able to cross-sell products such as credit cards and mortgages as effectively as they do now.

In extremis, this could bring about a restructuring of the institutional framework of finance, BoA says. The report describes how holding money in a bank is safer than holding it in a non-bank – such as payment providers checkout.com or Wise – because bank customers have access to the Financial Services Compensation Scheme, which guarantees deposits up to an amount of £85,000, something non-banks largely lack.

However, should a non-bank provider offer a wallet that can store Britcoin, it would be at least as safe an option as a checking account. Possibly more so, given that Britcoin would be central bank money.

“The BOE, in its analysis, ascribes fleeting reference to the potential move of transactional relationships out of banks,” according to BoA. “If these went to a third-party provider, we consider that the high value savings balances tied to current accounts would automatically become less stable for the bank as well.”

Commercial banks would then be at risk of losing both the funds and the relationship of their customers.

Malaysia’s Central Bank Actively Assessing CBDC Options

Malaysia’s central bank recently completed a proof-of-concept for a CBDC with three other nations and may consider developing its own cross-border payment system using the blockchain.

Malaysia has joined the growing cadre of nations that are exploring the value of researching and developing a central bank digital currency (CBDC).

Malaysia’s central bank, Bank Negara Malaysia, stated to Bloomberg on Monday that while a decision about exactly how to move forward with a CBDC has not yet been determined, it has focused research on a CBDC “via proof-of-concept and experimentation to enhance our technical and policy capabilities.”

It also stated that the ostensible reason for the current research effort was to ensure it is prepared to launch a CBDC program “should the need to issue CBDC arise in the future.”

In 2021, Malaysia collaborated with South Africa, Australia and Southeast Asian neighbor Singapore to develop a proof-of-concept CBDC pilot called Project Dunbar, according to a joint announcement.

Project Dunbar utilized the Corda and Quorum blockchain platforms from r3 and ConsenSys, respectively, to demonstrate various capabilities of blockchain-based cross-border remittances. Most notably, it aimed to demonstrate how blockchain technology could “eliminate the need for intermediaries and cut the time and cost of transactions.”

An increasing number of nations are researching how a CBDC program would operate in their jurisdiction. China is by far the largest nation currently executing a CBDC pilot program, dubbed the digital yuan, and the mobile app already has over 20 million downloads since Jan. 4.

China plans to launch the program and allow international visitors to access the digital yuan with their passports during the upcoming Winter Olympics in Beijing next month.

The Eastern Caribbean Central Bank (ECCB) rolled out its finalized CBDC, called the “EC dollar,” in March 2021. As of December 2021, Antigua was the last of eight jurisdictions in the ECCB not to have adopted the EC dollar. Nearby Jamaica also plans on launching a finalized CBDC by Q1 2022 following a successful pilot program, which concluded two weeks ago.

Updated: 1-19-2022

Iran To Reportedly Pilot Central Bank Digital Currency Soon

The Central Bank of Iran hinted at a possible CBDC pilot soon without elaborating on the time frame of the program.

The Central Bank of Iran (CBI) is reportedly planning to launch a central bank digital currency (CBDC) pilot soon.

According to a report by the Iranian Labour News Agency, the CBI vice governor said that CBDCs could help the country resolve financial inconsistencies.

The development of a sovereign digital currency in Iran began in 2018 at the Informatics Services Corporation — the executive arm of the CBI. The development phase has been completed and a pilot will be launched soon. However, CBI didn’t reveal many details about the time frame.

The Iranian CBDC was reportedly developed using the Hyperledger Fabric platform hosted by the Linux Foundation. Cointelegraph reached out to Hyperledger for a comment but didn’t get a response at the publishing time.

Iran has experienced significant financial and economic difficulties as a result of heavy economic sanctions levied on it by the United States.

Amid these problems, Iran has turned to crypto and was among the first countries to legalize Bitcoin (BTC) mining in hopes of reviving the economy, however, it had to temporarily shut mining operations on numerous occasions due to acute power shortages and blackouts.

Iran is also looking to use cryptocurrencies for international trade, in hopes of bypassing the trade sanctions. As reported by Cointelegraph, CBI, and the Ministry of Trade reached an agreement to link the CBI’s payment platform to a trading system allowing businesses to settle payments using cryptocurrencies.

At present, nearly 100 nations are working on a sovereign digital currency, while only a handful of them have reached the pilot phase. China is currently at the forefront: it completed its CBDC development in 2019 and is currently mass testing it across various provinces and retail sectors.

France and Switzerland have carried out multiple cross-border pilots. South Korea, Japan and Russia are expected to carry out trials in 2022, while the United States is still in the discussion phase. According to the Atlantic CBDC tracker, nine nations have already launched their CBDC, 14 are in the pilot phase, 16 are in the development phase, 41 nations are still researching and two nations have canceled their CBDC plans.

Updated: 1-20-2022

Fed Issues Discussion Paper On Benefits And Risks Of A Digital Dollar

“The Federal Reserve would only pursue a CBDC in the context of broad public and cross-governmental support,” said the recently published paper.

The U.S. Federal Reserve is opening comments to the public after releasing a discussion paper on the pros and cons of a potential central bank digital currency.

In a publication released Thursday titled “​​Money and Payments: The U.S. Dollar in the Age of Digital Transformation”, the Fed said it would likely not be authorized to issue digital wallets or accounts capable of holding a U.S. central bank digital currency, or CBDC, but rather leave such matters to the private sector.

In addition, the government body said it would be considering privacy concerns, whether a CBDC could be “readily transferable between customers of different intermediaries,” and identity verification to combat money laundering and the financing of terrorism.

The paper added that the U.S. rolling out a CBDC could mitigate the risks of “proliferation of private digital money” while still encouraging innovation in the private sector, leveling the playing field between large and small firms for whom some of the costs of issuing their own digital currency may be prohibitive.

Cross border payments, the speed and efficiency of digital payments, and additional financial inclusion are all among the potential benefits of a digital dollar.

“A CBDC could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank,” said the Fed paper.

“Some have suggested that, if these new CBDCs were more attractive than existing forms of the U.S. dollar, global use of the dollar could decrease — and a U.S. CBDC might help preserve the international role of the dollar.”

Regarding the risks in introducing a digital dollar to the U.S. and world economies, the Fed said that a CBDC could effectively replace commercial bank money, raising prices for retail customers and driving interest away from investments in “mutual funds, Treasury bills, and other short-term instruments.”

The paper also repeated some of the concerns previously raised by officials on the stability of the current financial system, such as how the Fed might need to increase its reserves based on demand for a digital currency, and striking t balance between user privacy and transparency needed to prevent fraud.

To that end, the Fed is opening up comments to the public for 120 days — until May 20 — asking concerned citizens to address 22 questions related to the possible rollout of a digital dollar’s benefits, risks, design and policy considerations:

“The Federal Reserve will only take further steps toward developing a CBDC if research points to benefits for households, businesses, and the economy overall that exceed the downside risks, and indicates that CBDC is superior to alternative methods. Furthermore, the Federal Reserve would only pursue a CBDC in the context of broad public and cross-governmental support.”

First announced by Fed chair Jerome Powell in May 2021 to be released last summer, the publication of the CBDC discussion paper has been delayed several times. On Jan. 11 during his testimony to members of the Senate Banking Committee, Powell said that the paper would be coming in a matter of weeks following delays due to “changes in monetary policy.”

Though a notice from the Fed stated the discussion paper “does not favor any policy outcome,” Powell has previously suggested there was no rush in the U.S. releasing a digital dollar despite other countries, including China, moving ahead with trials in different cities.

Athletes are expected to travel to China for the 2022 Winter Olympics in a few weeks when competitors and visitors will have the opportunity to use the country’s digital yuan.

Updated: 1-21-2022

Does A Fed Digital Dollar Leave Any Room For Crypto Stablecoins?

Could stablecoins be undone by a Federal Reserve that takes consumer deposits? Would retail banks be hobbled?

During Jerome Powell’s Jan. 11 United States Senate confirmation hearings, Sen. Patrick Toomey posed a question to the incumbent-and-future Federal Reserve chief: “If Congress were to authorize and the Fed were to pursue a central bank digital dollar, is there anything about that that ought to preclude a well-regulated privately-issued stablecoin from co-existing with a central bank digital dollar?”

“No. Not at all,” the central banker answered — a response that surely brought some relief to the crypto community. At least the Fed wasn’t seeking to ban stablecoins. That bullet had apparently been dodged.

But, Toomey raised a significant and abiding question: Can stablecoins and a Federal Reserve digital dollar really coexist? If individual Americans were to have retail accounts with the Federal Reserve — as Toomey posited in what may have been an exaggerated scenario — “and the Fed becomes the retail banker to America,” why does one even need stablecoins? Or traditional retail banks for that matter?

Indeed, in a discussion paper released on Jan 20, the Fed cited various potential risks associated with a digital dollar, including that a CBDC could effectively replace commercial bank money. That paper was aimed at eliciting public comment, while elsewhere the Fed has indicated no interest in rushing out a digital currency despite the efforts of other countries like China.

Not all assumed the two could co-exist. “A widely and easily accessible digital dollar would undercut the case for privately issued stablecoins,” Eswar Prasad, professor of economics at Cornell University and author of the book, The Future of Money, told Cointelegraph, though “stablecoins issued by major corporations could still have traction, particularly within those corporations’ own commercial or financial ecosystems.”

Others envisioned separate and distinct use cases for stablecoin and central bank digital currencies, or CBDCs, a group that would include a future U.S. digital dollar. “There are definitely some distinct use cases for each,” Darrell Duffie, Adams distinguished professor of management and professor of finance at Stanford University’s Graduate School of Business, told Cointelegraph.

“For example, the Fed is unlikely to give CBDC accounts to a wide spectrum of foreign consumers,” and dollar-pegged stablecoins could be very useful for making cross-border payments and settlements — fulfilling a real business need, he suggested.

Distinct Purposes?

Would there, indeed, be distinct uses for a digital dollar and privately issued stablecoins — or are stablecoins likely to be superseded by CBDCs all around the world eventually?

“Stablecoins are different from most CBDCs in their construct and purpose,” Matt Higginson, a McKinsey partner who leads the consulting firm’s global blockchain and digital assets initiatives, told Cointelegraph.

CBDCs are usually intent on improving financial inclusion, reducing the cost of cash and, to some degree, tracking financial transactions (for Anti-Money Laundering purposes, for example).

Stablecoins, by comparison, are dollar-pegged tokenized cash aimed at improving the speed and efficiency of payments. “Their premises are really quite different, so there is no reason they shouldn’t co-exist,” said Higginson.

A digital dollar isn’t really about technology or efficiency, Jonas Gross, chairman of the Digital Euro Association, told Cointelegraph. As with CBDCs generally, it “could be more efficient or stable for handling a high throughput of retail transactions, where DLT is not needed, or where people prefer the safety, soundness and interoperability of a central-bank backed currency.”

Stablecoins, in comparison, “focus on the technological aspects, allow efficient payments due to removing intermediaries and novel innovative business models,” Gross said. The two could find different constituencies and could presumably co-exist.

Some countries, too, might prefer to dollarize their economies with a USD stablecoin, Duffie added. “And, some might get dollarized against the wishes of their central banks.” Not all CBDCs need to be blockchain-based or based on digital ledger technology, either, as Duffie noted, further explaining:

“Suppose a CBDC is not based on DLT, and we want to take advantage of smart contracting or other DLT applications, whether wholesale or retail. Stablecoins could serve a useful role there.”

Even Prasad didn’t rule out the possibility of coexistence: “Stablecoins and central bank digital currencies could be seen as complementary payment mechanisms, even if they might step on each other’s toes in that function.”

A Change of Heart?

At his confirmation hearing, Powell appeared to be more kindly disposed toward cryptocurrencies than in July 2021 when he told lawmakers: “You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies, if you had a digital U.S. currency,” using that as an argument in favor of a Fed digital dollar. What might have prompted this sea change, assuming that’s what it was?

“U.S. institutions, such as the Fed and regulators, seem to have understood that stablecoins can provide tremendous support for the U.S. dollar,” opined Gross. Why? “The largest stablecoins are all backed by the U.S. dollar,” and if they were to strengthen their position as a means of payment in the crypto space, “this means that the U.S. dollar gains in importance.”

Prasad had another take as the Fed chair’s softer stance on stablecoins might be the result of “him having taken comfort from actions under consideration by Congress and various regulatory agencies to bring such private cryptocurrencies under tighter regulatory oversight.”

Subverting Monetary Policy?

Crypto critics have even suggested that popular stablecoins might eventually undercut traditional monetary policy operations. Are they right? “If denominated in U.S. dollars, with stability, I don’t see a case that a stablecoins would undermine monetary policy transmissions,” said Duffie, adding: “Actually, I would draw the opposite conclusion.”

Prasad differed: “Stablecoins that undermine the medium-of-exchange function of central bank money could add to already substantial uncertainties in the transmission of monetary policy to economic activity and inflation.”

Higginson, for his part, viewed the notion that stablecoins could affect monetary policies as misguided. “Stablecoins are almost fully reserved,” which means a real dollar is set in reserve for almost every tokenized stablecoin dollar, he said, further telling Cointelegraph:

“The obvious conclusion to that is that it doesn’t change monetary policy at all because you are not changing the supply of dollars in the economy.”

“Retail banker for America?”

Lastly, Sen. Toomey raised a scenario during the confirmation hearings whereby “individual Americans [would] have retail accounts with the Fed, and the Fed becomes the retail banker for America.” Both he and Powell agreed that this role would be well beyond the “history, expertise, experience or capabilities” of the U.S. Federal Reserve. Still, is such a role unthinkable?

“Historically, central banks have stayed away from having direct retail relationships,” Higginson told Cointelegraph. “That’s why our commercial banking system exists.” Central banks rarely issue currency directly to consumers, for instance.

Moreover, the properties of stablecoins are different from those of most current or projected CBDCs “in that, stablecoins are being launched with this smart contract functionality that makes them programmable,” continued Higginson. This opens possibilities for their use that go beyond what we think about in terms of a traditional central bank digital currency.

Nevertheless, the idea of “retail banker to America” may not be so easily put to rest. A recent EY report, for example, summoned up the same circumstance — indeed, describing a CBDC that took consumer deposits as “an existential threat” to financial services firms, including retail banks.

Wrote EY:

“If customers can keep their money with a central bank, they have no need for a retail bank, and firms will see their interest rate margins contract precipitously.”

Still, nothing is for sure. “The Presidents’ Working Group Report on Stablecoins tells us that the path to the introduction of useful and compliant stablecoins is far from clear,” said Duffie, concluding: “Legislation may be needed, and that’s not an easy or predictable matter.”

Updated: 1-24-2022

Bank Of Korea Completes First Phase Of Digital Currency Pilot

The second phase of the CBDC mock testing is expected to be completed by June this year.

The Bank of Korea has successfully completed the first phase of its central bank digital currency (CBDC) mock testing, which started in August 2021.

The South Korean central bank said that the first phase of its CBDC mock testing was completed in December while the second phase is currently underway, reported YNA news. The first phase of the mock test involved some of the basic functions of the sovereign digital currency such as distribution and issuance.

The second phase of the CBDC pilot would test real-world functionalities such as cross-border remittance, retail payments and offline payments. The bank stated:

“We will confirm the possibility of operating various functions, such as offline settlements, and the application of new technologies, such as one intended to strengthen privacy protection during the second phase of the test.”

Bank of Korea (BOK) is also looking to onboard financial institutions for the second phase, quite similar to what China is currently doing with its digital yuan. However, unlike China, BOK-issued digital currency would also focus on user privacy.

The second phase is expected to complete by June 2022, after which the central bank plans to chalk out an official launch and commercialization plans.

South Korea has thus joined the select group of nations that have either started or completed the pilot phase of their CBDC testing. Currently, 91 nations are working on their sovereign digital currency and only 14 nations have reached the pilot phase, as per data from the Atlantic Council.

South Korea has become one of the leading crypto-compliant nations over the past few years and recently revealed its plans to become a world leader in the metaverse as well. While China is currently at the forefront of the CBDC game, many European and Asian counterparts have accelerated their development plans to catch up with its pace.

Updated: 1-25-2022

BIS Innovation Hub To Focus On CBDC, DeFi Experimentation This Year

CBDCs and payments account for 13 of the 17 active and scheduled projects.

The Bank for International Settlements (BIS), an umbrella group for central banks, is going all out on central bank digital currencies (CBDCs) and decentralized finance (DeFi) research this year.

According to a statement published Tuesday, BIS is planning projects to explore CBDCs, next-generation payments systems, DeFi and green finance through its Innovation Hub in 2022.

“CBDCs and improvements in payments systems continue to be an area of exploratory focus, accounting for 13 out of 17 projects that were active in 2021 or will be launched in 2022,” according to the statement.

At the end of last year, at least 64 central banks were exploring a retail CBDC, according to the CBDC Tracker. Of those, 20 have been launched or tested or were in the very advanced exploration stages. China has been trialing a digital currency, the eCNY, over the past year, running transactions worth around $9.7 billion.

Last October, Nigeria’s central bank launched the eNaira, while the European central bank kicked off a two year experiment into a retail CBDC. Last week the U.S. Federal Reserve published a discussion paper on the benefits and risks of a U.S. implementation.

The BIS Innovation Hub has been on a growth streak, setting up research centers in Hong Kong, London, Stockholm, Singapore and Switzerland in the last two years. All of them will be working on at least one project related to CBDCs.

One London project, for instance, will look at how individuals and businesses can benefit from the development of CBDCs, while a second will develop a platform supporting applications with retail CBDCs.

In November 2021, BIS helped the New York Federal Reserve to set up a fintech research wing, also focusing on projects to do with CBDCs and stablecoins. In early January, BIS brought in CBDC expert Raphael Auer as the head of the Innovation Hub’s European region.

Last year, the global head of the Innovation Hub, Benoît Cœuré, signaled central banks across the world to start working on CBDCs.

“CBDCs will take years to be rolled out, while stablecoins and crypto assets are already here. This makes it even more urgent to start,” Cœuré said in September.

As for DeFi, details are sparse, but a new project at the Hong Kong center plans to explore whether DeFi technologies including blockchain, tokenization and smart contracts, can “improve financing for small and medium enterprises, a historically underserved market segment.”

What The Fed Thinks About CDBCs

Most of the Fed’s CBDC report rehashed old ground, but it’s a key piece of insight into the central bank’s thinking.

A fair amount of news happened last week: The Federal Reserve announced it is still nowhere close to issuing a digital dollar and the U.S. House of Representatives held a surprisingly substantive discussion around crypto’s energy impact.

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Blockchain Bucks

The Narrative

The U.S. Federal Reserve finally published its central bank digital currency (CBDC) report! The long-awaited missive outlined the Fed’s chief questions about CBDCs and provided a window into its thinking on the issue.

Why It Matters

The Fed is finally giving us a good look at how it’s approaching CBDCs. What’s more, the central bank wants the general public to weigh in.

Breaking It down

So, first off: I’m still not convinced the Fed actually wants to issue a central bank digital currency.

The Fed doesn’t commit one way or another on whether or not it wants to create a CBDC in the report published last week. This is no surprise. Fed Chair Jerome Powell has said as much on numerous occasions.

From this view, nothing in the report was really new. The Fed is looking at privacy issues, financial stability concerns, practical applications and whether there really is a need for a digital dollar. Powell has outlined these same questions in various confessional hearings.

In the Fed’s view, a hypothetical digital dollar would essentially be a digital analog to the current financial system, with the Fed issuing the currency but intermediaries giving retail users access.

“The Federal Reserve’s initial analysis suggests that a potential U.S. CBDC, if one were created, would best serve the needs of the United States by being privacy protected, intermediated, widely transferable, and identity verified. As noted above, however, the paper is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of a U.S. CBDC,” the report said.

(It’s worth noting that this report is separate from what the Boston Fed and MIT might publish. That project is looking at technical bases for central bank digital currencies, rather than the policy questions around issuing one.)

Also, we didn’t learn that the Fed still really wants Congress to authorize a CBDC before it’ll take any action toward doing so.

Again, we knew this. What’s more, even if Congress does authorize a digital dollar, the Fed announced that last week’s report is just the first step in a “broad consultation,” implying a lengthy outreach process.

Speaking of which, members of the public can weigh in before May 2022 if they so choose. The Fed has a list of 22 questions, and responses can be sent via a web portal.

Despite how much of this report wasn’t too new, a few details stood out.

The first is the Fed’s desire to play a role in guiding CBDC development elsewhere in the world.

“Irrespective of any ultimate conclusion, Federal Reserve staff will continue to play an active role in developing international standards for CBDCs,” the report said.

Part of this international coordination would be to help cross-border payments, per the report. But the real key here seems to be a desire to maintain the dollar hegemony within the global financial system.

“The dollar’s international role also allows the United States to influence standards for the global monetary system,” the report noted.

The Fed’s approach to privacy is also going to be a bit of a sticking point.

The central bank wants to make sure that a CBDC is transacted through entities with the proper know-your-customer (KYC) and anti-money laundering (AML) frameworks in place.

“A general-purpose CBDC would generate data about users’ financial transactions in the same ways that commercial bank and nonbank money generates such data today. In the intermediated CBDC model that the Federal Reserve would consider, intermediaries would address privacy concerns by leveraging existing tools,” the report said.

If this is indeed how the digital dollar is set up, it won’t be a perfect analog to the physical dollar. At least at the moment, it’s unclear whether there’s a way to transact without intermediaries, whereas I can give anyone cash without going through a KYC process. Digital dollar proponents will say that it should enable this sort of privacy.

And finally, as pointed out by my friend Michael McSweeney over at The Block, the report highlights existing private stablecoins, though it stops short of a detailed analysis on what role the Fed sees them playing in a world where the central bank has its own digital currency.

The report also mentions concerns about financial stability, a common one among regulators ever since this one social media giant announced plans to create a stablecoin.

Energy Needs

Last week’s House Financial Services Committee on Energy and Commerce (Oversight and Investigations Subcommittee) hearing on crypto’s energy use was pretty interesting, to me at least. It started out with some basic questions and explanations (“Bitcoin does not equal blockchain”), not to mention several off-topic complaints, but evolved into an in-depth discussion, even a debate between some of the witnesses on how to measure things like crypto mining’s energy efficiency.

You can catch up on the hearing on our live blog, or read the wrap we published after the hearing ended.

The debate, between Cornell Tech Professor Ari Juels and BitFury CEO Brian Brooks, may have been the most interesting aspect for me.

Brooks pointed out that crypto mining machines are becoming more energy efficient all the time, but Juels pointed to the energy used per number of transactions processed to argue that more efficient machines does not mean a more efficient network.

This debate might be key to how lawmakers approach crypto mining regulation, if there is any such rulemaking in this field.

One issue that was not discussed, but perhaps should have been, was the issue of waste from facilities powering crypto miners. Environment & Energy Publishing, an energy-focused news organization (that is a subsidiary of Politico), reported last week that the Environmental Protection Agency (EPA) rejected applications from Greenidge Generation and Sioux Energy Center (run by Ameren) to continue running coal ash ponds beyond their current federally-mandated deadlines.

Coal ash is a “toxic slurry” byproduct from coal power plants. The facilities dump this byproduct into what are basically open tanks. The risk of toxins from the ash leaching into the ground or nearby bodies of water is real, and so these facilities are regulated.

“EPA considered Greenidge disqualified from getting an exemption because it no longer uses coal for power. The agency said Ameren’s application for an extension lacked all the information required for deciding on its request,” EE News reported.

The power plants have a hair over four months to report to EPA they are no longer using their ponds.

This kind of action is worth keeping an eye on – it’s all very well to resurrect dead power plants to run crypto miners, but if these facilities can’t dump their waste they may not be able to continue operations for as long as their owners would like.

Updated: 1-28-2022

Chinese Food Delivery Giant Joins CBDC Efforts

The cumulative transactions in e-CNY have reached 87.57 billion yuan ($13.68 billion) until now.

China’s food delivery giant Meituan has become the latest tech firm to integrate central bank digital currency (CBDC) payments for its services.

Meituan users can link the digital yuan wallet to their service app and use it for a range of daily services such as booking hotels, cabs and paying at restaurants. The food delivery and daily services app recorded 660 million transacting customers last year, and the integration of e-CNY payments would only help the Beijing government to test its sovereign digital currency more widely.

Over the past few months, tech giants in the country such as WeChat and JD.com have joined the mass retail testing of e-CNY.

China completed the development of its CBDC in 2019, itself, and over the past two years, the authorities have been testing its use in the retail market extensively. The CBDC pilot began as a travel subsidy for government employees and later expanded to include millions of people and thousands of businesses.

While there hasn’t been any indication of a public launch yet, many believe the growing pace of trials suggests that the government might be looking to launch the CBDC during the upcoming winter Olympics starting on Feb. 4.

Zou Lan, director of the PBOC’s financial markets department has said that the cumulative transactions in e-CNY have reached 87.57 billion yuan ($13.68 billion). By the end of October 2021, nearly 10 million merchants had activated digital yuan wallets.

China is currently at the top of the CBDC game, having started the development for the same as early as 2014. While 91 nations have started their CBDC development, only a handful, including China, South Korea, Switzerland and France, have reached the pilot phase. The United States is currently in the discussion phase and lawmakers weighing in the pros and cons of a sovereign digital currency.

 

Updated: 1-31-2022

Former BOJ Official Warns Against Use Of Digital Yen In The Financial Sector

Hiromi Yamaoka is currently heading a private forum of 74 companies that are planning to launch a private digital currency.

A former Bank of Japan (BOJ) official who reportedly headed its digital currency research is now advising against its use.

According to a report published in the Japan Times, Hiromi Yamaoka, the former head of the BOJ’s financial settlement department, advised against using the digital yen as a part of the country’s monetary policy.

Yamaoka’s biggest concern lies with the negative interest rates and believes once the digital yen becomes a prominent tool for mass payments, the common public would have to bear the brunt of the depleting value of the fiat currency. He went on to warn that the digital yen could pose a risk to financial stability and could have disastrous outcomes for the economy.

Yamaoka is currently working in the private sector, chairing a forum of 74 firms that include some of the biggest banks in the country. The forum is currently working on launching a private digital currency as early as April this year.

In October 2020, the BOJ shared a three-phase trial outline for its central bank digital currency (CBDC). The first two phases of the trial are focused on testing the proofs-of-concept while the third phase would see a pilot.

The first phase started in April 2021 and is expected to finish by March this year. The BOJ is expected to start the second phase of the trials later this year that would test the technical aspects around the issuance of the digital yen.

Despite being one of the first nations to introduce crypto regulations, cash is still a king in the Japanese retail sector owing to natural calamities, which often cut off power in the country. Thus, the payment sector in the country is more focused on executing offline transactions. In July 2020, the central bank published a research report focusing on developing an offline CBDC.

BOJ Governor Haruhiko Kuroda said in a statement on Friday that they are not looking for an immediate launch. He also noted that a digital yen could launch by 2026 and the decision won’t be made by the central bank alone.

 

Updated: 2-1-2022

A U.S. Digital Dollar Should Serve The Public, Not Banks

Americans shouldn’t settle for a “skim milk” version of a central bank currency that’s watered down to benefit financial institutions.

The Federal Reserve last month released a report about how the U.S. might update its currency for an “age of digital transformation.” While the long overdue assessment doesn’t reach a conclusion on whether a new digital dollar would be a good idea, the way it breaks down the issues repeatedly confuses the interests of the financial sector with those of the American public.

This country needs a digital dollar that serves ordinary households and businesses, not banks and financial technology companies looking to set up new tollgates on the highways of American commerce.

The Fed loses sight of the public interest in a number of ways. It insists that private firms should have a role in providing any new federal digital dollar.

It also expresses “concerns” that a digital dollar might lure people and businesses away from bank deposits, which would be costly for banks. To avoid this, the Fed suggests designing the digital dollar to be “less attractive” — for example, by not paying any interest.

The Fed’s skewed analysis comes after a year of unusually rapid developments in money. In 2021, cryptocurrency mania went mainstream. The outstanding value of Tether, a cryptocurrency “stablecoin” designed to trade at par with cash, topped $70 billion. U.S. startup Circle’s USD Coin neared $50 billion. Meanwhile, PayPal Holdings Inc.’s more traditional Venmo app siphoned more business away from America’s banks.

Abroad, some governments responded with their own alternatives. China and the Bahamas both introduced “central bank digital currencies” as public options for digital money. China’s version allows its users to make transactions instantly on their phones using an app with no risk of default and no fees.

In the U.S., private commercial banks, savings associations and credit unions enjoy a legal monopoly on digital money known as “deposits.” Taken as a whole, their offerings are lackluster. U.S. bank payments are among the slowest in the developed world; it can take days to transfer deposit account money.

Fees are high, occasionally extortionate. And the percentage of the population without a bank account is worse than Canada, France, Germany, Japan, Italy, Singapore, Spain and even Iran.

Fed officials airbrush this problem in their report. They also put their thumb on the scale when it comes to imagining our monetary future. According to the Fed, a public option for digital money probably should be watered down: provided through existing financial institutions, with balances capped and no interest paid.

These features would intentionally discourage people from using the public digital dollar and protect profit margins of the financial sector — but it’s hard to see how the public would benefit from that.

The Fed already offers digital money — and has done so for decades — but only to banks and other financial institutions. Its digital money accounts, called “master accounts,” pay higher interest (currently 0.15%) than consumers get, are uncapped and provide instant payments. These digital accounts are great, but the general public can’t use them.

In surveying a retail option, the Fed also miscalculates the costs and benefits. First, it suggests that it would be bad if a new digital dollar is so appealing that it crowds out existing forms of private money, such as bank deposits and money market mutual funds, because it would reduce the availability of credit. But the Fed cites no evidence that creating better forms of money will limit lending.

And existing nonbank forms of money, as the Fed acknowledges, drove the deeply damaging 2008 crisis and a further financial panic in March 2020. Less of these would be a good thing.

Second, the report repeats the bugbear that offering a U.S. digital dollar will exacerbate financial instability. As Wall Street has argued, and as the Fed contends, a good public currency will cause people to flee private moneys during periods of uncertainty, making panics worse.

This is an indictment of existing arrangements, not a reason to refrain from reform. And if the new digital dollar crowded out private moneys, that would reduce the panic problem, not worsen it.

Third, the Fed’s assessment completely overlooks the substantial financial benefits involved in creating a digital dollar.

Commercial banks currently earn $70 billion per quarter, in part by creating deposit balances (which, as the report notes, are a form of digital money). A Fed option for digital dollars would reduce these profits.

It would also allow the Fed to expand the assets on its balance sheet, recapturing some profits from the banking sector and increasing the money that it transfers to the Treasury by potentially tens of billions per year. In other words, a digital U.S. dollar would reduce the deficit and strengthen the government’s fiscal position — something that should attract significant interest on both sides of the political aisle.

The truth is we need not settle for a “skim milk” central bank digital currency that would create opportunities for the private sector to extract more fees and income from the public while giving up enormous potential gains for American households and businesses.

Instead, we can develop a digital dollar with no fees that facilitates instant payments, reduces costs for small businesses, and increases access to digital payment options. Such a full-strength offering would allow the government to distribute stimulus quickly and easily during economic downturns.

It would be more efficient, saving the economy billions in costs. And it would be more equitable. If we are going to design a new public money, let’s have it serve the public.

India To Introduce 30% Crypto Tax, Digital Rupee CBDC By 2022–23

Finance minister Nirmala Sitharaman believes the introduction of a CBDC will provide a “big boost” to India’s digital economy.

In a speech discussing the budget for 2022, Indian finance minister Nirmala Sitharaman announced the launch of a central bank digital currency (CBDC) by 2022–23 as a means to boost the country’s economic growth.

Sitharaman highlighted the need for digital inclusion across numerous business verticals while announcing the fund allocation set in the Union Budget.

Speaking about the launch of a digital rupee, she added that the introduction of a CBDC will provide a “big boost” to the digital economy. She also highlighted the possibility of a more efficient and cheaper currency management system made possible by digital currencies.

“It is therefore proposed to introduce digital rupee using blockchain and other technologies to be issued by the Reserve Bank of India, starting 2022-23.”

Complementing the launch of a digital version of the Indian rupee, Sitharaman also proposed the introduction of a 30% crypto tax that targets all transfers of virtual digital assets. She suggested:

“Any income from transfer of any virtual digital asset shall be taxed at the rate of 30%. No deductions in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition.”

The finance minister also highlighted that any losses that occurred while transacting digital assets cannot be used as compensation against any other income source. In other words, investors will not be able to show losses or hacks of cryptocurrencies to offset taxation on profits.

To keep track of crypto investments in the country, Sitharaman further proposed to implement a tax deduction at source (TDS) of 1% above a yet-to-be-determined threshold.

Local Indian media publication Lok Sabha highlighted that a parliamentary research group has organized a crypto-focused training for Wednesday, Feb. 2.

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

As Cointelegraph pointed out, the legislative business calendar for the lower house of parliament no longer includes a bill that could potentially ban crypto in the country.

Previously, published texts of the bill propose banning “private cryptocurrencies” in India while retaining use of “the underlying technology of cryptocurrency.”

Central Bank Of Jordan Reveals CBDC Plans

The CBJ governor also predicted that cryptocurrency trading might eventually be permitted in Jordan once the appropriate legislation is in place.

The Central Bank of Jordan (CBJ) has revealed that it is researching the issuance of a digital currency. The central bank digital currency (CBDC) would be linked to the Jordanian dinar and have legal standing.

Adel Al Sharkas, the governor of CBJ, has reportedly stated that his institution is researching the option of creating a legal digital currency. He also predicted that cryptocurrency trading might eventually be permitted in Jordan once the appropriate legislation is in place. He said:

“With regards to the plans to issue a Jordanian digital currency, a study is underway to develop a legal digital currency linked to Jordanian dinar. It is possible in the future to allow cryptocurrency trading, after enacting [the] legislation and regulations.”

Per the report, Sharkas’ comments were made during a meeting dedicated to discussing digital currencies. The comments followed Jordan’s Lower House Economic and Investment Committee chairman Khair Abu Salik’s warnings about the dangers of cryptocurrency trading.

At the meeting, officials are reported to have discussed the form of regulation that would be required to protect investors from such dangers. They also talked about launching a licensed cryptocurrency trading platform.

The CBJ governor reportedly argued that Jordan banned cryptocurrency trading to protect investors from fraudulent crypto investment schemes. He mentioned that China and four other Arab countries have imposed similar bans.

Jordan has now joined the select club of countries that have either begun or are exploring CBDC development. According to data from the Atlantic Council, as of June 2019, 91 nations are currently working on their sovereign digital currency, with just 14 having reached the pilot phase. Per the data, nine nations have already implemented a CBDC.

Switzerland and France have completed several digital currency cross-border tests. China is currently at the forefront of the CBDC development, but many European and Asian nations are accelerating their development plans to keep up with its progress.

 

Updated: 2-3-2022

Boston Fed, MIT Publish Open-Source CBDC Software

The white paper caps off nearly two years of research.

The Federal Reserve Bank of Boston and MIT’s Digital Currency Initiative published open-source research software to support a “theoretical” central bank digital currency on Thursday.

The Boston Fed and MIT have been jointly researching CBDCs for nearly two years, after Federal Reserve Governor Lael Brainard – who was recently nominated to be the Fed’s vice chair – announced the Boston branch of the U.S. central bank was investigating blockchain and a digital dollar.

Thursday’s publication brings the central bank one step closer to a technical framework that could support a U.S. CBDC.

Boston Fed Executive Vice President Jim Cunha – who was then a senior vice president – told CoinDesk at the time that the branch was looking at technical issues in CBDC development, including whether distributed ledger technologies could even support a digital dollar.

“I would think we’re probably looking at 30 to 40 different either open-source or private solutions at a very high level first, and then doing a deeper dive into a few of them because we’re in the early stages of this, and we want to make sure we have the broadest view possible,” Cunha said in 2020.

Thursday’s publication, which includes OpenCBDC and a research paper, explain that the Boston Fed was able to develop “a core processing engine” for a general purpose CBDC that could support nearly two million transactions per second with high-speed settlement finality.

Project Hamilton, as the research effort was known, is now public for any contributors.

In a statement, Cunha said the research created a “scalable CBDC research model” that can help developers better understand “these technologies and the choices that should be considered when designing a CBDC.”

According to the white paper, developing OpenCDBC was only the first phase of the project. Phase two will test the different designs and features not included in phase one, as well as assess what, if any, trade-offs there might be with different sets of features.

Privacy and interoperability are two of the issues to be analyzed in phase two.

The Boston Fed’s research comes weeks after the Federal Reserve published its own white paper addressing policy questions raised by CBDCs and their use cases.

Privacy and financial stability risks were two key issues raised by the policy paper. The Fed also said it would want an explicit law from Congress authorizing it to issue a CBDC before it considers adopting or creating one as well.

Updated: 2-4-2022

Fed And MIT’s CBDC Research: Distributed Ledger Tech Has ‘Downsides’

The researchers published results from “Project Hamilton,” which was first announced in 2020 to explore the use of existing and new tech to build and test a hypothetical CBDC platform.

Theoretical research into a central bank digital currency (CBDC) in the United States has found that distributed ledger architecture has “downsides.”

The Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology published the findings of their initial research into a CBDC on Thursday.

The research project, dubbed “Project Hamilton,” tested a “hypothetical general purpose CBDC” using two potential models.

The first one processed transactions through an “ordering server” distributed ledger technology (DLT), which organized the validated transactions into blocks to create an ordered transaction history.

The researchers were able to use this architecture to complete over 99% of transactions in under two seconds and the majority of transactions in under 0.7 seconds.

However, the ordering server resulted in a number of issues due to being run under the control of a single actor, the researchers concluding that “a distributed ledger architecture has downsides. “

“For example, it creates performance bottlenecks, and requires the central transaction processor to maintain transaction history, which one of our designs does not, resulting in significantly improved transaction throughput scalability properties.”

They added that despite using ideas from blockchain technology, a “distributed ledger operating under the jurisdiction of different actors was not needed.”

The second architecture processed transactions in parallel on multiple computers, rather than relying on a single ordering server to prevent double-spending. The researchers wrote that although “this results in superior scalability,” it did not “materialize an ordered history for all transactions.”

It demonstrated throughput of 1.7 million transactions per second with 99% of transactions durably completing in under a second, and the majority of transactions completing in under half a second.

Project Hamilton was first announced in 2020 to explore the use of existing and new technologies to build and test a hypothetical digital currency platform. The code is the first contribution to OpenCBDC, a project maintained by MIT that will serve as a platform for further CBDC research.

Boston Fed executive vice president and interim chief operating officer Jim Cunha said that the project illustrates that it is “critical” for change makers to not only understand how emerging technologies could support a potential CBDC but also what challenges remain.

“This collaboration between MIT and our technologists has created a scalable CBDC research model that allows us to learn more about these technologies and the choices that should be considered when designing a CBDC.”

The director of the Digital Currency Initiative at MIT Neha Narula said that “there are still many remaining challenges in determining whether or how to adopt a central bank payment system for the United States.”

Updated: 2-9-2022

Zambia’s Central Bank To Explore CBDC Following Crypto Warning

The Bank of Zambia wants to cut transaction costs and increase citizens’ participation in the formal financial system.

Zambia, in common with several neighboring countries, is exploring a potential central bank digital currency (CBDC) and expects to complete its research later this year, according to a Bloomberg report Wednesday.

The Bank of Zambia aims to cut transaction costs and increase citizens’ participation in the formal financial system, Bloomberg said.

The news follows shortly after the central bank issued a warning on the use of cryptocurrencies, saying “people who want to deal in them should have a clear understanding of all the risks that come with such payment and investment instruments,” according to Bloomberg.

This strongly echoes the rhetoric of the central bank in Zambia’s neighbor to the south, Zimbabwe. “As a central bank we don’t believe in cryptocurrencies,” Reserve Bank of Zimbabwe Governor John Mangudya said in December. Zimbabwe is also exploring the development of a CBDC and plans to send a team to research the experience of Nigeria, where one was launched in October.

Some 100 countries are researching the possibilities of developing a CBDC, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said in a speech today.

The motivation is in part out of concern that they will see demand for their fiat currencies drop should citizens use CBDCs from other countries or, indeed, a private cryptocurrency. Developing nations with often unstable fiat currencies are more prone to this risk than most, hence the widespread interest in developing CBDCs.

Updated: 2-10-2022

Central Bank Of Kenya Seeks Public Input On Potential CBDC

“A key opportunity where CBK sees potential value is the use of CBDC in facilitating cross-border transactions,” the announcement reads.

The Central Bank of Kenya (CBK) has published a discussion paper on its central bank digital currency (CBDC), seeking public input on the potential benefits and risks and regulatory issues of introducing a CBDC in Kenya.

In a statement, the CBK has highlighted that using a CBDC might improve cross-border payments by making them more efficient and less expensive. The regulator says that CDBC solutions can flatten the multi-layered correspondent banking structure and shorten payment chains in a discussion paper exploring the future use of a digital currency:

“A key opportunity where CBK sees potential value is the use of CBDC in facilitating cross-border transactions, while it is difficult to quantify the benefits, CBDCs may have the potential to lead to efficiency gains by flattening the multi-layered correspondent banking structure and shortening the payment chains.”

The watchdog has given Kenyans until May 20 to submit their comments on the paper that examines the dangers and possibilities of CBDC, which has already been implemented in several nations worldwide, including Nigeria. The CBK will gather comments on the issue for 100 days through an online form.

CBDCs, according to CBK, may protect the public from the danger of new types of private money by providing safer and more trustworthy payment services than newly created forms of privately issued money, such as stablecoins. Nonetheless, it stated that CBDCs represent a risk for cyberattacks and various security issues, including data privacy concerns.

The Kenyan government has yet to decide whether to implement CBDC. The latest discussion paper is meant to jumpstart a debate and provide a foundation for further study.

Kenya has joined an exclusive cadre of nations that are either studying or have already started CBDC development. According to the Atlantic Council, as of June 2019, 91 countries are currently involved in sovereign digital currency research, with just 14 having advanced to the pilot stage. According to the information, nine nations have implemented a CBDC.

China is currently the most advanced country operating a CBDC trial, dubbed the digital yuan and the mobile application has already been downloaded over 20 million times since Jan. 4. As reported by Cointelegraph, Indian finance minister Nirmala Sitharaman revealed the launch of a digital rupee by 2022–23 to boost economic development.

US Federal Reserve Bank At The Helm Of CBDC Research Effort Appoints New President

Susan M. Collins is set to become the first Black woman to head a Federal Reserve Bank.

The Federal Reserve Bank of Boston, or Boston Fed, has selected economist Susan M. Collins, University of Michigan provost, to serve as its new president and chief executive officer.

The seat became vacant in September 2021, when the then-president Eric Rosengren expedited his retirement amid controversy around his securities trading while in office. Collins, who is Jamaican-American, will become the first Black woman in the Fed’s history to lead a Federal Reserve Bank. She will assume office on July 1.

The Boston Fed is one of 12 regional branches of the Federal Reserve. Along with the Fed’s Board of Governors and the Federal Open Market Committee, or FOMC, the Federal Reserve Banks participate in the development of U.S. monetary policy.

The Boston Fed president is also one of the five regional Reserve bank leaders who serve as voting members on the FOMC, the body responsible for setting interest rates.

As Cointelegraph reported, the Boston Fed, in partnership with the Digital Currency Initiative at the Massachusetts Institute of Technology, has recently completed the first stage of Project Hamilton – a research initiative aimed at developing and testing a hypothetical central bank digital currency (CBDC) design.

As an academic, Collins studied development economics, exchange rate regimes and macroeconomic imbalances. During her career, she has not made public statements related to CBDCs or digital assets in general. Also, little is known about her monetary policy views. According to a Reuters report, in a 2019 interview, Collins spoke in favor of raising the Fed’s 2% inflation target.

Updated: 2-11-2022

The Digital Euro: What We Know So Far

The European Commission is planning to introduce a digital euro bill in 2023, but little is known about the European Union’s plans for such a currency.

The European Commission, the executive branch of the European Union (EU), is planning to propose a digital euro bill in 2023. The bill will complement the European Central Bank’s (ECB) experimentation into a retail central bank digital currency for the union.

The Commission’s plans to move forward with a bill is the most definitive sign so far that a digital euro could become a reality in the coming years. Since last year, the ECB has been giving mixed signals about the future of a digital euro.

In September, just before the ECB’s two-year investigation into a digital euro kicked off, an ECB official said the project wouldn’t guarantee the launch of a digital currency. Later, ECB executive board member Fabio Panetta said a potential digital euro would ‘likely’ be legal tender.

With the rising popularity of private cryptocurrencies like bitcoin and stablecoins (which are pegged to the value of assets like the U.S. dollar), research into central bank digital currencies (CBDCs) has picked up around the world. A number of countries, including Canada and China, are running pilot programs, and Nigeria launched a CBDC in October.

The U.S. and Europe, however, have moved at a relatively slow pace. In September 2020, ECB chief Christine Lagarde said that the EU has fallen behind in the digital payments race and that a digital euro could give it an edge.

Despite the urgency Lagarde expressed at that time, things are still moving at a cautious pace.

“The digital euro discussion is a very, very slow discussion because it’s corporate, and the central bank plays a role. This makes it very complicated,” said Philipp Sandner, a German economist and head of the Frankfurt School Blockchain Center.

The Commission first published a report on a digital euro in October 2020, which was open to public comment until January 2021. A second public consultation is set to kick off next month, according to a report by Politico.

While EU think tanks like the Digital Euro Association (DEA) are advocating for a digital euro as a much-needed advancement in payments in the region, other researchers say a digital currency may not give the economic union the advantage it is seeking.

“Digital access to central bank money will hardly give the euro an edge in its competition with other currencies, be it the dollar or private global stablecoins,” Heike Mai, an analyst at Deutsche Bank Research, wrote in a report last year.

Little That We Know

The ECB is investigating a digital euro and trying to come up with a functional design for one without being sure if it will ever issue such a currency, according to Mai.

“They just want to get prepared to have a concept in place and then decide whether they are going to issue it or not. If they were to decide two years from now that they will issue a digital euro, it will probably take another two or three years to go through an experimentation phase of implementation,” Mai said in an interview with CoinDesk.

She added that the EU won’t see a digital euro in action for at least five years from now.

“So far, we don’t know what it’s going to look like. And there’s just not much information,” Mai said.

According to Jonas Gross, chairman of the DEA, banks will have a role to play in the design and issuance of a digital euro.

“The ECB released the report one year ago on their initial thoughts, and what we do know is that banks will be involved, so the central bank will not do all of it by itself,” Gross said.

The ECB is considering a retail digital euro that could be used by consumers for day-to-day transactions. Sandner expects that research will involve commercial banks. In November, the ECB tapped Evelien Witlox, a former director at Dutch bank ING, to lead the digital euro experiment. ING Group’s primary businesses include commercial and retail banking.

What The Public Wants

The results of the Commission’s first public consultation on a digital euro showed that citizens in the EU consider privacy, security and the ability to use a digital euro in payments across the union’s 27 member nations to be priorities for a digital currency.

But the design of a digital euro that would address technology issues and privacy is still up in the air, Gross said.

It’s also unclear if the digital euro would be built on blockchain technology.

“The ECB has always pressed that they want the digital euro for payments. So as their main focus is to have a payment system, and to the question of whether it’s going to be blockchain based or maybe based on more conventional technology, that’s still open,” Mai said.

Sandner added that the ECB is working on a retail CBDC and is trying to do something with credit cards.

“You don’t need a blockchain for this,” Sandner said, adding that for capital markets and industrial use, a blockchain system could ease settlement processes.

In terms of privacy, Gross and Sandner say it’s actually possible to have a CBDC as private as cash, featuring anonymous payments.

“So, if the regulator and the central bank wants to have privacy the same as for cash, it’s not the technology that limits it. It’s rather a political and regulatory decision to be made,” Gross said.

The ECB declined a request to interview an official working on the digital euro project.

It’s Also Political

The ECB has been clear about its objective of maintaining its sovereignty in finance and payments, according to Mai. But when it comes to retail payment systems, there has been a lot of successful competition coming from non-European service providers like Visa, MasterCard and PayPal. The ECB, the EU and other political institutions don’t like to see that, Mai added.

“They are not opposed to competition, just the opposite. They want competition in the payments market. And they have done a lot during the past years to get there. But they also want at least one retail payment system that works throughout Europe, in all European countries and is under European control,” Mai said. “So it’s also a political goal.”

Gross says there is definitely a geopolitical dimension to digital currencies, as seen in the global response to China’s digital currency eCNY system that’s now being tested.

“This means that China has an advantage of probably four or five years as compared to advanced economies. And this could also lead to the situation that the Chinese currency is used more on a global scale. But this is today really hard to analyze, because we don’t know yet,” Gross said.

Gross added that the ECB is following in the U.S.’ footsteps, referring to a statement made by the U.S. Federal Reserve Chairman Jerome Powell on how it’s better to get a digital dollar right than to be first.

“This is also the perspective the ECB is currently taking when it comes to the euro because they don’t seem to be in a rush. They want to analyze this formally,” Gross said.

Financial Implications

The ECB must also consider the implications of a digital currency on financial stability. The ECB’s 2020 report on a digital euro laid out fail-safes for protecting banks from runs, which occur when large numbers of customers move deposits out of banks. That could happen during times when banks impose negative interest rates.

The ECB plans to mitigate those risks by remunerating digital euro holdings at a variable interest rate over time or by limiting the quantity of digital euros that users can hold or use in transactions, the report said. For example, a non-interest bearing digital euro is more likely to induce large-scale withdrawals in a negative interest rate environment, according to the report.

“While banknotes already offer a non-interest-bearing alternative to deposits, storage and insurance costs mean that deposit rates can be below zero without triggering large-scale substitution into cash,” the report said, adding that holding digital euros would likely bear lower costs than holding banknotes, which could make the digital euros more attractive when interest rates are negative.

But there are also concerns about low use when it comes to a central bank digital currency. In addition to saying a digital euro might not have a competitive advantage over private payment systems, Mai wrote in her paper that the widespread use of the digital euro as a means of payment is also not very likely.

“Still, a high degree of data protection could make it more appealing than other payment options for users who put great emphasis on their privacy,” Mai wrote.

Sandner disagreed, noting that central bank digital currencies don’t have a counterparty risk, or a possibility that the other party in a transaction (in this case, the central bank) won’t keep its part of the deal, which makes it relatively attractive compared with some private currencies.

“Especially for the euro in the capital market, it would make very much sense to have a central bank acting,” Sandner added.

But all of this still depends on what the ECB will decide on in terms of type, design and execution of a digital currency.

“We’re just at a point where the ECB is doing things to come up with a concept, and they don’t talk too much about what they’re doing right now, which is okay. They’re working on their concept, and we don’t have results yet. So in a way, we are waiting,” Mai said.

MIT, Boston Fed Give Digital Dollar CBDC A Modest Test Run

Blockchain-based architecture was deemed “not a good match” as researchers weighed several technological designs.

The world recently got a sneak peek at what a digital dollar, or at least one component of a hypothetical United States central bank digital currency (CBDC), might look like, courtesy of Project Hamilton, a collaborative effort of the Federal Reserve Bank of Boston and the MIT Digital Currency Initiative. The results of the project’s first phase were originally expected last summer but were released on Feb. 3.

The project, announced in 2020, is named in honor of Alexander Hamilton, the first U.S. Treasury secretary, and Margaret Hamilton, an MIT staffer who contributed to NASA’s Apollo program.

Researchers developed two open-source models of transaction processing software, called OpenCBDC, for the “technology-agnostic” project. The researchers note in the project’s white paper that “technical and policy choices are highly interdependent and that these choices are more granular and with more permutations than commonly discussed.”

Only one of the models used distributed ledger technology, and it turned out to be the less satisfactory solution, with the technology described as “not needed.”

The distributed ledger model was “not a good match” for the project due to its performance. The project assumed administration by a central actor, and the model was modified accordingly. However, it created performance bottlenecks, and the requirement that the central transaction processor maintain transaction history slowed throughput significantly.

The alternative model’s two-phase commit architecture supported “a range of potential privacy options” without central storage of transaction history, although the researchers acknowledged that it presented greater challenges for auditing.

The distributed ledger model had a peak throughput of approximately 170,000 transactions per second, while the competing model, which processed transactions in parallel on multiple computers, had a throughput of 1.7 million transactions per second and showed linear scalability with the addition of more servers.

The second, and apparently last, phase of Project Hamilton will “determine technical and performance tradeoffs associated with various designs.” Researchers have promised to look at “privacy, auditability, programmability, interoperability, and more.”

Boston Fed Executive Vice President Jim Cunha said in a press call that “We’ll be defining a number of use cases that focus on different design and possibly policy questions,” adding: “For example, if one policy goal was to maximize privacy, and the other is to stop criminal activity, those create conflicts from a technology perspective in how you design the system.”

The release of the Hamilton Project Phase 1 results comes simultaneously with China’s attempt to scale up its rollout of the digital yuan at the Winter Olympics. The contrast between the United States’ and China’s level of CBDC development could not be starker, and those behind Project Hamilton took pains not to overstate the project’s place in American CBDC development.

MIT Digital Currency Initiative director Neha Narula said in a statement, “It is important to note that this project is not a comment on whether or not the U.S. should issue a CBDC — but work like this is vital to help determine the answer to that question.” She added, “The policy conversation around central bank digital currency is still in its infancy.”

The scattershot nature of that conversation is apparent at a glance. The Fed steadfastly refuses to take a stance on a CBDC, reiterating its neutral position in a paper released last month.

The same week, Representative Tom Emmer, a Republican from Minnesota, introduced a bill to prohibit the Fed from issuing a retail CBDC, claiming such a law would keep the Fed off an “insidious path” toward authoritarianism.

Not long afterward, Bank of America issued a note calling a CBDC “inevitable.” The Fed is welcoming comments on Project Hamilton via an online form with 22 questions. The project is also hiring a new product management director.

CBDCs Are Going To Disappoint

Central bank digital currencies will enter into a competitive field of payment solutions – including stablecoins.

The world’s first central bank digital currencies (CBDCs) outside mainland China will start arriving in 2022. Indeed, a couple, like the Bahamas sand dollar and the Nigerian eNaira, have already arrived. And people should have appropriate expectations, because these early CBDC pilots are going to disappoint central bankers, blockchain enthusiasts and, most likely, end users as well.

While CBDCs are pitched as a kind of safer, government-backed alternative to fiat currency stablecoins, they are not going to arrive in any form that looks remotely familiar to existing stablecoin users. To start with, they are unlikely to arrive on a public blockchain. That means you won’t be able to exchange your eNaira for a CryptoPunk or park it in a deposit contract on-chain to earn interest.

Indeed, early CBDCs will not be programmable in any way. It will not be possible to use them in smart contracts as part of any decentralized finance (DeFi) ecosystem. Central bankers, wary of the big systemic technical risks that could come from a programming flaw in a national currency, are unlikely to enable Ethereum-style complex smart contracts.

Without programmability or access to a public blockchain, existing stablecoin users are unlikely to be won over or to see the value proposition at all. But CBDCs could still be attractive, if they manage to solve interoperability issues between countries’ financial systems.

Non-blockchain-using consumers are also likely to be disappointed in many cases. In designing CBDCs, central banks are struggling to balance the convenience of cash, pledges to respect end-user privacy and a strong desire to limit money laundering and criminal activity.

Central banks are already discovering how difficult balancing these requirements is likely to be. Nigeria’s eNaira system, for example, requires you have an existing bank account in order to open an account.

Going through the existing banking system takes care of know-your-customer (KYC) rules enforced by global regulators.

Nigeria’s solution is fast and elegant, but has limitations. Specifically, transactions can be tracked (though that’s not necessarily the case), and because it requires an existing bank account, the currency does nothing to “bank the unbanked.”

Similar limitations will likely affect all CBDC prototypes and will have to be addressed to scale these systems or make them attractive alternatives to stablecoins or other quasi-banking apparatuses.

At the consumer level, CBDC experiments in 2022 will offer functionality comparable with familiar consumer payment services – only run directly by the central bank. However, as central banks are not historically known for their consumer services, this may not produce the most compelling user experience. That’s me being understated and diplomatic.

A lack of polished user interfaces or sophisticated KYC tools (necessary in consumer banking) would not be an issue at the wholesale level. But wholesale CBDCs face numerous competitors. There are already real-time payment systems in the world, and so if a CBDC isn’t programmable, the functionality and value proposition is the same as established payment rails.

There is one final opportunity for CBDCs to make significant progress: tying together various national payment systems. While a very large number of countries have already deployed in-country real-time payments, there is no comparable cross-border system. The largest cross-border payment network is estimated to settle more than $400 billion in daily transfers between member banks.

So far, there is no one central bank that has a natural claim to facilitate transfers between countries. This market is up for grabs and could be completely transformed if CBDCs become widely deployed and interoperable. For that to happen, however, there has to be CBDCs deployed at scale in multiple countries.

The views reflected in this article are my own and do not necessarily reflect the views of the global EY organization or its member firms.

 

Updated: 2-14-2022

Why Central Banks Got Serious About Digital Money

Money is edging toward its biggest reinvention in centuries. Modern technology and even the coronavirus pandemic are pushing consumers to go cashless, and with alternative concepts like Bitcoin taking hold, central banks are acting quickly to ensure they don’t fall behind.

Their promise is a payment system that is safer, more resilient and cheaper than private alternatives. The central banks of the Bahamas, the Eastern Caribbean Currency Union and Nigeria have already become pioneers in central bank digital currency, or CBDC, while China, the euro area and others are experimenting in the field. The U.S. Federal Reserve and Bank of England, meanwhile, are proceeding far more cautiously.

1. What Would Central Bank Digital Money Be Like?

Not so different, at least on the surface, from keeping electronic money in a bank account and using cards, smartphones or apps to send that bank money into the world. The key difference is that central bank-provided money — like cash — is a risk-free asset. For example, a physical dollar bill is always worth one dollar. A dollar in a commercial bank account, while in theory convertible into paper cash on demand, is subject to that bank’s solvency and liquidity risks, meaning consumers might not always be able to access it, or could even lose it on rare occasions. CBDCs, like banknotes and coins, would be the direct liability of the central bank.

2. How Would This Change Payments?

CBDCs could come in more than one form, but one goal of all of them would be to make payments happen faster. In the current system, commercial banks settle their net payments with one another using central bank money, but this process is typically not instantaneous for technological and operational reasons, and therefore opens up a credit risk during the duration of the settlement.

3. What Does This Have To Do With Cryptocurrencies?

Aside from the potential technological design, not much. CBDCs are conceptually different from a cryptocurrency like Bitcoin, which is too volatile to be a store of value and insufficiently widely accepted to be useful for payments. Bitcoin is more in the realm of a speculative asset. A key appeal among Bitcoin’s supporters is its decentralization, meaning there’s no central party that controls it, with transactions recorded on a publicly distributed ledger. CBDCs are controlled by a central bank. While some countries are experimenting with either full or partial use of distributed ledger technology, known as blockchain, for their CBDCs, it’s not a given that they will ultimately use it. The European Central Bank, for instance, has raised concerns about the environmental footprint of running a parallel blockchain infrastructure, and already has another system which it launched in 2018 that could be more suitable.

4. What Are The Different Kinds Of CBDCs?

There are two main tracks: wholesale and retail. In retail projects, CBDCs would be issued through what would effectively be accounts at a central bank for the general public — or accounts at commercial banks working with the central bank. A CBDC-based system has no credit risk: funds are not on the balance sheet of an intermediary, and transactions are settled directly and instantly on the central bank’s balance sheet. A retail approach could be particularly helpful for consumers who don’t have access to traditional banking services. Some countries, such as Denmark, have ruled that out, however, as it could leave banks vulnerable to depositors potentially fleeing to central bank accounts. Other central banks have said they will impose upper limits on holdings to prevent such financial stability risks. In wholesale projects, access to the digital currency would be limited to banks and other institutions to make payment flows within the existing financial system faster and cheaper, but with less disruption to the sector’s overall structure.

5. Who’s Trying This?

According to the IMF, some 100 countries are at varying stages of CBDC exploration. India surprised the payments world by announcing that its central bank will issue a digital rupee as early as the coming financial year, while China rolled out its digital yuan to athletes and spectators before the 2022 Beijing Winter Olympics to test its appeal among foreigners. Some of the islands in the Eastern Caribbean that share a central bank have already launched their own digital currency, DCash. That was expanded to St. Vincent and the Grenadines last year after a volcano eruption forced thousands of people to be evacuated from their homes, and the roll-out was seen as an important part of rebuilding efforts.

6. Who’s Not?

The Fed, for one, has been slow to warm to the idea of a digital currency, but it recently took a key step by publishing a 35-page discussion paper in which it outlined a series of potential benefits. Still, it made no firm conclusions on whether issuing such a currency was prudent and in any case said it wouldn’t proceed without support from the White House and Congress. The Bank of Canada has also not found a pressing case for a digital currency yet, but continues to build the technical capacity to issue a CBDC, and monitor developments that could increase its urgency.

7. What Would The Advantages Be?

If central banks can surmount the technical difficulties, digital currencies could allow for faster and cheaper money transfers within economies and across borders. They could also improve access to legal tender in countries where cash supplies are dwindling. An IMF paper said the new currencies could boost financial inclusion in places where private financial institutions find it unprofitable to operate, and generate more resilience in regions prone to natural disasters. ECB President Christine Lagarde has argued that a digital euro could become particularly important amid a rise in protectionist policies if these led to a disruption of Europe’s predominantly foreign payment services. For China, a digital currency offers a possible way to keep up with and control a rapidly digitizing economy. On the other hand, it could also give the government an extra tool for surveillance.

8. What Are Other Downsides?

The risks of getting this wrong are significant, which is why most central bankers have to date trod with caution. Depending on the model of CBDC, central banks risk either cutting out commercial banks, a vital funding source for the real economy, or assuming the direct risks and complications of banking for the masses. Problems in managing a business that’s new to them could undermine the public trust that they count on to let them pursue occasionally unpopular actions like interest-rate hikes. Also, some researchers have expressed doubts about whether current blockchain technology would be able to support a large volume of simultaneous transactions. A People’s Bank of China official said its research showed that Bitcoin’s blockchain capacity fell well below peak demand, on China’s 2018 Singles’ Day shopping gala, of 92,771 transactions a second. Other studies have found that Ethereum handles an average of 15 transactions a second, while Visa Inc.’s network can handle 24,000.

Updated: 2-15-2022

Digital Ruble Trial Goes Live As Bank Of Russia Insists On Bitcoin Ban

The Bank of Russia reports on the first digital ruble tests as planned but continues to fight against Bitcoin adoption.

Amid more reports on the Bank of Russia rejecting the Finance Ministry’s proposal of cryptocurrency regulation, the central bank has kicked off trials of its own digital currency.

The Russian central bank has officially launched the digital ruble trial, successfully completing the first central bank digital currency (CBDC) transfers among citizens, the Bank of Russia announced Tuesday. The launch aligns with the bank’s plans to debut the first digital ruble transactions in early 2022.

Three banks out of 12 financial institutions in the digital ruble pilot group have already integrated the CBDC platform, with two of them completing a “full cycle of digital ruble transfers between clients using mobile banking applications,” the bank said.

The first stage of testing will see users open wallets on the digital ruble platform via a mobile application, as well as convert non-cash fiat into CBDC and transact using the latter tokens.

At the second stage, the bank plans to test digital ruble as payment for goods and services as well as other potential implementations related to smart contracts and interaction with the Federal Treasury. In the future, the central bank also plans to introduce digital ruble payments in offline mode and to provide the opportunity of conducting transactions by non-resident customers, the announcement notes.

Olga Skorobogatova, Bank of Russia’s first deputy governor, stated that the digital ruble is a “new opportunity for citizens, businesses and the state,” adding that such transactions will be free and available in any region of the country.

The Bank of Russia also pointed out that the digital ruble will be unique as it will be accessible via a “mobile application of any bank that serves the client.”

The Bank of Russia’s announcement comes amid local reports claiming that the Bank of Russia has officially opposed the Finance Ministry’s crypto-friendly regulation concept introduced on Feb. 8.

In a press conference on Friday, Bank of Russia governor Elvira Nabiullina declared that the authority will continue fighting against the adoption of crypto in Russia by all means, stating:

“We will spare no effort to convince the government and go into more detail about our arguments because we see significant risks. I’m counting on common sense here.”

China Is Showing Off The Digital Yuan At The Olympics. Can The U.S. Compete?

While some worry about America falling behind, banks want the Federal Reserve to stay away from digital dollars.

China is competing for more than just medals at the Winter Olympics in Beijing this month. It’s also quietly trying to define the future of money.

Although attendees can pay vendors for food and souvenirs with a Visa or cash, they also have the option of holding up a phone, scanning a barcode, and paying with the “e-CNY,” or electronic yuan, one of the only so-called central bank digital currencies offered by a major economy.

Inside the Main Media Centre before the start of the games, Cai Qianyi, a 42-year-old media professional, used his Android phone to purchase roast chicken and broccoli. “This is very convenient,” Cai says. “Compared to carrying cash, this way I avoid touching currency notes.”

To many consumers, paying with a phone may seem a bit mundane. Who hasn’t made a purchase that way? Yet to lawmakers around the world and some central bankers, China’s trial run looks like an early victory in what some call a digital space race among countries to create an electronic form of bank notes.

Experts say digital currency could give Beijing a wealth of real-time transaction data and tools to enact policy and expand its surveillance methods through direct access to its citizens’ digital wallets.

And though the e-CNY is still in its early stages—transactions as of the end of 2021 totaled the equivalent $14 billion—setting standards for digital cash could eventually be a way for China to flex its geopolitical muscle.

“The People’s Bank of China is trying to facilitate a new order for global payments,” says Yaya Fanusie, a former CIA analyst who is now a fellow at the Center for a New American Security, a think tank focused on foreign affairs and national defense.

In the U.S., a combination of anxiety about China and excitement about digital currencies’ possibilities has stoked interest from lawmakers in both parties. The Federal Reserve has also been studying the idea. While the difference between using electronic currency and, say, Apple Pay or Zelle, is subtle, a full-fledged central bank digital currency (CBDC) would still be something quite new.

Most of the money you deal with never lives in the form of paper bills. Instead, it’s part of the banking system’s complex web of credit—the money in your checking account is literally a loan you’ve made to your bank. A CBDC is more like its paper counterpart.

Depending on the technology, it might be an electronic token or an account fully backed by the government’s central bank, so there’d be no reason to worry about a bank failure or to need deposit insurance. In theory, you could receive, save, and transfer a CBDC without having a bank account, cutting out layers of intermediaries.

The new form of money could be cheaper than minting physical coins or printing bank notes and should be harder to counterfeit. Digital currency proponents think a CBDC could also be faster and cheaper to transmit, particularly for international payments, which today go through multiple banks.

Ohio Democratic Senator Sherrod Brown, who chairs the Senate Banking Committee, has said a CBDC could provide access to digital payments to Americans underserved by traditional banks.

Or consider how CBDCs might have worked during the pandemic. Instead of last March’s $1,400 stimulus payments in some cases taking weeks to hit a bank account via direct deposit—or longer for people receiving paper checks or prepaid debit cards in the mail—a virtual dollar could appear in a consumer’s digital wallet within hours, says Josh Lipsky, who heads the GeoEconomics Center at the Atlantic Council, a Washington-based think tank.

“It’s a faster, cheaper, and safer way of transmitting money between people and between the government and citizens,” Lipsky says.

Among policymakers, there’s also some fear of missing out: If the U.S. doesn’t offer a digital currency of its own, perhaps people will get more comfortable with alternatives to the dollar. Few currencies can match advantages the dollar has, from America’s stable economy to its deep capital markets.

But a proliferation of other countries’ CBDCs might one day make it easier to send money across borders without touching the U.S. banking system and potentially being caught by U.S. sanctions. And then there are all the private cryptocurrencies people are already using, which could make it harder for central banks to manage policy and ensure financial stability if they were more widely adopted.

But for all the fanfare around CBDCs, some central bankers have been deeply skeptical. As late as 2019, many world governments had all but rejected moving forward with their own CBDCs.

In May of that year, the Financial Stability Board, which helps coordinate financial policy for the world’s biggest economies, published a report saying that central banks had identified the risks of creating CBDCs but hadn’t identified significant benefits.

The report also said that digital currencies in general weren’t a threat to financial stability. “The upshot of that review was that they just weren’t important,” says Randal Quarles, who chaired the FSB at the time and until December was on the Fed Board of Governors. “They were novelty items—the financial equivalent of Chia pets.”

Less than two months later, a consortium of tech companies including Facebook and major payments systems such as PayPal and Visa announced that they were developing a digital coin, called Libra.

Soon thereafter, the Chinese government said it would accelerate its efforts to develop its digital currency. The two announcements hit the U.S. Congress and global financial policymakers like a thunderclap.

“Suddenly the central banks of the world and especially the finance ministries of the world just lost their minds and said, ‘We have to get ahead of this. We have to be the ones issuing central bank digital currencies,’” says Quarles, who’s now chairman of private equity firm Cynosure Group.

The Libra project, since renamed Diem, almost immediately ran into a regulatory backlash, and its leaders in January said the project would shut down. But its impact lasted. According to the Atlantic Council, 87 countries were exploring a CBDC as of December, with 14, including China, in the pilot stage and nine, including Nigeria, having fully launched.

In January the Fed released a 35-page discussion paper outlining some risks and advantages it saw in a CBDC, asking for feedback by May. On the plus side, the central bank said a digital dollar could speed cross-border payments and make it easier to use the dollar in new technology.

On the other hand, the Fed said the option of holding a safe digital currency could drain money from banks and raise the cost of credit. “A widely available CBDC would serve as a close—or, in the case of an interest-bearing CBDC, near-perfect—substitute for commercial bank money,” the Fed wrote.

It said this risk might be controlled by limiting the amount of digital dollars users can hold or by the central bank not paying interest on them, so people would still have an incentive to use conventional bank accounts. The Fed also said it would be best if people accessed digital dollars through private intermediaries, such as companies offering electronic wallets.

Some lawmakers have expressed concern that the Fed’s digital dollar could give the government too much of a window into Americans’ everyday transactions.

In January, at the Senate Banking Committee’s confirmation hearing for Lael Brainard to become Fed vice chair, Wyoming Republican Cynthia Lummis said that China’s digital yuan allowed “the Communist Party of China to surveil the uses of its central bank digital currency.” Brainard said that the Fed was looking for direction from Congress and that “privacy protections are very important in any kind of approach that might be taken.”

Opponents of the idea of a digital dollar are trying to slow it down or even kill it. The Bank Policy Institute, a trade association for lenders, described the potential for a CBDC as a “larger policy change for our society than practically any legislation in living memory.”

The banks may find an unlikely ally in the cryptocurrency industry. In lieu of an official U.S. digital dollar, private companies such as Circle Internet Financial Ltd. have created their own versions, called stablecoins, that have more than $179 billion in circulation and are supposed to be backed by dollar-denominated assets held in reserve.

Although such coins are largely used for speculating in other cryptocurrencies, industry executives aspire for them to be used in everyday payments. Like a CBDC would, stablecoins already compete with banks for deposits, though they can’t offer anything like the safety of central-bank backing.

In fact, top U.S. financial watchdogs have said they are concerned about stablecoins’ vulnerability to virtual bank runs and have urged Congress to pass laws regulating them.

Updated: 2-16-2022

Here’s How Much Digital Yuan Is Being Used At The Olympics, According To The PBoC

Foreign users are using hardware e-CNY wallets more at the Olympics, while domestic users mainly go for software wallets.

The 2022 Winter Olympics participants, visitors and organizers could be spending more than $300,000 in China’s digital yuan every day, according to new reports citing officials from the People’s Bank of China (PBoC).

The e-CNY, China’s central bank digital currency (CBDC), is being used to make 2 million yuan ($316,000) or more worth of payments each day, PBoC Digital Currency Research Institute director-general Mu Changchun said. The official provided the data during a webinar hosted by the Atlantic Council, Reuters reported Tuesday.

“I have a rough idea that there are several, or a couple of million digital yuan of payments every day, but I don’t have exact numbers yet,” Mu said, adding that there was no breakdown yet of the number of transactions made by Chinese nationals and foreign attendees.

The official still noted that foreign users tend to use hardware wallets more, referring to the e-CNY payment cards, which look like credit cards without the normal chip and magnetic strip. “The software wallets are mainly used by domestic users,” Mu added.

The reported amount is a significant contribution to China’s CBDC rollout, given that the total digital yuan transaction volumes had hit $13 billion by November 2021 since the Chinese CBDC was first launched in April 2020.

As previously reported by Cointelegraph, the PBoC has been widely promoting the use of the Chinese CBDC at the 2022 Winter Olympics. The state-controlled Bank of China set up a number of special ATMs at some central venues at the Games, allowing international guests to convert their foreign banknotes into e-CNY or normal yuan banknotes.

The digital yuan’s availability has triggered some concerns over cybersecurity and privacy from the global community, with some United States senators reportedly viewing the digital yuan as a “tremendous security threat to individual users.” In late 2021, British spy chief Jeremy Fleming argued that the CBDC use could allow Beijing to monitor users and control global transactions despite presenting a great opportunity to democratize payment systems.

While actively pushing CBDC adoption, China has taken an extremely anti-cryptocurrency stance, with the government banning all crypto transactions in September 2021. According to the latest reports, as many as 2 million crypto mining devices are stuck in China’s former crypto mining hub, the Sichuan province, after the government halted operations.

Miners attempting to move operations to North America have reportedly lost millions of dollars while trying to export crypto mining hardware.

Updated: 2-18-2022

Fed’s Lael Brainard Hints At US Playing A Lead Role In Development Of CBDCs

“A U.S. CBDC may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of U.S. currency to transact and conduct business in the digital financial system,” said Lael Brainard.

Lael Brainard, a member of the Federal Reserve’s Board of Governors, encouraged the United States to be a leader in research and policy regarding central bank digital currencies, or CBDCs, due to potential international developments.

In remarks prepared for the U.S Monetary Policy Forum in New York on Friday, Brainard said the People’s Bank of China’s pilot program for its digital yuan could have implications on the dollar’s dominance in cross-border payments and payment systems. However, a digital dollar could allow people around the world to continue to rely on its fiat counterpart.

“It is prudent to consider how the potential absence or issuance of a U.S. CBDC could affect the use of the dollar in payments globally in future states where one or more major foreign currencies are issued in CBDC form,” said Brainard. “A U.S. CBDC may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of U.S. currency to transact and conduct business in the digital financial system.”

While China is making its CBDC available to international visitors for the Winter Olympics, the U.S. still seems to be in the exploratory phase of rolling out a digital dollar. During her time at the Fed, Brainard has often spoken in favor of the U.S. issuing a CBDC, given the dominance of the fiat dollar in international payments.

Brainard, nominated to be the next vice chair of the Federal Reserve, is currently awaiting to be confirmed by the Senate along with chairperson Jerome Powell, prospective board members Lisa Cook and Philip Jefferson, and vice chair for supervision Sarah Bloom Raskin. On Tuesday, Republican lawmakers blocked a committee vote on the Fed officials, leaving three vacant positions on the board.

The prospective Fed vice chair also cited a CBDC development project from the Federal Reserve Bank of Boston and the MIT Digital Currency Initiative, and the research from the New York Innovation Center, an initiative aimed at exploring technology used to develop the global financial system. The former recently released the results of a test run for the digital currency.

“These technology research and development initiatives are vital to our responsibilities to promote a safe and efficient payment system and financial stability, whatever the future may bring,” said Brainard.

‘No Cash, No Problem’: Jamaica Picks Tagline For New E-Currency

* ‘Jam-Dex’ Is Name Of Digital Currency To Be Launched This Year
* Jamaica Will Join Bahamas, Eastern Caribbean In Having E-Cash

Jamaica is naming its soon-to-be-launched central bank digital currency the Jam-Dex — short for Jamaica Digital Exchange — as governments around the world weigh the benefits of introducing sovereign e-cash.

The Bank of Jamaica said in a statement that it combed through hundreds of entries to find the right name and tag line: “No Cash, No Problem.” The phrase is a play off a cultural motto of being content in the face of worry.

The tag line “is a phrase that instantly evokes Jamaica, and moreover, speaks to exactly the mood we want consumers and businesses to have when they are using Jam-Dex,” the bank said.

The logo for the Jam-Dex is a stylized image of Jamaica’s national fruit, the ackee.

After piloting the e-currency in 2021, Prime Minister Andrew Holness has said it will be released nationally this year.

If it does so, Jamaica will join the Bahamas and the Eastern Caribbean Central Bank in rolling out a CBDC.

The Bank of Jamaica has a track-record of whimsy. The bank’s logo is a crocodile holding a key, and it regularly produces reggae songs about inflation targets and economic policy.

 

Updated: 2-21-2022

A Bold Caribbean Experiment In E-Cash Hits A Major Obstacle

DCash, used in seven nations, has been offline for weeks as technical glitches reveal the challenges governments face as they consider embracing digital currencies.

One of the world’s first central bank digital currencies is experiencing serious growing pains.

DCash — a digital version of the Eastern Caribbean dollar used by seven small nations — has been offline for more than a month and it could take several more days to fully restore service, bank officials said.

The DCash crash is shining a light on some of the technical challenges governments face as they consider embracing sovereign e-currencies.

“This is an important case study in things that can go wrong in the rollout and expansion of a digital currency,” said Josh Lipsky, the director of the Atlantic Council’s GeoEconomics Center. “Every country trying do a large rollout has had problems.”

Launched last March by the Eastern Caribbean Central Bank, DCash made global headlines for being the first digital currency to be used by a monetary union. While the bank still considers the project to be in the pilot phase, it has been rolled out to all but one of its eight member states.

On Jan. 14, the bank reported that the DCash platform had suffered an “interruption” that didn’t compromise any data but had stopped all transactions.

In an email, Karina Johnson, a DCash project manager at the bank, said the problem was related to an expiring certificate on the version of the Hyperledger Fabric that hosts the DCash ledger. That forced the bank to roll out updates.

“We are approaching the end of closed testing on the technical solution,” she wrote Friday, “and anticipate commencing wider stakeholder testing in the next seven days.”

Bitt Inc., the Barbados-based company that is the bank’s technical partner on the project and is also supporting Nigeria’s eNaira effort, referred all questions to the bank.

The Caribbean is being closely watched as it emerges as a pioneer in central bank digital currencies, or CBDCs. The Bahamas launched the “Sand Dollar,” the world’s first CBDC, in October 2020, and Jamaica is expected to roll out the “Jam-Dex” later this year.

According to the Atlantic Council’s Central Bank Digital Currency Tracker, there are two dozen CBDCs that have either been launched or are being piloted across the globe — many of them in emerging markets. Unlike their crypto counterparts such as Bitcoin and Ether, CBDCs are digital extensions of fiat currency and are government-issued and controlled.

Geo. F. Huggins & Co., a Grenada-based conglomerate, was the first company to accept a DCash payment a year ago — before the official launch and at the height of the global pandemic.

The Covid crisis and the ensuing lock-downs stymied DCash education campaigns across the island and the e-currency still represents a “minimal” amount of total sales at the company’s grocery stores, said Huggins’ Corporate Marketing Manager Najuma Francis-Patrick. As a result, the lingering DCash outage hasn’t been particularly disruptive to business, she said.

Even so, Francis-Patrick said she has high hopes for the e-currency system that allows anyone with a mobile phone to shop and pay bills.

“As we start to emerge from Covid, we think that DCash will become one of the preferred payment options in the near future,” she said.

Updated: 2-22-2022

Crypto Twitter Is Not Happy With The Name And Logo Of Jamaica’s CBDC

The Jam-DEX is named after the Jamaican Digital Exchange following a competition. Its slogan is “no cash, no problem!”

The Bank of Jamaica revealed the name of its upcoming central bank digital currency (CBDC) after a design competition, only to receive backlash from the local crypto community.

The central bank of Jamaica announced on Twitter that it had chosen the name “Jam-DEX” along with the tagline and logo for its upcoming CBDC, scheduled for late 2022. While the project is promising, its name could be easily misconstrued as a decentralized exchange (DEX), and its logo is “terrible,” according to the community’s response.

The name Jam-DEX is said to be taken from Jamaican Digital Exchange, with the slogan “no cash, no problem!” It was picked as the winner by the central bank following a competition. While the winner took 600,000 Jamaican dollars ($3,800) home, the community is somewhat left unsatisfied with the result.

In the cryptocurrency world, a “DEX” refers to a decentralized exchange. A decentralized exchange is an exchange where there is no centralized authority, but rather a network of peer-to-peer nodes. These nodes allow users to trade directly with one another without any intermediaries involved. In this model, the control of your funds lies in your hands, and you trade directly with another person.

The Local Crypto Community Was Eager To See The Rejected Designs:

 

 

Some Of The Other Competitors Were Not Happy With The End Result Either:

Another User Argued That Judges Had “Out-Dated” Standards:

Others Were Simply Concerned That The Project Would Not Be Taken Seriously Due To Its Logo:

As reported by Cointelegraph, Jamaica revealed its plans to launch a CBDC in 2020 as an alternative to cryptocurrencies, making it one of the first Caribbean countries to do so. The country’s central bank distinguished CBDCs and other cryptocurrencies, stating that cryptocurrencies do not entirely fulfill the requirements of money and are not always backed by a core authority.

Nigeria was one of the first countries in the world to launch a CBDC that is open to everyone. The United States is currently evaluating the prospects of a digital dollar. El Salvador, on the other hand, has taken a different approach. The Central American nation has embraced Bitcoin (BTC) fully instead of developing its own digital currency.

Updated: 3-1-2022

Cambridge University Launches Crypto Research Project With IMF And BIS

Some regulators were recently concerned about the alleged lack of consistent and transparent data on crypto markets.

The University of Cambridge is collaborating with some of the world’s top banking institutions and private companies to introduce a new project targeting cryptocurrency research.

The Cambridge Center for Alternative Finance, or CCAF, has launched a research initiative aiming to bring more insights on the rapidly growing digital asset industry, the CCAF announced to Cointelegraph on Monday.

Dubbed the Cambridge Digital Assets Programme, or CDAP, the project is a public-private collaboration with 16 companies including public institutions like the Bank for International Settlements Innovation Hub and the International Monetary Fund.

The initiative also includes banks like Goldman Sachs, financial giants like Mastercard and Visa, and major exchange-traded fund providers like Invesco.

Other participants include British International Investment, Dubai International Financial Center, Ernst & Young, Fidelity, the United Kingdom’s Foreign, Commonwealth and Development Office, Inter-American Development Bank, London Stock Exchange Group, MSCI and the World Bank.

As its core mission, the CDAP intends to enable evidence-based public dialogue about the opportunities and risks associated with the growing cryptocurrency adoption. The program will be focused on three main areas including crypto’s environmental implications, infrastructure and digital assets, including stablecoins, central bank digital currencies and cryptocurrencies.

According to the announcement, the program builds on the CCAF’s existing work in the crypto industry, including the development of the Cambridge Bitcoin Electricity Consumption Index, CBECI. The CBECI is a widely-referenced index that provides the global Bitcoin (BTC) mining hash rate distribution percentage among countries.

Other CCAF’s crypto research developments include the Global Cryptoasset Benchmarking Study series, designed to address ecosystem trends, inform regulation and policy discussion, and other needs.

“The Cambridge Digital Assets Programme that we are launching today aims to meet the resulting need for greater clarity by providing data-driven insights through collaborative research involving public and private sector stakeholders,” CCAF executive director Bryan Zhang said.

According to CCAF digital assets lead Michel Rauchs, the CDAP will provide decision-makers with the objective analysis and empirical evidence that they need to navigate the digital assets industry.

As previously reported by Cointelegraph, some global regulators have been increasingly concerned about risks associated with the lack of standardized and trusted data in the cryptocurrency industry.

In mid-February, the Financial Stability Board warned that the crypto market lacks consistent and transparent data and its linkages with the core financial system, which poses a significant risk amid the rapid crypto adoption.

Updated: 3-3-2020

China to Widen Test Of Digital Yuan As Russia Invasion Spotlights Crypto’s Potential Role; Cryptos Decline

The country is close to approving trials of the central bank digital currency in a number of cities and regions; bitcoin and ether drop as risk-on appetite fades.

An expansionist China, arguably an even greater challenger than Russia to the U.S-led rules-based order, “will soon approve a third batch of localities set to launch trials of its digital yuan currency,” according to Reuters, which cited state-backed financial outlet Securities Times. The report says that “a number of cities and regions have applied to authorities for permission to test the digital yuan,” including the cities of Guangzhou, Chongqing, Fuzhou and Xiamen.

Meanwhile, according to a report in the South China Morning Post, analysts said that “Western sanctions imposed on Russia following the invasion of Ukraine, including exclusion from the SWIFT financial messaging system, could offer new development opportunities for China’s digital currency and its home-grown yuan cross-border payment system.”

One analyst wrote, “It is necessary and urgent to vigorously promote yuan internationalization, especially the development of the CIPS system (Cross-Border Interbank Payment System set up to boost international use of China’s currency in trade settlements) and the digital yuan.”

China’s crypto narrative, though, appears to be focused on its central bank digital currency, or e-yuan. A note by the Financial Stability Bureau of the Chinese central bank revealed that China’s share in bitcoin transactions has declined 80 percentage points after the government’s crackdown.

“The global share of Bitcoin transactions in China has dropped rapidly from more than 90% to 10%,” the note said.

China’s crypto narrative appears to be accelerating again just as Ukraine generated a high level of crypto adoption excitement by announcing an airdrop for donations, a first by a country. It had to be canceled after it became apparent that a third party may have been spoofing the much-anticipated event.

Instead, Ukraine will announce NFTs (non-fungible tokens) to support Ukrainian Armed Forces soon, according to Mykhailo Fedorov, Ukraine’s minister of digital transformation.

Updated: 3-8-2022

The GOP’s Toomey Rails Against The Fed Becoming ‘Politburo’ For Credit

The Pennsylvania senator says the central bank shouldn’t decide how capital gets allocated.

When the Federal Reserve starts raising interest rates next week, it can expect to hear “it’s about time” from Pat Toomey. The Republican senator from Pennsylvania was early to call out the central bank for getting behind the curve on its mandate to maintain stable prices—now an often-heard complaint. And he’s also criticized Fed officials for wandering into issues he sees as well outside their authority.

The top Republican on the Senate Banking Committee has rallied party members to call for more accountability from the Fed and fight its “mission creep,” including what he sees as a push by Democrats to have the central bank encourage a move away from fossil fuels.

Toomey is leading an extraordinary boycott of a committee vote on Sarah Bloom Raskin, the president’s pick to be vice chair for supervision. A Duke University law professor and Washington insider who’s previously held high-level jobs at the Treasury and the Fed, Raskin has endorsed the idea of using the government’s banking supervision powers to prod industry to deal with financial risks associated with climate change.

“I don’t think there should be a Politburo that gets to allocate capital in America,” Toomey says. “It’s so undemocratic. It should be objectionable to every single person who’s been elected to public office and everybody else.” He scoffs at “the idea that those folks ought to make the tough trade-off decisions that are inherent in energy policy.”

While Raskin in her Feb. 3 confirmation hearing repeatedly said it’s not the Fed’s job to allocate capital or tell banks which sectors to lend to, Toomey is unconvinced.

But another issue has stalled Raskin’s confirmation, and that of Biden’s other four Fed picks, including the renomination of Jerome Powell, now the acting chair: Raskin’s work as a director for Reserve Trust, a Colorado fintech company.

Toomey says he’s unsatisfied with answers he’s received from the Fed and Raskin about the extent of her role in interceding with the Kansas City Fed to help the company secure a master account, which allows access to the central bank’s payment system.

“It’s outrageous that we can’t get answers to these questions,” Toomey says, and he plans to hold up a vote unless he’s satisfied. He calls Raskin’s stint at Reserve Trust a textbook case of the “revolving door” often lamented by progressive Democrats like Senator Elizabeth Warren of Massachusetts.

Raskin told the committee she doesn’t recall the episode, while the Kansas City Fed has said it’s routine to discuss issues with directors of financial institutions. But Toomey says Colorado’s banking regulators have disputed elements of the Fed’s account.

While Toomey has offered to hold votes on Biden’s other nominees and allow them to be confirmed, committee Chair Sherrod Brown has vowed to move all of the Fed picks together. The Ohio Democrat has accused Toomey and the GOP of working on behalf of the oil industry in trying to derail Raskin’s confirmation.

“That’s who they are, the fossil fuel party,” he said at the Capitol last month. Toomey, he said, “doesn’t like that she’s going to tell the banks around this country, ‘You need to include the risks of climate in your lending policies.’”

The GOP blockade means the Fed board has just four members, instead of seven. The vacancies don’t block the Fed’s ability to carry out monetary policy, but they likely put on hold any action on broader issues such as an overhaul of banking and other regulations by Biden’s new team.

Toomey has long been an archetypal warrior for a particular brand of conservative economics in Washington, advocating restrained federal spending, low taxes, free trade, and free markets. Before winning his Senate seat in the 2010 red wave that returned the lower house of Congress to GOP control, he served as the president of the Club for Growth, a group that advocates for smaller government.

“My highest political value has been freedom, and that has to include economic freedom, or else you’re not really free,” he says. “Freer societies are more prosperous, there’s more opportunity, and people have a better standard of living, have a better life.”

Toomey says his previous experience working in the financial industry and helping his family run a bar and restaurant business in Pennsylvania also helped shape his views.

In the Senate, he was instrumental in negotiating a budget deal that paved the way for President Donald Trump’s tax cuts, while opposing his tariffs and trade wars as well as his efforts to have the Fed pursue negative interest rates to juice the economy. He also led an effort at the end of 2020 to shut down the emergency programs the Fed rolled out in the pandemic.

Since then he’s repeatedly called for the central bank to wind down its extraordinary program of bond purchases and start raising rates. Although Toomey backs a second term for Powell, he has criticized him for what he considers to be a too-loose new monetary policy paradigm allowing inflation to exceed its long-run 2% target.

He has also called out the regional Fed banks for wading into areas such as racial justice and state education laws, which he considers outside the Fed’s purview.

In a similar vein, he accuses the White House and Democrats in Congress of trying to use the Fed and other institutions to enact policies like a “draconian” shift away from fossil fuels they wouldn’t be able to get through the House and Senate. “Win elections and pass your legislation that deals with it,” he says.

The Philippines To Launch Pilot CBDC Implementation

BSP Governor Benjamin Diokno says that the goal of the project is to enhance “the payment system’s safety, resiliency, and efficiency.”

As the world of finance continues to transform, new forms of money are challenging traditional monetary infrastructures that have been around for a long time. Currently, central bank digital currencies (CBDCs) have caught the eye of various countries, including the Philippines.

In a joint event organized by Bangko Sentral ng Pilipinas (BSP) — the Philippines’ central bank — and the Alliance for Financial Inclusion, BSP Governer Benjamin Diokno announced the rollout of Project CBDCPh, a pilot implementation of a CBDC for the country. According to Diokno, the project aims to improve “the payment system’s safety, resiliency, and efficiency.”

“The project aims to build organizational capacity and hands-on knowledge of key aspects of CBDC that are relevant for a use case around addressing frictions in the national payment system.”

Diokno also highlighted the potential impact of CBDCs. The BSP governor noted that a CBDC would be able to help in government-run cash assistance programs. He underscored that the pandemic showed the utility of account-based financial assistance distribution. Diokno believes that this can be used to “provide immediate support to the most vulnerable segments of society.”

While there are many potential benefits, the governor also highlighted potential difficulties that the project may encounter such as the lack of technological infrastructure. “Monetary authorities and regulators will need to build the requisite skills and technological capacity to effectively implement and manage the risks of CBDC issuance,” Diokno said.

In the United States, Lael Brainard, a member of the Federal Reserve’s Board of Governors, urged the U.S. to spearhead research and policies when it comes to CBDCs. Citing developments in China, Brainard says that the cross-border payment dominance of the U.S. dollar could be impacted by CBDC developments in other countries.

 

Updated: 3-9-2022

Excited About A Digital Dollar? Not So Fast.

The privacy technology isn’t ready. Meanwhile, there’s a lot the U.S. can do to improve the existing payment system.

President Joe Biden’s effort to craft a U.S. strategy for cryptocurrencies has highlighted a big question: Should the Federal Reserve enter the fray by issuing a digital version of the national currency, as China and others have already done?

Although some are urging the U.S. to act, there’s really no need to rush that decision. The digital-currency technology required to safeguard Americans’ privacy will take years to develop. Meanwhile, policy makers can do a lot to improve the payment system by other means.

So far, the main opposition to a U.S. digital currency has come from the banking industry. Some argue that each additional digital dollar issued by the Fed would mean one less dollar of bank deposits. This, in turn, would sharply reduce the lending power required to support economic growth.

Serious bankers know better. If banks were forced to compete against a central bank digital currency, the best available research suggests that they would offer higher interest rates, attracting more deposits and perhaps even increasing credit provision. Granted, profits could decline, which might be the industry’s genuine concern.

But disruption of banks’ traditional franchises in deposit-taking and payments is likely coming anyway. Some are preparing, others will get left behind.

That said, there’s a more significant reason for concern about digital currencies: How to protect users’ privacy, while also allowing authorities to combat money laundering and other illicit activity?

China’s digital currency, the e-CNY, cannot strike the right balance. The People’s Bank of China, which maintains the centralized transaction database, claims to have set up a system of “managed anonymity” to ensure privacy. Yet the Chinese Communist Party directly oversees the central bank, which would hardly be in a position to refuse if the party or its security apparatus demanded access to personal transactions.

Americans value their privacy. They’ll insist, through their elected representatives, on strong safeguards against undue surveillance. But achieving this together with an effective anti-money-laundering regime is a technological challenge that will require time and resources.

The recent work of Project Hamilton, a partnership between the Boston Fed and the Massachusetts Institute of Technology, is only the first of many likely required phases of research and development — and doesn’t resolve the privacy-plus-AML problem.

This month, a panel of experts gathered by the Hoover Institution at Stanford University recommended that the U.S. government work closely with the private sector on the necessary technology before making any decision to deploy a digital dollar.

In the meantime, regulators can achieve big improvements in the existing bank-dominated payment system. The Fed, for example has so far been reluctant to provide fintech companies with access to accounts at the central bank. Doing so would give them a secure place to park customer funds and connect them directly to the Fed’s payment rails, fostering greater innovation, competition and possibly financial inclusion.

Another upgrade could be achieved with FedNow, the real-time payment system that the Fed is aiming to release next year. It will allow instant payments, around the clock. To the extent that banks use it, their customers will no longer need to wait and worry about when and whether they’ll receive payments, and merchants might be able to sidestep hefty interchange fees for credit cards.

But banks might be slow to adopt the new system, worried about reducing the stickiness of their depositors, and undermining their profitable credit-card franchises. So to realize the full potential of FedNow, regulators should push for broad interoperability across payment apps, instead of tolerating the walled gardens preferred by banks.

The U.S. should also provide leadership on cross-border payments. For one, it should lead the development of global principles for private digital currencies such as stablecoins — which have the potential to make international payments, such as immigrant workers’ remittances to their families back home, much easier and less expensive.

Also, there’s a danger that digital currencies issued by the world’s most powerful central banks could displace other countries’ national currencies. To counteract this, central banks should agree to limit issuance abroad, so that smaller and more open economies are not dollarized, or yuanized.

Americans need to be patient about a digital dollar. This is not a case where the first mover has the advantage. It’s much more important, if we do it at all, to get it right.

China’s Blockchain Ally Joins Federal Reserve’s Service Provider Showcase

Cypherium is the only blockchain company featured in the FedNow Service Provider Showcase for now, the CEO told Cointelegraph.

The United States Federal Reserve Banks are moving forward with a real-time payment project, the FedNow Service, allowing service providers to present their instant payment solutions, including those based on blockchain technology.

On Tuesday, the Fed officially launched the FedNow Service Provider Showcase, aiming to provide financial institutions and users with a range of services to help them implement FedNow Service, which launches in 2023.

At launch, the showcase includes more than 70 profiles and service providers that support instant payments, including Cypherium, a New York-based blockchain company, focused on instant payment solutions, blockchain interoperability and central bank digital currencies (CBDC).

The platform is known for being involved in Chinese blockchain projects, including cooperation with Suzhou City Municipal for the city’s development of blockchain Infrastructure.

Other providers in the showcase include services like BNY Mellon Immediate Payments, Mastercard Track Business Payment Service and ePayments.

“We are the only blockchain company selected so far,” Cypherium CEO Sky Guo told Cointelegraph, adding that consumers will be able to use Cypherium’s digital wallet or blockchain technology as part of the FedNow payment project. He also noted that Cypherium’s technology will also enable interoperability with other payment systems for consumers via participating financial institutions of the FedNow services.

FedNow business executive Nick Stanescu pointed out that Cypherium’s participation in the project will help “organizations to identify and connect with partners they’ll need to build the end-to-end solutions the market is demanding.”

As previously reported by Cointelegraph, the United States Federal Reserve Board officially announced plans to release FedNow back in 2019 with an ultimate goal of permitting U.S. banks of every size to provide real-time payments to their customers by 2023.

Apart from FedNow, Cypherium has also been a member of the U.S. Faster Payments Council (FPC), an organization aiming to provide a global inclusive payment system, since 2019. According to Cypherium CEO, the only other blockchain-related participant in the FPC is blockchain payment firm Ripple.

 

Updated: 3-10-2022

Republican Lawmakers Introduce Bill Targeting China’s CBDC On Sanctions, Privacy

“This bill holds China accountable as they introduce their new digital currency,” said Senator Bill Cassidy.

Nine Republican senators have backed legislation aimed at directing the policy of U.S. government agencies around concerns that China’s digital yuan may be used to circumvent sanctions and compromise users’ personal information.

In a Wednesday announcement, Louisiana Senator Bill Cassidy and Tennessee Senator Marsha Blackburn, backed by seven other Republican senators, proposed the Say No To the Silk Road Act — a bill that would require certain government agencies to report on China’s central bank digital currency, or CBDC.

The two senators said they had concerns over the digital surveillance and privacy of citizens and foreign users due to China’s rollout of its CBDC.

Should the bill pass, the U.S. Secretary of Commerce and Trade Representative would report on the effects of the digital yuan on trade as well as trade enforcement actions, while the Department of State would issue a warning on the CBDC.

The bill also included requirements for the Office of Management and Budget to develop guidelines for agencies using the digital yuan, and having foreign governments receiving financial assistance for their military to disclose if they were using the CBDC.

“If left unchecked, technologies including China’s digital yuan will empower Russia to evade global sanctions on systems such as SWIFT and enable the CCP to further surveil and threaten their citizens,” said Blackburn.

With Russia currently facing sanctions from the United States and European Union threatening its economy, some reports have suggested the country may turn to China for solutions, tapping into payment systems including UnionPay. Many lawmakers have turned their attention to digital assets for potentially allowing Russia to evade these measures.

On Wednesday, U.S. President Joe Biden announced he had signed an executive order focused on establishing a regulatory framework for crypto — mentioning its possible role in circumventing sanctions.

While crypto-related policies in the United States have not always fallen strictly along party lines, Republican lawmakers seem to be leading the charge against China’s CBDC, potentially challenging the dollar’s dominance.

Senator Blackburn and Wyoming Senator Cynthia Lummis — also a supporter of the aforementioned bill — penned a letter in July 2021 urging Olympic officials to forbid U.S. athletes from using the digital yuan during the Beijing Winter Games. Reports suggested that few foreign athletes relied on the digital currency at the event with Visa also available.

 

Jamaica Offers Free Money To Digital Currency’s First Adopters

* Government Offers $16 Incentive To Those Who Activate Wallets
* Caribbean Has Led Move Toward Central Bank Digital Currencies

Jamaica plans to give $16 of free money to the first 100,000 citizens who use its soon-to-be-launched Jam-Dex digital currency.

In a Facebook post Thursday, Prime Minister Andrew Holness said those who activate digital wallets after the currency goes live will receive an “incentive” of 2,500 Jamaican dollars.

Caribbean nations have emerged as leaders in issuing central bank digital currencies, or CBDCs. Unlike Bitcoin, Dogecoin and other popular cryptocurrencies, CBDCs are digital versions of a nation’s fiat currency. Bahamas launched the world’s first CBDC, the Sand Dollar, in October 2020. The Eastern Caribbean Central Bank launched DCash in March 2021.

But adoption has been slow amid the pandemic and technical glitches.

In a speech to Jamaica’s legislature this week, Finance Minister Nigel Clarke acknowledged that Jam-Dex’s success hinges on real-world utility. The more corner shops, vendors and bars that accept the digital currency, he said, “the more useful it becomes and the more widespread its use.”

Jamaica’s central bank piloted the Jam-Dex — short for Jamaica Digital Exchange — throughout 2021 and says it could launch it as soon as next month.

Jamaicans with bank accounts will be automatically eligible for Jam-Dex digital wallets. Those without accounts will have to go through a simplified “know your customer” process — a fraud-prevention practice mandated by regulators around the globe.

Payment-for-use offers are commonplace in the crypto space. When El Salvador made Bitcoin legal tender last year, it gave everyone who activated a “Chivo” digital wallet $30 worth of the cryptocurrency.

But Jamaica’s offer hasn’t been universally welcomed. Within minutes of the the prime minister’s announcement, commentators online accused the government of offering “bribes” to pave the way for Jam-Dex.

“They know people are desperate and take advantage of capitalizing on the desperation that they created,” one Facebook commentator said. “People should run not walk in the opposite direction.”

Biden’s Executive Order Calls For ‘Highest Urgency’ On CBDC Research And Development

The president has called on the Treasury Department to spearhead a series of reports looking into CBDC technologies and how to implement them – ”if doing so is deemed to be in the national interest.”

U.S. President Joe Biden called for an urgent, government-wide focus to be placed on the research and development of a potential central bank digital currency (CBDC) in his executive order signed Wednesday.

The order calls for a full-scale assessment of the potential benefits and risks of a CBDC, both for consumers and investors as well as the broader U.S. financial system. Biden has ordered the Treasury Department to spearhead the research and report, with input from other federal agencies, including the Secretary of Commerce and the Secretary of Homeland Security.

The assessment is also supposed to determine whether the implementation of a CBDC would be in “the national interest.”

There are several organizations already researching and piloting CBDCs in the United States, including the Boston Fed, which has partnered with Massachusetts Institute of Technology (MIT) on CBDC technology, and the Digital Dollar Project, a public-private partnership founded by consulting firm Accenture and Chris Giancarlo, the former chairman of the Commodity Futures Trading Commission (CFTC).

However, U.S. efforts have moved noticeably slower than those in other countries, including China, whose digital yuan is already being piloted in cities across the country. The order suggests that Biden – who noted that “over 100 countries are exploring or piloting” CBDCs – does not want the U.S. to get left behind.

David Treat, global blockchain lead at Accenture, told CoinDesk that the government will need to work with industry leaders if it wants to get things done right – and quickly.

“The executive order catalyzes the important work to pilot, test and advance the development of a CBDC,” Treat said. “We are excited about the pilot programs that the Digital Dollar Project will launch with our multi-stakeholder community.”

The Digital Dollar Project has promised five pilot projects, which are planned to kick off in the coming months, to evaluate whether and how a U.S. CBDC would benefit people who are unbanked (or underbanked) – a key point stressed in Biden’s executive order.

But though Biden’s attempt to speed up CBDC research and development might make things faster, it is unlikely to make things fast.

“The work to build private-public partnership for digital asset experimentation takes time,” Jennifer Lassiter, executive director of the Digital Dollar Project, told CoinDesk.

So, too, do government reports.

Though Biden gave the Treasury Department six months to get its research together, experts told CoinDesk it wouldn’t be surprising if that deadline was extended.

 

CBDCs Will Not Impact Private Stablecoin Market, Says Tether CTO

Tether chief technology officer Paolo Ardoino claimed CBDCs would primarily replace the age-old payment systems and utilize private blockchain as a modern and cost-controlled tech infrastructure.

Paolo Ardoino, the chief technology officer at Tether, believes that the growing developments around central bank digital currencies (CBDCs) globally wouldn’t really impact the role of private stablecoins.

Ardoino shared his two cents in a Twitter thread on the growing discussion around CBDCs and what their role could be in the current payment system. He said CBDCs would only replace the age-old centralized payment networks as SWIFT and use private blockchains to fulfill most transactions.

He went on to explain that CBDCs are not about digitizing the fiat currency as it has already been done, given most modern-day transactions are digital. The main goal of CBDCs is to use private blockchains as a modern and cost-controlled tech infrastructure, where most of the bank transfers and credit/debit card transactions will be settled via CBDCs.

Tether CTO claimed that private stablecoins such as USDT will remain relevant even in the age of government-issued digital currencies given, private stablecoins would give users the option to transfer across chains and would be available across multiple blockchains of their choice, something CBDCs won’t do.

Ardoino’s response comes in the wake of growing debate around whether CBDCs would cut the role of the private stablecoin sector. A discussion gained momentum in the United States after calls from several lawmakers to regulate the stablecoin market.

According to the Atlantic CBDC tracker, 86 countries are currently in the process of developing their sovereign digital currency, with an increase of over 100% since May 2020. Out of these 86 nations, nine countries have launched their CBDC while fifteen countries are in the pilot phase.

Among the world’s, China is leading the CBDC race with a fully functional digital yuan currently being tested out across the country. Several European nations such as France and Switzerland have started cross-border trials, while the U.S. has yet to finalize any plans for a digital dollar.

 

Updated: 3-11-2022

Jamaican Central Bank To Airdrop Jam-Dex CBDC To Early Adopters

Jamaica Digital Exchange — Jamaica’s soon-to-be-released CBDC — will see citizens with crypto wallets receive a $16 deposit to help spread awareness and usage.

The first 100,000 Jamaican citizens to use the country’s new central bank digital currency (CBDC) known as Jam-Dex will be given a free $16 payment in the hopes of promoting widespread adoption.

Jamaican prime minister Andrew Holness first announced the news in a Facebook post on Thursday. The post received a mixed response as some Facebook users praised Holness for “embracing a digital future” while others expressed concern about the motivations of the Jamaican government, accusing Holness of trying to “bribe” citizens into the federal banking system.

According to the Jamaica Observer, approximately 17% of the Jamaican population is currently unbanked. While social media users postulate about government motives, the Observer points out that remaining unbanked is both costly and time-consuming for poorer Jamaicans.

It is hoped that this new payment incentive, among others, will encourage low and middle-income citizens to join the national banking system.

The announcement comes as the Bank of Jamaica (BoJ) officially completed its eight-month-long pilot program for Jam-Dex on Dec. 31 last year, and it is expected to complete a national rollout as soon as next month. The BoJ further outlined that all Jamaicans with pre-existing bank accounts will be automatically eligible for Jam-Dex digital wallets.

Jamaican Finance Minister Nigel Clarke said in a speech to the country’s House of Representatives on Wednesday that Jam-Dex must achieve widespread adoption by citizens and their businesses in order to be successful.

According to the report provided by the BoJ on Feb. 17, the new digital currency will be called Jamaica Digital Exchange or Jam-Dex for short, and comes with its own logo and the following tagline: “No cash, no problem.” The BoJ expects the currency to be launched as soon as next month.

The name Jam-Dex was met with a great deal of criticism for both technical and aesthetic reasons. While the Jam-Dex is potentially making reference to the fact that currencies are “exchanged” and that it is both “digital” and “Jamaican,” the terminology has created a good deal of confusion for many.

Users on Twitter were quick to point out the obvious misnomer in the currency’s namesake, as Jam-Dex is simply a digital currency whereas “DEX” in crypto parlance refers to a decentralized exchange, a place where cryptocurrencies are bought and sold.

Despite China being one of the first countries to announce the development of its CBDC, the digital yuan, countries in the Caribbean have quickly become leaders in the adoption and proliferation of CBDCs. The Eastern Caribbean Central Bank (ECCB) rolled out its own CBDC, DCash, to eight different member countries.

The adoption of DCash, however, has been mired after a crash on Jan. 14 saw the central bank-backed digital currency go offline for nearly two months. It wasn’t until Wednesday that the ECCB announced that DCash was once again fully functional, stating the reason for the crash was an “expiring certificate” on the Hyperledger Fabric that hosts the DCash ledger.

Numerous other countries around the world are beginning to experiment with the implementation of CBDCs, with the Philippines announcing plans to launch Project CBDCPh as recently as Tuesday. Iran, Kenya and the European Union are also among the most recent countries to begin looking at introducing some form of CBDC.

 

Updated: 3-12-2022

What A U.S. Digital Dollar Means For The Future Of Your Wallet

Advocates see lower-cost transactions and greater access to the financial system, but critics worry about privacy.

The world’s reserve currency may be about to go digital, potentially transforming the way Americans move and use their money.

On Wednesday, the White House directed federal agencies from the Treasury to the Commerce Department to research a number of crypto-related topics, including the pros and cons of a digital dollar. For consumers, the move could mean lower-cost transactions and greater access to the financial system, but it could also threaten their privacy and hurt U.S. banks that depend on deposits.

And that’s only if the government can successfully deliver on what’s likely to be a complicated and controversial task.

In the executive order, the administration said that a digital dollar has the potential to support efficient and low-cost transactions, particularly for cross-border payments, and would foster greater access to the financial system. Supporters say a digital version of the dollar will offer some of the perks of cryptocurrencies: a safer, faster and more resilient payment system.

Despite the new guidance from the White House, however, a U.S. central bank currency won’t be implemented anytime soon. The process is likely to prove lengthy, with questions about whether it will offer the efficiency and ease of the current financial system.

What’s more, the move would potentially give the government access to financial data that critics say could infringe on users’ privacy.

“What you’re starting to see is that the government has realized crypto is not a fad. This is a market that has potential growth that could really deliver the next major wave of innovation,” said Edward Moya, senior market analyst at foreign-exchange broker Oanda. “The harsh reality is that this will be probably something that will have several testing sequences.”

Digital payments are already a big part of how consumers in the U.S. transact daily, from mobile applications like Venmo and Apple Pay to debit cards, bank transfers and payment services. On the surface, a digital dollar wouldn’t be so different from keeping money in an electronic account.

But on the back end, the mechanism through which money is transferred across the U.S. financial system would change.

Central bank digital currencies, or CBDCs, are a direct liability of a country’s central bank, not commercial institutions. Consumers would rely less on third-party intermediaries to act as middlemen, and would essentially work directly with the government to complete certain transactions.

This has the potential to enable near-instantaneous settlements as well as lower fees, and also means there’d be no need to worry about bank failures or deposit insurance, experts say. A digital dollar could also offer the government a faster way to transmit things like tax refunds, stimulus checks and unemployment benefits to citizens.

“In the background, if this is a more effective technology, it will enable more transactions, cheaper transactions, and that will result in businesses charging lower prices for the products that they sell,” said William Luther, fellow with the Bitcoin Policy Institute and associate professor of economics at Florida Atlantic University.

Digital Yuan

The U.S. government’s announcement may have partially been a response to pressure from abroad. Several governments across the world have laid out plans to provide alternative digital currencies in order to remain competitive with cryptocurrencies and other countries’ legal tender.

CBDCs could also provide a workaround to the U.S.-dominated global banking system, and potentially be used as a way to avoid sanctions.

More notable among these is China, which started testing its digital currency in late 2019 and encouraged its use at the Winter Olympics in Beijing earlier this year. Transactions using the digital yuan at the end of 2021 totaled the equivalent of $14 billion.

“You’re probably going to see that there will be some competition between the U.S. and China to see which one is the dominant player for how world trade is handled,” Moya said. “There’s still an advantage for the dollar; so as long as that is the case, the likelihood that the digital dollar will have an advantage is still there.”

According to the IMF, some 100 countries are at varying stages of CBDC exploration, including India, which surprised the payments world by announcing that its central bank will issue a digital rupee in the fiscal year starting April 1.

The main challenge for governments considering digital currencies is whether they can develop the technology needed to make them work as seamlessly as the traditional banking sector. Problems in managing the rollout could undermine public trust.

As such, the development of a digital dollar will resurface a long-standing debate in America over whether certain services should be private or public, said Joe Carlasare, partner at SmithAmundsen and chair of the law firm’s cryptocurrency, blockchain and fintech group.

“The commercial banking system is pretty darn efficient,” said Carlasare. “It offers tons of rapidity for transactions and there’s trillions of transactions that occur regularly through the commercial banking system. The Fed is not going to be any more innovative than that.”

Privacy Concerns

A digital dollar also raises questions about financial privacy. The ledger underpinning the currency would likely be operated by the government, which would potentially give it the ability to monitor transactions, halt them or confiscate balances.

“If the government controls the ledger, then there is a risk that it will monitor those transactions without going through the proper legal channels because it’s not taking information from someone else,” said Luther at the Bitcoin Policy Institute. “It’s just looking at its own information.”

Separately, banks and financial institutions that depend on deposits from customers to run their businesses and finance lending might take a hit if a digital dollar becomes popular, Luther said.

The Federal Reserve released a discussion paper earlier this year that said a digital currency could reduce the amount of money in the banking system, increase the cost of loans and reduce credit availability to households and businesses.

The public hype around cryptocurrencies means the U.S. government can no longer ignore the possibility of a digital currency. But aside from the technology, a digital dollar would be conceptually different from a cryptocurrency like Bitcoin, which is still too volatile and insufficiently accepted to be useful for payments.

“A digital dollar is backed to the same extent that your physical dollar is,” said Gene Hoffman, president of blockchain platform Chia Network. “You expect it to have more acceptance globally and be less volatile, whereas cryptocurrencies are in this radical adoption phase and that leads to volatility.”

However, Bitcoin offers one feature a digital dollar won’t: there’s no central party that controls it.

“The demand for things like Bitcoin and other cryptocurrencies is because they have attributes that the dollar does not have,” said Carlasare.

 

Updated: 3-15-2022

Bitcoin Well Positioned To Help Governments Create Cheaper CBDCs: Deloitte

Deloitte analysis shows how Bitcoin can help traditional fiat currency improve drastically in terms of speed, security, efficiency, cross-border payments.

A new study from financial services giant Deloitte highlighted the potential of Bitcoin (BTC) as a base from which to create a cheaper, faster and more secure ecosystem for electronic fiat or central bank digital currencies (CBDCs).

Deloitte’s analysis, “State-Sponsored Cryptocurrency,” pointed out the need for a complete redesign of the traditional fiat ecosystem to overcome the impending issues of being “slow, error-prone and expensive relative to performance in other high-tech industries.”

However, the report pointed out five key areas where Bitcoin can help traditional fiat currency improve drastically — speed, security, efficiency, cross-border payments and collaboration with other payment participants:

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)Similarities And Differences Between CBDCs And Bitcoin. Source: Deloitte

“With the potential to […] do it without the day-to-day operational need for a centralized organization, whether commercial or federal, the result could truly be transformational.”in the hopes of promoting widespread adoption.

While stating the various difference between BTC and state-issued CBDCs, Deloitte’s analysis reiterates one of the major inflationary traits of fiat currency, stating that CBDCs have no cap on themoney supply contained on the ledger and that centralized governments can define the value of the CBDC.

According to the analysis, the first governments to roll out a nationwide CBDC would have an early-bird advantage in influencing the use of their local currency in international markets and trades.

In a CBDC environment, Deloitte envisions crypto exchanges retaining their current positions as facilitators used to convert “users’ cryptocurrency to paper currency when transacting across different currencies and charge an exchange fee in return.” In such a scenario, banks would act as custodians of the distributed ledger and would compete with other miners to process transactions and collect the rewards or fees.

On an end note, the analysis states that while CBDCs will not serve as a one-to-one replacement for BTC and other cryptocurrencies, the mainstreaming of CBDCs will open up an additional option for users to choose the most appropriate medium of payment, concluding:

“[Bitcoin] could ultimately spawn a series of new opportunities that would […] transform the current payments system into one that is faster, more secure, and less expensive to run.”

While many jurisdictions have joined the race to implement in-house CBDCs, one of the key factors for its successful implementation is widespread adoption.

In this effort, Jamaican Prime Minister Andrew Holness announced that the first 100,000 Jamaican citizens to use the country’s CBDC, Jam-Dex, will be given a free $16 payment in the hopes of promoting widespread adoption.

As Cointelegraph reported, approximately 17% of the Jamaican population remains unbanked, and with the launch of CBDC, the Jamaican government plans to encourage low and middle-income citizens to join the national banking system.

 

Updated: 3-16-2022

Blockchain Association Policy Head: US Shouldn’t Compete With China’s CBDC Using Surveillance Tools

“We will not compete against China — an authoritarian dictatorship — by also acting like an authoritarian dictatorship,” said Jake Chervinsky.

Jake Chervinsky, head of policy at crypto advocacy group the Blockchain Association, said the United States should be careful to avoid a “totalitarian nightmare” in its potential launch of a central bank digital currency, or CBDC.

Speaking at Austin’s SXSW festival on Tuesday in a panel on “Financial Surveillance in a Cashless Society,” Chervinsky said that although U.S. President Joe Biden had issued an executive order establishing a national strategy for cryptocurrencies in the United States, there were potential privacy concerns over the country launching a CBDC.

Empowering a government to surveil its citizens using a CBDC “sounds like the kind of thing China would do” with its digital yuan, according to the Blockchain Association policy head.

“It seems that a central bank digital currency would be under the total and complete control of the government,” said Chervinsky. “So at all times the government would know what you are spending, where you are spending on it.

They could program the central bank digital currency so they could put in restrictions and say “you are only allowed to spend these dollars in these certain places but not in those other places.” They could freeze accounts or take money out of the accounts at any time.”

The Blockchain Association Policy Head Added:

“Our hope is that when the government does this study [as established by the executive order] […] the conclusion they will reach is we will not compete against China — an authoritarian dictatorship — by also acting like an authoritarian dictatorship. Instead we will empower our private sector to come up with competitive solutions.”

In January, the U.S. Federal Reserve issued a long-awaited discussion paper on the benefits and risks of a digital dollar. The central bank said at the time it would consider potential privacy concerns of a CBDC, but added that a U.S.-issued digital currency “might help preserve the international role of the dollar.”

Fed chair Jerome Powell has spoken in favor of stablecoins, saying they could be a “useful, efficient consumer-serving part of the financial system if they’re properly regulated” and that a digital dollar might eliminate the need for cryptocurrencies and stablecoins.

However, some U.S. lawmakers are pushing back against the idea of a Fed-issued CBDC. In January, Minnesota Representative Tom Emmer said he would be introducing legislation aimed at limiting the central bank’s “authority to offer retail bank accounts.”

Some experts have reportedly argued that China’s digital yuan could threaten the U.S. dollar’s dominance should adoption of the CBDC continue to grow within the country and beyond. Sheila Warren, CEO of the Crypto Council for Innovation, said on the same panel that although it was “theoretically possible” to issue a CBDC in the United States without the technology being used for digital surveillance, she foresaw the digital currency being used for wholesale bank-to-bank transactions rather than retail.

China has been conducting trials of its CBDC in major cities since April 2020 in an effort to eventually replace cash with the digital yuan. As of January, a reported 261 million users have set up digital wallets for the e-CNY with more than $13 billion worth of transactions.

 

Updated: 3-17-2022

Bank Of Canada Collaborating With MIT On CBDC Research

The bank will work alongside the MIT Media Labs’ Digital Currency Initiative (DCI) team to examine how “advanced technologies could affect the potential design of a CBDC.”

The Bank of Canada has partnered with the Massachusetts Institute of Technology (MIT) to work on a 12-month research project focused on the design of a Central Bank Digital Currency.

According to a Wednesday announcement, the bank will work alongside the MIT Media Labs’ Digital Currency Initiative (DCI) team to examine how “advanced technologies could affect the potential design of a CBDC.”

The Bank of Canada stated that the project is part of a broader development agenda on digital currencies, fintech and how CBDCs could work in a Canadian context.

It cautions that “no decision has been made on whether to introduce a CBDC in Canada,” but said it would provide an update once the research project has been completed.

This is not the MIT DCI’s first partnership with a bank for CBDC research, with Cointelegraph reporting earlier that at the start of February, it had published research on the topic in collaboration with The Federal Reserve Bank of Boston.

Dubbed “Project Hamilton,” it tested a “hypothetical general purpose CBDC” using two potential models including distributed ledger technology (DLT) and processing transactions in parallel on multiple computers, rather than relying on a single ordering server to prevent double-spending.

CBDCs — memorably described by Rich Checkan, Asset Strategies International president, as being “concocted in hell by Satan himself” and with Edward Snowden warning about the implications for privacy and freedom — have been grabbing the headlines of late.

In terms of United States President Joe Biden’s executive order on Ensuring Responsible Development of Digital Assets outlines that his administration will place “the highest urgency on research and development efforts into the potential design and deployment options” of U.S.-based CBDC.

The executive order also directs the Secretary of the Treasury and other relevant officials to produce a research report on a local CBDC, while the attorney general has also been tasked with leading an effort to “to assess any necessary legislative changes” required for a CBDC and to promptly develop a legislative proposal afterward.

 

Updated: 3-18-2022

Qatar Exploring Digital Banks And Central Bank Digital Currencies

The central bank is expected to set a direction for its future focus soon, particularly on various fintech verticals.

The Qatar Central Bank (QCB) is reportedly investigating the possibility of launching a digital currency and issuing digital bank licenses.

According to the head of the fintech section at QCB, Alanood Abdullah Al Muftah, the central bank is expected to set a direction for its future focus soon on a range of fintech verticals.

Al Muftah noted that QCB will also determine whether Qatar can establish a central bank digital currency (CBDC). She explained:

“Each central bank should study digital banks, considering their growing significance in the global market. We also see the direction of the market moving toward having a digital currency. However, it’s still being studied whether we’re having a digital currency or not.”

While commenting on Qatar’s regulatory sandbox, Al Muftah said that three firms in the payments sector are currently testing solutions with the central bank. She also stated that the QCB is considering other firms interested in utilizing the regulatory sandbox.

A regulatory sandbox is a space in which fintech firms can test new products, services, business models and delivery mechanisms in a real-world setting while benefiting from an accelerated authorization process and supervisory monitoring.

Private Qatari bank Dukhan Bank, meanwhile, is examining the possibility of creating a digital bank in Qatar, its chief operations and digital officer Narayanan Srinivasan told The Peninsula. However, Srinivasan warned that his institution would only build a digital bank after a better understanding of its economics. As per the report, Dukhan Bank is also considering blockchain technology in the payments sector.

Although private virtual currencies like Bitcoin (BTC) have grown in popularity and followers, government-backed CBDCs, frequently regarded as an antithesis to private cryptocurrencies, have been accelerating rapidly.

According to data from the Atlantic Council, as of June 2019, 87 nations are currently developing their own digital currency, with only 14 having completed the pilot phase. Nine countries have already implemented a CBDC.

 

Updated: 3-22-2022

Central Banks Liken Digital Money Push To 19th Century Cash Feud

* Sweden’s Ingves Says Central Banks Need Role In Money Supply
* CBDC Efforts Come Amid Declining Cash Use, New Payment Forms

Central banks across the globe are drawing lessons from 19th century history in their push for modern payment technologies, according to the chief of Sweden’s Riksbank, the world’s oldest central bank.

The use case for central bank-issued digital currencies (CBDC) — such as the digital yuan or the digital euro being studied in China and Europe — arises from a similar dilemma faced by monetary authorities in the late 1800s.

Both then and now, central banks had to assert their footprint in money supply, Riksbank chief Stefan Ingves argued in a panel moderated by Bloomberg’s Stephanie Flanders on Tuesday.

“About a hundred years ago, every sovereign state decided that the government should have a monopoly on the production of money. The reason was that only the government could provide a currency that trades at par with no questions asked” and isn’t subject to bank runs, said Gary Gorton, a professor at the Yale School of Management who spoke alongside Ingves.

“The question of whether states should have monopoly over money production has arisen again,” Gorton said.

In the past, it was common for consumers and businesses in many parts of the world to transact using numerous privately-issued banknotes and coins, frequently causing conversion and settlement headaches.

Monopolizing currency issuance established a division of labor between central banks and commercial institutions that is common today, where the latter focus on lending.

Yet declining cash use and a flood of new payment technologies means the bulk of money transacted by consumers is actually no longer issued by central banks. Instead, electronic money on bank accounts marks a liability of commercial banks.

The growing popularity of cryptoassets like Bitcoin or stablecoins may pose yet another challenge to central banks’ control of the means of payment.

“In the old days everything was on paper. Now we’re moving into another world where nothing will be on paper,” Ingves said. Central banks should not let go of the structure established more than a century ago, he argued, because “if history gives us any guidance, that’s a bad idea.”

“We need to ensure we can maintain the exchange rate between central bank money and private sector money,” he said. Otherwise “you end up with serious problems in the system, and those were exactly the problems that we had in the 1800s when banks issued all sorts of notes and coins on their own.”

BIS Joint Pilot: Institutions Can Use CBDCs For International Settlements

The experimental CBDC platform proved that the design approaches used to address three major issues of access, jurisdictional boundaries and governance were effective.

Bank of International Settlement (BIS) Innovation Hub has completed an experimental central bank digital currency (CBDC) platform pilot for international settlement with the central banks of Australia, Malaysia, Singapore and South Africa.

The multi-national experimental CBDC project, dubbed Project Dunbar, has been developed to facilitate direct cross-border transactions between financial institutions using multiple currencies connected across multiple central banks.

The joint CBDC pilot was announced in September 2021, and a final report regarding the same was released on Tuesday. The experimental joint CBDC program turned out to be a success and proved financial institutions can use CBDCs issued by central banks to transact directly with each other on a shared platform

The project took several aspects into consideration before developing prototypes. Some of the key issues that the project is trying to solve include resolving cross-border remittance issues in accordance with the regulatory requirements and bringing in key payment infrastructure across national borders.

The project was successful in developing functioning prototypes and demonstrating practical solutions, establishing that the notion of multi-CBDCs was technically realistic. The prototypes proved that the design approaches used to address the three major issues of access, jurisdictional boundaries and governance were effective.

The developers of the project claimed that Project Dunbar illustrated how governance structures enforced by robust technology means can meet important concerns of trust and shared control. Andrew McCormack, head of the BIS Innovation Hub Centre in Singapore, said:

“Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms.”

Prior to BIS innovation hub’s multi-CBDC platform, the likes of Switzerland and France experimented with cross-border remittance in a joint venture for a digital euro. Now, the findings of the experimental CBDC program could aid in the adoption of CBDC international settlement for G-20 nations.

With over 95 nations currently working toward their sovereign digital currency, CBDC use for international settlements could become a reality, especially at a time when many governments are already looking to build alternatives for centralized payment gateway like SWIFT.

 

Updated: 3-23-2022

Powell Says Digital Dollar Must Ensure Privacy, Identification

Federal Reserve Chair Jerome Powell outlined four qualities a hypothetical digital currency in the U.S. must have while adding that no final decision has been made on whether to proceed with creating one.

Powell said a central bank digital currency would need to ensure user privacy; it would need to be “identity verifiable,” similar to the way U.S. bank accounts are identifiable to prevent money laundering; it would need to be “intermediated,” or widely embraced by the current banking system; and serve as a widely accepted means of payment.

Powell made the comments Wednesday during a virtual panel at the Bank for International Settlements Innovation Summit.

The Fed chair warned that crypto assets “have been used to facilitate illicit activity,” and this needs to be prevented. He said some also present financial stability concerns.

U.S. central bankers are conducting research and experiments with digital currencies though Powell has stopped short of recommending a digital dollar, saying such a move would need more input from U.S. lawmakers and stakeholders.

Fed officials are currently gathering feedback on a white paper on the topic they published in January, which discussed the risks and benefits of a central bank digital currency without endorsing one.

 

Powell Flags Risks of New Digital Financial Products

Fed chief highlights potential financial stability worries from proliferation of private cryptocurrencies.

Federal Reserve Chairman Jerome Powell said the central bank supported innovation in digital financial products but warned that it is “easy to see the risks” of certain new technologies, including cryptocurrencies, that would demand a regulatory overhaul.

Mr. Powell said Wednesday that some of these innovations would require changes to existing laws and regulations to ensure proper oversight of the broader financial sector. He spoke during a panel discussion with other central bank governors hosted by the Bank for International Settlements.

“There are potential financial-stability concerns for some products,” Mr. Powell said. “We don’t know how some digital products will behave in times of market stress.”

He said the central bank would be guided by a principle of “same activity, same regulation,” which means that activities that are regulated in the banking system needed to be subject to the same rules if those activities migrate outside of the regulated banking sector.

“It’s highly likely that digital financial activities that are currently outside the regulatory perimeter will…be brought within it, which is necessary to level the playing field, keep trust of users, protect consumers, and all of that,” Mr. Powell said.

In January, the Fed launched a review of the potential benefits and risks of issuing a U.S. digital currency. Fed officials have been divided on the matter, making it unlikely they will decide soon on whether to create a digital dollar.

Unlike private cryptocurrencies such as bitcoin, a Fed version would be issued by and backed by the U.S. central bank, a government entity, as are U.S. paper dollar bills and coins.

Mr. Powell said the Fed is “only at the beginning of this journey” and that the Fed hadn’t made any decisions about whether it would issue a digital form of the dollar. Mr. Powell didn’t speak on interest-rate policy or the economic outlook in his remarks Wednesday.

 

Updated: 3-25-2022

MIT Adds The Bank Of England To Its Stable Of CBDC Research Partners

The Bank of England will launch a yearlong joint research project with MIT, which is already working with the Federal Reserve Bank of Boston and Bank of Canada.

The Bank of England announced Friday that it had reached an agreement with the Massachusetts Institute of Technology Media Lab Digital Currency Initiative, or DCI, on a joint twelve-month research project on central bank digital currencies, or CBDCs. The bank said in a statement that the new project was for research purposes only and not intended to develop an operational CBDC.

The bank began studying CBDCs in 2020, releasing a discussion paper in March of that year. The DCI responded with a discussion of how a CBDC could meet the objectives stated in the paper. The bank and the treasury headed up an exploratory task force on the matter last April, and the bank’s latest discussion paper on CBDC was released Thursday.

Other voices have entered the discussion as well, with the House of Lords Economic Affairs Committee, for example, expressing mixed sentiments about a potential digital pound early this year, pointing out “advantages on speed of settlement and cheaper and faster cross-border payments,” along with “challenges for financial stability and the protection of privacy.”

The Bank of England joins the Federal Reserve Bank of Boston and the Bank of Canada as CBDC research partners at the DCI, the originator of the OpenCBDC project. The Bank of Canada announced its year-long joint research effort last week, while the Boston Fed kicked off its collaboration with the DCI in 2020.

MIT is hardly alone in the field: About 60 countries are currently researching CBDCs, and there are about 15 pilot projects underway including China’s homegrown digital yuan. Australia, Malaysia, Singapore and South Africa participated in the Bank of International Settlement Innovation Hub’s Project Dunbar.

Nigeria and the Bahamas have already launched their CBDC, and Jamaica is expected to do so this quarter. Nigeria’s eNaira was developed by private fintech firm Bitt.

Jamaica’s Central Bank Digital Currency And The Problems It Hopes To Solve

Jamaica’s new central bank digital currency, slated for launch early this year, aims to help address economic issues on the island nation.

The Central Bank of Jamacia recently announced that it would be launching its central bank digital currency (CBDC), dubbed the Jamaican Digital Exchange, or Jam-Dex, in the first quarter of 2022. According to the Jamaican government, the national digital currency will help to lower transaction costs while allowing the unbanked to access financial services.

It is estimated that over 17% of Jamaicans are unbanked, but it is feared that many more are underbanked. This is largely due to systemic financial sector impediments. High transaction costs, in particular, are a huge limitation. Consequently, many Jamaicans believe that banks are a preserve of the rich.

That said, internet penetration in Jamaica boasts impressively at over 55%, while mobile phone usage is at 100%. The Jamaican government is banking on these positive technological dynamics to catalyze the adoption of its national digital currency.

As things stand, the Jamaican banking sector is highly centralized. Two banks dominate over 60% of the nation’s entire banking sector. The situation has brought healthy competition and led to the compounding of retrogressive oligopoly issues such as high interest rates.

Jamaican banks have also hiked up transaction fees which “penalise depositors for having monies in the bank,” according to local Member of Parliament Fitz Jackson. The Jamaican government seeks to subvert these suppressive financial service trends by introducing the Jam-Dex digital currency. It will help devolve the country’s financial system away from the control of monopolistic banking giants.

Uptake In The Next Couple Of Years

Over 70% of the Jamaican population is expected to take up the new digital currency within the next five years. The country’s central bank, the Bank of Jamaica, is hoping to replace at least 5% of Jamaican dollars in circulation each year for the next couple of years.

The establishment has hailed Jam-Dex as a solution to greater transparency. All transactions done on the Jam-Dex network including government welfare payments will be traceable to enhance accountability.

The Jamaican central bank recently issued a total of around six million Jamaican dollars, or $44,000, to two major banks to carry out real-world testing of the Jam-Dex network before its official debut.

Customers looking to use Jam-Dex will be required to sign up for a digital wallet and make a deposit via an accredited Jamaican financial institution.

Problems Facing The Unbanked In Jamaica

Due to their avoidance of regulated financial institutions, many unbanked Jamaicans miss out on progressive socio-economic opportunities. Some government and nonprofit assistance programs, for example, make use of regulated financial institutions to distribute monetary aid. Because the unbanked lack bank accounts, many of them are left out.

Speaking To Cointelegraph, Daniel Polotsky, The Founder Of CoinFlip, The Largest Bitcoin (BTC) ATM Network In America, Said:

“Users looking to open traditional bank accounts undergo tedious approval processes and usually expose themselves to potential overdraft fees or other hidden expenses that they often cannot afford to pay.”

Another problem that the unbanked face is the reliance on exploitative credit sources. Many of them are likely to take out payday loans due to a lack of access to formal credit institutions. Payday loans are incredibly expensive to finance.

Many Jamaicans are hooked on such services because the loans are easy to access, especially during emergencies. This ultimately leads to a vicious borrowing cycle.

The lack of a credit history among the unbanked in Jamaica further contributes to their economic segregation. Credit history is typically needed by employers, insurance companies and landlords when making assistance and compensation considerations. Because unbanked individuals rarely have these records, they cannot get the help they need.

Many unbanked people also lack substantial savings and when they do, they keep the funds in unsafe places, usually at home. This makes the money more susceptible to risks such as theft.

The Jamaican CBDC aims to provide financial services to the unbanked, helping them overcome many of the aforementioned problems.

Greater Inclusion With A CBDC

The Jamaican digital currency is set to have a disruptive effect on Jamaica’s financial sector, particularly for its unbanked citizens.

The financial inclusion of unbanked Jamaicans calls for the implementation of a radical financial system that promotes inclusivity, and Jam-Dex has the necessary properties needed to achieve this.

Polotsky Highlighted The Importance Of Such CBDCs:

“Central Bank digital currencies like Jamaica’s are an important step in building widespread familiarity around digital currencies. They also allow underbanked and unbanked individuals the opportunity to digitally hold and send cash for a lower fee than traditional banks, which can be crucial. While they won’t replace cryptocurrencies, these currencies can seamlessly co-exist in our digital world.”

He also explained that the new Jamaican digital currency would help popularize the use of prime deflationary cryptocurrencies such as Bitcoin, which are typically used to hedge against inflation.

Using the digital currency would enable relevant government agencies to monitor purchases of subsidized goods and detect pricing anomalies.

Setting Consumer Prices And Countering Price Gouging

The rollout of the Jamaican digital currency will enable the government to counter price cartels, especially in instances where there is a need to regulate prices. Such scenarios usually occur when government subsidies cover certain products.

In recent years, Jamaican legislators have had to move swiftly to enact laws preventing the price cartels, especially in times of calamity.

Price gouging in the nation is particularly rampant during the hurricane season when opportunistic traders hike the prices of building materials such as lumber, tarpaulin and zinc sheets.

During the onset of the COVID-19 pandemic, disinfectants, hand sanitizers and masks were targeted by Jamaican price-gouging cartels forcing the government to intervene. Fines of up to 2 million Jamaican dollars, or $13,066 at the time of writing, were imposed on retailers found to be price gouging.

Of course, verifying each reported price gouging case is a time-consuming process. The Jamaican digital currency will make it easier for the authorities to verify such reports by analyzing point-of-sale records on the blockchain.

Countering Money Laundering

Jamaica had a Basel AML Index score of 5.77 in 2021. The nation’s index has been on a downtrend since 2017. The current rating means that Jamaica is highly prone to money laundering and terrorist financing schemes. The composite index score considers numerous factors including the nation’s corruption levels, its financial standards, adherence to the rule of law and political disclosure.

In 2020, Jamaica was added to the European Union’s blacklisted countries after the EU found that Jamacia’s Anti-Money Laundering (AML) protocols were lacking.

The country was also included in the Financial Action Task Force gray list, a move that led to Jamaican merchants and clients being blocked from transacting on major international retail platforms.

The introduction of the Jamaican digital currency is expected to improve transaction transparency and help the nation overcome its current AML issues.

More Effective Monetary Policies

The rollout of the Jamaican digital currency will enable the country’s central bank to track transactions with an aim to improve monetary policies.

The central bank, for example, would be able to establish overall credit scores compared to debt when formulating relevant regulatory rules.

Updated: 3-28-2022

US e-cash: Bill Proposes Digital Currency That Replicates Cash, Bypasses The Fed

A United States House bill proposes a Treasury-issued, hardware-secured and anonymous form of digital cash.

The Electronic Currency and Secure Hardware Act (ECASH Act), introduced today in the United States House of Representatives, could herald a new direction in government-sponsored digital currencies.

The legislation calls for the U.S. Secretary of the Treasury to develop and pilot an electronic version of the U.S. dollar that is easy to use for the economically marginalized or technically challenged. It would also “maximize” consumer protection and data privacy, according to its principal sponsor Representative Stephen Lynch, chair of the Fintech Task Force in the House Financial Services Committee.

Interestingly, e-cash, as it’s called, would be issued by the U.S. Treasury Department, not the Federal Reserve Board, which means it would technically not be a central bank digital currency (CBDC) nor would it be built on a blockchain or require the internet to operate.

It is designed to “replicate the privacy-respecting features of physical cash,” such as coins and notes to the greatest extent possible.

The initiative isn’t meant to necessarily preclude a Fed-issued CBDC, however. The pilot program launched by the ECASH Act will “complement, and advance ongoing efforts undertaken by the Federal Reserve and President Biden to examine potential design and deployment options for a digital dollar,” said Lynch, a democratic representative from Massachusetts, in a statement. Representatives Chuy Garcia, Ayanna Pressley and Rashida Tlaib are co-sponsors of the bill.

The bill envisions the launch of a two-phase e-cash pilot program within 90 days of enactment — with the deployment of e-cash to the American public expected no later than 48 months after enactment.

The legislation is being proposed and supported by a coalition of progressives, consumer advocates, civil libertarians and even some crypto “true believers,” Rohan Grey, assistant professor at Willamette University College of Law, told Cointelegraph. Most Republicans will probably oppose it, “but I hope to be pleasantly surprised,” he added.

What is striking is that the proposal doesn’t involve a central bank or digital ledger technology (DLT), which could presage a new path in state-sponsored digital money development. It arguably offers more privacy and anonymity than any other government-sponsored digital currency project to date, calling for an “electronic dollar” to be used by the general public that is capable of:

“Instantaneous, final, direct, peer-to-peer, offline transactions using secured hardware devices that do not involve or require subsequent or final settlement on or via a common or distributed ledger, or any other additional approval or validation.”

There is presently no other similar CBDC proposal in the world like this, said Grey, who worked with Congressman Lynch’s office in developing the bill.

The current CBDC debate on digital money often pits currencies with a centralized digital ledger, like China’s digital yuan, against digital currency issued on a distributed (decentralized) ledger, or blockchain.

What is proposed in nearly all instances, however, is the use of a ledger. That is, “transactions get recorded on a common balance sheet somewhere,” said Grey, adding:

“The whole digital currency debate so far has taken place in the realm of account-based money.”

But, with e-cash, there would be no ledger, just as no ledger is used for physical cash transactions. This should appeal to privacy advocates and civil libertarians who want to preserve anonymous monetary transactions. Digital ledger technology, even when decentralized, does not allow for complete anonymity.

“If you don’t have a ledger, there’s no one who can censor transactions and no one you have to ask permission for,” explained Grey.

How would it work? E-cash could be exchanged by two individuals tapping their phones together. It might be sent over distances like secured text messages, though this would require phone service, unlike face-to-face.

It is intended to be easily used in a retail setting. Grey envisions a future mobile phone app with three accounts or options: one for the owner’s bank account, the second for a credit card account and a third e-cash account.

But, Dispensing With All Intermediaries Like Credit Card Companies, Banks Or The Government Also Introduces Some Risks. Grey Added:

“You’re holding the money on your device. If you lose your device, you lose the money — that’s the risk. Just like you lose your physical wallet on the train, you lose all the money inside the wallet.”

In recent years, the U.S. has been under some growing pressure to develop a central bank digital currency, particularly as China moves closer to a full roll-out of its digital yuan.

Lynch referenced the challenges in today’s statement: “As digital payment and currency technologies continue to rapidly expand and with Russia, China, and over 90 countries worldwide already researching and launching some form of Central Bank Digital Currency, it is absolutely critical for the U.S. to remain a world leader in the development and regulation of digital currency and other digital assets.”

As noted above, a Federal Reserve-issued digital dollar could still follow. “There’s nothing precluding the Fed from issuing a CBDC as well,” Grey told Cointelegraph. “In fact, that would be expected since the different designs serve different functions, like cash and checking accounts today.”

E-cash will be subject to U.S. regulations, too. It would be “classified and regulated in a manner similar to physical currency and would therefore be subject to existing anti-money laundering, counterterrorism, Know Your Customer, and financial transaction reporting requirements and regulations,” according to the sponsors.

Still, why would e-cash be issued through the Treasury Department and not the Federal Reserve? “If you were to say you wanted to create something digital that works like physical currency: It’s a token, it’s a bearer instrument, there are no accounts, no intermediaries or it’s going to be retail focused, who should issue that?” asked Grey. Treasury is the obvious candidate in his view.

After all, the Treasury already houses the United State Mint, the nation’s oldest monetary institution, as well as the Bureau of Engraving and Printing. The Treasury now participates in activities that are similar to electronic cash, like providing prepaid debit cards. In addition, the institution is more capable than the Fed at balancing competing political interests, he added.

“The Federal Reserve consists mostly of macro-economically trained academics and bankers,” said Grey. They’re not civil liberty experts or foreign affairs specialists. The Treasury, by contrast, encompasses agencies like the Office of Foreign Assets Control, which enforces foreign economic sanctions. Treasury has a wider scope and a broader skill set, in his view.

Moreover, U.S. central bankers have been saying for some time that critical decisions regarding digital currencies need to be made by elected lawmakers, Grey added. “So, now we are taking them at their word.”

Updated: 3-30-2022

If Money Is Speech, CBDCs Should Be Tools For Freedom

Examining the concerns a digital dollar could be used for coercion and censorship.

There is no constitutional right guaranteeing that you can spend your money as you please. Although there should be, and there’s precedent for thinking that money is akin to speech and spending it (within the bounds of established law) a form of expression.

This particular problem has come to light as the U.S. government studies a potential central bank digital currency (CBDC). A digital dollar, as it is sometimes called, is essentially a way to make an internet-native version of cash and coins.

This article is excerpted from The Node, CoinDesk’s daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.

Central bankers, if they support CBDCs, often point to the greater control a state-run monetary ledger affords over microeconomic and macroeconomic policy. A digital dollar could help automate tax collection, streamline welfare payments and inform decisions around setting interest rates.

Like everything else in the internet age, CBDCs are about big data: State-run ledgers would give near-complete insight into how money is being spent in a country. In fact, Agustin Carstens, general manager of the “central bank of central banks,” the Bank for International Settlements, said:

“We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today.” With CBDCs, that would be possible, he noted.

That’s quite dystopian for anyone who thinks there ought to be a measure of financial privacy – the same privacy afforded today by physical cash. Further, because CBDCs are mostly just research projects at this stage, they invite a high degree of skepticism and conspiracy theories.

Namely, people are worried “Govcoins” could become tools for coercion or censorship.

“Should people be encouraged to eat the foods decided best for them, such as a plant or insect-based diet? CBDCs could do the trick. Should people be limited in how much they can spend per week on carbon-intensive purchases?

CBDCs could help with that too,” N.S. Lyons, author of The Upheaval Substack, wrote last week in conservative-leaning digital mag City Journal.

It shouldn’t be controversial to say that governments want insight and oversight over monetary flows. They enact policies that degrade privacy and set limits around how money can be spent; often in service of the noble aim of combating terrorist financing and money laundering.

Lyons’ concerns are certainly, technically possible with CBDCs. In fact, Rohan Grey, assistant professor at Willamette University, said it’s already an established trend with some types of government-issued digital money.

In the U.S., for instance, food welfare programs like Electronic Benefit Transfer (EBT) set barriers around what can be purchased as well as time-limits within which the benefit must be spent.

“I could certainly imagine a CBDC enhancing individual choice and wellbeing, etc., but probably only if designed with that in mind.

Likewise, it’s not hard to imagine a CBDC being abused in some jurisdictions,” Matt Homer, executive in residence at Nyca Partners and former executive deputy superintendent at New York State Department of Financial Services, told me over Telegram.

Widely Accepted

The issue is magnified if CBDCs become generally accepted, widely adopted tender. Although sometimes presented as a form of greenbacks – which allows Alice to give Bob a quarter without an intermediary, ensuring both parties’ privacy and autonomy – a CBDC might end up looking more like company scrip.

Governments are legal monopolies, and letting them determine how public money is spent – which markets are kosher, who or what is off limits – would essentially turn the U.S. into a company town that stretches coast to coast.

However, there’s a strong case to be made that CBDCs should come with the same established guarantees of cash. They could be reasonably private and flow through an economy without intermediation – potentially into illegal markets, like cash.

Spending money is essentially disseminating speech and a form of association. This is the lesson from Citizens United v. Federal Election Commission. As such, civil rights advocates should fight for the same rights guaranteed by the First Amendment to apply to state-operated monetary rails.

“These are new First Amendment waters we’re sailing in,” Benjamin Barr, a lawyer at Barr & Klein PLLC specializing in free speech rights, told CoinDesk over email. It isn’t necessarily an easy fight, he noted.

For decades, privacy advocates have fought to scale back or dismantle the Bank Secrecy Act and other anti-money laundering and terrorist financing rules, which establish broad mandates to surveil even everyday citizens nominally to prevent crime, on privacy grounds and have failed.

“Government will always have some designated ‘governmental interest’ behind a regulatory oversight CBDC program – fighting tax evasion, ensuring the efficiency of Medicaid/Medicare by ensuring healthy eating, fighting crime, the war on terror … the list goes on and on,” Barr said.

So any “challenge or restriction” placed on a CBDC would need to weigh the speech interests of the “transaction as compared to the importance of the government interest at hand,” he added.

Though we may never get to the point where CBDCs become tools to foster certain behaviors or quash industries or interests that supposedly stand against the public interest.

“I’m skeptical about using CBDC as a spending control instrument, not just because I think it might undermine its attractiveness, and may even create unintended opposition,” John Kiff, ​​a former senior financial sector expert at the International Monetary Fund, wrote in an email.

He added that such restricted use of CBDCs would hamper fungibility, “and for me fungibility is a core CBDC characteristic.”

Greater Freedom

In some sense, if done right, CBDCs would be an even greater tool for freedom and a boon for civil liberties.

Today, the digitized versions of cash you’re used to dealing with aren’t actually U.S. dollars, but liabilities of private companies that correspond to the value of a dollar – it’s skeuomorphic! Banks, credit providers and money-processors track their dollar-denominated liabilities on centralized ledgers.

Even “peer-to-peer” payments providers like Cash App are intermediaries! But there are ways to design systems that reduce centralization.

Blockchains typically distribute this notational role across a host of computers, an imperfect system that provides user autonomy over their money but not necessarily privacy. Grey recently supported a bill for E-CASH, a blockchain-less, state-backed money.

As Homer said, a CBDC will function as it is made. What you could expect from a CBDC “depends on the design choices made for a CBDC, the accountability and governance features associated with it, and the extent to which the code/system is transparent to the public,” he said.

Just as the barriers to launching a CBDC are largely political rather than technological, so is the fight to guarantee that citizens can send their digital dollars as they wish. It’s just a matter of public will.

A Digital Dollar May Help The Poor, But It’s Far From A Done Deal

Financial inclusion is one big reason the U.S. should adopt a digital currency, supporters say, but others aren’t so sure.

Advocates for a digital dollar in the U.S. point to many possible benefits of such a currency, saying it would lead to greater financial inclusion, allow for a more efficient distribution of government benefits and provide a faster and cheaper way to send money overseas.

But the issue of whether to have a digital dollar is far from settled, although it may have received a boost earlier this month when President Joe Biden issued an executive order that asked federal agencies to study the issue.

Pandemic Relief

One example of how a digital dollar could have helped occurred when the U.S. government issued stimulus checks as a form of COVID-19 relief. Crypto enthusiasts claimed that instead of issuing checks, an easier and faster way to send the money to people would have been to simply airdrop digital dollars.

A digital dollar could deliver public benefits from the government in a much more efficient manner than the current system, according to Briana Marbury, executive director of the nonprofit Interledger Foundation.

With the COVID relief payments, the government was scrambling to get checks distributed, and in some cases, it didn’t even have the right addresses for people who had moved. In other cases, people weren’t registered with the Internal Revenue Service because their income was below the threshold required to file taxes.

“They were just up in arms and couldn’t figure out how to get these checks out to people in a fast and efficient way and it was just something that was very needed at the time,” Marbury said.

Similar difficulties arose with the $2.2 trillion CARES Act for small- to medium-size businesses and farmers.

With a CBDC, every person would have been issued a digital wallet that would allow them direct access to their funds, avoiding those obstacles, some crypto enthusiasts claimed. In fact, lawmakers had proposed that the Federal Reserve issue a digital dollar in March 2020, but ultimately decided for direct bank deposits.

Financial Inclusion

Jim Cunha, an official at the Federal Reserve Bank of Boston, says a digital currency could be one part of a solution to address an issue that’s bigger than just distributing government funds. That issue is including more people in the financial system.

“If you want to help solve financial inclusion, you’d have to have a public policy goal of doing that,” Cunha said. “A new technology by itself is not going to fix financial inclusion, just like it’s not going to fix cross-border.”

“One little use case and you can see how CBDC could have some potential, is oversimplifying it,” Cunha said. “But it shows you the potential. We just haven’t built on that yet.”

In the U.S., roughly 35% of low-income individuals open up bank accounts just to receive government funds. That number includes only those who qualify for opening a bank account, not people who want to, but don’t have the ability, to do so.

Some 7.1 million people, or 5.4% of the population in the U.S., are unbanked, and when including the underbanked to count those who don’t have access to mainstream financial services like credit cards and loans, the number goes up to 14 million.

Many of them are immigrants who send remittances overseas to their home countries, which is often an expensive service.

“They can either send that extra amount to their family and friends back home, thereby increasing their economies or even just being able to put that in their own pockets,” Marbury said. If the Federal Reserve were to issue a central bank digital currency (CBDC), it would probably charge much lower fees on remittances than private companies do, she added.

Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking, Housing and Urban Affairs Committee, has made a similar point.

“Americans shouldn’t have to pay exorbitant fees just to use the money they’ve already earned … a central bank digital currency can work with these no-fee accounts to make sure working families have access to the payment system and full participation in our economy,” Brown said at committee hearing last September.

How Would A Digital Dollar Work?

Some say that while a digital currency could help low-income families and individuals, the details of a digital dollar need to be fleshed out.

“CBDCs could have a great impact on fiscal policy, particularly for those in need,” said Jennifer Lassiter, executive director at the Digital Dollar Project. “But we will not know for sure, to what extent positive or negative impacts CBDCs would have if we do not experiment on specific use cases.”

A report earlier this month from the Brookings Institution written by Tim Massad, a former chairman of the Commodity Futures Trading Commission, and Howell Jackson, a Harvard Law School professor, said that instead of getting the Fed involved, “the Treasury Department could, relatively quickly, create digital accounts to provide payment services that would be especially valuable to unbanked and underbanked individuals.”

Not All Agree

There’s no consensus that a digital currency is necessary. Lawmakers and banks have been focusing on the issue of financial inclusion for years, and new products and services that are internet- or phone-based have already led to more financial inclusion, said Scott Talbott, a lobbyist for the Electronic Transactions Association, a group that represents big financial institutions like JPMorgan Chase, Mastercard and PayPal.

Talbott pointed to examples like being able to pay with cash from any location and e-cash, an electronic dollar that is issued by the Treasury Department and has similar characteristics to a CBDC.

Rather than creating a whole new system, it would be more efficient to continue with the current one and make “tweaks” to accommodate the CBDC, he suggested.

“If we’re talking about creating a whole new system, where the Fed creates a new rail or a new car or something, that’s a lot of effort to try to mimic what we already have,” Talbott added.

If the government decides to pursue a digital dollar, it would still take years for it to be issued. Some decision makers are eyeing the latter half of this decade.

“Yes, there are some challenges with implementation,” Marbury said. “But let’s experiment, let’s break this thing. And let’s see where our vulnerabilities are so that we can begin to create a system that works for everybody and that does not exclude certain populations of the American people.”

Ted Cruz Introduces Companion To Emmer‘S Bill To Exclude Fed Retail CBDC Issue

Cruz lends his support to a bill that would keep the U.S. off “an insidious path akin to China’s.”

Texas Senator Ted Cruz introduced companion legislation into the United States Senate on Wednesday for Minnesota Representative Tom Emmer’s bill that prohibits the Federal Reserve from issuing central bank digital currency, or CBDC, directly to individuals.

Emmer introduced the House bill on Jan. 18. Fellow congressman Cruz’s legislation could potentially speed up the passage or rejection of the bill by allowing it to be considered in both chambers of Congress at the same time.

Emmer, co-chair of the Congressional Blockchain Caucus, motivated his bill by the concern that a retail CBDC would force consumers to open accounts with the Federal Reserve Bank. According to the lawmaker, that could “be used as a surveillance tool that Americans should never tolerate from their own government.” Emmer said in January:

“Requiring users to open up an account at the Fed to access a U.S. CBDC would put the Fed on an insidious path akin to China’s digital authoritarianism.”

He also said that centralizing consumers’ financial information would create security issues.

The Fed is not authorized to open accounts for individuals. In January, it released an analytical paper on CBDC that discussed the disclosure issues involved at length, noting the need to balance individual privacy with the transparency necessary to deter criminal activities.

The paper found that the most suitable form of a U.S. CBDC would be intermediated, that is, “the private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments.”

Intermediation would make it possible to create a CBDC without changing the Fed’s authorities. It would also hand responsibility for identity verification, another essential CBDC quality specified in the paper, to a private-sector financial services provider.

The Fed paper states that “The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”

Cruz’s bill follows Monday’s Democratic proposal in the House of Representatives to create an electronic version of the U.S. dollar not based on blockchain technology issued by the Treasury Department instead of the Fed. This electronic currency would be device-based rather than account-based.

Small Digital Euro Payments Won’t Need Laundering Checks, ECB Official Says

The proposals regarding the potential future central bank digital currency come as lawmakers prepare to scrap anonymous bitcoin payments.

A potential new digital euro would allow anonymous transactions for small payments in spite of anti-money laundering (AML) norms, a leading member of the European Central Bank (ECB) said.

The suggestion made by ECB Executive Board member Fabio Panetta on Wednesday of giving a special treatment to the central bank digital currency (CBDC) stands in contrast to proposed rules for private cryptocurrencies like bitcoin, where lawmakers are debating a plan to outlaw privacy for even low-value transactions.

Normally, financial transactions are subject to checks called “know your customer,” or KYC – meaning that financial institutions have to check the identity of those involved to ensure funds aren’t being laundered or used to fund crime.

Panetta, the official leading work on the digital euro, today said he was prepared to soften those rules for people using any putative new digital currency issued by the ECB, at least in the case of small payments.

“A greater degree of privacy could be considered for lower-value online and offline payments” made using the digital euro, Panetta told lawmakers on the European Parliament’s Economic and Monetary Affairs Committee Wednesday.

“These payments could be subject to simplified AML/CFT checks,” he added, referring to EU rules against money laundering and terrorism financing.

The EU has strict rules on protecting personal data, and privacy protections are the number one feature Europeans want in a digital euro, according to a 2021 ECB survey. ECB experts have floated ideas like “anonymity vouchers” that would allow people to shield a limited value of transactions from the authorities.

But more detailed research published today and based on focused discussions with panels of EU citizens put more emphasis on universal acceptance and security checks like iris recognition.

“We have investigated various options to address the trade-off between retaining a high degree of privacy and other important public policy objectives,” Panetta said.

But they come in the week that the EU prepares to end the possibility for anonymous crypto payments altogether.

The European Parliament is due to vote Thursday on how to extend existing money laundering controls to crypto payments. An existing threshold of EUR 1,000 ($1,100) under which a payer’s details don’t have to be recorded seems likely to be scrapped for virtual assets, as lawmakers say it’s too easy to circumvent the rules by splitting up large payments.

The ECB is currently investigating whether to issue the digital currency. A formal ECB decision to move ahead, as well as draft legislation that could underpin the move, are expected next year.

Updated: 3-31-2022

Elizabeth Warren Calls For US To Create A CBDC

“I think it’s time for us to move in that direction,” the Democratic senator told NBC’s Chuck Todd, in an interview to be aired Thursday night.

U.S. Sen. Elizabeth Warren (D-Mass.) says it’s time for the U.S. to create its own central bank digital currency (CBDC). Warren spoke with NBC’s Chuck Todd on “Meet the Press Reports,” scheduled to air at 10:30 p.m. ET on Thursday. NBCUniversal shared a partial transcript of the conversation with CoinDesk.

* “So a lot that banks do wrong, if you think, ‘We could improve that in a digital world,’ the answer is, ‘Sure you could.’ But in that case, let’s do a central bank digital currency,” Warren told Todd. “Yes, I think it’s time for us to move in that direction.”

* Responding to Todd’s question on whether bitcoin (BTC) will face at minimum being regulated like a commodity, Warren responded, “I think it’s going to end up getting regulated,” using the subprime mortgage financial crisis that started in 2007 as an example of why it’s needed. She didn’t say what form such regulations might take.

* In March Warren announced a new bill to block cryptocurrency companies from conducting business with sanctioned companies. The Digital Assets Sanctions Compliance Enhancement Act, introduced with senators Jack Reed (D-R.I.), Mark Warner (D-Va.), Jon Tester (D-Mont.) and others, would allow the U.S. president to add non-U.S.-based crypto companies to sanctions list if they support sanctions evasion.

* On whether the senator saw cryptocurrency as “this decade’s real estate bubble,” Warren replied, “The whole digital world has worked very much like a bubble works. What is it moved up on? It’s moved up on the fact that people all tell each other that it’s going to be great, just again like it was on that real estate market. How many times did people say, ‘Real Estate always goes up. It never goes down?’ They said it decades ago before the last real estate bubble. They said it in the 2000s, before the crash in 2008.”

Updated: 4-2-2022

China Expands Digital Yuan Trials To More Cities

China will expand its digital yuan trial to more areas from the current 11 cities and regions, according to the central bank.

The market’s response toward the use of the digital yuan in pilot cities and Winter Olympic venues has been good, and user and transaction scales have both been “growing steadily,” the People’s Bank of China said Saturday following a meeting chaired by Governor Yi Gang.

In the next step to promote the use of digital yuan, the central bank said it will work on privacy protection and crime prevention, and conduct “deep research” of the impact on the country’s financial system.

Trials have taken place in Shenzhen, Suzhou, Xiong’an, Chengdu, Shanghai, Hainan, Changsha, Xi’an, Qingdao, Dalian and the closed loop of the 2022 Winter Olympic Games.

China will add Tianjin, Chongqing, Guangzhou, Fuzhou, Xiamen, Hangzhou, Ningbo, Wenzhou, Huzhou, Shaoxing and Jinhua to the list of trial cities. Beijing and Zhangjiakou, the co-host cities of Winter Olympics and Winter Paralympic Games, will continue to use the digital yuan after trials inside venues of the Games end.

 

Updated: 4-4-2022

Digital Euro Will Have Privacy Safeguards, European Finance Ministers Say

Governments are discussing policy options for the central bank digital currency though no formal decision to issue one has been made yet.

A new digital euro will offer greater privacy for smaller transactions but won’t allow for full anonymity, officials said after a meeting of finance ministers from the currency bloc on Monday.

No formal decision has yet been taken whether to issue the central bank digital currency (CBDC), but the European Union is already considering how to tie payment innovations to anti-money laundering rules, both for the digital euro and private cryptocurrencies, such as bitcoin.

Ministers had agreed that any new format for the euro should “accommodate privacy concerns,” Irish Finance Minister Paschal Donohoe told reporters, but new rules will also be “counteracting the use of digital euros for unwarranted purposes.”

“A risk-based approach could be followed allowing for more privacy for less risky and smaller transactions and vice versa,” said Donohoe, who chairs the ministerial meetings known as the Eurogroup.

Offline payments for low value-payments made between people who are physically close, such as in stores and between friends, would help include those cut off from the financial system, he said, backing recent proposals made by the European Central Bank’s Fabio Panetta.

The European Commission is due to present a consultation soon on any legislation that might be needed to back up the new digital euro, but has also been warned that an unduly centralized system could represent a “honeypot” of data for spies and constitute troubling mass surveillance.

“A completely anonymous digital euro is not desirable,” the European Commission’s Paolo Gentiloni told reporters.

The European Parliament last week agreed on controversial new anti-money laundering rules that would require identification of those participating in even small-value payments of cryptocurrencies like bitcoin, which many in the industry have said would invade privacy and stifle innovation.

 

Europe’s CBDC Designers Wrestle With Privacy Issues

The European Central Bank will likely to opt for a centralized solution for its new digital euro, raising questions about state snooping.

Privacy appears to be dropping down on the priority list of those designing a new digital euro, and experts are warning that the design choices being made could make privacy harder to achieve.

There have been no formal policy decisions about whether to issue the euro in a new, digital format, but there’s clearly momentum behind the idea. Euro finance ministers will discuss the issue on Monday, and a consultation is due from the European Commission imminently, a likely precursor to new laws.

Ensuring that a digital euro safeguards privacy emerged as the No. 1 issue in a consultation the European Central Bank carried out last year. Understandably so, as data about spending habits could reveal sensitive details about a person’s lifestyle, tastes and political leanings.

But privacy concerns don’t seem to be a sacred cow anymore. More recent ECB research, this time based on discussions with panels of EU citizens, emphasizes other, competing concerns people might have, such as security and universal acceptance, and ECB board member Fabio Panetta now speaks of a “trade-off” among those goals.

Finance ministers from the currency zone are also set to give their views at a meeting next week, and they are unlikely to want new kinds of financial secrecy undermining anti-money laundering and tax evasion norms.

A fully anonymous digital currency would raise “serious concerns,” says the internal policy paper that will form the basis of their discussion and that was seen by CoinDesk.

That fits with the trend seen in conventional cryptocurrency markets, where national governments – and, as of Thursday, the European Parliament – have been keen to bring in customer identity checks for even small bitcoin payments, despite industry complaints about invading privacy.

Questions About Privacy

According to the policy paper, the ECB would have access to data about transactions to the extent necessary to fulfill its functions, such as settling payments and carrying out financial oversight, but the paper said that the trove of payment data shouldn’t be “fully visible” to any central entity.

Panetta has brushed away concerns over state snooping, telling the European Parliament’s Economic and Monetary Affairs Committee on Wednesday that the ECB has “no commercial interest in use of this data,” and “will respect until the last comma” privacy laws – unlike, he suggested, companies that are just looking to make a profit.

He also argued that details of how much privacy to offer – like whether to offer carve-outs allowing small payments to remain secret and offline – remain matters for governments and lawmakers to decide, not central bankers, saying that “privacy … is not a technical issue; this is a political issue.”

But experts have criticized his characterization, and warned that overly centralized systems might make meaningful privacy much harder to achieve.

Marina Niforos, an affiliate professor at the business school HEC Paris, told CoinDesk she rejects Panetta’s claim that privacy concerns are related only to profit-driven, commercial use of data and said people would be right to worry about governments amassing so much control over data.

“We’ve seen, in other jurisdictions, a sovereign concentrating that kind of power may not only be for a benign purpose,” said Niforos, a crypto tech expert who has previously contributed to the EU Blockchain Observatory on the digital euro’s design.

State actors “have less commercial motivations, but that doesn’t mean that there’s not a danger of misappropriation and misuse of that data,” she said.

What’s more, privacy controls can’t be added just on on a policymaker’s whim, but may depend on the kind of technology that is picked.

Distributed blockchain technology “might ultimately be the only solution left, in terms of being able to embed privacy by design” into the digital euro, Niforos said.

That echoes a warning from a March report produced by the EU Blockchain Observatory, a body sponsored by the European Commission to make recommendations for the role the EU can play in the Web 3 technology.

That report said that unduly centralized CBDCs would mean central banks “undertaking mass surveillance on a scale that raises profound privacy concerns,” and offer a “honeypot” of information to tempt spies and other malicious actors.

Yet Niforos also warns there are plenty of open questions and gray areas that might make the ECB reticent to opt for that more decentralized approach. “Blockchain as a technology itself faces several issues” and lacks “much-needed clarity from a regulatory and legal perspective,” she said.

Centralized Control

Panetta does indeed seem to be flirting with a centralized model in which citizens’ assets would be held in accounts at the central bank, rather than a more distributed system where tokens flow relatively freely.

In his remarks on Wednesday, Panetta fretted over the “undesirable implications” of letting foreigners get their hands on large quantities of digital euros – something that would be impossible to avoid in a more distributed model.

Yet the account-based solution he apparently favors “would come with a set of different problems,” Niforos said.

“It’s not a panacea. It requires serious reengineering of the way that the ecosystem is set up,” she added, warning that banking and regulatory systems in some countries just aren’t prepared.

The ECB’s own study shows that many people don’t realize what a digital euro is, or why you would bother to have it, and that’s already a major obstacle for Panetta to overcome. For others, that apathy veers into downright concern about damage to the EU crypto world.

“For the moment, we perceive it [the digital euro] more as a threat than an opportunity,” Faustine Fleuret, CEO of French crypto industry lobby group ADAN, told CoinDesk.

Fleuret said the digital euro plan could undermine innovation, because it could end up supplanting, rather than complementing, euro stablecoins, without the flexible protocols needed to support decentralized finance.

Central bankers rushed into issuing their own digital currencies when they saw the threat posed by the industry-backed, and now defunct, Libra project.

In the push to stop the likes of Meta Platforms (Facebook’s parent company) muscling in on their patch, some worry the ECB could be about to damage, not just people’s privacy, but innovation in the EU.

 

Updated: 4-5-2022

Digital Euro May Get Easier AML Rules Than Bitcoin, EU Commissioner Says

Mairead McGuinness promised a role for banks in distributing the CBDC, as a consultation presages legislation earlier next year.

The EU’s potential digital euro will face money laundering checks – but not necessarily ones as strict as those currently planned for regular cryptocurrencies like bitcoin (BTC), the European Commission’s Mairead McGuinness told CoinDesk Tuesday.

In an exclusive interview, McGuinness, the Commission’s most senior financial services official, promised a role for private intermediaries like banks should a European central bank digital currency (CBDC) be implemented, and said there would be new laws ahead of any decision to issue.

The European Central Bank (ECB) has said it is exploring a digital form of state-backed currency to complement banknotes and coins as people’s lives and spending habits go increasingly online. The bank is currently working through a series of policy questions before deciding whether to press ahead.

In a recent, controversial vote, lawmakers at the European Parliament favored tough anti-money laundering (AML) rules for bitcoin payments, requiring customers to be identified for even the smallest transactions.

But privacy concerns could mean a different regime applies to the EU’s own digital currency, McGuinness said.

“A digital euro should comply with AML requirements but this is different to the current discussion on cryptoassets,” she said in a written interview. “We will be assessing whether a higher level of privacy should be made available, in particular, for low-value transactions, depending on the risk characteristics of the digital euro.”

While the ECB would issue the digital euro, payment service providers – typically the commercial banks that issue credit cards – will have a “key role” in finding and identifying customers, distributing the currency and offering extra services on top, she said.

“Intermediaries would have to ensure the onboarding of users and perform AML checks,” she said. “The digital euro is expected to be factored in to different payment solutions that payment services providers offer.”

A presentation given by ECB officials to finance ministers yesterday suggests in practice there could be multiple different kinds of wallets available to hold a digital euro with fewer checks associated with lower-risk payments.

Smaller payments could potentially be fully offline and private, the presentation said, analogous to how cash is used today.

But the ECB can’t make any formal decision to issue until new laws are in place, McGuinness said.

“The Commission plans to adopt a proposal for a regulation in Q1 2023,” she said.

A public consultation to prepare the ground for that law was published by McGuinness earlier Tuesday.

Lawmakers Keep Mentioning Privacy In CBDC Discussions

How lawmakers approach privacy with central bank digital currencies differ, but the fact remains they’re very frequently now raising the issue.

Hey folks. We’re still talking central bank digital currencies and digital dollars, so here’s some quick and vaguely unhinged thoughts on recent actions and statements on this front.

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Digital (Dollar) Privacy

The Narrative

Privacy in central bank digital currencies (CBDC) is a major concern for lawmakers and potential users. Allowing for, or even encouraging privacy is simple enough in theory but the technical practicality of enforcing privacy is another question altogether.

Why It Matters

Privacy’s a big issue! And lawmakers think so, too. But there’s various approaches to this and we’re starting to get a taste of these differences.

Breaking It Down

U.S. senators Chuck Grassley (R-Iowa), Ted Cruz (R-Texas) and Mike Braun (R-Ind.) have introduced a bill to “prohibit the Federal Reserve” from issuing a digital dollar that could be sent straight to users.

The untitled bill, introduced by Cruz last Wednesday, would block the Federal Reserve from offering “products or services directly to an individual,” maintaining accounts for individuals or issuing CBDCs to people.

This caught my eye because I’m not sure the Fed has any intention of doing this.

Fed officials – and its recently published white paper on CBDCs – have long held that the U.S. central bank will not, and indeed perhaps can not, issue a CBDC without further authorization from Congress.

Jerome Powell, the Fed’s chair, said as much in testimony before the House Financial Services Committee earlier this year.

“The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law,” the white paper, published in January, said.

The White House has expressed interest in exploring a CBDC but stops well short of saying one must be created.

Still, efforts to have the U.S. issue a digital dollar continue. Last week, several lawmakers introduced a bill that would authorize the Treasury Department – not the Fed – to issue the CBDC.

The “Electronic Currency And Secure Hardware Act” proposes an electronic dollar that users could hold on smart cards or hardware wallets on their phones. The ecash bills would not be tracked on a decentralized ledger (or indeed, any ledger of any type), which its proponents argue will help preserve user privacy.

The press release issued by Cruz’s office cited concerns about privacy, saying, “Specifically, the legislation prohibits the Federal Reserve from developing a direct-to-consumer CBDC which could be used as a financial surveillance tool by the federal government, similar to what is currently happening in China.”

The ECASH Act would seem to address this concern by removing all possible opportunity for financial surveillance.

“It doesn’t involve any account, which means that you can use it peer-to-peer directly. You can use it offline and because there’s no third party, there’s no loss of privacy expectation that comes with the third party doctrine,” Rohan Grey, who advised on the bill, told me.

Across the Atlantic, the European Union is emphasizing privacy in its own CBDC discussions. European officials have yet to determine whether they want to issue a CBDC (so similar to the U.S.) but are saying smaller or less risky transactions should allow for more privacy.

What remains to be seen is just how such a system can be created on a technological level. The ecash bills would have to be irreproducible by anyone who isn’t authorized to issue such bills (so as to prevent money laundering and forgery), despite being entirely contained within localized hardware.

In other words, it would have to address the double-spend problem without the digital ledger that Bitcoin uses.

EU Consultation Looks At Issues With A Digital Euro

The union’s executive branch got the ball rolling Tuesday on the legislation needed to issue such a currency.

If the European Union issued a digital euro, it would need to establish laws in areas such as privacy and anti-money laundering, the European Commission, the EU’s executive branch, said in a consultation published on Tuesday.

The call for ideas, which is seen as the first step toward legislation from Brussels on the topic, is being made even before any formal decision has been taken on whether to issue a digital currency in the first place.

The consultation, which is open until June 14, asks questions about issues with a potential digital euro such as the ease of use, availability, fees, standards and caps on holdings needed to safeguard financial stability.

The digital euro could be used by residents of the EU, tourists or trade partners, the consultation said. The document is the likely precursor to drafting laws that could come out early next year.

It sets out ideas on how the design of a digital euro could protect privacy and allow anonymity between transacting parties or their banks. Privacy emerged as the top issue in a European Central Bank consultation about a digital euro last year and remains a source of controversy.

The ECB is looking at how a plan to issue a digital euro might work in a phase that will last until September 2023. An ECB presentation given to finance ministers on Monday set out ways to protect privacy, a topic that topped a previous survey of people’s concerns about the new technology.

In a statement on Tuesday, national ministers from within the bloc – keen not to be usurped by the ECB on matters of public policy – said that new laws would be needed to underpin the measure and said the digital currency shouldn’t replace regular banknotes and coins.

Starting in June, EU finance ministers will discuss other knotty issues such as the impact on financial stability and the role of private banks and payment firms in distributing a digital euro.

More Than Three-Quarters Of Central Banks Considering A CBDC: Research

The report by PwC shows that 80% of central banks are considering or have already launched a CBDC.

More than 80% of central banks are interested in launching a central bank digital currency (CBDC) or have already done so, according to research conducted by accounting firm PwC.

The second annual Global CBDC Index report released on Monday measures a central bank‘s level of maturity in deploying its own digital currency. The report also included an overview of stablecoins for the first time.

Haydn Jones, blockchain and crypto specialist at PwC UK stated in the report that “over 80% of central banks are considering launching a CBDC or have already done so.”

The report ranks both retail CBDCs, ones that are issued for use by the general public and wholesale CBDCs for use by financial institutions holding with the central bank, out of 100.

Retail CBDCs have reached a greater level of maturity in comparison to their wholesale counterparts, according to the report. Nigeria’s “eNaira”, for example, received a score of 95, marking it as the most developed across both the retail and wholesale categories.

Also of note in the retail category was the Bahamas, the first country ever to launch a CBDC — the Sand Dollar. The Jamaican Jam-Dex is slated for launch this year, and Thailand made the list for its development and testing of a CBDC announced last August.

Thailand and Hong Kong topped the wholesale category for their joint mBridge project focused on cross-border payments, Singapore and France also ranked highly for their continued exploration of CBDC projects.

Jones also commented on the level of maturity and preparedness that central banks around the world are currently at. He said:

“Countries are at differing levels of maturity with CBDCs and each country has different motivating factors. Increasing financial inclusion, facilitating cross border payments and controlling financial crime are all factors that come into play. We expect CBDC research, testing and implementation will intensify in 2022.”

The report provided an overview of the top ten USD-pegged stablecoins by market cap and discussed how they function and what they’re backed by.

It noted that stablecoins have become an “integral part of the crypto ecosystem” and it is “impossible” for any fund or institution “to be active in crypto without using stablecoins.”

Updated: 4-6-2022

Sweden’s Central Bank Completes Second Phase Of E-Krona Testing

The Swedish CBDC is now technically ready for integration with banks and payment service providers, according to a report from Riksbank.

The Swedish central bank’s digital currency project, a proposed CBDC, known as the e-krona has successfully finished its second phase of trials. According to Riksbank, the nation’s central bank, the asset is now technically ready to be integrated into banking networks and facilitate transactions.

During the second phase of the e-krona pilot project — which began in February 2021 — the CBDC was investigated on the matter of its technical ability to function within the country’s existing digital banking infrastructure. Participating banks included Handelsbanken and Tietoevry.

The report indicated that the e-krona could indeed be successfully exchanged for fiat money and used in transactions, both online and offline.

This phase of testing also brought legal clarity to the project in terms of whether the e-krona should be regarded as an “electronic form of cash.”

As the project enters into Phase 3, a number of questions remain about the currency’s future. Riksbank did not officially confirm its intention to actually issue the e-krona to the nation’s citizens and has not yet indicated the legal framework upon which it might be based.

Riksbank did, however, specify back in January 2021 that the project’s proof-of-concept was harnessing Corda, a distributed ledger technology from R3.

National digital currencies remain a hot topic among financial authorities around the world. A recent Global CBDC Index from PwC showed that 80% of central banks are considering or have already launched a CBDC.

The most developed CBDC at the moment, according to the report, is Nigeria’s “eNaira.” It received a score of 95 across both the retail and wholesale categories. PwC expects CBDC research, testing and implementation to intensify this year.

Sweden Wants To Test E-Krona Viability For Smart Payments

Trials by Riksbank have shown that offline payments can work using the CBDC, but the central bank is also looking at privacy concerns.

The Swedish central bank says it wants to look at how a new e-krona could stimulate “smart payments” that some say are the future of money.

In a report published on Wednesday, the Riksbank deemed tests to integrate state-backed digital money into conventional banking systems a success – but said it was still examining claims of the promised benefits the new technology could bring.

The ability to program or control transfers – such as triggering a payment when a contract is fulfilled, or giving pocket money that can not be spent on sweets – are cited as a potential benefit of central bank digital currency (CBDC), but Swedish officials want to probe that further.

“Concepts such as programmable money, smart money and smart payments are often said to be the future of payments, and this is used as an argument in favor of the new technology,” the central bank said in the report.

Though no decision has yet been taken about the design or issuance of an e-krona, in the next phase, “we want to test and explore how such solutions can be used to create new payment services, and why they would be more effective than more traditional technologies,” the central bank said.

A trial to integrate existing intermediaries such as banks to distribute the CBDCs to regular citizens was deemed “successful” by the report, as were off-line solutions in which the asset can be stored locally on someone’s phone.

Like the European Central Bank (ECB), Sweden, which is in the European Union but does not use the euro currency, is looking at whether to allow those offline payments – which could aid privacy, but also bring the same kinds of risks of cash, like theft, or use of the funds for illicit purposes.

Because the pilot version of the e-krona verifies tokens using a transaction history, more data gets shared among participants than would normally be the case, meaning the idea could fall foul of tough privacy laws, such as the EU’s General Data Protection Regulation (GDPR).

“Consultation with both the Swedish and the European Data Protection Authorities may be necessary to clarify how a solution based on DLT/block chain technology relates to data protection regulations,” the report said.

That relates to an ongoing debate on whether crypto-style blockchain technology would aid or hinder user confidentiality.

Blockchain “might ultimately be the only solution left, in terms of being able to embed privacy by design” into a potential new digital euro, Marina Niforos, fffiliate professor at HEC Paris, told CoinDesk. Cryptographic mechanisms are potentially able to ensure that data is only accessed by those who need to see it, she added.

But the Bank for International Settlement’s Hyun Song Shin warned in a webinar on Wednesday that blockchain could also lead to a free-for-all of payment data being made public.

In systems that use people’s real names, “we cannot use blockchains as in cryptocurrencies, because we don’t want to post all the transactions in a public way, so that everyone can see what transaction someone has made with whomever,” Shin said.

Are CBDCs Kryptonite For Crypto?

“A CBDC is an authoritarian government’s dream and represents a giant step backward for consumer privacy.”

Central bank digital currencies — digital currencies backed by a central bank — have received renewed interest with the United States President Joe Biden’s Executive Order on Ensuring Responsible Development of Digital Assets. Proponents of CBDCs argue that widespread adoption will promote financial inclusion, expand public access to safe money, improve the efficiency of payments and more.

But their rationale remains tenuous. Many analysts and practitioners increasingly view CBDCs as fundamentally at odds with the purpose of cryptocurrency, which is to provide a secure, decentralized peer-to-peer mechanism for transferring funds.

And the hypothetical benefits of CBDCs remain hypothetical — no evidence exists yet that suggests any advantages over other examples of distributed ledger technologies in financial services, especially given the new risks they pose.

The Status Of CBDCs Worldwide

Nine countries have already developed their own CBDCs, and the U.S. has joined a list of over 100 countries exploring issuing one. Most CBDCs take a hybrid approach whereby “The central bank issues the CBDC to banks and other and other payment service providers, which in turn distribute the CBDC to users throughout the economy and provide them with account-related services,” according to a recent report by the Hoover Institution.

There are other types, according to leading experts at the Bank for International Settlements — which consists of stakeholders from major central banks.

These include a synthetic CBDC, where the consumer has a claim on an intermediary, with the central bank only keeping track of wholesale accounts; and a direct CBDC, where the consumer has a claim on the central bank, with it handling all the retail.

Some scholars have underscored that DLT has a role to play in helping central banks become more efficient and secure, but such technology should be introduced with “a ‘minimally invasive’ CBDC design — one that upgrades money to current needs without disrupting the proven two-tier architecture of the monetary system,” according to Raphael Auer, head of the BIS Innovation Hub Eurosystem Centre, and Rainer Böhme, a professor at the University of Innsbruck.

The fact that central banks are interested in digital currencies is not surprising. As countries look to rebound from nearly two years of lockdowns and other restrictions on mobility, coupled with rising inflation, central banks have been feeling the pressure to promote employment and manage price levels u20 their “dual mandate.”

Across the world, central banks have bought a significant amount of bonds, thereby expanding the money supply and arguably further contributing to inflation.

For example, the Federal Reserve has expanded the U.S. money supply from roughly $4 trillion to over $20 trillion over the past two years, but we are only now seeing the resulting inflationary effects.

Evaluating The Potential Benefits

In a 2020 report, the BIS outlined a handful of potential benefits brought up by proponents of CBDCs: financial inclusion, cross-border payments, financial resilience and stability, increased efficiency of fiscal transfers, and privacy. But cryptocurrency fulfills all of these aims better than government-backed currencies.

Let’s take a look at these potential benefits one by one.

Financial inclusion: The expansion of decentralized finance and emergence of nonfungible tokens are already changing the economic landscape. Thousands of content creators have sold NFTs and joined the DeFi community, removing intermediaries and allowing revenues to go directly to the creators.

“We’re entering a ‘Web2.5 era’ where content creators have benefited from the rise of social media, but what they create is owned by centralized groups,” Avery Akkineni, president of VaynerNFT, tells Magazine. “Now they are starting to own the end-to-end process, and we’ve seen some of these creators become wildly successful. […] That is inspiring a new generation of creators.”

Furthermore, existing financial institutions have already expanded access to credit by lowering the barriers to adoption. My research from 2021 found that the expansion of mobile banking in the U.S. since 2014 has been concentrated among those who are younger, single or a part of minority groups.

Even if these patterns were not true, it’s unclear how CBDCs expand financial inclusion.

Cross-border payments and efficiency of fiscal transfers: While financial transactions across borders are already possible, they are time-intensive and costly. However, several Web3 companies enabling cross-border transactions have emerged, including Ripple.

Financial resilience and stability: Resilience is integral to cushion against unanticipated shocks to the system. The 2007–2008 financial crisis in the U.S. and many developed countries was arguably driven by a concentration of risky, securitized assets.

In the run-up to the crisis, the number of mortgages increased rapidly, but many new homeowners were not financially prepared to pay their mortgages — a pattern that was, at least partially, influenced by the Federal Reserve through its impact on interest rates and failure to attend to the warning signs.

The financial crisis could have been avoided if these warning signs had been taken more seriously. The United States’ 2011 Financial Crisis Inquiry Report reads: “The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not.”

Central banks are making analogous claims to those made in the run-up to the financial crisis when they play down the risks of CBDCs, especially the possible monopolization of the financial system by the central bank, and talk only about their benefits.

“A core instrument by which central banks carry out their public policy objectives is providing the safest form of money to banks, businesses and the public — central bank money,” according to the BIS.

Charles Calomiris, Henry Kaufman professor of financial institutions at Columbia Business School, tells Magazine that CBDCs seem more like a power grab than useful financial technology.

“CBDC is the latest attempt to expand their power at our expense by self-interested central bankers, which have done more in developed countries to expand their power at the expense of democracy over the past two decades than any other instrument of government.”

The architectural design of CBDCs matters. If they are designed so that they, even if not explicitly stated, can replace private commercial and retail banking, as the Peoples’ Bank of China has suggested, then central banks will have yet another mechanism for creating money that has no collateral or underlying asset value. Such an approach would have grave inflationary implications.

Last year, several economists published research on CBDCs and bank runs, finding that large-scale intermediation by central banks could lead to them becoming monopolies. Since central banks’ contracts with investment banks tend to be rigid, they have the potential to deter bank runs.

Consumers “internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector,” according to the research’s authors.

A Nail In The Coffin For Privacy

Even though public documents from central bankers talk about privacy as a feature of CBDCs, no explanation exists for how this will work. In contrast, the BIS reported that “Full anonymity is not plausible. […] For a CBDC and its system, payments data will exist, and a key national policy question will be deciding who can access which parts of it and under what circumstances.”

Such a rollout could mean that every central bank would be able to identify each user. Today, a bank cannot tell who is using a euro versus a dollar bill, but “The key difference with the CBDC is the central bank will have absolute control [over] the rules and regulations that will determine the use of that expression of central bank liability, and also, we will have the technology to enforce that,” said Agustin Carstens, general manager of the BIS, during a 2020 panel discussion.

There is little doubt that illicit transactions occur with cryptocurrency, but illicit transactions have always taken place, whether a thousand years ago with gold or today with cash. The question is how to create a framework that preserves privacy and counters illicit activity.

If central banks can track every transaction, what is to stop them from shutting down people’s access to finance, travel and their livelihoods? Furthermore, what would stop central banks from coordinating, as outlined in the BIS’ 2020 report?

“CBDCs don’t just threaten but fully infringe upon our financial autonomy, stripping away our most basic rights and freedoms as enumerated by our forefathers,” Eric Waisanen, co-founder of Hydro.Finance and host of the Secret Code Podcast, tells Magazine. In contrast, “DeFi provides freedom from the alleged protection that strips us of our ability to participate,” Waisanen continues.

The Future Of Money And DeFi

The future of finance lies in decentralization. While we have traditionally known and interacted with large, centralized institutions, we have seen a widespread preference for and adoption of decentralized technologies arise from technological advances coupled with a recognition of the ills of centralization.

But DLT, and blockchain more generally, is only a tool. It still needs good governance and proper stewarding. The emergence of CBDCs is likely to centralize the “creation” and flow of finance even further by granting central banks even more authority to issue tokens rather than buy and sell bonds on a somewhat “open” market.

“A CBDC is an authoritarian government’s dream and represents a giant step backward for consumer privacy,” says Paul Watkins, managing director at Patomak Global Partners.

Many architectures for CBDCs have been proposed. There is widespread enthusiasm for the use of DLT in central banking, but not for retail CBDCs that simultaneously can create money without collateral and require individuals to share personally identifiable information.

It is important to seriously consider the architecture of a CBDC when thinking about design; otherwise, CBDCs will be launched in competition with the growing move and appetite for decentralization.

Updated: 4-8-2022

CLabs To Work With Ecurrency To Integrate CBDCs With DeFi

Through the partnership, central banks launching CBDCs will be able to use the Celo blockchain to gain access to DeFi products.

CLabs, the organization behind developing the Celo ecosystem, said Friday it will be working with eCurrency, the technology provider that enables central banks to issue digital currencies (CBDC).

Through the partnership, central banks that are trialing or launching CBDCs will be able to use the Celo blockchain to allow end users access to decentralized finance (DeFi) products, according to a press release.

The Celo blockchain allows native and non-native digital assets (cryptographic and CBDCs) to circulate freely across devices, carriers and countries, according to the Celo website. The blockchain uses phone numbers for public keys and issues a native stable-value token.

ECurrency enables central banks to mint and issue CBDC instruments to financial intermediaries in compliance with existing legal frameworks. In 2021, eCurrency worked with the Bank of Jamaica on the pilot of the Jamaican CBDC (the Jam-Dex).

The Ireland-based firm uses digital symmetric cryptography technology for central banks to issue and distribute CBDCs securely and efficiently, according to its website.

“After seeing how Celo has opened new opportunities for end users, such as access to loans and savings, it’s only natural that cLabs extend the use case to CBDCs,” said Tim Moreton, chief executive of cLabs, in the release.

The Celo Foundation announced “Connect the World,” at its conference earlier in the week in Barcelona, a $20 million campaign to incentivize the development of high-quality Celo on- and off-ramps worldwide.

The CELO token is trading up 30% over the last 30 days and spiked earlier on in the week during the protocol’s Celo Connect event in Barcelona.

 

ECB Executive Board Member Talks About Current State Of Digital Euro CBDC Research

Fabio Panetta outlined recent findings and remaining challenges while emphasizing the necessity of a well-designed European CBDC.

European Central Bank executive board member Fabio Panetta provided an overview of the central bank’s current research on a retail central bank digital currency (CBDC) when he spoke at the IESE Business School Banking Initiative Conference on Technology and Finance on Friday.

Panetta said the issuance of central bank digital currencies is “likely to become a necessity” but warned that “they should not become a source of financial disruption that could impair the transmission of monetary policy in the euro area.”

A key to maintaining financial stability during the introduction of digital currency, Panetta said, would be to give commercial banks a role in the process. This would allow the banks to continue providing front-end services as the central bank benefitted from their experience in customer onboarding and Anti-Money Laundering (AML).

In January, a discussion paper issued by the United States Federal Reserve foresaw a similar role for banks. The paper noted the potential role of financial intermediaries in preserving consumer privacy. The European Central Bank, or ECB, has also addressed privacy issues.

In addition, Panetta said, “As the demand for cash weakens, issuing CBDCs could ensure that sovereign money continues to play its role in underpinning confidence in money and payments” while fostering competition among banks “by reducing banks’ market power and improving contractual terms for customers.”

Panetta noted that research on the complex potential interactions between CBDCs and monetary policy illustrates the importance of careful CBDC design. “We need to solve the ‘CBDC trilemma’ according to which central banks’ objectives of payment efficiency, financial stability and price stability cannot all be achieved together,” he said.

The task of designing a digital currency is complicated by the rapid evolution of other forms of digital assets “whose emergence alongside fiat money in the past ten years has been sudden and had a massive effect — similar to the Cambrian explosion of 20 to 25 million years ago.”

Nonetheless, the lack of an adequate CBDC to balance the influence of other digital assets would create “risks for monetary sovereignty, the lender of last resort functions of central banks and financial stability,” Panetta concluded.

South Africa Finishes Technical PoC For Wholesale CBDC Settlement System

The South African Reserve Bank stated further work would be undertaken to study the findings from the project and used to inform policy and regulatory responses to DLT and CBDCs.

South Africa has taken another step closer to implementing its central bank digital currency (CBDC) as the South African Reserve Bank (SARB) concludes a technical proof-of-concept for the project.

The project titled Project Khokha 2 (PK2) is the second phase of SARB’s Project Khokha (PK1), launched in 2018. It experimented with distributed ledger technology (DLT) for interbank payments‘ settlement, successfully replicating the banks’ “SAMOS” real-time gross settlement system.

This second phase, PK2, was launched in February 2021 and tested DLT with clearing, trading and settlement within the proof-of-concept environment. Industry participants included Absa, FirstRand, JSE Limited, Nedbank and Standard Bank, forming the Intergovernmental Fintech Working Group (IFWG).

Using the technology, SARB tested the issuance of debt instruments and enabled two payment options for settlement, a wholesale central bank digital currency (wCBDC) and a wholesale settlement token (wToken), a commercial bank issued form of private money.

The proof-of-concept developed two DLT platforms, one which served as a decentralized trading platform and the other which managed the CBDC.

A bidirectional bridge similar to those used in decentralized finance (DeFi) when sending cryptocurrencies across different blockchains was also built, allowing for the portability of the CBDC between the two platforms.

The results of the project highlighted the regulatory, business and operational implications that DLT would have in the market. A statement by SARB summarized that the technology would streamline functions carried out by separate infrastructures onto a single platform, potentially reducing cost and complexity.

In the report, SARB does point out that the new DLT platforms will need to be integrated with legacy systems, with the costs of implementing the new platform placed on the banks.

New standards, updated best practices and new support systems would need to be established for the DLT infrastructure, according to SARB. The reserve bank mentioned that legacy and DLT systems might always have to run side-by-side, stating:

“A transition to a DLT-based system requires careful planning and execution and may involve running a DLT-based system in parallel to the existing system for a while, perhaps indefinitely.”

Technical risks related to the reliability and security of the software bridge between platforms were also noted, and the use of the CBDC on networks outside of the two used in the proof-of-concept was also flagged as topics for further consideration.

SARB says further work will be undertaken to study the findings from this phase of the project and the legal status of the wCBDC, which will be used to inform policy and regulatory responses to DLT and CBDCs in the financial markets.

It also hinted that another phase of Project Khokha may be started to “build on the work of PK2, performing live transactions in a sandbox environment in a different use case.”

Since May 2021, South Africa has also been engaged in a preliminary study on a retail CBDC focused on its “desirability and appropriateness.” No exact date is set for the conclusion of the study, but SARB says it will be sometime in 2022.

 

Updated: 4-12-2022

BIS Releases Study Of CBDCs And Their Role In Financial Inclusion Of The Unbanked

The researchers from BIS and the World Bank identify common factors across nine central banks that face a variety of different challenges.

The Bank for International Settlements, or BIS, released a paper Tuesday on central bank digital currencies, or CBDCs, and how they can be used to meet policy goals for financial inclusion.

The paper drew on interviews conducted in the second half of last year at nine central banks that are currently exploring retail CBDCs. It looked at common goals across a range of economic development levels and challenges to inclusion.

The paper identified two distinct approaches to CBDC. Some central banks saw digital currency as a catalyst for innovation and development while others expected it to serve as a complement to existing initiatives. All of the central banks emphasized the need for stakeholder education and acceptance, both among consumers and service providers.

Data privacy, and the related issues of money laundering and the financing of terrorism, were seen as top challenges. Servicing the vulnerable — children, the elderly and users with disabilities — was also named a priority.

Some challenges, such as geographical isolation and levels of digitization, varied in degree among the central banks, but several CBDC design features were highlighted as key to financial inclusion across the spectrum.

Promotion of a two-tiered payment system with private-sector participants, interoperability across a multiple functions and borders, and adequate regulation were elements mentioned in this context.

The central banks discussed in the paper were those of The Bahamas, Canada, China, the Eastern Caribbean, Ghana, Malaysia, the Philippines, Ukraine and Uruguay. The World Bank also took part in the research.

The BIS has taken a strong stance on the place of the central bank in the emerging digital economy and the need for cryptocurrency regulation. It recently completed a successful pilot project, called Project Dunbar, with the central banks of Australia, Malaysia, Singapore and South Africa to create an international settlements platform.

Banks May Face Competition From CBDCs, Study Suggests

The survey also shows central banks are uncertain whether distributed ledger technology should underpin a government-backed digital currency.

Central bank digital currencies (CBDCs) could put pressure on conventional banks, a survey of central banks found, and the jury is still out on whether central banks would use distributed ledger technology.

The report, published Tuesday by the Bank for International Settlements’ Financial Stability Institute (FSI) and World Bank, plays into a debate about whether state-backed digital money could upend the financial system, potentially harming the economy.

Profit-driven banks may be more interested in seeking wealthy clients, rather than ensuring access to the financial system for the 1.7 billion people who don’t have access, the FSI argued. By allowing new kinds of private payment providers into the market, “CBDCs could introduce more vibrancy and innovation, leading to more tailored and compelling value propositions for both payers and payees,” the report says.

In addition to taking deposits, commercial banks lend to homeowners and businesses. Some observers worry that supplanting that role entirely could harm the economy. But jurisdictions like the European Union already allow alternative providers to offer services that go beyond what the incumbents are prepared to do.

The FSI cited the East Caribbean Central Bank, which gets non-bank institutions to check customers’ identity before granting them a digital wallet.

Setting up a new bank is usually tough because regulators insist that a bank stock up large piles of capital to prevent failure. A payment provider that handles only state-backed assets wouldn’t have that risk and could be regulated more lightly, the FSI argued.

“The absence of liquidity and solvency issues for the intermediaries and the associated need for prudential regulation for the CBDC issuer implies that new types of intermediaries could be licensed,” offering extra competition, the report says.
Distributed technology?

The FSI is the analytical arm of the Basel, Switzerland-based BIS, a network of central banks, but the report doesn’t necessarily represent the BIS or World Bank’s views.]

Meanwhile, central bankers don’t seem certain CBDCs will necessarily resemble today’s cryptocurrencies.

Hyun Song Shin, BIS’ head of research, has already warned that without the pseudonymity offered by the likes of bitcoin (BTC), blockchain-based CBDCs could open up previously private financial transactions to the public gaze.

The FSI is open to the idea that other kinds of technology than distributed ledger technology (DLT) could be deployed for CBDCs, as DLT raises many problems, such as how to prove a transaction is legally final and how to wrest control from a CBDC owner who goes bankrupt. Another issue is how fast can nodes process transactions, the FSI said.

“For the central banks interviewed that are not considering a DLT-based infrastructure, decreased transaction throughput was the main reason given,” the report says. “It is unclear whether DLT offers unconditional advantages for a CBDC.”

Brazilian Central Bank President Confirms CBDC Pilot Will Launch In 2022

The sovereign national digital currency will be based on the national fiat and would have a fixed supply quite similar to Bitcoin.

The president of the Central Bank of Brazil confirmed that the country’s sovereign digital currency pilot will go live this year, Cointelegraph Brazil reported.

The confirmation about the digital currency came during an event on Monday, where Roberto Campos Neto, the president of the Central Bank of Brazil, noted that a pilot CBDC program could go live in the second half of this year.

The value of the upcoming CBDC would be pegged against the national fiat payment system STR (Reserve Transfer System). Neto also confirmed that “Digital Real” would have a fixed supply and only a certain amount of it would be minted, quite similar to Bitcoin:

“This [using the STR in Real Digital] is a way of creating the digitalization of the currency without creating a rupture in the banks’ balance sheets. This project should have some kind of pilot in the second half of the year.”

During his speech, Neto clarified that he still believes crypto is more prominent as a form of investment rather than a form of payment while adding that it could change if the adoption among the masses rises.

The confirmation of a CBDC pilot by the second half of the year comes after a month of the central bank’s partnership with nine banks to assist with its CBDC development. With confirmation from the central bank president, Brazil would be joining the growing list of countries working on their sovereign digital currency.

Brazil is currently looking to cash in on the cryptocurrency frenzy and digitization. Apart from its focus on CBDC development, Brazil also introduced a crypto bill in late February to regulate the crypto market.

In the works for almost three years now, the bill defines various aspects of what constitutes a virtual asset (VA), a broker or exchange, and which arms of the federal government would have jurisdiction over the matter.

 

Updated: 4-12-2022

Financial Services Company DTCC Working With Digital Dollar Project On CBDC Prototype

“Project Lithium” is particularly focused on how a central bank digital currency could benefit the financial services industry.

Weeks after U.S. President Joe Biden released an executive order directing the Treasury Department and Federal Reserve to look into a potential central bank digital currency (CBDC), one of the nation’s biggest financial services providers is building a prototype.

“Project Lithium,” a CBDC pilot from post-trade clearing and settlement firm Depository Trust & Clearing Corporation (DTCC) is intended to explore the potential benefits of a CBDC and the value it could bring to the financial services industry, according to a DTCC press release Tuesday.

DTCC is working on the project in partnership with the Digital Dollar Project, the non-profit formed to advocate for a U.S. CBDC. Members include consulting firm Accenture (ACN), former U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo, former LabCFTC Director Daniel Gorfine and investor Charles Giancarlo. Back in May the organization announced it would be launching a number of pilot projects.

While many countries, including China, Sweden and South Korea, are already exploring or using a CBDC, the United States has been behind in testing a digital currency.

“This is an experimentation on whether or not a digitalized form of a central bank digital currency drives any additional value to the industry in the capital market space,” said Jennifer Peve, managing director and head of strategy and business development at DTCC.

The development of the prototype will likely finish this autumn, Peve told CoinDesk.

While a CBDC can serve multiple purposes, Project Lithium is particularly focused on the needs of the financial services industry, such as how a CBDC could benefit the clearing and settlement of securities. For example, the project aims to demonstrate direct, bilateral settlement of cash tokens in real-time delivery-versus-payment (DVP) settlement.

“It will maintain many of the existing elements of our currency today, so it’s effectively representing the U.S. dollar but in a digitalized form and on blockchain,” said Peve.

Other areas the pilot will attempt to identify are reduced counterparty risk and trapped liquidity, increased capital efficiency and a more efficient, automated workflow, according to the press release.

“There are different ways that this can take shape, and understanding those various methods or which ones make most sense for us and the industry and the country is very important,” Peve said.

DTCC Controlled By Big Banks

DTCC traces its history back to a key milestone in the existing financial-market infrastructure – specifically the “paperwork crisis” of the early 1970s, brought on by a “sharp increase in securities trading and the growing number of trades that fail to settle,” according to its website.

The DTCC board of directors includes executives from JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, BNY Mellon and Northern Trust as well as the foreign banks UBS and BNP Paribas.

According to the DTCC board’s charter, the “board must be representative of DTCC’s participant shareholders.

 

Updated: 4-14-2022

BoJ Official Says Digital Yen Won’t Be Used To Achieve Negative Interest Rate

The Bank of Japan’s executive director announced that the eagerly-awaited digital yen won’t be used to attain negative interest rates.

The Bank of Japan (BoJ) has said that its central bank digital currency (CBDC), the digital yen, will not be used to help attain negative interest rates.

The BoJ’s executive director, Shinichi Uchida, made the announcement in his most recent public speech.

“While the idea of using such a functionality as a means to achieve a negative interest rate is sometimes discussed in academia, the Bank will not introduce CBDC on this ground.”

Japan initially adopted negative interest rates in 2016 in an attempt to combat decades of deflation by encouraging borrowing and spending. Negative interest rates are only used as a last resort by central banks during a recession to stimulate an economy by encouraging borrowing and spending, with interest being paid to borrowers rather than lenders.

Echoing this sentiment was former head of the BoJ’s financial settlement department Hiromi Yamaoka, who warned earlier this year that CBDCs could potentially destroy the Japanese economy. While Yamaoka agreed with the idea of digitizing payment methods, he did not support the idea of using a CBDC for it.

Senior Wall Street Journal columnist James Mackintosh has similarly argued that the difference between a CBDC and cash would be highlighted if interest rates fell below zero.

People would be more inclined to hold on to physical cash to “earn zero” rather than lose money on a digital dollar issued by the central bank.

In his speech, Uchida stated that if the creation of the digital yen does move forward, then Japanese citizens can expect the CBDC to be released with a series of unique features.

The bank is considering imposing a limit on the transaction amount of each individual or entity for the duration of the pilot and is also contemplating whether or not to make the digital yen an interest-bearing asset.

The BoJ first shared its three-phase trial outline for its central bank digital currency in October 2020. The first two phases of the trial are focused on testing the proofs-of-concept while the third phase would see a pilot currency be launched.

The first phase began in April 2021 and finished on March 22 of this year. The BoJ began its second phase of trials on March 24, stating that it would begin testing the more technical aspects around the issuance of the digital yen.

However, the governor of the BoJ, Haruhiko Kuroda, announced at Japan’s FIN/SUM fintech summit earlier this month that it has no plans to introduce a CBDC anytime soon.

Kuroda explained that the BoJ plans to carefully consider the expected roles of central bank money in the lives of Japanese citizens before making any major decisions or announcements.

“We consider it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems.”

The popularity of CBDCs continues to grow as governments around the world look to the potential benefits of digital assets.

On Tuesday, Brazil’s central bank confirmed that a CBDC pilot program would be launched by the second half of this year, while the Reserve Bank of South Africa finalized its technical proof-of-concept concerning its CBDC.

Updated: 4-15-2022

Fitting The Bill: US Congress Eyes E-Cash As An Alternative To CBDC

From fiat banknotes to fractional reserve banking, the notion of what constitutes money in the U.S. has changed over time. But is the time right for e-cash?

On March 11, United States President Joe Biden issued an executive order in which he encouraged the Federal Reserve to continue research on a prospective U.S. central bank digital currency, or CBDC.

The order emphasized that the market capitalization of digital assets had surpassed $3 trillion in November — with Bitcoin (BTC) representing more than half of the total value of all cryptocurrency and peaking at over $60,000 — up from just $14 billion five years prior. For comparison’s sake, the U.S. money supply (M1) in the same month was $20.345 trillion.

Stephen Lynch, a member of Congress who chairs the Task Force on Financial Technology, introduced the Electronic Currency and Secure Hardware Act on March 28, which would develop “an electronic version of the U.S. Dollar for use by the American public.”

How Does This Project Fit Into The Existing U.S. CBDC Frameworks?

Is Lynch’s E-cash A CBDC or Not?

Curiously, the specialists tasked with authoring the concept claim it isn’t a true CBDC because it would be issued by the U.S. Treasury rather than the U.S. Federal Reserve, the central bank system.

Rohan Grey, an assistant law professor at Willamette University’s College of Law who helped draft Lynch’s bill, said in an interview that the Fed doesn’t have the statutory authority to create a CBDC or the capacity to maintain the retail accounts that would be required for it.

Instead, he described the digital dollar as something replicating the privacy, anonymity and transactional freedom reflecting the properties of physical cash.

He noted that it would neither use a centralized ledger (like most proposed CBDCs) nor a distributed ledger (like crypto) and maintain its security and integrity through its hardware.

According to Grey, beyond that, giving the Fed the power to conduct the electronic surveillance of digital currency isn’t a good idea because of the potential for infringing on users’ privacy.

He positioned e-cash as a third alternative beyond account-based CBDCs and crypto, which addresses concerns related to privacy and surveillance.

Isn’t Online Banking Enough?

Last summer, crypto critic Senator Elizabeth Warren argued that there was no need for digital money because U.S. money is already accessed digitally. Lynch’s proposal reflects a different perspective in the Democratic party. What attracts him?

In Europe, China and other parts of the world, it’s common to transfer money via online apps or with debit card payments. While these exist in the U.S., they complement an older “legacy” system of paper checks.

While the use of personal paper checks by individuals has declined significantly over the past 20 years, the U.S. government and U.S. businesses still use them to send money.

This makes things difficult for the millions of adults who are “unbanked” or “underbanked”: those who lack a bank account and commonly rely on check-cashing services, which charge high rates.

Many consider these extra expenses too high or disproportionately high, given that these services are considered the most essential by the least economically resilient segment of the population.

Many U.S. politicians are worried about economic inequality issues, especially since the 2008 financial crisis and more recently in the wake of the 2020 riots.

Additionally, when Americans use credit cards or digital platforms to make payments, retailers must pay third-party fees, which adversely affects the cash-based economies of poorer and immigrant-dominated communities.

Small businesses, landlords and individuals providing services often must rely on paper checks.

Sending paper checks also involves unacceptable lag times involved in their transfer, receipt and processing. The number of banks in the U.S. is in the thousands, while in Canada, just five account for most residents. This means that bank-to-bank transfer costs associated with sending money are essentially unavoidable.

Normally, the U.S. Bureau of Engraving and Printing (which is under the Department of the Treasury) prints banknotes that are then circulated by the U.S. Federal Reserve. All U.S. banknotes are called Federal Reserve Notes.

The proposed digital money would also enter circulation under the Department of the Treasury, but it’s unclear what role the Federal Reserve would play.

The proposed money would be introduced on an experimental basis, so there would likely be a cap on the issuance, ensuring that it wouldn’t have much of an effect on M1.

The Fed’s Take

While the Treasury is under the purview of the executive branch of the government, the Federal Reserve has some degree of independence. Federal Reserve Chair Jerome Powell is the chairman of the board of governors, who are appointed by the president and confirmed by the Senate much like judges, except that judges may be appointed for life while a Fed governor holds their position for 14 years.

After the Fed issued its own white paper on the issuance of a CBDC in January, not all of the governors were keen on the idea. Powell argued last summer for caution and looked to Congress for new legislation regarding a CBDC.

One of the Fed governors, Randal Quarles — vice chair for supervision — called the benefits of a CBDC “unclear” last year and the risks “significant and concrete.”

“Bitcoin and its ilk will, accordingly, almost certainly remain a risky and speculative investment rather than a revolutionary means of payment, and they are therefore highly unlikely to affect the role of the U.S. dollar or require a response with a CBDC,” Quarles said in an address to the Utah Bankers Association, later clarifying that this was his opinion rather than that of the Fed itself.

Interestingly, Powell’s approach to regulating stablecoins was more proactive.

“We have a pretty strong regulatory framework around bank deposits, for example, or money market funds. That doesn’t exist really for stablecoins,” Powell said in a congressional hearing last July.

“If they are going to be a significant part of the payments universe — which we don’t think crypto assets will be, but stablecoins might be — then we need an appropriate regulatory framework, which, frankly, we don’t have.”

On March 31, Representative Trey Hollingsworth and Senator Bill Hagerty proposed the Stablecoin Transparency Act, which would require stablecoins “to be backed by government securities with maturities less than 12 months or domestic dollars while requiring stablecoin issuers to publicly release audited reports of reserves executed by third-party auditors,” according to a financial services newsletter.

All Debts, Public And Private

One key difference between prospective e-cash and the U.S. dollar is that the latter is universally accepted. If e-cash mirrors the price of the dollar, a lot of people simply won’t take it, preferring to get old-fashioned USD.

Historically, such pegs have left central banks at the mercy of speculators.

During the American Civil War, U.S. fiat currency faced its first hurdle when people flatly preferred gold and silver coins to printed money, resulting in price fluctuations. Eventually, the U.S. returned to gold and silver coinage.

Over a century later, the French government under Charles de Gaulle succeeded in breaking the fixed $35-per-ounce exchange rate between U.S. dollars and gold established at Bretton Woods in the aftermath of World War II, and in the 1990s, billionaire investor George Soros “broke the Bank of England” by betting big on the United Kingdom’s inability to maintain Sterling’s peg to European currencies in the lead-up to the introduction of the euro.

This partly helps explain why legislators advocating e-cash are so interested in making it as much like existing U.S. money in circulation as possible.

Apples And Oranges

The wide-scale use of e-cash could necessitate a complete shift in the nature of financial regulation in the U.S. if it gets approval and passes the experimental stage.

Importantly, it would sidestep the need for traditional retail banking, making the storage and transfer of funds a public service rather than a fee-based service.

Federal monetary policy was built around the management of the economy through commercial banks, which helps to explain the hesitancy of certain central bankers like Quarles.

A lot has to do with the volume of e-cash being generated. Central bankers do have one good point: Stablecoins have enhanced the transactional value of crypto for those whose primary interest is in sending cash rather than investing.

Legislators have much to lose and little to gain if they risk introducing a national e-currency that doesn’t work, especially in an inflationary economy.

Updated: 4-19-2022

‘There Are Already Digital Means Of Payment’: EU Commission Gets 11,000 Public Comments On CBDC Project

Less than two weeks after the consultation process’ start, the prevalent mood in the comments section appears quite negative.

In the less than two weeks since the European Commission opened its “Digital euro for the EU” initiative up to public consultation, more than 11,000 individuals and organizations have left their feedback on the website. The feedback section will be open until June 14.

Besides the open-ended comments section on the website, there is a targeted consultation questionnaire that aims to collect information from the industry representatives, authorities and experts regarding such aspects of the prospective digital euro as privacy and data protection, Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT) rules, the impact on financial stability and users’ needs and expectations.

The consultation process predates legislative consideration of the digital euro, which is expected to be scheduled in 2023.

As crypto advocate Patrick Hansen noted, in the last year’s round of consultations on the digital euro, the majority of respondents spoke out in favor of payments being a private matter. Despite that, the European Commission’s Commissioner for Economy Paolo Gentiloni stated that “a completely anonymous digital euro is not desirable.”

A review of a sample of the public feedback section’s content revealed the existence of a certain discontent with the project in general. For example, as an anonymous comment in German goes:

“NO! There are already digital means of payment! So what is CBDC for […] even more surveillance, prevention of bank runs, addiction and the consequent enslavement of mankind? This does not prevent money laundering; this already exists on a large scale for the top 10,000 in many tax havens, e.g., [the] Cayman Islands, Macau, Dubai, etc.”

Another German-language commentator, Michael Hagmüller, also emphasizes the fear of government overreach that could be made possible by the adoption of a single digital currency:

“I am against a digital euro for the EU. My concern is that basic freedoms can also be endangered here and authoritarian governments [would] then have total control.

The example of the Maastricht criteria shows that the previous governments do not follow the rules and with a digital euro the state could do what it wants with its citizens and suppress any opposition.”

Notably, the German language dominates the public comments section, and the negative sentiment toward the digital euro seems to be prevalent across these posts. It took scrolling through 21 pages to encounter the first opinion in a different language, Dutch.

That one also attacked the initiative, albeit in a more moderate manner. Marcel Diepstra opined that the EU should concentrate on proper regulations for crypto, not on its CBDC:

“Over the last 13 years, we have seen that cryptographically secured digital currencies can be secured and trusted while being completely decentralized. When properly set up, the currency cannot be altered anymore without consent of the majority of all stakeholders.”

There is also conspicuous anxiety about the possibility of further power consolidation in the hands of the EU’s biggest economies, expressed in the comments of the smaller member states’ citizens. For one, Milan Golier from Slovakia called for the sovereignty of the Union’s members to be preserved:

“Neither I nor my whole family agrees. I think the EU is going too far, the economic aid group between sovereign states is slowly becoming a dictatorial system run by two big players, we certainly did not want this.”

Others expressed dissatisfaction with the general process of money virtualization, which is supposed to receive a major boost should the pan-European digital currency be created. Marie Rommelaere from Belgium wrote:

“For me, this digital euro is an aberration, which confirms the debt-money in which we are unfortunately mired. Neither euro nor any digital currency. Let us find the currency guaranteed by tangible reserves, such as gold for example.”

But the optimism over the volume of feedback should be taken with a grain of salt as the vast majority of comments come in a form of anonymous short remarks, usually taking a negative stance on the initiative. These are not necessarily an accurate representation of what most EU citizens think on the matter.

 

Updated: 4-21-2022

Central Banks Wrestle With The Crypto Conundrum

They remain circumspect about whether and how to create their own digital currencies.

When visiting El Salvador, be sure to bring sunscreen, a long-lens camera to memorialize its bountiful biodiversity and … Bitcoin. But have some U.S. dollars on hand just in case local merchants don’t accept it.

On this week’s episode of Stephanomics, we dive into the disparate ways in which global leaders approach digital currencies, from the Salvadoran embrace to the tentative exploration by central banks.

Tiny El Salvador, population 6.5 million, was the first country to make Bitcoin legal tender, providing a test case for its widespread use. B

loomberg reporter Michael McDonald filed a dispatch from the Central American nation after testing Bitcoin at various restaurants, rental car agencies and street vendors. While some transactions went through just fine, McDonald reports, many Salvadoran merchants have sworn off crypto and are sticking with the country’s other legal tender, the U.S. greenback.

Elsewhere, host Stephanie Flanders finds central bankers and economists to be more circumspect about whether and how to create central bank digital currencies. Such crypto would be regulated by a country’s central bank and theoretically offer price stability.

In a discussion sponsored by the Bank for International Settlements, a central banker from Sweden, the chief executive of Santander Bank and a Yale University finance professor weigh in on how to protect consumers while exploring this alternative form of payment.

Updated: 4-24-2022

Central Bank of Mexico Will Launch Its CBDC In 3 Years

The Governor of Banco de Mexico (the country’s central bank) informed that Mexico will have its CBDC in full circulation within the next 3 years.

On April 21, Victoria Rodriguez Ceja, Governor of the Bank of Mexico (Banxico), said during a hearing before the Mexican Senate that the CBDC (MDBC) “will be in circulation” by 2025.

According to Rodriguez, the CBDC will enable greater financial inclusion for citizens while expanding existing payment options. They also expect to deploy new automation mechanisms to speed up payment processes.

“The digital currency seeks to generate means of payments aimed at financial inclusion, expand options for fast, secure, efficient and interoperable payments in the economy, and implement complementary functionalities to the (existing) means of payment, such as automation mechanisms, programmability, and innovation.”

This would delay a little bit the previous schedule shared by the Central Bank. On december 31 of2021, Cryptopotato reported that the country had in mind 2024 as the year to launch a CBDC. The announcement, however, gives the idea that Mexico’s CBDC could support more services than just transmission of value.

Banco de México Is Thinking on Regulating Cryptocurrencies

Although Mexican President Manuel López Obrador ruled out the possibility of adopting Bitcoin or any cryptocurrency as legal tender in the country, Mexico’s own central bank is now seeking to give them greater legality through regulation.

Rodriguez said that Banxico and other central bank groups were studying the possibility of regulating the use of cryptocurrencies in the country to protect citizens when making their transactions since such transactions are not protected nor regulated by the Bank of Mexico.

“[Several] central bank groups, in which Banxico participates, are reviewing this issue [of regulation] so as to further protect those participating in the financial system.”

This means that even though Mexico is launching its own digital currency (very different from a cryptocurrency), the country does not want to be left behind in terms of regulations of the broader crypto industry, which would also help the Government to collect more taxes, as it happens in other countries such as Spain, United States, and Brazil.

CBDCs Are Not Cryptocurrencies

The Governor of Banxico clarified the bank’s favorable position towards a future regulation of the crypto industry; however, she emphasized that cryptocurrencies are very different from CBDCs because of their decentralized nature, which allows citizens to have full control of their money.

She clarified, however, that the advantage of CBDCs is that they are backed by the Government, as CBDCs are just a digital expression of the fiat money we all know and use.

On the other hand, she added that this new CBDC is not intended to replace the traditional currency or the banknotes in circulation. Still, it would be a strategic alternative to the current means of payment.

The Bank of Mexico is working closely with the Bank of International Settlements to develop its CBDC; however, the road is not easy. There is a lot of work ahead. Recently, the pro-bitcoin senator Indira Kempis introduced a bill to include a CBDC into the legal system, paving the way for a successful implementation.

Updated: 4-27-2022

The Philippines Will Launch Pilot Wholesale Central Bank Digital Currency Project

Retail digital payments are growing, but the country needs to implement further payment and financial inclusion reforms before a retail CBDC will be needed.

The Philippines will pursue a wholesale central bank digital currency pilot project, to be called Project CBDCPh, Bangko Sentral ng Pilipinas governor Benjamin E. Diokno announced Wednesday.

Diokno spoke about the project last week at a roundtable of the 14th Annual Group of 24/Alliance for Financial Inclusion Policymakers held at the International Monetary Fund–World Bank spring meetings in Washington, DC.

The project will be led by an intersectoral domestic team, Diokno said, as well as “external advisers from international standard-setting bodies and multilateral institutions to build on training and knowledge sharing on CBDC development and implementation all over the world.”

Diokno called the project “critical in constructing the BSP’s medium- to long-term roadmap for more advanced wholesale CBDC projects that will further strengthen the Philippine payment system.”

A presentation prepared in advance of the roundtable stated, “There is minimal perceived added value for the use of retail CBDC in the Philippines, given the progress in the implementation of retail payment and financial inclusion reforms.”

It noted that about 20.1% of the monthly retail payments volume was in digital form at the end of 2020, up from 10% in 2018 and 1% in 2013. All government salaries are paid digitally.

The central bank foresees using the wholesale CBDC for cross-border payments, equity securities payments and intraday liquidity facility (ILF). At present, ILF is not fully automated. The Financial Action Task Force recently identified the Philippines as having inadequate Anti-Money Laundering and Combating the Financing of Terrorism standards.

The country took its first steps toward a CBDC last year with the release of an exploratory study. It also signed memoranda of understanding on information exchange and capacity building with the Monetary Authority of Singapore and the Central Bank of Mauritius in the areas of digital currency, fintech and Islamic banking, and took part in a Bank for International Settlements study on the role of CBDCs in financial inclusion.

The Group of 24, which has grown to 28 members since its founding plus China as a “special invitee,” coordinates “the position of developing countries on monetary and development issues,” according to its website.

Hong Kong Monetary Authority Invites Views On Retail CBDC

The authority is studying design considerations such as issuance, interoperability with other payment systems, privacy and data protection.

The Hong Kong Monetary Authority (HKMA) has issued a discussion paper inviting views on the key issues around a retail central bank digital currency (CBDC).

* The city’s de facto central bank’s “e-HKD: A policy and design perspective” paper focuses on the policy and design issues related to a digital Hong Kong dollar.

* The authority is studying the issuance mechanism, interoperability with other payment systems, privacy and data protection.

* The HKMA has previously studied the technical aspects of issuing a CBDC, the findings of which were published in October. The resulting paper studied potential architectures and design options as it relates to the construction of the infrastructure for distributing an e-HKD.

* Along with the HKMA, the central banks of almost every major economy worldwide are studying or developing CBDCs, in part as a means of future-proofing their currencies from potential threats posed by increased use of privately issued digital currencies.

* China is leading the way with its digital yuan – or eCNY – which had 260 million individual users as of January.

* Hong Kong maintains its own financial and judicial systems, separately from the Chinese mainland as part of the “One Country, Two Systems” framework under which Hong Kong is governed.

Updated: 4-28-2022

Hong Kong Watchdog Warns Stablecoins Could Undermine HKD IN CBDC Paper

Hong Kong’s financial watchdog says it is concerned over the rising popularity of stablecoins, as it invites the public to give their say on the merits and challenges of e-HKD.

The Hong Kong Monetary Authority (HKMA) has warned that stablecoins could undermine the Hong Kong dollar in a recently released discussion paper about its retail central bank digital currency, e-HKD.

Many in the crypto industry believe that interest in developing central bank digital currencies (CBDC) has been in response to the rise of private-sector stablecoins. This discussion paper appears to confirm that view.

“With continued developments in stablecoins, it cannot be ruled out that a popular stablecoin may eventually emerge,” wrote the HKMA as part of the “e-HKD: A Policy and Design Perspective” discussion paper released on Wednesday.

“In a scenario where the use of these stablecoins becomes widespread […] the role of the domestic currency as the single unit of account could be undermined.”

The authority also highlighted risks that such stablecoins could undermine payment integrity due to operational or financial failures or allow for greater ease of capital flight during a financial crisis period, which would undermine the control of central banks over the local economy.

The HKMA first announced its plans to study a retail-focused central bank digital currency in June 2021 as part of its “Fintec 2025” strategy. However, the authority has also been studying to merits of issuing a wholesale CBDC since 2017.

Retail CBDCs (rCBDCs) are targeted toward the general public and used for everyday transactions. Wholesale CBDCs are issued only to financial institutions and are aimed at making their transactions faster, less expensive, and more secure.

The monetary authority has made no commitment to introducing a digital currency. The most recent discussion paper merely invited industry leaders and consumers to provide additional feedback on the potential challenges and benefits of the proposed rCBDC.

It also asks for feedback on certain design considerations such as an appropriate rCBDC issuance mechanism, interoperability across large-value and retail payment systems, privacy and data protection, legal considerations, private sector participation and potential use cases.

Across the border in mainland China, the central bank digital currency continues to pick up steam. Earlier this month, the People’s Bank of China (PBOC) said it will be expanding its digital yuan trial to six more cities, adding to the existing 10 major pilot cities already undergoing trials.

Meanwhile, the Philippines government on Wednesday announced that it will be pursuing its own pilot project for a wholesale central bank digital currency, called Project CBDCPh, which it envisions will be used for cross-border payments, equity securities payments and intraday liquidity facilities (ILF).

Updated: 4-29-2022

Hong Kong Isn’t Sure if It Needs A CBDC

The issues that have prompted other countries to explore a central bank digital currency don’t exist to the same extent in Hong Kong; bitcoin continues its mini-upswing.

Hong Kong’s Uncertainty About A CBDC

The Hong Kong Monetary Authority (HKMA), the Chinese Special Territory’s central bank, published a policy paper this week outlining the possible directions a Hong Kong-issued central bank digital currency (CBDC), which it’s calling an e-HKD, could take.

CBDCs, a digital version of cash issued by central banks as opposed to money issued by commercial banks, has been explored by central banks worldwide, including Sweden, the Bahamas and Canada. But most critically for Hong Kong, its largest trading partner, China, has developed and is slowly deploying its own CBDC, called the e-CNY.

Each region has its own reasons for deploying a CBDC. In Sweden bankers are concerned about the declining use of cash; in the Bahamas the government looks to build out a system for financial inclusion; Canada’s central bank sees the need for increased competition for retail deposits; while the People’s Bank of China wants to wrestle away the control AliPay and WeChat pay have over the nation’s money supply.

All these issues brought up by other governments exist to some extent in Hong Kong. But HKMA’s assessment is that these issues don’t exist to the point of warranting the introduction of a retail-focused CBDC (which it calls a rCBDC in the paper).

“Although rCBDC is meant to be a digital extension of cash, its potential demand is highly uncertain,” the HKMA wrote. “The potential holders may need to switch funds out of their deposit accounts for rCBDC, which would affect the balance sheets of commercial banks and lead to disintermediation of banks.”

The HKMA’s analysis shows potential for a squeeze on banks’ interest margins and profitability because deposits will decline as consumers swap out bank deposits for an rCBDC where deposits are stored, with the central bank potentially adding costs (ironically) for consumers.

“Banks may also opt to pass the higher funding cost to their customers by imposing a higher lending spread,” the HKMA noted. “In the remote case where the increase in funding cost and lending spread lead to a tightening in overall credit conditions, consumption and investment activities would inevitably be affected.”

The HKMA doesn’t see this as a scenario that is likely to play out because it’s likely that an rCBDC would be unremunerated – meaning it would be without an incentive structure in place like negative interest rates.

“The attractiveness of e-HKD as a store of value over bank deposits should also be limited, and hence the bank disintermediation risk should be manageable,” the HKMA said.

On the customer-facing side, the HKMA isn’t exactly sure what pain points the rCBDC would address. Hong Kong, it said, already has a “plethora of convenient retail payment options available” that are resilient and highly efficient. Mass adoption will only happen if there’s an obvious pain point that this solves.

This existential question of why a CBDC is really necessary has been brought up by central bankers before, in many of the countries that have explored the technology.

While consulting groups like Accenture (ACN) and their lackeys might produce white paper upon white paper extolling the virtues of the technology, it remains unclear if it’s still a necessity.

A Bank of Canada research paper on the topic found there may be marginal theoretical gains from welfare distribution via CBDC, but the public’s perception of the platform’s net benefit remains a challenge.

Speaking on the topic in 2021, U.S. Federal Reserve chair Jerome Powell came out as a skeptic about its necessity.

“The real threshold question, for us, does the public want or need a new digital form of central bank money to complement what is already a highly efficient, reliable and innovative payments system?” he said at the time.

 

Residents Of 3 Chinese Cities Paying Taxes And Charges With Digital Yuan

China has expanded its central bank digital currency pilot program to include the payment of tax, stamp duty and social security.

Residents in three major Chinese cities have begun paying tax, stamp duty and social security premiums using the country’s central bank digital currency (CBDC) — the digital yuan (e-CNY).

According to a domestic news report, a number of government agencies in the Zhejiang province — located just south of Shanghai — are currently running real-world trials programs that involve citizens using the digital yuan to pay taxes.

The Zhejiang Taxation Bureau is working with the country’s central bank — the People’s Bank of China (PBoC) — to explore a variety of taxation payment methods using the digital yuan.

The PBoC and affiliated local government agencies are reportedly looking to the next major test for the digital yuan, the Asian Games which will take place in Hangzhou in September. Local authorities claim that the digital yuan could be used to streamline calculating tax-related activities.

Following the successful steps in the implementation of the digital RMB pilot program, which began public testing in April 2021, the PBoC stated that it will look to extend the program to more Chinese cities including Guangzhou, Tianjin and Chongqing.

On the other side of the ledger to taxation, one local government has chosen to “airdrop” 15 million digital yuan, or around $2.25 million at the time of writing, to its residents hoping to boost consumer spending during the pandemic and promote the use of the new currency.

Roughly 130,000 residents of the Futian district in Shenzhen will receive a share of the 15 million digital yuan (e-CNY) in the form of a red envelope via the Chinese social media app, WeChat. The digital RMB airdrop marks the most recent government attempt to boost spending in areas of China most affected by the recent COVID-19-related lockdowns.

In Chinese and other East Asian cultures, monetary gifts are often handed out in red packets or envelopes, as the colored wrapping bestows good wishes and luck upon the recipient.

These developments extend China’s already significant lead in developing a central bank digital currency for public use, with the majority of countries still in the research stages of CBDC implementation.

According to state media, transactions in digital yuan across China came to nearly 87.6 billion yuan by the close of 2021.

 

Updated: 5-3-2022

Ex-Fed Vice-Chair Quarles Has Lost None Of His Fervor In Opposing US CBDC

The former Federal Reserve official once again expressed his opposition to a United States central bank digital currency in a Tuesday podcast.

Former United States Federal Reserve vice-chair for supervision Randal Quarles discussed central bank digital currencies (CBDC) and the chances of the U.S. adopting such technology in an interview on the “Banking With Interest” podcast Tuesday.

Quarles, who is known for his opposition to a CBDC, expressed his skepticism about the so-called digital dollar and predicted the U.S. will not introduce it.

Quarles, who served at the Fed from 2017 to 2021, said a close analysis of CBDCs would show that their advantages are “extremely marginal, if they exist at all.” He did not see the potential for CBDCs in promoting financial inclusion, commenting:

“You’re going to need an account at the bank, the way you need to use money now, and in addition […] a cellphone and wireless access, and all that is making inclusion harder.”

Using a CBDC to exclude the role of the bank would be “pathological,” he added.

Quarles said opinions on CBDCs differ within the Fed, but he lamented the attitude of following in other nations’ footsteps just for the sake of it. He did not think a bill authorizing a CBDC could pass Congress, as the public would react unfavorably to the idea once it received broader attention.

Nonetheless, he noted, “a coterie of politicians […] Many of them conservative Republicans, who you might expect would be concerned about this issue, but they’re more concerned we’re falling behind China.”

Quarles was bullish on stablecoins for international transactions, saying “we tend to win” when U.S. private sector innovation competes with state-run entities, such as the e-yuan. A CBDC would make stablecoins less attractive, he reasoned, asking:

“Why are you going to invest a whole lot of effort to developing a […] stablecoin payment system if the Fed is just going to bigfoot you out of existence?”

When asked if he had any advice for his proposed successor as Fed vice-chair, former Ripple adviser Michael Barr, Quarles said, “Make your decisions as technocratic as possible,” in preparation for explaining to political supporters why they will not get everything they want.

Updated: 5-4-2022

Proposed Digital Euro Designs Lack Privacy Options, ECB Presentation Shows

Transactions via the EU’s prospective CBDC could be transparent to intermediaries, as any non-crypto digital transactions are.

Next to the fears of government overreach that the European Union’s ambitious digital euro project stirred, the main concern of the public is the prospective currency’s privacy framework.

It appears that this worry might not be overblown after all, as the European Central Bank’s (ECB) latest presentation hints that user anonymity is not a desirable design option.

On Tuesday, crypto venture adviser and European digital asset regulation whistleblower Patrick Hansen drew public attention to the ECB’s presentation titled “Digital Euro Privacy options.”

The document is relatively short and contains nine slides that lay out the possible options for user privacy in the EU’s Central Bank Digital Currency (CBDC), also known as the digital euro.

Acknowledging the public concern for the CBDC’s privacy, the presentation stresses the need to assess the issue “in the context of other EU policy objectives, notably anti-money laundering and countering the financing of terrorism (AML/CFT).”

What this bureaucratic verbiage means in practice is that the baseline privacy scenario for the digital euro project is all transaction data being transparent to intermediaries such as banks.

The option of providing a higher degree of privacy for low-value transactions is still on the table, though, and “could be investigated with co-legislators.”

However, the overall mood of the document can be expressed in a single quote from slide four, which goes: “User anonymity is not a desirable feature.” At this point, Hansen concludes, it isn’t clear how exactly the digital euro would differ from the existing fiat-based infrastructure for digital payments.

The public feedback section for the digital euro contains more than 13,000 replies by the press time, mostly critical to the CBDC project. Meanwhile, the ECB and Eurosystem have begun experimental prototyping of the customer interface of the digital euro at the end of April.

Updated: 5-6-2022

9 Out of 10 Central Banks Exploring Digital Currency, BIS Says

A survey conducted in 2021 by the Bank for International Settlements found more than half of central banks are developing CBDCs or running concrete experiments.

Nine out of 10 central banks around the world are exploring central bank digital currencies (CBDC), according to the results of a survey conducted by the Bank for International Settlements (BIS).

The survey also found that more central banks are developing or testing a retail CBDC, which is a digital currency designed to be used by consumers versus a wholesale CBDC, which is meant to be used by banks.

The report published on Friday by BIS, an umbrella group for central banks, presented the results of a survey of 81 central banks conducted in autumn 2021. The survey explored the level of engagement by banks in CBDC work, along with their motivations and intentions concerning CBDC issuance. BIS is owned by 63 central banks that represent about 95% of the world’s total GDP.

More than half of the surveyed central banks are developing CBDCs or “running concrete experiments,” according to the results. Around 20% are developing or testing a retail CBDC, which is twice the number of central banks working on a wholesale digital currency.

Around the world, central banks are actively exploring CBDCs as economies look to strengthen their digital payments and banking infrastructure.

From potentially improving financial inclusion, to speeding up cross-border transfers, CBDCs theoretically hold many promises, but with China taking the lead in developing and testing a digital yuan, some governments around the world are also viewing CBDCs as a play for monetary sovereignty.

Jurisdictions represented in the BIS survey make up close to 76% of the world’s population with 56 of the surveyed central banks representing emerging and developing economies.

In September 2021, BIS signaled central banks around the world to start working on CBDCs. According to the Atlantic Council’s CBDC tracker, 87 countries representing over 90% of the global economy are working on CBDCs.

“On average, almost six out of 10 respondent central banks said that this growth has accelerated their work on CBDCs,” the report said.

Jurisdictions represented in the BIS survey make up close to 76% of the world’s population with 56 of the surveyed central banks representing emerging and developing economies.

While central banks in the Bahamas, China and Nigeria have already issued or are piloting a retail CBDC, the survey found that other jurisdictions will likely follow with 68% in the “foreseeable future.”

In addition to questions about CBDCs, the survey also asked central banks about stablecoins (cryptocurrencies pegged to the value of other assets or currencies like the U.S. dollar) and cryptocurrencies in general.

“Central banks differ in their expectations that stablecoins will scale up and become widely used and accepted as a means of payment, depending on the type of stablecoin,” the report said, adding that central banks seem to believe stablecoins backed by a single currency are far more likely to succeed as a method of payment over other types of stablecoins pegged to commodities or other cryptocurrencies.

About 70% of central banks are looking into the potential impact of stablecoins on monetary and financial stability, while around a quarter are studying the use of cryptocurrencies.

 

Updated: 5-10-2022

Chilean Digital Peso Would Need To Work Offline, Central Bank Governor Says

Design principles are due out later this week, though no final decision has been taken on the digital peso.

Chile’s central bank digital currency (CBDC) would need to accept offline payments, the central bank governor said at an event on Tuesday. Governor Rosanna Costa promised a policy paper on the topic later this week, but added that no final decision had been taken on whether to issue a digital form of the Chilean peso.

A recent survey from the Bank of International Settlements, an organization that is owned by central banks, suggests that nine out of 10 central banks are considering issuing their own virtual assets, in part because of competition from the likes of bitcoin, but they are grappling with design issues to ensure access and privacy.

The CBDC should “should operate both online and offline,” Costa said at an event hosted by the BIS, adding that the technology to do so is “not necessarily efficient today.”

The system should “allow the authorities to trace the transaction afterwards,” while safeguarding personal data, Costa said.

The CBDC would have to coexist with and be convertible with cash and commercial banks, and be secure, she added, saying that pilot projects could be implemented after further discussions with public and private sectors due later this year.

In jurisdictions such as the European Union, officials are considering how to balance ability to make discreet cash-like transactions with the need to track illicit finance – and are considering offering more private means of payment for small purchases. Ghana has also considered making its CBDC available offline.

Others think that the issue is a waste of time and that central banks should be focusing on areas where payments are now difficult.

“We are barking up the wrong tree with retail CBDCs,” Ravi Menon of the Monetary Authority of Singapore said at the event, arguing that existing payment networks are enough to deal with the needs of ordinary citizens.

“The tree we should be barking up is wholesale CBDCs for cross-border payments,” Menon added, implying that banks could make big international transactions without traditional tools like the SWIFT messaging service, which he called “laborious” and “archaic.”

International standard setters have been broadly supportive of moves to issue CBDCs, but worried that might mean central banks lose their power to tell citizens what to do with their money.

“In many countries with weak institutions, citizens might have incentives to move money out of the country,” said Tobias Adrian, director of the International Monetary Fund’s monetary and capital markets department. “The vast majority of countries have some forms of capital controls, and there’s both direct and anecdotal evidence that crypto assets are used for that.”

The IMF recently said countries should extend their laws to ensure measures such as restrictions on overseas payments include crypto assets.

Nigeria Upgrades CBDC As Crypto Restrictions Cripple Fintech Industry

Nigeria’s central bank has upgraded its eNaira to steer the country away from crypto even after a UN report stated that restrictions on digital currencies are stifling the nation’s fintech sector.

The Central Bank of Nigeria (CBN) is moving ahead with plans to upgrade the country’s central bank digital currency (CBDC) to be used on a wider range of goods and services. It is also maintaining harsh crypto restrictions that cripple the country’s fintech sector.

The CBN branch controller Bariboloka Koyor spoke at a campaign aiming to “sensitize” businesses to the eNaira at a market in the country’s most populous city of Lagos on Monday, according to a report from Vanguard. Koyor stated:

“Starting from next week, there is going to be an upgrade on the eNaira speed wallet app that will allow you to do transactions such as paying for DSTV or electric bills or even paying for flight tickets.”

Koyor said the upgrade was launched to make onboarding easier, touting its wallet that had no charges and was faster than internet banking.

He added that in the future, the eNaira will be the only way to receive financial assistance from the government, stressing the advantages of early adoption:

“This is a project that the CBN has rolled out to reach every Nigerian in terms of financial inclusion and in terms of efficiency, reliability, and safety of banking transactions so that we can do banking transactions very easily and safely and the people in Nigeria can enjoy the benefit of the eNaira.”

The value of the naira has fallen by over 209% in the past six years, which has pushed Nigerians to adopt crypto in droves. An April report from the KuCoin crypto exchange highlighted that around 33.4 million Nigerians owned or traded cryptocurrencies in the last six months.

Restrictions on crypto trading in the country tightened after the launch of the eNaira in October 2021. The CBN banned banks from servicing crypto exchanges in February of the same year, but real enforcement happened in November 2021, when the CBN ordered the accounts of two crypto traders to be frozen.

This crackdown led commercial banks in the country to track their customer’s accounts, looking for signs of cryptocurrency trading which could cause accounts for fintech businesses to be flagged.

The restrictions on trading were cause for concern in an April report jointly published by the Secretary Generals of the Organisation for Economic Co‑operation and Development (OECD) and the United Nations (UN).

The report focused on the urbanization of Africa and said young Africans working in the tech sector “creating apps or trading digital currencies” were at risk from arbitrary government policies. It singled out Nigeria as an example, stating:

“The restrictions on cryptocurrency transactions […] in Nigeria have crippled foreign direct investment in the fintech industry and negatively impacted millions of young Nigerians who earn a living from the sector. Many have found a way, however, to lawfully bypass these restrictions and continue business, effectively denying Nigeria the taxes and transaction fees that would otherwise come into the system.”

There are no signs of CBDC adoption slowing down, as recent research found that 80% of central banks were considering a CBDC. On Tuesday, Tanzanian officials said that the CBDC plans are accelerating.

In a Bloomberg interview, the Bank of Tanzania governor Florens Luoga said that the country sent officials to countries with CBDC experience, including Nigeria, to learn from them directly, citing concerns of “cryptocurrency speculators.”

US Fed Vice Chair Says Digital Dollar Would Take 5 Years to Launch

The Federal Reserve’s Lael Brainard says it will take years to build a U.S. CBDC and that the project can only start once Congress and the White House sign off.

Federal Reserve Vice Chair Lael Brainard issued a reality check on those awaiting a digital dollar, saying that creating a central bank digital currency (CBDC) in the U.S. would likely take as long as five years.

In Brainard’s first testimony after her recent swearing-in ceremony to take over the Fed board’s vice chair role, she told the House Financial Services Committee that the Fed is still studying the question and wouldn’t move before approval from the White House and Congress – which in itself could add a considerable period of debate before an authorizing law can be passed.

“It takes a long time,” Brainard said in a Thursday hearing, comparing such a project with the Fed’s still incomplete real-time payments system that has taken years to build. “It could take five years to put in place the requisite security features, the design features.”

As to those design features, Brainard said it’s “probably preferable not to have an interest-bearing digital currency,” answering some bankers’ concerns that a digital dollar could take a massive and potentially fatal bite out of their deposit business.

She also mentioned the Fed is considering caps on digital dollar holdings to encourage customers to use them only for payments and not as a safe asset for people or businesses to pile their money into.

If the Fed does launch a digital dollar, Brainard said the asset could coexist with stablecoins and the existing financial system.

“I really see the potential for a digital dollar as being complementary to a more stable, efficient system that would include stablecoins and commercial bank money, so I really see them potentially enabling private sector innovation,” she said. CBDC holdings and transactions would still be managed through private sector accounts, Brainard confirmed, and not at direct customer accounts at the Fed.

Brainard said letting other central banks issue digital analogues to cash – such as in Europe – could eventually degrade the U.S. dollar as the global reserve currency, leaving “potential risks to not having a CBDC” in the U.S.

Longtime Fed governor Brainard was recently sworn in as vice chair alongside a few other additions to the board, but the Fed is still absent its vice chair for supervision. Biden nominated former Treasury official Michael Barr, who also worked for a time as an adviser to centralized fintech company Ripple, to take that role, but he’s still awaiting a Senate confirmation vote.

Brainard Tells House Committee About Potential Role Of CBDC, Future Of Stablecoins

The Fed vice chair told the House Financial Services Committee that a CBDC offers stability, interoperability in increasingly complex economic system.

United States Federal Reserve vice chair Lael Brainard submitted a written statement in advance to the Financial Services Committee’s virtual hearing, “On the Benefits and Risks of a U.S. Central Bank Digital Currency (CBDC),” that took place Thursday. That was a sound strategic move, considering that more than 25 legislators lined up to ask questions.

Brainard’s appearance before the committee came just after the close of the comment period for the Fed’s discussion paper, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.” However, recent events on the stablecoin market played a preemptive role in the framing of her statement.

Brainard acknowledged the position of stablecoins in the economy, saying in her written statement. She said:

“In some future circumstances, CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem, much like cash currently coexists with commercial bank money.”

In the Q&A, Brainard spoke in a conversation with Anthony Gonzalez of Ohio of “very robust regulation akin to bank-like regulation” to ensure the stability of stablecoins.

Two questions were touched on extensively in Brainard’s written statement and in the Q&A: the role of banks, and whether their role in the economy will be diminished even without disintermediation; plus the fragmentation of the payment system, and how a CBDC would affect the situation as it already exists.

In addition to those points, several of the participants pressed Brainard on the statement in the discussion paper that “The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”

Lawmakers wanted to know what non-ideal options the Fed would consider in deciding to issue a CBDC. The question was raised even by the final participant, Jake Auchincloss of Massachusetts.

Chairwoman Maxine Waters spoke of a “digital assets space race” and the benefits Americans receive from having a currency that is accepted abroad.

Brainard suggested that limits on CBDC holdings and not offering interest on CBDC accounts could help preserve the place of credit unions in the economy and maintain the role of traditional banking.

A CBDC would help ease, but not prevent, fragmentation of the payment system through interoperability by providing a settlement currency for competing private-sector systems, which are already drawing money out of banking system, Brainard told Gonzalez.

Since 2017, the share of cash in United States has declined from 31% to 20%. In addition, a CBDC would have full faith in the government behind it, Brainard told Ted Budd of North Carolina.

Updated: 5-11-2022

Bank of Israel Claims ‘Public Support’ For Its CBDC Project

Stakeholders believe that the digital shekel would boost competition, but remain divided on the matter of privacy.

Despite the fact that it still hasn’t made a final decision on the launch of the “digital shekel,” Israel’s central bank reported that the public feedback on the project is mainly positive.

According to Reuters, on Monday, The Bank of Israel summarized the results of the public consultation on its central bank digital currency (CBDC) plans.

It has received 33 responses from different sectors, with half of them coming from abroad and 17 from the domestic fintech community. While specifying that the final decision on the project’s fate is yet to be made, it claimed:

“All of the responses to the public consultation indicate support for continued research regarding the various implications on the payments market, financial and monetary stability, legal and technological issues, and more.”

While the public reportedly believes that the digital shekel would encourage competition in the payments market, it is the privacy issue that once again emerged as controversial.

The bank mentions that some commentators prefer the future currency to be fully anonymous while others insist that the fight against money laundering and the black market renders anonymity impractical.

The Bank of Israel aims to continue the research and a “fruitful dialogue with all interested parties at all stages of research and development.”

Speaking to Cointelegraph about the attitudes toward the digital shekel among the domestic crypto community, Elad Mor, head of international blockchain PR firm MarketAcross, which is headquartered in Israel, said:

“It feels like most digital shekel CBDC supporters are painting the topic as a broad-strokes adoption narrative. In other words, any crypto adoption is still adoption even if it doesn’t adhere to crypto’s core values like decentralization and anti-institutionalism.”

Mor noted that not everyone in Israel’s digital finance sector shared the same vision. Yet he, himself, believes that “bringing crypto to the masses has to start with institutional and governmental involvement to some extent.”

The CBDC project was first considered by the central bank at the end of 2017. A year later, the research team recommended halting the project for the near future, but in May 2021, the Bank of Israel revived the idea.

In November 2021, it said it would accelerate the research. In March 2022, the Bank of Israel confirmed that it didn’t see a threat of “erosion” to the national banking system coming from the potential launch of the digital shekel.

 

Updated: 5-12-2022

Chile Puts CBDC Plans On Hold Until End Of 2022 To Undertake More Analysis

Chile’s planned start to its digital peso rollout in early 2022 has been held back while its central bank conducts more analysis to inform a new report by the end of the year.

The Central Bank of Chile has delayed its plans for a central bank digital currency (CBDC) saying the issuance of a digital Chilean peso requires a deeper analysis of the benefits and risks, promising a new report toward the end of the year.

A report from the bank published on May 11 included a preliminary evaluation of a Chilean CBDC. It explored the country’s current payment system, along with the benefits, risks and principles of issuing a digital peso.

The bank stated while the current payment system “works adequately” and has been able to “adapt well to recent challenges,” a CBDC would enhance and mitigate any risks of digital transformation, adding:

“A CBDC would contribute to achieving a competitive, innovative and integrated payment system that is inclusive, resilient and protects people’s information.”

Regarding issuing a digital peso, the bank considers that there isn’t enough information to make a final decision and will “carry out a series of seminars, presentations and meetings with different counterparts” to inform the new report.

In September 2021, Chile’s central bank said it would create a strategy with proposals and options for a rollout of a CBDC in early 2022 and formed a working group to study the potential digital peso.

The bank outlined its concern regarding crypto adoption in the country, citing the potential for crypto’s use in money laundering, illicit activities and the ability to disrupt banks’ access to finances if used as an alternative to bank deposits:

“The issuance of a CBDC is also a good alternative to face the challenges associated with the potential massification of so-called virtual currencies, which, although for now they have a very small role in the payment system, could alter the functioning of the financial market and the transmission of monetary policy if its use becomes widespread.”

Chile sits 18th in the world for cryptocurrency adoption in 2021, according to figures from Statista. And, 14% of Chilean respondents said that they owned or used crypto that year, which also marks Chile as the fourth largest user of crypto in South America.

Chile doesn’t prohibit the use and trade of cryptocurrencies, but it joins other South American countries in its concern over crypto. In early May, the central bank of its neighbor Argentina stepped in to stop two banks from offering crypto services, saying it needed to “mitigate the risks crypto poses.”

Brazil is also eyeing regulation with a bill circulating since 2015 with the aim to create a regulatory agency to oversee the crypto market, moving closer to approval as of mid-April.

 

Updated: 5-13-2022

Chairman Of The Digital Euro Association: ‘The Primary Aim Of The Digital Euro Is Still Not Clear’

Jonas Gross spoke with Cointelegraph about the digital euro’s risks for private banks and the goals of the ECB.

The European Central Bank (ECB) is planning to launch a prototype of the digital euro in 2023. In the next five years, Europe could have its own central bank digital currency (CBDC) up and running. However, there are still many questions surrounding the prospective digital currency. In what form could it be issued?

Is the ECB too late for the CBDC party, especially compared to other central banks such as that of the People’s Republic of China? To address these and other questions, Cointelegraph auf Deutsch spoke with Jonas Gross, chairman of the Digital Euro Association (DEA) and member of the expert panel of the European Blockchain Observatory and Forum.

New Digital Cash

Gross said that compared to digital cash issued by a commercial bank, central bank money carries fewer risks. A commercial bank can always go bankrupt, but a central bank cannot because in an emergency, it can print as much money as needed.

And, in times of crisis, people may want, at least in theory, to transfer all their digital money from a private bank to the central bank, which will mean the end of the commercial banks’ business.

There are two potential mechanisms to avoid such a scenario: Either to set a cap on the amount of funds that a citizen can hold in central bank money or implement a negative interest rate applied to CBDC funds above a specified limit.

“The digital euro is mainly to become a kind of digital cash, also a new payment method and less a store of value. The central bank does not want to take away the banks’ business.”

Complete Anonymity

The digital euro will not be adopted by European Union citizens if it won’t have certain features such as complete anonymity, said Gross. His team did a study that showed that it is technologically possible to make a digital euro just as anonymous as cash.

It is also technically possible, Gross maintained, to allow digital euro payments to remain anonymous only up to a certain threshold, let’s say up to 10,000 euros, above which identification could be required. “This can be a great advantage for the digital euro, especially in view of the fact that cash is becoming less and less important,” Gross said.

“In an extreme case, in a few decades there could be very little use of cash, as is now the case in China or Sweden. And, if we didn’t have a digital euro that at least partially enables anonymous payments, then we would no longer have any privacy in payments. Even if it seems counterintuitive, the digital euro can promote privacy if one were to implement such a system with a focus on anonymity.”

ECB’s Indecision

According to Gross, the biggest problem at the moment is that the ECB has not yet defined the aim and functions of the prospective digital euro.

Last year, the ECB, in cooperation with several member states’ central banks, tested four design options for the digital currency. The first was the digital euro on the KSI blockchain, the core technology used by Estonia’s e-government.

The second option is a digital euro built on the TIPS, a European electronic payment system launched in 2018. The third possibility is a hybrid solution that sits in between the blockchain and the conventional banking system.

Finally, the fourth is a bearer instrument, which is a sort of money card that can be used for payments or hardware capable of processing offline payments without access to the internet.

These are only the rough possibilities, Gross said, and the ECB has not yet settled on a single design because the range of potential applications of the digital euro is not entirely clear.

Possible Geopolitical Risks

Projects like the digital yuan, China’s CBDC, could weaken the position of the euro altogether, especially if foreigners are also granted access to using it. Digital currencies can make it easier and cheaper to pay in that currency, Gross explained. Amid the Russia-Ukraine war, the issue of international payments and monetary sanctions is becoming geopolitically important again.

“The Russian government says Russian gas must now be paid for in roubles,” Gross said. “The Chinese can theoretically also come up with the idea that the products we have to export, which are currently transacted in U.S. dollars or euros, must from now on be paid for in the Chinese currency, for example, in the digital yuan.”

China can strengthen its currency by digitizing it, and this could cause the euro to lose some of its influence in the future. This is why the ECB should move faster on the digital euro and decide what it wants to get out of the CBDC after all.

ECB Lays Out ‘Anonymous’ Digital Euro As Public Opposes ‘Slavecoins’

The ECB drops another working paper on the digital euro, causing more outrage from Europeans opposing a central bank digital currency.

The European Central Bank (ECB) continues pushing its central bank digital currency (CBDC) project despite Europeans apparently not feeling too positive about a digital euro.

The ECB released another working paper on the digital euro, providing an extensive technical analysis of a potential European CBDC and its position in the existing financial system.

Issued on May 13, the working paper aims to study issues like financial intermediation, payment choices and privacy in the digital economy, providing a large number of related algebra-based conclusions.

The study suggests that a “CBDC with anonymity” is preferable to traditional digital payments like bank deposits but it “may become supplanted” by digital currencies or “payment tokens” issued by technology giants.

“This risk would be particularly tangible if those platforms compete with banks in the market for financial services. However, an optionality for data sharing features may result in a widespread CBDC adoption,” the working paper reads.

According to the ECB, one of the main problems of cash is that it cannot be used for more efficient online transitions while it still preserves anonymity. In contrast, bank deposits can be used online but do not provide enough anonymity.

Finally, digital currencies issued by tech platforms “allow merchants to hide from banks but enable platforms to stifle competition,” the ECB wrote, adding:

“An independent digital payment instrument — a CBDC — that allows agents to share their payment data with selected parties can overcome all frictions. […] The introduction of a CBDC with anonymity enables merchants to prevent banks from extracting information from payment flows.”

While the ECB keeps promoting a potential digital euro with anonymity-enabled features, the Europeans are not quite optimistic about any CBDC. According to public feedback from another digital euro consultation, the majority of Europeans are against the adoption of a CBDC in the European Union.

Launched on April 5, the consultation has amassed 14,110 feedback entries at the time of writing, with many opposing the very idea of a central bank-controlled digital currency and associated lack of user privacy.

Some online commentators even referred to a CBDC as a “slavecoin,” opposing “digital slavery” potentially introduced by such financial instruments.

“The digital euro in the sense of the EU referral is not compatible with either the protection of privacy or with data protection regulations. […] A control system for the small guarantors requires,” Austrian citizen Schmidl Andreas wrote.

“I’m totally against the introduction of a digital euro because I don’t want to be dependent on the internet when I buy something. I strictly reject the digital euro, because it leads to total control and restricts our fundamental rights and freedoms,” another anonymous user wrote.

As previously reported by Cointelegraph, the question of user privacy has emerged as one of the biggest problems associated with central bank digital currencies. This quickly became a big problem for global regulators and governments as they need to prevent illicit financial activity while also preserving confidentiality.

According to a previous digital euro public consultation released in April 2021, user privacy was considered the most important feature of a digital euro by both citizens and professionals in the European Union.

There are a number of other problems associated with a digital euro, including the alleged lack of demand. Jonas Gross, chairman of the Digital Euro Association, told Cointelegraph in April the primary aim of the digital euro is still not clear.

Last year, regulatory executive Pablo Urbiola at Spanish bank BBVA argued that it was not exactly clear what kind of customer demand the digital euro was supposed to meet.

Fabio Panetta, executive board member at National College of Ireland, argued on May 16 that a digital euro will allow public money to continue to anchor the stability of the payments system and contribute to its efficiency.

Fabio Panetta, executive board member at National College of Ireland, argued on May 16 that a digital euro will allow public money to continue to anchor the stability of the payments system and contribute to its efficiency.

According to European Commission finance chief Mairead McGuinness, the ECB still expects a prototype CBDC sometime in late-2023.

 

Updated: 5-16-2022

ECB’s Panetta: Digital Euro Could Come Out Within 4 Years

Peer-to-peer payments could be a first test case, though no final decision has been made yet.

A digital euro could be issued by the European Union (EU) within four years, a senior official from the European Central Bank (ECB) said Monday, with peer-to-peer payments potentially among the first uses.

The timeline for the central bank digital currency (CBDC) has been pushed back and forward because of concerns over Russia’s war in Ukraine and the rise of private stablecoins like Facebook’s now-abandoned libra.

“The idea would be that, let’s say, four years from now, we will be ideally ready to issue the digital euro,” Fabio Panetta, a member of the European Central Bank’s executive board, said at an event at the National College of Ireland. “It’s a very complex project, never done before … I’m a bit optimistic that in four years’ time we will be prepared.”

Peer-to-peer (P2P) payments, allowing transactions among friends, could be the first testing ground for the new technology before it spreads to other areas like payments in stores or online, Panetta suggested.

“A P2P payment solution that covers a broad set of users across the entire euro area could provide fertile ground for the adoption of a digital euro,” he said, citing research that showed the application would have widest use early on.

In October, the ECB started a two-year investigation phase to look at issues like what use cases to prioritize, although the ECB hasn’t decided yet on whether to issue a digital euro in the first place. Panetta has previously said that a realization phase due to start late next year could last three years.

In March, ECB President Christine Lagarde said the sanctions following the war in Ukraine offered a reason to speed up the plans, but other EU officials Monday suggested they were taking their foot off the gas pedal.

“There was some time back a sense of more urgency, because of the concerns of what might happen from private providers,” Mairead McGuinness, the EU’s financial-services commissioner, said at the same event. “Nobody is rushing … we need to move swiftly but not hastily.”

The idea of the EU issuing its own CBDC first emerged after an industry consortium led by Facebook proposed its own crypto currency, libra, subsequently renamed diem before being abandoned.

But recent collapses in the private crypto market may add yet one more reason to pursue the project, Panetta said.

Stablecoins don’t have the regulatory safety net offered to banks and “are therefore vulnerable to runs,” he said, citing the crash last week of terraUSD (UST), which is supported by the nonprofit Luna Foundation Guard.

“Just last week the world’s biggest stablecoin temporarily lost its peg to the dollar,” he added, referring to the Tether asset (USDT).

CBDC Activity Heats Up, But Few Projects Move Beyond Pilot Stage

Does government-issued digital money pose an existential threat to cryptocurrencies? Probably not, but stablecoin usage could narrow.

Government-issued electronic currency seems to be an idea whose time has come.

“More than half of the world’s central banks are now developing digital currencies or running concrete experiments on them,” reported the Bank for International Settlements, or BIS, in early May — something that would have been unthinkable only a few years ago.

The BIS also found that nine out of ten central banks were exploring central bank digital currencies, or CBDCs, in some form or other, according to its survey of 81 central banks conducted last autumn but just published.

Many were taken aback by the progress. “It is truly remarkable that some 90% of central banks are doing work on CBDCs,” Ross Buckley, KPMG-KWM professor of disruptive innovation at the University of New South Wales, Sydney, told Cointelegraph. “The year-on-year growth in this field is extraordinary.”

“What I found most surprising was the speed at which advanced economies were moving toward retail CBDCs,” Franklin Noll, president at Noll Historical Consulting, LLC, told Cointelegraph. “As recently as the middle of last year, central banks in advanced economies were taking a rather relaxed view of CBDCs, not seeing them as particularly necessary or worthy of much attention.”

Momentum accelerated last year, the report observed. After the Bahamas launched the world’s first live retail CBDC — the Sand Dollar — in 2020, Nigeria followed in 2021 with its own electronic money, the eNaira. Meanwhile, the Eastern Caribbean and China released pilot versions of their digital currencies, DCash and e-CNY, respectively.

“And there is likely more to come: a record share of central banks in the survey — 90% — is engaged in some form of CBDC work,” said the BIS.

The Bahamas Struggles, Sweden Deliberates, Chile Delays

Implementing a successful CBDC may be easier said than done, however. The Bahamas’ new digital money has struggled to gain traction, accounting for less than 0.1% of currency in circulation in that island nation, the International Monetary Fund said in March, and “there are limited avenues to use the Sand Dollar.”

More education of the populace is needed, said the IMF, a challenge that other government-issued electronic currencies will probably face as well.

Sweden’s central bank, the Riksbank, has been researching, discussing and experimenting with digital currencies longer than most. Its e-krona project began in 2017, and a pilot program, launched in 2020, is now in its second phase.

Carl-Andreas Claussen, a senior advisor in the Riksbank’s payments department, told Cointelegraph that there are lots of reasons why central banks might want to implement a CBDC, but “at the Riksbank, it is first of all the decline in Sweden’s use of cash.”

Sweden is racing toward becoming the Western world’s first cashless society. From 2010 to 2020, the proportion of Swedes using cash fell from 39% to 9%, according to the Riksbank. But, this also raises questions. As Claussen told Cointelegraph:

“If physical cash disappears, the public will not have access to central bank money anymore. That will be a serious change from how it has been over the last 400 years in Sweden. With an e-krona, the Riksbank will offer central bank money that the public can use.”

Still, nothing has been decided in Sweden. “It is not clear that we will need it,” Claussen said. “So first, we have to sort out if we need it at all and if it is worthwhile to do it. We are not there yet.”

Claussen has little doubt, however, that if a modern government decides to issue a digital currency it can succeed. It will need to be sure that it really needs a CBDC, however.

“Neither the Riksbank nor the larger central banks around the world have decided whether or not to issue a CBDC,” he declared. Not even China? “I have not heard that they have made a final decision to issue,” he told Cointelegraph.

Elsewhere, Chile announced last week that it was delaying the rollout of its CBDC, explaining that a government-issued digital peso required more study.

Chile is looking to develop a national payment system that is “inclusive, resilient, and protects people’s information,” according to a report. But, its central bank said that it still doesn’t have enough information to make a final decision on it.

According to CBDC Tracker, only the Bahamas and Nigeria have progressed to full CBDC “launch” in the real world, while 2022 thus far has seen more canceled projects like Singapore’s Project Orchid than full roll-outs. On the other hand, only five “pilot” programs were underway in January 2020, compared with 15 in May 2022, which suggests more launches could be imminent.

What Is Driving The Trend?

The BIS sees different motivating factors behind this “growing momentum” toward CBDCs. Advanced economies tend to be interested in improving domestic payment efficiencies and safety, while maintaining financial stability.

Poorer economies, emerging markets or developing economies, by comparison, may focus more on financial inclusivity, or look for ways to enable people who have never had a bank account to participate in the economy.

Andrey Kocevski, co-founder at WhisperCash.com — whose firm has developed a digital bearer instrument that could be used by CBDCs — agreed that developing countries usually “want to compensate for the lack of private sector fintech or payment companies and to increase financial inclusion for the unbanked,” further telling Cointelegraph:

“I am not surprised that the number of central banks exploring digital currencies is at 90% now, considering last year it was 80% and in 2018 it was around 30%.”

“For advanced economies, the catalyst was stablecoins,” said Noll, adding that 2021 was “the year of the stablecoin.” Central banks in the developed world began taking seriously the possibility that stablecoins could make headway against fiat currencies, threatening their monopoly on money and disrupting monetary policy potentially, he said.

As for BIS’ contention that the COVID-19 pandemic may have been a prod, “I do not see much evidence for the impact of COVID-19 and a flight from cash driving new interest in CBDCs,” added Noll. “Cash usage remains strong and may be rebounding to pre-pandemic levels.”

Peer pressure, too, could be a factor — yes, even among central bankers. As Buckley told Cointelegraph:

“If one’s major competitor countries do this, everyone feels the need to follow or risk being left behind — some form of sophisticated FOMO.”

Kocevski seemed to agree: “Central banks in developed countries feel the need to digitize in order to stay relevant.”
Could state-run digital currencies co-opt crypto?

Where do cryptocurrencies figure in all this? Just to be clear, government digital money is typically issued in the currency unit of the land such as pesos in Chile, and dollars in the United States, and is a “liability” of the central bank.

Cryptocurrencies, by comparison, have their own currency “unit” — like Ether (ETH) — and are private digital assets with no claim on the central bank.

According to the BIS survey, most central banks see payment networks like Bitcoin and Ethereum posing little threat to their activities, and stablecoins even less: “Most central banks in the survey still perceive the use of cryptocurrencies for payments to be trivial or limited to niche groups.”

Still, couldn’t CBDCs pose an existential danger to cryptocurrencies at some point? “A year ago I thought they would — now I don’t,” Buckley told Cointelegraph. CBDCs are essentially payment instruments, while cryptocurrencies are more like speculative assets.

“These new instruments will not represent an existential threat to Bitcoin and the like, but they will make it harder for Bitcoin to argue for itself as anything other than a speculative play,” he said.

Gourav Roy, a senior analyst at the Boston Consulting Group in India, who also contributes to CBDC Tracker, told Cointelegraph that many governments still view crypto as a “big threat to their country’s macroeconomics and main financial/payment landscape,” and for that reason, these countries regularly issue warnings about cryptocurrencies, introduce legislation to tax crypto transactions, and sometimes even ban crypto trading.

Roy offered China as a case in point: It banned cryptocurrencies while at the same time “carrying out the world’s biggest CBDC pilot testing with 261 million users.”

That said, Roy still sees stablecoin projects surviving and continuing to play an important part in the decentralized finance ecosystem — even with widespread CBDC adoption. Kocevski, for his part, didn’t think government-issued electronic money was an existential threat to crypto.

Noll not only believes that CBDCs and cryptocurrencies can co-exist, but CBDCs could potentially “work to popularize and mainstream crypto in general.” As public and private sectors become more informed and comfortable with cryptocurrencies, “this should advance the entire industry,” he told Cointelegraph, adding:

“The downside for crypto is that CBDCs will work to crowd out private cryptocurrencies, especially stablecoins focused on retail payment areas. Cryptocurrencies will stay in niches in the payment system where they serve unique functions and provide specialized services.”

Overall, much has happened on the CBDC front in recent years. While most advanced projects so far have been in non-Western economies like the Bahamas, Nigeria and China, interest in many Western economies like France and Canada seems to be picking up, all the more noteworthy because many already have advanced payment systems in place. As Noll said:

“Just look at President Biden’s recent executive order, which is all about advancing a U.S. CBDC and is a far step from 2020 and 2021 speeches by Fed officials that questioned the need for any such thing.”

Digital Euro Could Come As Soon As 2026 — ECB Official

Commenting on the recent market volatility, Fabio Panetta also said stablecoins were still “vulnerable to runs,” just as investing in cryptocurrencies carried certain risks.

Fabio Panetta, an executive board member of the European Central Bank, or ECB, has said that a digital euro could come within four years, potentially designed with a person-to-person payment solution.

In a Monday speech at the National College of Ireland, Panetta said the ECB could start the development and testing of solutions toward providing a digital euro for members of the European Union in 2023, a phase that could take up to three years. He added that making the digital currency legal tender and for use in P2P payments could help promote adoption.

Panetta also commented on the recent market volatility for cryptocurrencies, with TerraUSD (UST) depegging from the U.S. dollar and the price of many major coins including Bitcoin (BTC) dropping. According to the ECB official, stablecoins, including Tether (USDT), were not “risk-free” and still “vulnerable to runs,” just as investing in cryptocurrencies carried certain risks.

“Recent developments in the market for crypto-assets illustrate that it is an illusion to believe that private instruments can act as money when they cannot be converted at par into public money at all times,” said Panetta.

“Despite claims that cryptos are a trustworthy form of “currency free from public control, they are too risky to act as a reliable means of payment. They behave more like speculative assets and raise multiple public policy and financial stability concerns.”

Estimates from many EU officials suggest that legislation and policy focused on the launch of a digital euro could be coming within five years. Panetta said in March that Europeans would be more likely to accept a digital euro aimed at addressing their payment needs, and so also accepted in physical and online stores.

 

Updated: 5-19-2022

SWIFT, Capgemini Team Up To Test Using The International Network For CBDC Transfers

The bank messaging service, which dates back to the 1970s, is looking to connect CBDCs to each other and to traditional currencies as it tries to stay up to date.

The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, the Belgian financial messaging network used by banks in international money transfers, announced Thursday that it is teaming up with French IT company Capgemini to conduct experiments with cross-border central bank digital currency (CBDC) payments. This is SWIFT’s second research project on CBDC.

SWIFT and Capgemini are testing ways to link multiple CBDC networks, as well as CBDC and traditional currency networks, as a proof of concept. The majority of central banks worldwide are working on creating CBDCs, “with numerous central banks developing their own digital currencies based on different technologies, standards and protocols,” Thomas Zschach, SWIFT chief innovation officer, said in a statement.

According to the company’s statement, it is developing a gateway for domestic CBDC networks to intercept, translate and forward them to the SWIFT platform for onward transmission.

The system will use existing SWIFT standards, authentication models and infrastructure. SWIFT connects over 11,000 financial institutions in over 200 countries.

SWIFT’s new alliance is a continuation of the efforts begun last year with American professional services company Accenture.

That collaboration succeeded in creating a cross-border transaction between a CBDC network and “an established real-time gross settlement (RTGS) system.”

“If the experiments are successful, it will demonstrate that SWIFT has the capability and technical components to interlink different networks,”

SWIFT head of innovation Nick Kerigan said. “This would help solve a huge technology and industry challenge facing CBDCs. And it could enable us to help central banks make their own CBDC networks cross-border payment ready.”

SWIFT processed 42 million messages a day last year, but transactions on the network can take several days to complete. It is striving to maintain its relevance in the international economic order, especially in regard to CBDCs.

Many developers foresee CBDCs interacting outside the traditional network, potentially with the aid of Ripple’s (XRP).

 

Updated: 5-23-2022

Wall Street Says A Fed Digital Dollar Spells Destruction For Banks

The U.S. Federal Reserve is considering whether to launch a CBDC like other nations, and bankers argue that’s a dangerous idea.

Wall Street bankers are arguing that the Federal Reserve launching its own digital dollar could crack the foundations of banking as we know it, according to letters industry lobbyists sent to the U.S. central bank on Friday.

The Fed invited comments on a report exploring the future of a potential central bank digital currency (CBDC) issued in the U.S. A government-run digital dollar could have profound implications on the financial sector, and also on the stablecoins issued by cryptocurrency firms.

“Current research overwhelmingly undermines the purported benefits of a CBDC and instead indicates that a CBDC would seriously disrupt the financial system, significantly harming consumers and businesses,” said Greg Baer, who runs one of Wall Street’s lobbying arms in Washington, the Bank Policy Institute.

Another banking group in Washington, the American Bankers Association, predicted in its own letter that a digital dollar would mean “deposits accounting for 71% of bank funding are at risk of moving to the Federal Reserve.”

That would dramatically increase the cost of funding in the banking sector to an “unsustainable” level, the ABA letter said.

The Fed board has been weighing the logic of introducing a digital dollar, although officials have been careful to remain neutral and suggest that any plan should have the backing of Congress and the administration.

That’s the line, too, that Michael Barr – President Joe Biden’s pick to be the next Fed vice chairman for supervision – echoed at his confirmation hearing last week. However, several new Fed board members were sworn in on Monday, marking an official transition to the era of Biden appointees.

While a U.S. digital dollar has frequently come up in congressional hearings and debates over legislation, no bill has yet found traction that would encourage the Fed to set it in motion. The early negotiations over a CBDC often include its potential effect on stablecoins, and Fed Chair Jerome Powell has said he expects private stablecoins could coexist with a digital dollar.

BPI’s letter also argued that “one of the most frequently cited reasons in support of a CBDC is that it would increase financial inclusion, yet, as discussed further below, we are unaware of any substantiated use case for CBDC that would benefit low- and moderate-income people.”

WEF 2022: Bankers At WEF See The Need For Caution And Speed On Central Bank Digital Currencies

Experts point out sticking points as well as greatest needs in the creation of central bank digital currencies for domestic and cross-border, wholesale and retail, uses.

The process of introducing a central bank digital currency (CBDC) is fraught with unknowns, some of which were elucidated in a panel of experts gathered Monday at the World Economic Forum in Davos, Switzerland.

The panel concluded that good design is key to a successful CBDC, and there are fewer challenges for wholesale CBDC introduction.

Bank of Thailand governor Sethaput Suthiwartnarueput said that although many central banks are considering a CBDC, there is little practical experience with them.

The Thai National Bank began proof-of-concept programs in 2018. Its mBridge project began as an experiment in establishing a cross-border wholesale payment corridor with the Hong Kong Monetary Authority and has grown to include the Bank of China, the United Arab Emirates and the Bank for International Settlements.

Cross-border transactions using traditional banking technology can take days to complete, while CBDC transactions are much faster.

Suthiwartnarueput said the use of blockchain technology can have unintended consequences. It is good for transparency, he said, but anonymity affects scalability. There is risk in a CBDC’s design because smart contracts require that the handling of every situation be specified ahead of time.

He cited the current sanctions on Russia as an example of a potential challenge to CBDC design. The Thai central bank is looking at a “limited pilot” for a retail CBDC in the fourth quarter of this year.

International transactions between persons, especially remittances from workers located in other countries, which make up a market of $48 billion per year, are one of the most pressing use cases for CBDCs.

Suthiwartnarueput said CBDCs can carry out such transactions at 50% less expensive and 68% faster than current money transfer technology. Currently, the average fee for a transfer of this type is 6.3% of the transaction sum.

Credit Suisse chairman Axel Lehmann pointed out the rapid progress being made by non-blockchain fast payment technologies and raised questions for domestic retail CBDCs, such as whether accounts with central banks would pay interest. Privacy and intermediation are other thorny issues for retail CBDCs.

International Monetary Fund managing director Kristalina Georgieva said, “We feel a little behind the curve” in the creation of retail CBDCs, and Bank of France governor François Villeroy de Galhau agreed, saying a “CBDC is not the monopoly on progress,” and central banks should not waste time in introducing it.

Suthiwartnarueput and the French central banker agreed that cross-border wholesale CBDC settlements may become a reality within five years.

 

Updated: 5-24-2022

Mastercard CEO Teases CBDC Panel: SWIFT May Not Exist In 5 Years

Michael Miebach joined a panel on central bank digital currencies during the World Economic Forum’s annual meeting.

Mastercard (MA) CEO Michael Miebach made people gasp. He answered “no” when asked if SWIFT, the current interbank messaging system that allows for cross-border payments, will exist in five years’ time.

He smiled during his answer but the crowd seemingly took his answer seriously.

Miebach spoke on a panel adjacent to the World Economic Forum’s annual (WEF) summit hosted by the Global Blockchain Business Council (GBBC). The panel discussed the future of cross-border payments and the potential of CBDCs in the financial system.

“If you can get a payment with all the data attached that you need as a company […] the cost savings of that in addition to a payment cost that is lowered, and the overall productivity boost, we can expect if we do this well, that’s the real goal here,” Miebach said on the panel.

The conference officially kicked off Tuesday, with crypto being mentioned frequently in panels adjacent to the conference. The subject is bolstered by the strong presence of crypto companies on promenade, the main street leading up to the Congress, where official WEF panels take place.

Also part of Tuesday’s panel was Jennifer Lassiter, executive director of the Digital Dollar Project; Yuval Rooz, the CEO of Digital Asset; David Treat, a director at Accenture and co-founder of the Digital Dollar Project; and Jon Frost, senior economist at the Bank of International Settlements. They all said SWIFT will still exist in five years.

Miebach was the only one to say that maybe in the near future SWIFT might not be the dominant system to transfer money across continents. Both Lassiter and Rooz also seemed to think SWIFT may one day be replaced, but said that five years won’t likely be enough time.

A Mastercard spokesperson downplayed the impact of Miebach’s response in a statement sent via email after the panel.

“Let us clarify the intent of the on-stage comment as it’s not as simple as a yes or no answer. Michael was simply reinforcing what SWIFT has previously said – their operations continue to evolve. Its current form will not be the same in the future. They are adding more functionality and moving past just being a messaging system,” the spokesperson said.

But attendees at WEF are nonetheless paying attention. One guest asked a panel during a discussion on centralization about Miebach’s comments, while another attendee was overheard asking about it at the Congress Centre.

Mercado Bitcoin Partners With Stellar To Create MVP For Brazilian CBDC

Cryptocurrency companies unite to create use cases for Brazil’s CBDC with central bank approval.

Brazilian exchange Mercado Bitcoin announced its partnership with the Stellar Development Foundation (SDF) on Tuesday. The company said it intends to develop one of the nine projects selected for the LIFT Challenge Real Digital, promoted by the Central Bank of Brazil.

The LIFT Challenge Real Digital is a collaborative environment carried out by the Central Bank of Brazil (Bacen), in partnership with the National Federation of Associations of Central Bank Servers (Fenasbac). With the announcement of Stellar’s integration, SDF will join the consortium created by Mercado Bitcoin to develop solutions for Real Digital and which also has CPQD and ClearSale.

CEO of Stellar Development Denelle Dixon said that Stellar’s network is prepared to support Mercado Bitcoin and the Central Bank of Brazil as they explore use cases for the Real Digital’s future.

“Stellar was designed for asset issuance, and its built-in compliance tools give Mercado Bitcoin a strong foundation to develop a solution with the features that Bacen expects to see,” she claimed.

According to the statement, Mercado Bitcoin selected the Stellar network due to the speed, efficiency and security of the protocol.

“We are in a consortium of companies that have the structure and ambition to build robust solutions for the financial market through blockchain technology. Utilizing the Stellar network will allow us to deliver a complete case for evaluation by the Central Bank,” said Reinaldo Rabelo, CEO of Mercado Bitcoin.

In addition to the consortium created by Mercado Bitcoin, the Central Bank of Brazil also chose the DeFi Aave (AAVE) protocol and ConsenSys in partnership with Visa and Microsoft to develop use cases for the nation’s Real Digital.

In April, Cointelegraph reported that the president of Brazil’s Central Bank had confirmed that the country’s sovereign digital currency pilot will go live this year.

However, this release will still be a pilot version and will not be available to the entire population of the country. According to Campos Neto, the Real Digital hopes to enable smart contracts and decentralized finance on the CBDC platform.

“The Real Digital initiative is a response to the rapid progress of digital transformation and society’s demand for native means of settlement in a new environment. conditions for important efficiency gains to be achieved,” said Campos Neto last year.

Fábio Araujo, coordinator of the Real Digital project within the BC, recently stated that the Central Bank aims to allow the construction or interconnection of the national financial system with decentralized finance (DeFi) and with smart contracts. These are, in his opinion, the great contributions of the blockchain ecosystem and cryptocurrencies.

“These fundamental points of the crypto environment we intend to bring within our regulatory perimeter to do a mass thing to give access to more people. We want to bring smart contract and Defi technologies inside so that we can reach a wider audience,” he said.

 

Updated: 5-27-2022

Draft Bill To Ban China’s Digital Yuan From US APP STORES

Three ​​Republican senators introduced a bill to protect Americans from the “Authoritarian Digital Currencies Act.”

Lawmakers in the United States are moving to protect the country from the potential undesirable impacts of the global adoption of China’s national digital currency.

Three ​​Republican senators, Tom Cotton, Mike Braun and Marco Rubio, introduced a bill on Wednesday, aiming to limit the use of China’s central bank digital currency (CBDC) in the United States.

The bill is referred to as “Defending Americans from Authoritarian Digital Currencies Act” and proposes to prohibit the use of China’s digital currency payment system, e-CNY, for U.S. app stores and other purposes.

The term “app store” covers all publicly accessible websites, software apps or other electronic services distributing apps from third-party developers to users of computers, mobile devices or any other “general-purpose computing device,” the senators noted.

According to the bill, app and software distributors in the U.S. shall not support or enable transactions in e-CNY or support any app that features such transactions in the country.

The senators reasoned that banning China’s digital yuan in the U.S. would help the nation avoid “direct control” and surveillance of users’ financial activity.

Cotton, a known proponent of the U.S. digital dollar project, specifically argued that a CBDC could be used to spy on the financial activity of people, stating:

“The Chinese Communist Party will use its digital currency to control and spy on anyone who uses it. We can’t give China that chance — the United States should reject China’s attempt to undermine our economy at its most basic level.”

“We cannot allow this authoritarian regime to use their state-controlled digital currency as an instrument to infiltrate our economy and the private information of American citizens,” senator Braun said. “This is a major financial and surveillance risk that the United States cannot afford to make,” Rubio stated.

China is one of the world’s first countries to pilot its own digital currency, launching its first digital yuan trials in April 2019.

Following multiple internal tests, the Chinese government has been actively promoting cross-border implementations of the digital yuan, working with central banks of Hong Kong, Singapore and others.

Historically, U.S. authorities have viewed the Chinese CBDC as a national security threat. In March, another bill also proposed to limit the use of China’s digital yuan as it may be used to circumvent sanctions and compromise users’ personal information.

Updated: 5-28-2022

India To Roll Out CBDC Using A Graded Approach: RBI Annual Report

Halfway through 2022, at the proof-of-concept stage, RBI is in the process of verifying the feasibility and functionality of launching a CBDC.

Further cementing India’s decision to introduce an in-house central bank digital currency (CBDC) in 2022-23, the Reserve Bank of India (RBI) proposed a three-step graded approach for rolling out CBDC “with little or no disruption” to the traditional financial system.

In February, while discussing the budget for 2022, Indian finance minister Nirmala Sitharaman spoke about the launch of a digital rupee to provide a “big boost” to the digital economy.

In the annual report released on Friday by India’s central bank, RBI revealed exploring the pros and cons of introducing a CBDC.

In the report, RBI stressed the need for India’s CBDC to conform to India’s objectives related to “monetary policy, financial stability and efficient operations of currency and payment systems.”

Based on this need, RBI is currently examining the various design elements of a CBDC that can co-exist within the existing fiat system without causing disruptions.

The Indian Finance Bill 2022, which enforced the introduction of a 30% crypto tax on unrealized gains, also provides a legal framework for the launch of a digital rupee:

“The Reserve Bank proposes to adopt a graded approach to introduction of CBDC, going step by step through stages of Proof of Concept, pilots and the launch.”

Halfway through 2022, at the proof-of-concept stage, RBI is in the process of verifying the feasibility and functionality of launching a CBDC.

Earlier this month, on May 17, RBI officials reportedly warned against crypto adoption, citing the risks of “dollarization” of the Indian economy.

As Cointelegraph reported, based on the Economic Times’ findings, key RBI officials including governor Shaktikanta Das raised concerns regarding the U.S. dollar-dominated world of cryptocurrencies. An unnamed official stated:

“Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, it may eventually lead to dollarization of a part of our economy which will be against the country’s sovereign interest.”

“It [crypto] will seriously undermine the RBI’s capacity to determine monetary policy and regulate the monetary system of the country,” they added.

Updated: 5-31-2022

Fed Paper Looks At The Potential Effects Of CBDC On Monetary Policy

The working paper traces the effects of operations with CBDCs through several scenarios and concludes the Fed will have it under control.

On Tuesday, the United States Federal Reserve released a study on the possible effects of a retail central bank digital currency (CBDC) on U.S. monetary policy implementation. The study, dated April, was a staff working paper titled “Retail CBDC and U.S. Monetary Policy Implementation: A Stylized Balance Sheet Analysis.”

The paper considered four scenarios that illustrate the potential effects of a retail CBDC on monetary policy from the perspective of three stakeholder groups: the Fed, commercial banks and U.S. households.

The first scenario involved exchanging cash for CBDC, which affected the categorization of assets at the Fed and in the household involved but had no effects on policy implementation.

The following three scenarios showed a cascading effect that began with individuals withdrawing a CBDC from a commercial bank when the money had been deposited as cash.

Assuming fixed-bank demand for reserves, the scenarios went on to discuss commercial banks’ reaction to the reduction in cash reserves resulting from CBDC withdrawals.

If those withdrawals lead to a shortfall in reserves, banks have the choice of offloading certain securities or loans to build up their cash holdings again, or to increase deposits by offering more attractive terms on their products.

That, in turn, could lead to higher short-term interest rates and reduce demand for CBDCs by holding deposits in banks longer.

If interest rates rise too abruptly, the Fed could turn to the discount window and standing repo facility to moderate the rates, and if that fails, the next step would be reserve management purchases. Those technical operations are discussed in some detail.

According to the authors, the paper showed that “the potential effects on monetary policy implementation from a retail CBDC are highly dependent on the initial conditions of the Federal Reserve’s balance sheet.”

Their analysis also demonstrated how the Fed could use existing tools to manage the impact of retail CBDCs on monetary policy implementation.

The paper is the latest sign of the flurry of activity around CBDCs in the U.S. and other countries.

Fireblocks Hires Former Bank Of England Fintech Chief To Lead CBDC Efforts

Varun Paul will also engage with market infrastructure bodies to explore the benefits of supporting digital assets and participating in DeFi.

Fireblocks, a provider of crypto custody technology, hired Varun Paul, the former head of fintech at the Bank of England, as its first director of central bank digital currency (CBDC) and market infrastructure.

* Paul will lead Fireblocks’ efforts to build infrastructure for the integration of CBDCs, the firm announced Tuesday. He served for nearly 14 years at the U.K.’s central bank, spending the past 15 months as head of fintech.

* He will also engage with market infrastructure bodies to explore the benefits of supporting digital assets and participating in decentralized finance (DeFi).

* Fireblocks has a strategy of helping feed the appetite for DeFi among mainstream financial institutions.

* With central banks in almost every major economy expressing intent to explore the development of a CBDC – a digital version of a fiat currency for use as cash – Fireblocks is keen to be at the forefront of providing infrastructure and technical know-how.

* “From CBDC developments to the tokenization of traditional financial assets, bridging digital assets and blockchain technologies to traditional institutions at scale will require strong working relationships with the central bank community,” Fireblocks’ head of corporate strategy, Adam Levine, said.

 

Updated: 6-1-2022

‘This Is The Usual’: Thai Central Bank Governor On CBDC Pilot Delay

A retail central bank digital currency will probably replace cash but not other means of payment out there, including private methods, the governor said.

Thailand has been working on a retail central bank digital currency (CBDC), with an initial pilot planned for the second quarter of 2022, but the pilot was postponed to the fourth quarter of this year.

The pilot, or trial of the retail CBDC, which is designed for use by consumers, is expected to test deposits, withdrawals and transfers.

A central bank official said last August that the retail CBDC will be tested as an alternative payment method for “cashlike activities within a limited scale.”

Earlier this year, Thailand also revealed plans to regulate crypto as a payment method, announcing in March that it will ban the use of crypto in payments.

CoinDesk spoke to the governor of Thailand’s central bank, Sethaput Suthiwartnarueput, about the bank’s plans for a retail CBDC and why the pilot was delayed following a panel, titled “Central Bank Digital Currencies,” last week at the World Economic Forum’s annual meeting in Davos, Switzerland.

CoinDesk: Thailand’s CBDC pilot was planned for the second quarter of 2022, but it has been delayed. What’s the latest on the project?

Suthiwartnarueput: It was just moved back a bit. This is the usual when trying to get alignment. We did a lot more consultation with stakeholders to make sure that we got the design right for the pilot. So yeah, that would be in the fourth quarter of this year if we could get it out.

It will probably go on for about six months. But it’s a limited scale pilot. We just want to make sure that we do it end to end, get the types of players that we want involved, both banks and nonbanks. We see question marks on how soon a retail CBDC might go production scale.

But when that happens, it will warrant infrastructure, rather than a product because central banks aren’t good at coming up with products that can resonate with customers. And so we see it as putting in place the infrastructure that the private sector can innovate on, making sure that whatever platform they innovate on is controllable.

I think it was the central bank governor of France who mentioned that the private sector is much better at the innovation side, that they’re much better at the consumer-facing side than central banks.

I think that ultimately, a retail CBDC will coexist with other stuff. Yes, it will probably replace cash. But not the other stuff that’s still out there, including private stuff. That’s kind of how we see it.

The reason I went there and mentioned nonbanks was because we think we need to have new players involved in the space and as part of this pilot.

When central banks start exploring retail CBDCs they suddenly realize there are a lot of aspects to think about, but we don’t really hear too much detail on some of these challenges that they have faced.

It’s usually vague terms like “design” or “underlying technology” but what does that really mean for consumers?

Again, it gets back to that point that was raised during the panel that we want to be clear about what problem we’re trying to solve and think about the benefits of it. The existing system works pretty well on payments, if we have a fast payment system [that] works very well. So the additional incremental benefits you would get from using a retail CBDC for payments are not immediately known.

So it’s important again, to get it right, rather than get it out quickly. But if you asked me whether we are still pursuing it, exploring it and making sure that we’re ready, the short answer is yes.

Why? Because even though fast payment systems can offer us a lot of low-hanging fruit that we can take advantage of, we recognize that there are limitations from an innovation standpoint. CBDCs and retail CBDCs offer more potential for the private sector to get involved, innovate.

You can’t put programmability on a fast payment system. It wouldn’t work. There are a lot of possible questions both in terms of benefits, making sure that the risks can be addressed, and exploring unintended consequences. A retail CBDC is not insignificant, so that’s why we’re proceeding steadily.

In terms of the private sector building on a retail CBDC, what does it mean for Thailand? Do you see commercial banks issuing a digital currency on behalf of the central bank for instance?

That you will find out during the upcoming pilot.

Updated: 6-3-2022

Brazilian Central Banker Describes How CBDC System Can Halt Bank Runs

In constructing its Real Digital, Brazil’s central bank is developing mechanisms that can freeze citizens’ conversion to CBDCs in the event of a bank run.

In a paper recently published by the Bank for International Settlements (BIS), Fabio Araujo, an economist at the Central Bank of Brazil (CBB) who is also responsible for the country’s central bank digital currency work, revealed that the monetary authority will have greater control over the population’s money once its CBDC is rolled out.

Through the so-called Real Digital, the central bank will be able to halt bank runs and impose other restrictions on citizens’ access to money.

Real Digital, the digital version of Brazil’s national currency, has been debated at the central bank since 2015 and will have its first tests in 2023 through nine solutions presented by private companies during the recent Lift Challenge event that was carried out by the CBB.

Cointelegraph reported that the value of the upcoming CBDC would be pegged against the national fiat payment system STR, also known as the Reserve Transfer System.

Through Real Digital, the central bank says it wants to enable so-called smart payments within a regulated environment. Smart payments include smart contracts, transactions with Internet of Things devices and even decentralized finance (DeFi) applications.

In the BIS document, Araujo said the main objective of introducing a CBDC is to provide entrepreneurs with a safe and reliable environment in which to innovate through the use of programmability technologies that make smart payments a reality.

“Technologies available for smart payments, as seen in crypto assets, make room for new business models and are better suited to meet the population’s demand,” he said.

Central Bank May ‘Stop’ Withdrawals

In the paper, Araujo highlights that the central bank must maintain a partnership with the private sector in providing liquidity to the market.

According to Araujo, the central bank envisions the coexistence between the Real Digital and private money issued by institutions regulated by the CBB in the intended smart payments.

Therefore, individuals could convert their deposits into tokens capable of accessing the services provided on this new platform, under a commitment that these tokens will be converted into Real Digital. In other words, banks will be able to issue their own tokens aimed at smart contract applications having their balance in Real Digital as a guarantor of the operations.

“Commercial bank deposit tokens would inherit all the regulations and characteristics of their parent assets, such as fractional reserve requirements,” he said. “Likewise, [payment service provider] deposit tokens would inherit their characteristics, such as total reserve requirements.”

However, unlike the cryptocurrency ecosystem in which users own their assets and no one can lock their operations, there will be a system to lock withdrawals in Brazil’s CBDC.

Araujo points out that, at a given time and for various reasons, there may be a bank run where users wish to convert these tokens into the Real Digital, which would be guaranteed by the central bank. To avoid such bank runs, the CBB already provides “backstops and restrictions on the conversion flow to and from CBDCs.”

The central bank points out that the flow of exchange of these tokens to Real Digital would have a limit and would even need to be scheduled in advance. In other words, the central bank will have the power to control the flow of money within the system.

The Paper Explains:

“One source of concerns, though, is the speed at which private tokens could be converted into CBDCs, which could restore coordination mechanisms. To avoid such undesirable flows, large conversions could only be available if scheduled in advance and constraints on daily conversions could be set. In addition to that, circuit breaker mechanisms could be automatically applicable when the continued draining of tokens from any specific institution would render it vulnerable.”

Araujo concludes the document by pointing out that Real Digital, by enabling smart contract and programmable money solutions in Brazil’s financial environment, will allow the creation of customized financial services to meet the different demands of society.

The paper concludes that these resources, when combined with financial education, can provide efficiency gains and serve the entire population of the country, even those who are still on the margins of the financial system.

 

Updated: 6-4-2022

CBDCs Can “Kill” Private Crypto: India’s RBI Deputy Governor To IMF

“One of the reasons it is so successful is because it’s simple,” he added while comparing the Unified Payments Interface’s (UPI) growth with blockchain technology.

In discussion with the International Monetary Fund (IMF), T Rabi Sankar, the deputy governor of the Reserve Bank of India (RBI), reflected an anti-crypto stance as he spoke about India’s potential to disrupt the crypto and blockchain ecosystem.

Rabi Sankar started the conversation by highlighting the success of the Unified Payments Interface (UPI), India’s in-house fiat-based peer-to-peer payments system, which has seen an average adoption and transaction growth of 160% per anum over the last five years.

“One of the reasons it is so successful is because it’s simple,” he added while comparing UPI’s growth with blockchain technology. According to Rabi Sankar:

“Blockchain, which was introduced six-eight years before UPI started, even today is being referred to as a potentially revolutionary technology. [Blockchain] use cases haven’t really been established that much at the speed it initially was hoped for.”

However, the RBI official confirmed that a large population in India still lacks access to UPI-based banking due to the unavailability of smartphones. To counter this, the Indian government is working on offline payment platforms, some of which have started rolling out to the masses.

Rabi Sankar also stated that banks will remain crucial for providing liquidity services to the general public in India, warning that technology is merely a tool and cannot be used to create currencies:

“A currency needs an issuer or it needs intrinsic value. Many cryptocurrencies which are neither are still being accepted at face value. Not just by gullible investors but also the experts, policymakers or academicians.”

He further stated that RBI does not believe that stablecoins, like Tether (USDT), should be accepted blindly as 1-to-1 fiat pegged currencies. Speaking about the advantages of a digital rupee, Rabi Sankar said:

“We believe that central bank digital currencies (CBDCs) could actually be able to kill whatever little case that could be for private cryptocurrencies.”

On May 28, India’s central bank, RBI, proposed a three-step graded approach for rolling out CBDC “with little or no disruption” to the traditional financial system.

As Cointelegraph reported, finance minister Nirmala Sitharaman first revealed the plan to launch a CBDC in 2022-23 with an aim to provide a “big boost” to the digital economy. RBI’s report revealed that the central bank is currently experimenting to develop a CBDC that addresses a wide range of issues within the traditional system.

 

Updated: 6-6-2022

‘CBDCs Are The Natural Evolution,’ Says HyperLedger Director Barbosa

In an interview filmed during the World Economic Forum in Davos, Daniela Barbosa gives the floor to enterprise blockchains and the future of currencies.

For Daniela Barbosa — general manager of blockchain, healthcare and identity at the Linux Foundation and executive director of Hyperledger — digital currencies and cryptocurrencies have made it among the big banks at the World Economic Forum in Davos.

In an interview with Cointelegraph shot against the backdrop of the Swiss Alps, Barbosa explained that in the few years she has attended the WEF, the presence of cryptocurrency companies has steadily grown. What’s more, we should not be afraid of central bank digital currencies (CBDCs).

“CBDCs are [a]natural evolution of digital dollars and digital currencies.”

While the WEF saw calls from some bankers for a CBDC rollout to slow down, Barbosa explained that a CBDC could be with us in this decade.

Hyperledger’s work overlaps that of CBDCs, particularly in light of a partnership with the Digital Dollar Project. The nonprofit organization seeks to further the research into a U.S. CBDC. The key to CBDC implementation, however, is in succeeding with “privacy-preserving methods.”

An advocate for digital identity, privacy and “having control of your data,” Barbosa also shared the story of how she got into Bitcoin while living in San Francisco and working for Dow Jones in the mid-2010s.

“I did go to a [Bitcoin] meetup once and I was older than everybody else and also female—and I thought, maybe this is not for me?”

Fortunately, Barbosa kept abreast of Bitcoin and the market when time allowed before joining HyperLedger, an enterprise blockchain solutions-based company, in 2016.

While blockchains can sometimes be touted as a catch-all solution, Barbosa explained that sometimes blockchains are not the ideal situation and “should not be used.” Many blockchain use cases in 2016 and 2017, for example, wanted the “media to pay attention.” In 2022, a blockchain works when:

“You want to use a distributed ledger when you have multi parties that are working together—you don’t want to have to create another middle layer than helps disintermediate all the assets going around.”

HyperLedger now covers everything from pharmaceuticals to finance while its blockchain solutions tackle climate change.

Updated: 6-7-2022

Kazakhstan’s Central Bank ‘Isn’t Going To Ignore’ The Crypto Market

According to the chairman, the central bank will decide on implementing its digital currency by the end of 2022.

While Kazakhstan’s government is catching up with the tremendous volume of crypto mining in the country by introducing new taxes and regulations, the local central bank intends to explore the possibilities that crypto offers.

During the press conference held on Tuesday, the chairman of the Kazakhstan National Bank, Galymzhan Pirmatov, stated that the nation aims to extract the profit from technologies the cryptocurrency market could provide.

He emphasized the attractiveness of innovations and made reservations about the risks to macroeconomic stability. The official doesn’t think that the bank is late to the game:

“I don’t think that the National Bank is a latecomer. Like many other banks and financial regulators across the globe, we’re watching closely and researching the question.”

Pirmatov didn’t give away any details on the bank’s possible stance on crypto and warned that it is too early to speak about legalization, although consultations with market participants are planned:

“The approach is very simple: We aren’t going to ignore this market. We want to extract the maximum profit from the innovative potential these technologies give us.”

The executive also revealed some news about the National Bank’s central bank digital currency (CBDC) project. According to him, the bank still intends to announce its methodology on a digital tenge by the end of June.

The final decision on implementing the CBDC will reportedly be made in accordance with that methodology before the end of the year.

On May 25, the Kazakh parliament passed amendments to the national tax code in the first reading. The amendments would impose a crypto mining tax tied to the electricity prices consumed by mining entities. One of the largest mining markets in the world, Kazakhstan generated as little as $1.5 million of state earnings from mining in Q1 2022.

According to the State Revenue Committee of the Ministry of Finance’s report, a significant amount of the expected fees has not been received as the government had shut down a wide number of crypto mining firms to “ensure energy security.”

Updated: 6-8-2022

US Central Bank Digital Currency Commenters Divided On Benefits, Unified In Confusion

Like a Rorschach ink blot, the Federal Reserve Board’s CBDC discussion paper provided stakeholders with an opportunity to find what they wanted to see in it.

In January, the United States Federal Reserve Board of Governors released a discussion paper on a potential U.S. central bank digital currency (CBDC) titled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.” The comment period for the paper ended May 20, with the Fed receiving over 2,000 pages of comments from individuals alongside responses from leading stakeholders.

Cointelegraph read a selection of shareholder responses to the Fed paper, and it quickly became apparent that there are plenty of confidently stated opinions but little agreement among them. The main points of commonality are in the places they are all perplexed.

The Fed Wants To Know

Appropriately for its purpose, the Fed paper provides a broad overview of central bank digital currencies and CBDC-adjacent topics without great depth.

The discussion begins with the results of previous analyses that determined a U.S. CBDC would have the best results if it is privacy-protected, intermediated, widely transferable and identity-verified.

It goes on to consider the potential uses, benefits and risks of a U.S. CBDC. Stablecoins and cryptocurrency are mentioned briefly, and 22 questions are offered for discussion.

The paper also looks at current developments in electronic money. On the wholesale side, the FedNow Service is expected to enable real-time, around-the-clock interbank payments beginning in 2023.

Meanwhile, the private Bank On initiative and other programs strive to increase financial inclusion by promoting low-cost banking services to those who are unbanked and underserved.

Shadings Of Neutrality

One thing in short supply in the stakeholder comments Cointelegraph examined is neutrality. The response from the Institute of International Finance is an exception in this regard.

The IIF is a global financial industry association with more than 450 members from over 70 countries. Its membership includes commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks.

The IIF answered all of the 22 questions suggested by the Fed while remaining agnostic on the merits of creating a U.S. CBDC.

“A decision like this merits serious thought, so the IIF wanted to be quite constructive in its submission to support the Fed’s ability to evaluate the pros and cons,” Jessica Renier, the IIF’s managing director of digital finance, told Cointelegraph.

The IIF response is not unopinionated. It lists 12 policy considerations the authors feel need to be addressed before a CBDC can be launched, including environmental issues, which went unmentioned by the Fed.

It offers practical suggestions on validators and other technical issues and takes pains to emphasize the need for input from the private sector for a retail CBDC.

“The business model needs to work,” said Renier. “If the risks outweigh the incentives, you may only attract intermediaries that depend on selling user data, like tech firms. That’s not good for consumers.” She added:

“If the Fed proceeds, it needs to work closely with the banks to understand the real impact on their ability to lend, and to test the actual operation of a potential CBDC.”

The Securities Industry and Financial Markets Association represents securities broker-dealers, investment banks and asset managers, advocating for effective, resilient capital markets.

Its lengthy, detailed response does not take a position on the desirability of introducing a CBDC but concentrates on settlement and payments between financial institutions, noting that “U.S. capital markets fund 73 percent of all economic activity, in terms of equity and debt financing of nonfinancial corporations.”

Programmability and interoperability are key concerns for SIFMA, with it stating that “Many of the benefits […] often associated with wCBDCs [wholesale CBDCs] are not dependent on wCBDCs; they could be developed using other payment infrastructure such as stablecoins or settlement tokens using DLT infrastructure.”

“Let Me Do It”

Some commenters stated their positions more explicitly. The Credit Union National Association responded to the Fed paper with a letter. CUNA has taken a stance against a U.S. CBDC in other places, and while its wording is diplomatic in its response, its skepticism is evident.

“Given that the vast majority of US payments are already being conducted through digital channels, the Fed must clearly state what problem(s) it is trying to solve,” the letter states.

More to the point, a CBDC represents potential competition with credit unions for deposits. “If credit unions lose access to substantial deposits and must invest significant funding in new technology and the development of CBDC wallets, the benefits they are able to deliver to their members will inevitably suffer.”

The creation of a CBDC would inevitably lead to the movement of funds from banks to the Fed, states the American Banking Association in its comments, estimating that 71% of bank funding could be at risk of moving. Furthermore:

“The introduction of a CBDC would risk undermining the important role banks play in financial intermediation.”

That is just the beginning of a litany of potential misfortunes. A CBDC would exacerbate a stress event and likely impede the transmission of monetary policy, the ABA comments say.

“As we have evaluated the likely impacts of issuing a CBDC it has become clear that the purported benefits of a CBDC are uncertain and unlikely to be realized, while the costs are real and acute,” the ABA concludes. It goes on to suggest that stablecoins would be a better option.

The Banking Policy Institute commented similarly: “To the extent a CBDC could produce one or more benefits, those benefits likely could be achieved through less harmful means.”

Circle Internet Financial, the issuer of the USD Coin (USDC) stablecoin, also argues for the superiority of stablecoins over CBDCs in its response to the Fed paper, unsurprisingly.

“A host of companies, including Circle, have leveraged blockchain technology to support trillions of dollars of economic activity with fiat-referenced stablecoins,” the response reads. “The introduction of a CBDC by the Federal Reserve could have a chilling effect on new innovations that could otherwise make the U.S. economy and financial sector more competitive both domestically and abroad.”

Circle engaged with select questions suggested by the Fed, concentrating on comparing CBDCs and stablecoins.

On the other end of the spectrum, there is ample enthusiasm for a U.S. CBDC in enterprise blockchain company nChain’s response, which the company provided to Cointelegraph. The authors write:

“Although some of CBDC’s potential benefits could be delivered by the private sector (albeit with credit and liquidity risk), there are social, speed, and geopolitical advantages of reasonable government involvement.”

nChain sees advantages in decoupling large sections of the digital payment system from the “more fragile credit and banking system” and sees CBDCs as an opportunity to liberate consumers from “free” financial services that, in reality, feature a “pay with privacy” business model.

Furthermore, nChain is convinced that a U.S. CBDC could improve financial inclusion. “If you would like to discuss further, please contact us and we would be honored to provide further assistance,” the authors write.

Privacy Concerns Run Deep

A few issues stand out as sore points throughout the responses. Several doubt the ability of a U.S. CBDC to expand financial inclusion, noting that many of those who are unbanked are unbanked by choice.

Questions about paying interest on a U.S. CBDC and imposing limits on the amount that could be held, both of which are potential instruments of monetary policy, are treated with particular uncertainty.

nChain is the exception to this generality, arguing against both on the basis that physical money is not subject to those restrictions.

Privacy stands out as the most significant concern, however. Privacy issues are mentioned repeatedly in the responses and even elicited responses from specialized organizations.

The Electronic Privacy Information Center is a public interest research center in Washington, DC that focuses on privacy, including consumer privacy.

EPIC is agnostic on issuing a CBDC but recommends in its response that if it does happen, the Fed should adopt a token-based digital currency that does not rely on distributed ledger technology and its permanent recordkeeping.

It argues that a Fed-issued intermediated token could be designed to protect privacy while still allowing for Anti-Money Laundering and Counter-Terrorist Financing controls.

“The digital payment space today is a privacy nightmare,” EPIC law fellow Jake Wiener, co-author of the center’s comments, told Cointelegraph. “A CBDC will only improve privacy if paired with strong regulations to ensure that the current payment services industry is not duplicated through exploitative digital wallets and point-of-sale systems. The technology alone is not enough.”

In its letter, the center says there are several other advantages of a token. It could be incorporated into the current banking system, with improved consumer privacy and at a lower cost than DLT would provide.

The Hamilton Project, a CBDC research project conducted by the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative, also found a non-blockchain model that it tested to be preferable to DLT due to its much faster processing time.

EPIC’s comments extensively cite the ideas of XX Network founder David Chaum. Chaum himself told Cointelegraph, “Privacy needs to be built into CBDCs, and it only counts if it cannot be secretly removed.

Of course, there are other major considerations: preventing large-scale criminal use, enfranchising the unbanked and protecting against counterfeiting. But without built-in privacy, CBDCs won’t drive economic growth the way that true electronic cash can.”

According to the American Civil Liberties Union and 11 other nongovernmental organizations that released a short letter, “Anonymity should be a paramount consideration in pursuit of a more just and safe financial system.”

IMF Recommends Eco-Friendly CBDCs And Non-Pow Mechanisms For Payments

In addition to eco-friendly components, the IMF recommended central banks include other features in their CBDCs, such as compliance, higher resilience and offline capabilities.

An International Monetary Fund study on energy consumption has reveale the importance of design choices within the crypto ecosystem to build an environmentally friendly mainstream payment system.

In the study, titled “Digital Currencies and Energy Consumption,” the IMF examines the energy consumption of crypto assets based on their distinct design elements to evaluate the ideal mechanism for developing central bank digital currencies (CBDCs).

Sharing the groundwork for policy discussions around the environmental impacts of digital currencies, the IMF recommends moving away from proof-of-work-based distributed ledger technology applications, adding:

“In particular, Bitcoin, the best known application of this type, is estimated to consume much energy (about 144 TWh [terawatt-hours]) per year. Although scalability solutions reduce the energy cost per transaction, they do not reduce the overall energy spending.”

However, the international organization acknowledged the high energy efficiency brought about by non-PoW, permissioned crypto assets when compared with the traditional financial system:

“The potential of non-PoW permissioned crypto assets to reduce energy consumption relative to the existing payment system comes about from energy savings on both core processing architectures and user payment means.”

The IMF recommends the central banks “design CBDCs with the explicit goal to be environmentally friendly.” This means selecting platforms, hardware and design options with “a lower carbon footprint than the central banks’ legacy systems” right from the experimentation phase.

In addition to eco-friendly components, the IMF recommended central banks include other features in CBDCs, such as compliance, higher resilience and offline capabilities.

The IMF also points out that the policymakers will consider the mainstreaming of crypto or CBDCs by weighing the environmental impact of the technology’s underlying design.

It estimates that the global payment system’s annual energy consumption stands at 47.3 TWh — roughly matching the yearly consumption of economies like Portugal and Bangladesh.

Joining in the cause to address climate change, the Iota Foundation, a nonprofit DLT ecosystem provider, partnered with Dell Technologies to develop a real-time carbon footprint tracking system.

The initiative will bring about near-real-time tracking of carbon emissions from BioE’s sustainable energy and composting facility. Mathew Yarger, head of sustainability at the Iota Foundation, stated:

“We’re now able to track and verify data around climate change and how we’re actively trying to address it at a level that’s never been achieved before.”

Updated: 6-9-2022

Circle’s Disparte Calls CBDCs ‘A Preposterous Idea’ In Digital Dollar Debate

The stage at Consensus 2022 erupted with an intense dispute over the future of a Fed-managed digital currency.

You know it’s going to be a fiery conversation when one of the panelists says “F**k the Fed” in his opening statement.

And no, it wasn’t a bitcoin bro saying it; it was Rohan Grey, a law professor at Willamette University and strident critic of the crypto industry, who shares its enmity for the legacy banking system but has very different ideas about how to replace it in the digital age.

Those differences were on full display in the panel discussion at Consensus 2022 on whether the U.S. Federal Reserve should issue a digital dollar or leave such innovation to the private sector. Dante Disparte, head of policy for stablecoin issuer Circle Internet Financial, called central bank digital currencies (CBDC) a “preposterous idea.”

However, Grey warned private-sector efforts at creating a widely usable form of money would put the taxpayer on the hook if those efforts failed.

The Fed running its own digital currency is “the equivalent idea of the [Federal Aviation Administration] in the United States building jet engines and flying planes,” Disparte argued during a panel Wednesday at CoinDesk’s Consensus 2022 conference here, touting his company’s USDC stablecoin. “Circle’s not doing this as an academic abstraction. We’re doing it for real.”

But Gray countered that Circle is a private company that is shielded from liability. “If you go under, the public is on the hook for your losses,” he said.

Federal Reserve Vice Chair Lael Brainard recently said her agency is waiting for support from Congress and the Biden administration before the Fed will decide whether to launch a digital dollar. If the central bank ends up issuing that digital currency, it could take at least five years to put it in place.

Central bank digital currency holdings and transactions would still be managed through private-sector accounts, Brainard said, and not through direct customer accounts at the Fed.

Disparate contended that the U.S. is under pressure to “out-China China,” which has embraced the idea of a CBDC. It would be issued by “a government that can’t build health care websites that work,” he added.

“This is not free market capitalism,” Grey said of private token efforts. “It’s a new generation of crony capitalism.”

Caitlin Long, founder and CEO of crypto bank Custodia, made the point that the Fed has the last say in issuing dollars. She said she’s watching the decentralized financial (DeFi) space growing apart from the traditional U.S. financial system and there’s no way yet for money to move back and forth between them.

Long, whose Wyoming-based bank filed suit against the Fed this week for dragging its feet on the company’s application for a central bank “master account,” argued that the U.S. “should be embracing this new, better payment rail.”

What Good Is A CBDC, Anyway?

Central bank digital currencies (CBDCs) may offer users “few compelling benefits” they don’t already get elsewhere—limiting adoption and turning them into an “expensive failure,” according to the Center for European Reform (CER).

The UK-based think tank said existing bank accounts and state-backed savings options already provide the benefits to consumers and retailers that CBDCs would bring.
For the EU, the CER argued regulation would be a more sensible way to make European payments cheaper and more diverse, competitive, and innovative.

The Global Picture: More than 100 countries have considered launching CBDCs, including the UK, US, and EU. But only a handful of countries—among them Nigeria, the Bahamas, and some eastern Caribbean nations—have successfully launched a digital currency.

Part of CBDCs’ appeal is that they are more stable than traditional cryptocurrencies like Bitcoin because they’re backed by a central government. Having a more regulated and centralized framework will, in theory, protect consumers. And developing countries may be able to bring more underbanked citizens into the financial system.

Will CBDCs take off? Despite broad expressed interest from central banks, the small number that have launched a CBDC successfully shows how hard implementing one is—and that most banks still have misgivings.

But it’s not just that central banks haven’t fully embraced them. The Bahamian Sand Dollar accounts for less than 0.1% of currency in circulation on the island, according to the International Monetary Fund, and is being held back by “limited avenues” for use.

For CBDCs to succeed, countries must effectively educate consumers on the benefits of using them, and they need to make electronic payments and transfers as easy as possible. The regulation and liquidity that come with a government-backed instrument can help pacify fears that have impeded the adoption of other digital currencies.

CBDCs need to offer something different from traditional bank deposits. One advantage would be that consumers could send money to each other instantly. However, it remains to be seen whether CBDCs’ promised benefits like more privacy and lower costs compared with checking accounts and payment cards will materialize.

The big takeaway: Countries around the world will continue exploring CBDCs, but common problems may hinder widespread uptake. Central banks will have to iron these issues out if they want to make sure consumers embrace them as a valid alternative to existing currencies.

Updated: 6-15-2022

ECB Would Limit Digital Euro To Maximum 1.5T, Says Fabio Panetta

The central bank’s executive board member believes few people understand what a digital euro is because “it’s complicated.”

The European Central Bank’s Fabio Panetta appeared before the European Parliament’s Committee on Economic and Monetary Affairs to report on the development of a digital euro as the program approaches the one-year mark.

The eurozone’s central bank initiated a two-year investigation into a possible digital currency last July. While it has not said when it will decide on proceeding, Panetta, an ECB executive board member, has said he’s optimistic a central bank digital currency (CBDC) will be ready for launch within four years.

A digital euro, if issued, would be capped at 1.5 trillion euros (US$1.6 trillion), Panetta told the committee. A concern with CBDCs is that consumers might keep all their money in the digital format, in effect depositing their entire savings with the central bank and starving consumer banks of the funds they require to lend to individuals and businesses.

“Keeping total digital euro holdings between one trillion and one and a half trillion euro would avoid negative effects for the financial system and monetary policy,” Panetta said in a statement. “As the population of the euro area is currently around 340 million, this would allow for holdings of around 3,000 to 4,000 digital euro per capita.”

Referring to a consultation conducted by the European Commission last year, he said many responses were “not enthusiastic, to put it mildly, about the digital euro.”

That’s partly owing to the fact that few people understand what a digital euro is because “it’s complicated,” he said.

Still, observers should not put too much weight on the findings, he said.

“Our consultation has not been based on a representative sample of citizens,” said Panetta. “… So we have a very unbalanced sample of respondents.”

Updated: 6-16-2022

Major Banks Urge Caution With European Union’s CBDC Plans

The European Commission should evaluate the impact of issuing a digital euro, the Institute of International Finance said.

The European Union needs to carefully consider the impact from issuing a digital euro, according to a lobby group representing some of the largest financial services companies.

In a response to a European Commission consultation that closes Thursday, the Institute of International Finance (IIF) said there seemed to be an assumption that a central bank digital currency (CBDC) is a good idea, even though the European Central Bank has yet to reach a decision. It’s an assumption that needs to be verified, according to the IIF response seen exclusively by CoinDesk.

The IIF’s 450 members are dominated by commercial and investment banks, including JPMorgan Chase (JPM) and Goldman Sachs (GS), and also include accountancy groups including KPMG, payment networks including Visa (V), the International Monetary Fund and crypto exchange Coinbase (COIN).

The IIF wants to see “a clear qualitative and quantitative impact assessment of the range of possible designs of a digital euro,” looking at the “various risks … to financial stability,” Jessica Renier, the IIF’s managing director for digital finance, said in an interview.

She contrasted a recent white paper from the U.S. Federal Reserve, which “majors on questions, as to the pros and cons and very much ‘whether’ it is advisable to launch a CBDC; and the [European Commission’s] consultation very much on the ‘how’ question,” she said.

The commission consultation published in April considered the legislation that might be needed to underpin a CBDC. Chief among the IIF’s arguments is that by getting into the details of privacy controls and merchant fees, the commission is already assuming the CBDC is a good idea – and maybe needs to take a step back, CoinDesk was told.

It’s hardly the first stumbling block met by the controversial project. At a Wednesday hearing at the European Parliament, the European Central Bank’s executive board member Fabio Panetta said those responding to his own questionnaire on the subject had been “not that enthusiastic, to put it mildly.”

The IIF’s response, which is yet to be made public, highlights that a digital euro could be programmable, allowing it to be automatically transferred as part of smart contracts, and could make it easier to effect cross-border payments, currently a costly and lengthy process.

No More Banks?

But those would only work if it has the right design. Renier says there’s little information on, for example, whether the digital euro would work with other payment mechanisms.

Unsurprisingly, Renier doesn’t want the banking sector to be forgotten, arguing that it would likely be the intermediary between central banks and ordinary shoppers.

For others – among them EU lawmaker Luis Garicano, who wants the ECB to think bigger – Web 3 is a chance to transform the financial system.

“I wanted to make you kind of try to think a little bit out loud about the alternative solution, which is we don’t handicap this project and we let it go where it runs,” Garicano told Panetta at the hearing on Wednesday.

He said the CBDC is a chance to prize apart the dual role of banks, between safe storers of people’s cash and riskier lending activities.

Renier, like Panetta, is cautious about any approach that would sideline banks, the source of much lending and credit in the economy.

Doing away with the banks’ role would “would be extremely detrimental to financial stability and the economy,” Renier said. “That is good for no one … you can’t exist without the banking system.”

“I would say a retail CBC certainly poses some potential challenges and risks. They’re not insurmountable challenges. But it’s important that we work through some of those challenges and risks ahead of time,” she said. “The IIF supports the European Commission’s efforts to collect answers on on these questions” of design.”

 

 

 

Updated: 6-16-2022

Israel And Hong Kong Team Up To Test Digital Currency Cyber Risk In Attempt To Ward Off  Risk Of Losing Monetary Control To Bitcoin

Analysts at Bank of America Corp. have argued that central banks will inevitably launch their own digital coins to ward off the risk of losing monetary control to decentralized cryptocurrencies or widely adopted digital currencies like a digital dollar.

* Bank Of Israel, Hong Kong Monetary Authority To Work On Trial
* Currency To Be Distributed By An Intermediary, Tested For Risk

The Bank of Israel is working with the Hong Kong Monetary Authority on a trial which will test a new digital currency, including against cyber security risks, the Bank of Israel said.

The joint project, which will start in the third quarter, will use a two-tier central bank digital currency (CBDC), it said in a statement. It will be issued by the central bank and then distributed by financial intermediaries like banks.

In fits and starts, Israel is coming around to explore the idea of a CBDC after shelving its initial effort in 2018, when a team set up by the central bank recommended against issuing a digital version of the shekel.

The retail CBDC being tested by Israel and Hong Kong is designed to allow the intermediaries to handle it with no financial exposure to their customers, and will assess whether this makes it less vulnerable to cyber attacks.

The “exposure-free” CBDC is assumed to carry “less financial risk for the customer, more liquidity, lower costs, increased competition, and wider access,” the Bank of Israel said.

The Bank for International Settlements’ Innovation Unit will also take part in the trial.

Although research into digital currencies is still in its infancy, around 100 countries have either rolled out CBDCs or are considering them, according to the International Monetary Fund. Among them is China, whose digital yuan has already been tested by around 140 million people, including fans at the recent Winter Olympics in Beijing.

Updated: 6-21-2022

CBDCs, Not Crypto, Will Be Cornerstone of Future Monetary System, BIS Says

A 42-page chapter in the Bank for International Settlements’ annual economic report envisions a future where programmability and tokenization are built on top of central bank digital currencies.

Crypto’s structural flaws make it an unsuitable basis for a monetary system, according to the Bank for International settlements (BIS). Instead, monetary systems could be built around central bank digital currencies (CBDCs), which are digital representations of central bank money.

The BIS, an association of the world’s major central banks, dedicates a 42-page chapter in its “2022 Annual Economic Report” to laying out a blueprint for the future of the global monetary system.

In that vision, there is room for only some of crypto’s underlying technical features, like programmability and tokenization, not for cryptocurrencies themselves.

“Our broad conclusion is captured in the motto, ‘Anything that crypto can do, CBDCs can do better,’” said Hyun Song Shin, an economic adviser and head of research at the BIS, during a press briefing on Monday.

The chapter, which will be published Tuesday ahead of the full report, identifies a number of limitations of crypto, including the lack of a stable nominal anchor. In monetary policy that is a variable – such as a currency peg – that can be used to control price levels.

Stablecoins, cryptocurrencies pegged to the value of assets like sovereign currencies, are the crypto world’s search for such an anchor, Shin said. Stablecoins attempt to “piggyback on the stability of real money issued by central banks.”

Shin said the recent crash of terraUSD, a dollar stablecoin with a market capitalization of $18 billion in early May that rapidly lost its peg, illustrated how stablecoins, despite their name, are unstable and don’t make good units of account.

Unlike other leading stablecoins, such as USDC and USDT, which are reportedly backed by dollar-denominated reserves, terraUSD is an algorithmic stablecoin backed by another cryptocurrency (in this case LUNA) with an algorithm in place to regulate supply and demand of the stablecoin and maintain its peg.

“The second important finding is that crypto and stablecoins fail to achieve the full network effects that we normally expect of money,” Shin said.

Money, Shin said, is the perfect example of a virtuous circle of greater use and greater acceptance. Crypto’s decentralized nature, on the other hand, achieves exactly the opposite, namely fragmentation.

In early June, BIS economists published a paper arguing that crypto cannot fulfill the role of money because costly transactions and scalability restrictions lead to the crypto world splitting into competing blockchains and ecosystems.

“Network effects mean ‘the more, the merrier.’ Crypto achieves the opposite: ‘the more, the sorrier’.”

CBDCs Can Do It Better

In the BIS blueprint for future monetary systems, CBDCs play the role of stable digital currencies used in settlements, transfers and payments. But CBDC projects are still in early stages in most major economies, with China ahead of the curve with its digital yuan.

At the briefing, Shin responded with optimism to questions on his confidence in CBDCs and the progress made so far in BIS’ own experiments, noting that countries were choosing to issue CBDCs despite having robust payments systems.

“You know, India has one of the best retail fast payment systems in the world. It’s called UPI. And it’s led the way in actually showing the way on how these systems will actually operate. But India has decided to go to the final step and actually roll out a retail CBDC,” Shin said, referring to a CBDC that can be used by consumers for transactional purposes.

The paper acknowledges crypto’s contributions to technological advances, calling new developments a “radical departure” from existing systems.

However, according to the report, technical capabilities that arose from innovations in the crypto space will only serve to strengthen the central bank monetary system.

“Programmability, composability and tokenization are not the preserve of crypto, but can instead be built on top of central bank digital currencies (CBDCs), fast payment systems and associated data architectures,” the report said.

BIS: 90% of Central Banks Are Researching The Utility Of CBDCs

The institution’s future monetary vision includes exploring innovations grounded in trust in central banks’ stable sovereign currencies and safe payment systems.

In a new annual economic report published by the Bank of International Settlements (BIS), the financial institution revealed that approximately 90% of central banks worldwide are investigating the feasibility of adopting central bank digital currencies, or CBDCs.

The BIS report highlighted the ability of current sovereign fiat money to provide (relative) price stability and public oversight while criticizing crypto’s inability to perform “basic fundamental functions of money” and their opacity with regards to accountability to the general public.

However, the report did highlight crypto’s programmable nature as well as the borderless elements of decentralized finance (DeFi) as potential benefits that would make a case for integration into CBDCs.

There are currently three live retail CBDCs with 28 pilots. The digital yuan issued by the People’s Bank of China currently holds the dominant position with 261 million users. In addition, over 60 jurisdictions have fast retail payment systems.

In making a case for the use of centralized digital assets, BIS cited recent adverse developments in the DeFi sector. One such example in the report is the implosion of Terra (LUNA) — now renamed Terra Classic (LUNC) — and Terra USD algorithmic stablecoin.

Next, BIS went on to highlight the limited scalability of certain blockchains, such as Ethereum (ETH), causing network congestion and thereby sharp increases in transaction fees.

It also raised the question of the feasibility of layer-1 solutions due to the significant fragmentation of such blockchains to address such drawbacks. Finally, the report pointed to a record amount of cryptocurrency hacks in the past year as part of digital assets’ inherent safety risks.

BIS Compares Projects To Transfer Central Bank Digital Currencies Across Borders

The international bank found high technical feasibility among the projects, but significant work on legal and governance frameworks still remains to be done.

The Bank of International Settlements (BIS) Innovation Hub released a report Tuesday looking at four projects that examined wholesale central bank digital currency (CBDC) transfers across borders.

The projects demonstrated the technical feasibility of the transfers, the BIS found, but practical and policy issues remain outstanding.

The report considered the Jura project involving the central banks of Switzerland and France. Project Inthanon, LionRock2 and the ongoing mBridge project involving currencies in Asia and the Middle East, were also examined, as well as Project Dunbar, a joint effort of Australian, Malaysian, Singaporean and South African banking authorities.

The projects looked at two types of cross-border payments. First was where the payer and a payee are residents of different jurisdictions and payment is made in the currency of the payer’s jurisdiction or in another currency.

The second was offshore payments, where payment takes place take place between two institutions, neither of which is resident in the jurisdiction in which the payment is made, although the payment is typically made in the currency of that jurisdiction.

All transfers used payment versus payment protection, where transfer in one currency is not finalized until a transaction in another currency takes place. Both intraday transfers and transfers that remained on the platform indefinitely were modeled.

They used common platforms, although one project used a common platform with individual subnetworks.

All the projects successfully demonstrated the feasibility of CBDC transfers. They showed that the use of smart contracts to automate rule enforcement lowers the costs involved in the transfers.

The lack of intermediaries lowered the cost of transfers, with transactions being recorded in a single ledger and real-time balances being fully visible. At the same time, the project platforms were able to maintain differing access policies.

Outstanding questions included how distributed ledger technology platforms will interact with existing systems, what challenges scalability presents and how resilience and security can be guaranteed.

In addition, robust legal and governance frameworks will have to be implemented and the economic implications of a multiple CBDC system have to be understood, the report stated.

Now Even Central Bankers Are Blaming Themselves

The RBA’s pandemic postmortem acknowledges the damage of its policy errors. It offers a global lesson.

For central banks, the pandemic may have been the easy part.

To buttress economies and markets during the early days of Covid-19, authorities pumped huge sums into the financial system. They could worry about the hangover later, or so the thinking went.

And judging by the previous decade, stimulus-driven inflation was a nonissue.

Nobody wanted to be accused of moving too slowly or doing too little — a critique that stalked policy makers in the years after the 2008 debacle.

Now an autopsy of the most recent bout of massive easing is in, courtesy of the Reserve Bank of Australia. It makes for tough reading.

The RBA is more used to accolades than scrutiny, given Australia’s long run without a recession before 2020. While there is a bit of defensiveness in this self-evaluation — things looked dire at the time, and so on — there is also a healthy dose of humility.

The central bank tried to peg the yield on the three-year government bond around zero for too long, making the bank’s retreat from the policy look like it was caving to traders.

“The target was met for the bulk of the period, but the exit in late 2021 was disorderly and associated with bond market volatility and some dislocation in the market,” the RBA wrote. “This experience caused some reputational damage.”

The report also noted that officials didn’t give sufficient public attention to the prospect of a swift economic rebound. The RBA’s guidance that conditions were unlikely to warrant a hike in the main interest rate until 2024 thus gets a working over.

Rightly so, given it was late to begin hiking interest rates and has foreshadowed a rapid catch-up. Governor Philip Lowe said Tuesday that rates will probably rise by 25 to 50 basis points in July.

While nominally an assessment of the RBA’s efforts to control yields, the review functions as a draft postmortem on a period of considerable stimulus that included cutting the benchmark rate to near zero and quantitative easing. The yield experiment lasted from March 2020 to November last year.

Lowe isn’t eager to repeat it. (QE is likely more palatable; a separate review is pending.) One thing that comes across is how hard it was for the RBA to extract itself from any single crisis response without the entire policy framework unraveling.

The bank claims to speak only for itself, but the document is a useful appraisal for a broader monetary experiment that stretched from North America to Europe and Asia.

The scramble to recalibrate is being accompanied by a hunt for scapegoats for the galloping inflation that followed the speedy recovery. Former US. Treasury Secretary Larry Summers, once a contender to run the Federal Reserve, is unsparing in his criticism of the Fed under Chair Jerome Powell.

“The return to humility, the abandonment of forward guidance as a policy tool is entirely appropriate,” Summers said in a speech Monday. “It is likely to be necessary to make much more difficult choices than yet contemplated between acceptance of slack and acceptance of sustained, above-target inflation.”

It’s worth noting that the RBA considered so-called unconventional policy well before deaths rose, markets buckled and borders were closed. Lowe had previously flagged the possibility of bond purchases to drive up price increases.

In his concern about too-low inflation, the governor was in good company. Janet Yellen, now US Treasury secretary, said when she was Fed chair that inflation’s failure to fire despite low unemployment and interest rates was a mystery.

Even with inflation spiking, it’s too soon to write off the use of pandemic tools in the future. QE was once considered exotic and useful only to perceived economic failures like Japan. It then became utterly mainstream. Same with near-zero interest rates.

Efforts at yield control, however, didn’t win many fans. Australia was the one developed economy that began and ended the exercise during the Covid era. (The Bank of Japan still controls the yield curve, a practice it started in 2016.)

Few are likely to consider it in the future — and anyone remotely tempted to should read this RBA report card, and think again.

 

Updated: 6-22-2022

US Lawmaker Lays Out Case For A Digital Dollar

“It is now time for Congress to begin the process of considering and ultimately passing authorizing legislation for the issuance of a U.S. CBDC,” said Representative Jim Himes.

Connecticut House of Representatives member Jim Himes has released a proposal aiming to start a dialogue on the United States potentially launching a central bank digital currency, or CBDC.

In a white paper released on Wednesday, Himes urged Congress to begin exploring the rollout of a digital dollar issued by the Federal Reserve to prevent the government from falling behind in innovations in financial technology.

According to the U.S. lawmaker, a CBDC “should not be thought of as replacing legacy payment systems and currencies but as an additional alternative for consumers and businesses.”

The white paper laid out a proposal in which a CBDC could present concerns over transparency, security and privacy when compared with fiat currency.

Himes added that any regulatory framework on CBDCs enacted by Congress should include “strong user identification processes that require intermediaries to certify the identity of wallet holders,” with the Federal Reserve and “participating commercial entities” establishing guidance.

“The longer the United States government waits to embrace this innovation, the further we fall behind both foreign governments and the private sector,” said Himes. “It is time for Congress to consider and move forward with legislation that would authorize a U.S. CBDC.”

Different agencies and departments within the U.S. government have explored the possible effects of a digital dollar in the event officials decide to launch one.

In May, the Fed released a report concluding that “monetary policy implementation from a retail CBDC are highly dependent on the initial conditions of the Federal Reserve’s balance sheet.”

Among lawmakers in the United States, Himes has often pushed for congressional action on cryptocurrencies — specifically in regard to the technology being used to check Russia’s potential to evade sanctions — and introduced a section of a bill that many criticized as giving the Treasury Secretary unchecked power over certain crypto transactions.

Minnesota Representative Tom Emmer also introduced a bill in January aimed at preventing the Fed from acting as a retail bank in the potential issuance of a digital dollar, suggesting lawmakers have not yet reached a consensus on a U.S. CBDC.

Qatar Central Bank In ‘Foundation Stage‘ Of Launching Digital Currency

The bank is exploring technological solutions and platforms for its own digital currency.

The 2.8-million nation of Qatar is going to join a growing range of countries experimenting with the central bank digital currency (CBDC) concept. The Qatar Central Bank (QCB) is currently “in the foundation stage” of issuing its digital currency.

On Tuesday during the “Inflation Test” session at the Qatar Economic Forum, QCB Governor Sheikh Bandar bin Mohammed bin Saoud Al Thani revealed that the bank is working to find technological solutions for its CBDC. Right now the project is in its early stage, Al Thani specified:

“Many central banks are now considering to issue CBDC, and we are not an exception to that. But we are still in foundation stage. We are evaluating the pros and cons of issuing CBDC and to find the proper and the right technology and platform to issue our CBDC.”

“Currently, crypto are a technology innovation. It might take us to new era of fast, cheap, and more accessible financial services. However, those crypto assets which are not underlined by monetary authority might be less credible,” he added.

First reports about the QCB exploring the possibility of CBDCs surfaced in March 2022. Back then, the head of the fintech section at QCB, Alanood Abdullah Al Muftah, disclosed that the bank is researching the concept due to the global trend.

At the moment, more than 100 countries globally have expressed their interest and/or started to research and develop CBDCs. Qatar’s main competitor in the Gulf region, the United Arab Emirates, launched its CBDC track as a part of its 2023–2026 tech strategy back in 2021.

In the same year, it announced a joint project of cross-border CBDC payments with the central banks of Thailand, Hong Kong and China, as well as the Bank of International Settlements.

Digital Dollar Would Secure Greenback As Global Reserve Currency, Lawmaker Argues

Rep. Jim Himes published a 15-page white paper arguing in favor of a digital dollar.

A digital dollar would support the greenback’s role as the global reserve currency, could support underbanked individuals and may be more trusted than another type of cryptocurrency, U.S. Rep. Jim Himes (D-Conn.) argued in a white paper published Wednesday.

The 15-page document, which argues the U.S. should create a central bank digital currency (CBDC), outlines what a digital dollar is (a liability of the Fed), how they compare to cryptocurrencies like bitcoin or tether, some of the needs for a CBDC and the differences between wholesale and retail CBDCs. It also contrasted the potential safety of a digital dollar compared to cryptocurrencies.

The white paper comes as the broader crypto market settles into an extended downturn and conversations about a potential U.S. CBDC continue within the Fed.

“A U.S. CBDC would have advantages over privately issued stablecoins and crypto‐assets, most notably the ability to be backed by the full faith and credit of the U.S. government, like traditional cash, and would provide holders with a degree of safety that may not be offered by privately issued stablecoins because of the risk associated with sponsors’ reserves,” the document says.

Other countries are already considering issuing a CBDC, the paper notes.

The white paper also notes that a CBDC could pose risks to privacy or security, as well as broader monetary policy implications. Himes proposed the Fed “experiment with a wide range” of privacy and encryption tools to protect consumer data.

These experiments should include public participation, the paper says.

Whether a U.S. CBDC should be intermediated is another open question, as well as what its architecture should be.

Himes suggests a CBDC should use a semidistributed base, rather than a true blockchain or purely centralized back end. Intermediaries could access this network if they had a specific reason to.

“A U.S. CBDC should be regarded as an alternative rather than a substitute for commercial money and payment systems.

Therefore, the architecture and characteristics should not ‘squeeze out’ activity more efficiently or appropriately provided by commercial entities,” the white paper says.

The white paper also argues in favor of a account-based wallet system, rather than a token-based one that has been advocated by groups like the Digital Dollar Project.

An account-based system would require the Fed or the appropriate entities to conduct know-your-customer processes on the users of wallets, while a token-based system would prioritize token and transaction verification.

The Federal Reserve has conducted research into both the policy and technical aspects of a digital dollar for the past few years, but various officials have expressed reserves about it arbitrarily issuing one.

Federal Reserve Chair Jerome Powell, as well as a report published by the U.S. central bank, said they want Congress and the Biden administration to authorize the Fed to issue a CBDC before the central bank actually feels comfortable doing so.

In a statement Wednesday, Himes said other countries have made “real progress” in developing their own CBDCs.

“The longer the United States government waits to embrace this innovation, the further we fall behind both foreign governments and the private sector,” he said. “It is time for Congress to consider and move forward with legislation that would authorize a U.S. CBDC. I hope that this white paper will contribute meaningfully to that dialogue.”

Crypto Resonates Better With BIS’ Vision Of Ideal Monetary System

The report awarded points to the fiat ecosystem for the safety and stability policy while highlighting that “Public oversight has helped achieve safe and robust payment systems.”

In its continued efforts to identify the ideal future monetary system, The Bank of International Settlements (BIS) revealed the edge of the crypto ecosystem over the present-day fiat economy when it comes to fulfilling the policy goals.

While sharing its vision for the future monetary system, the BIS outlined eight high-level goals it hopes to achieve — safety and stability, accountability, efficiency, inclusion, user control over data, integrity, adaptability and openness.

In its study, BIS found the crypto ecosystem outweighs the traditional finance when it came to broadly fulfilling the policy goals.

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

The above table shared by the BIS shows that the current-day fiat economy is far from meeting the requirements of an ideal monetary system.

The report awarded points to the fiat ecosystem for the safety and stability policy while highlighting that “public oversight has helped achieve safe and robust payment systems.”

The cryptocurrency ecosystem, however, broadly fulfilled two of the eight policies laid down by the BIS — adaptability and openness.

In addition, the report suggested improvements in the inclusion and user control over data policies, which would result in the crypto ecosystem fulfilling half of BIS’ recommendation for an ideal monetary system.

The BIS currently banks on the rise of central bank digital currencies (CBDC) to counter the mainstream adoption of cryptocurrencies.

Its vision for the future monetary system involves the use of multi-CBDC arrangements with new data architectures that provide better privacy and control while serving the unbanked.

The BIS Innovation Hub recently shared plans to launch a market intelligence platform as a reaction to the collapse of numerous stablecoins projects and decentralized finance (DeFi) lending platforms.

The platform aims to serve as an alternative to unregulated firms by providing data on asset backing, trading volumes and market capitalization.

The Bank of Israel recently commenced its first technological experiment with a CBDC, which examined user privacy and the use of smart contracts in payments.

While the experiment was riddled with a myriad of technical issues, it also highlighted the need to establish a Know Your Customer (KYC) and an Anti-Money Laundering (AML) system through a centralized database.

 

Updated: 6-23-2022

Powell Says Fed Plans Recommendation To Congress On CBDC

The Federal Reserve chairman says a digital dollar is “something we really need to explore as a country.”

Federal Reserve Chairman Jerome Powell said that the U.S. central bank plans to recommend to Congress how to advance a potential central bank digital currency (CBDC).

When asked about the Fed’s next steps regarding the rollout of a CBDC, Powell told U.S. lawmakers in a Thursday monetary-policy hearing that “it’s something we really need to explore as a country” and that “it should not be a partisan thing.”

“It’s a very important potential financial innovation that will affect all Americans,” he said. “Our plan is to work on both the policy side and the technological side in coming years and come to Congress with a recommendation at some point.”

The Fed issued a report on the question of a digital dollar earlier this year, and officials are still combing through the responses from the crypto industry, traditional financial firms and investors. Those answers are likely to inform the Fed’s eventual recommendation.

In March, Powell said that the Fed wouldn’t continue exploring the launch of a CBDC without congressional intervention.

On Thursday, he noted that if the U.S, were to roll out a digital dollar, it would have to be issued by the government rather than by a private company.

“One question around CBDCs is do we want a private stablecoin to wind up being the digital dollar? I think the answer is no,” he said. “If we’re going to have a digital dollar, it should be government-guaranteed money, not private money.”

Powell testified before the U.S. House Committee on Financial Services as part of the central bank’s semiannual monetary policy report to Congress.

During his first hearing on Wednesday, Powell called for a better regulatory framework for crypto.

Updated: 6-24-2022

CBDC May Threaten Stablecoins, Not Bitcoin: ARK36 Exec

A state-backed digital currency like the U.S. dollar doesn’t necessarily have to be a competitor to a decentralized cryptocurrency, one industry exec believes.

Central bank digital currencies (CBDCs) do not pose any direct threat to cryptocurrencies like Bitcoin (BTC) but are still associated with risks in relation to stablecoins, one industry executive believes.

According to Mikkel Morch, executive director at the digital asset hedge fund ARK36, a state-backed digital currency like the U.S. dollar doesn’t necessarily have to be a competitor to a private or a decentralized cryptocurrency.

That’s because the use cases and value proposition of the decentralized digital assets “often go beyond the realm of simple transactions,” Morch said in a statement to Cointelegraph on Thursday.

The exec referred to Federal Reserve Chair Jerome Powell who earlier this year hinted that the United States government would not stop a “well regulated, privately issued stablecoin” from coexisting with a potential Fed digital dollar.

As such, active commitment to the CBDC development does not mean that other countries like Singapore are unfriendly to non-state-backed cryptocurrencies, Morch said.

The executive suggested that a CBDC roll-out may even “facilitate the proliferation of non-sovereign cryptocurrencies and blockchain technologies.”

However, the concept of a CBDC is still associated with some risks in regard to stablecoins, Morch noted, stating:

“Admittedly, though, a CBDC may diminish the role of and the demand for privately issued stablecoins provided that there is a market for stablecoins already in the country — which is more the case in the U.S. than it is in Singapore.”

Morch’s remarks came in response to Singapore’s financial regulator and central bank pledging to be “brutal and unrelentingly hard” on any “bad behavior” from the cryptocurrency industry.

On June 23, Singapore’s Monetary Authority’s (MAS) chief fintech officer Sopnendu Mohanty expressed a lot of skepticism about the value of private cryptocurrencies. He also said that he expected a state-backed alternative to be launched within three years.

ARK36’s Morch also tied Mohanty’s latest comments to the recent dramatic events in the crypto industry, including the failure of the Terra ecosystem last month, the liquidity crisis of the Celsius crypto lending platform and Three Arrows Capital’s insolvency.

Morch specifically suggested that MAS’ comments on going brutal make a lot more sense if one takes into account that Three Arrows Capital, also referred to as 3AC, is a Singapore-based firm.

“If half of the rumors about how the fund handled the capital of its customers are true, there is little wonder that Singapore’s financial authority sees the need for more regulation in the space,” he added.

Updated: 6-28-2022

Governments May Restrict Foreign Access to Their CBDCs, Riksbank Official Says

Not all countries “play nicely” with each other, complicating how central bank digital currencies will interact with other payment systems, said Cecilia Skingsley, first deputy governor at the Swedish central bank.

Central bank digital currencies (CBDC) won’t be a “silver bullet” that solves all issues with cross-border payments, according to Cecilia Skingsley, first deputy governor of Sveriges Riksbank, Sweden’s central bank.

For instance, countries won’t necessarily “play nicely” with each other, making interoperability – or the way CBDCs interact with other payment systems – complex and layered, Skingsley said at the European Central Bank’s (ECB) annual forum on central banking held in Sintra, Portugal, on Tuesday.

“We have to think about different levels of interoperability,” Skingsley said, adding, “It’s going to be jolly hard for everybody who wants to be part of that to agree on governance and supervision and the like.”

Skingsley was joined on a panel by ECB Executive Board member Fabio Panetta; Ulrich Bindseil, ECB director general of Market Infrastructure and Payments; Princeton economist Markus Brunnermeier; and Neha Narula, a director of the Digital Currency Initiative at the MIT Media Lab.

Last year, payments giant Visa announced it was working on a platform that would enable interoperability between CBDCs and other private digital currencies such as stablecoins, which are pegged to the value of another asset such as the U.S. dollar or gold.

Skingsley, who recently became the head of the innovation arm at the Bank for International Settlements (BIS), an association of central banks from around the world, said BIS is set to release a report on CBDC interoperability in two weeks.

The BIS Innovation Hub is conducting several CBDC experiments with central banks around the world.

In September 2021, BIS told central banks around the world they should start working on CBDCs because central bank money must evolve to fit into a digital future. At that time China had already made some progress on a digital version of the renminbi, its sovereign currency.

Now, countries around the world are looking into establishing a CBDC – which, panelists were told by Panetta, is at least in part in response to the crypto market boom when the market hit $2.7 trillion in October.

There are high expectations for CBDCs, from potentially streamlining cross-border payments to improving financial inclusion. According to the panelists, CBDCs will introduce competition to a digital payments world increasingly dominated by private banks.

But serious experimentation into CBDCs has only just begun and there are a host of implications and design elements to consider.

One thing that could complicate interoperability between different nations’ CBDCs is the level of access governments will be willing to provide to their CBDC, including how much individuals would be allowed to hold or even whether tourists should be able to use them to make payments, according to Skingsley.

It would be a more efficient and open system if, say, foreign payment service providers had access to CBDCs around the world, she said. But some countries could find that to be “too risky.”

“I think there will also be different choices and different levels of [barriers] that countries would like to choose,” Skingsley said. “So there won’t be one access model [that would] work for everybody.”

Skingsley’s own country, Sweden, is looking into creating a CBDC, the e-krona in a bid to safeguard the central bank’s authority over private banks at a time when the country is going cashless at a dramatic pace.

Sweden has one of the lowest rates of cash usage in the world, with only 10% of the population paying with cash in 2020, down from 40% in 2010.

In April, Riksbank started enquiring about possible suppliers and technical options that can form the basis for an e-krona. Around the same time, Riksbank found that tests to integrate state-backed digital money into conventional banking systems were a success and it would continue examining the benefits the new technology could bring.

At the ECB forum, Skingsley said the Sveriges Riksbank have estimated that demand for e-krona could be worth around 10% of the country’s gross domestic product (GDP). For comparison, in 2019, cash in circulation in Sweden was at 1% of GDP.

“Providing as open infrastructures as possible could possibly help promote competition in the payment markets, not only domestically, but also across borders and put a bit of pressure on private solutions,” Skingsley said.

Updated: 6-29-2022

Taiwan Central Bank Governor Considers Interest-Free CBDC Design To Prevent Fiat Deposit Flight

“Neither of the current CBDCs in circulation, such as the Sand Dollar and the digital yuan, accrue interest on deposits,” said Yang.

As reported by local news outlet bnext.com on Wednesday, Chin-long Yang, governor of the Central Bank of the Republic of China (Taiwan), recommended a no-interest design for the country’s central bank digital currency, or CBDC, pilot.

In explaining the decision, Yang said that a CBDC where interest is paid on digital asset deposits would likely become a replacement for fiat New Taiwan dollar (NT$) deposits in banks.

“Once the banks’ available deposits decrease,” Yang explained, “it would lead to a corresponding increase in the cost of financing and thereby increase the cost of borrowing for consumers.”

Yang further warned that even interest-free CBDCs could lead to “digital bank runs” during times of financial instability and quickly spiral into a liquidity crisis for financial institutions.

But nevertheless, the country’s central bank governor recognized a surge in demand for electronic payment solutions in recent years:

“The ratio of electronic payments as a % of all payments in Taiwan has risen from 40% in 2017 to 60% in Q1 2022. Therefore, there is the possibility of greater demand in the populace for a CBDC that provides a safe, trusted, no-commission, no credit risk and no liquidity risk form of digital payment solution.”

Taiwan is currently in the second stage of its CBDC pilot program, where its central bank provides the CBDC to five selected Taiwanese banks for distribution among consumers. Based on the pilot program results, the central bank will proceed to the next steps.

However, it has already been identified in trials that the distributed ledger technology within the CBDC could not handle high frequency, high volume consumer transactions. Another point of concern is the lost functionality of the payment solution in the event of power outages.

Updated: 7-6-2022

Bank Of England Says Digital Pounds Unlikely To Work Like Cash

* Deputy Governor Says An Account-Based Instrument More Likely
* Central Bank Looking At Ways To Smooth Online Transactions

The Bank of England is unlikely to offer a digital form of the pound that works like banknotes, opting instead for an instrument managed through some sort of account.

Deputy Governor Jon Cunliffe, who is overseeing the BOE’s work on central bank digital currencies, said policy makers are thinking about how to make the pound work better for consumers in online transactions.

However, the new form of currency is unlikely to be a “bearer” instrument like banknotes, where no information is recorder about the holder. That reflects concerns that new digital pounds could be used in crime and money laundering.

“I think it’s very unlikely that any of us would issue a retail CBDC as a bearer instrument,” Cunliffe said at a panel discussion in London on Wednesday. “It would probably be some form of account-based instrument.”

The BOE along with other central banks is studying how to adapt currencies for online technology as more transactions move onto the internet and toward credit and debit cards.

With cash declining as a payment method across the US and Europe, the BOE and is looking at new forms of the pound that appeal to consumers.

That’s elevating a number of issues about the appropriate role central banks play in issuing digital currencies and whether those would compete with securities like Bitcoin.

“We will produce the asset and the rails” — or the system to transact with the currency — “but the interface with the public would actually be done by private-sector payment providers,” Cunliffe said.

The BOE plans to release a consultation paper at the end of the year about how a retail CBDC might look. Cunliffe said it’s unlikely that any digital pounds will start trading within the next three years, that it’s more likely in five or more years.

“It could be banks that will have the customer accounts payable to integrate money into their digital applications,” he said.

“There are other models. One model is we allow the private sector to do the tokenization, to provide their own money that we back one-for-one with central bank money.”

The government will have do decide whether the BOE can issue digital pounds and in what form. Cunliffe said the decision will be based on what’s most efficient and secure.

Updated: 7-11-2022

Report Urges Central Banks To Work Together On Digital Currency Interoperability

The Bank for International Settlements, the International Monetary Fund and the World Bank say CBDCs should be programmed in advance to avoid interoperability issues.

International agencies are urging central banks to consider interoperability early in the design of central bank digital currencies (CBDCs).

The Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures, the BIS Innovation Hub, the International Monetary Fund and the World Bank released a report Monday that looked at three options for cross-border interoperability that address challenges including high costs, low speed, limited accessibility and thelack of transparency.

The present publication was a response to a 2020 Committee on Payments and Market Infrastructures report that identified 19 building blocks to enhance cross-border payments. Most work on CBDCs has been focused on domestic policy goals so far, according to the authors.

They went on to examine variables such as accessibility by payment service providers (PSPs) and nonresidents to wholesale and retail CBDCs and interaction with non-CBDC infrastructure.

Three approaches to interoperability were examined. Compatibility, or the adoption of common standards, would make it easier for PSPs to operate across systems.

Interlinking would allow participants in the system to establish contractual agreements, technical links, standards and operational components to perform transactions across systems.

Interlinking could be achieved through several models. Finally, a single technical system could host multiple CBDCs.

International collaboration on CBDC design is necessary to overcome cross-border payment challenges, and many CBDC design features remain undecided in the numerous CBDC projects currently underway. Research is moving fast, so the opportunity for coordination should be seized while it remains, the report said.

Coordinating design features could help CBDCs avoid unforeseen pitfalls and improve common Know Your Customer/Anti-Money Laundering efforts. The three approaches to interoperability discussed in the report are not mutually exclusive, although they all involve tradeoffs, the report noted.

Updated: 7-12-2022

France Starts Second Stage of Wholesale CBDC Experiments, Central Bank Governor Says

Banque de France head François Villeroy de Galhau said the work ensures that France stands ready to bring central bank money as a settlement asset as early as 2023.

The French central bank, Banque de France, wants a working wholesale central bank digital currency (CBDC) ready to go as early as 2023, according to the bank’s governor, François Villeroy de Galhau.

Galhau announced on Tuesday that the bank has kicked off the second phase of experimentation into a wholesale CBDC, which could be used to streamline domestic and cross-border transactions between banks. CBDCs are digital versions of a jurisdiction’s sovereign currency which, in France’s case, is the euro.

“We want to get closer to a viable prototype, testing it in practice with more private actors and more foreign central banks in the second half of 2022 and in 2023,” Galhau said during a speech at the 2022 Paris Europlace International Financial Forum on Tuesday.

“This work ensures that we stand ready to bring central bank money as a settlement asset as early as 2023,” Galhau said.

Banque de France, which began experiments on a wholesale CBDC in March 2020, wrapped up its first stage of experimentation in December 2021.

Galhau said on Tuesday that the first stage included nine experiments run hand in hand with the private sector and “other public actors.”

Central banks are increasingly exploring wholesale CBDCs that are built on distributed ledger technology (DLT) and promise to help speed up interbank settlements.

The Bank for International Settlements (BIS), an association of central banks from around the world, has a number of ongoing experiments with central banks across Asia and Europe that are testing wholesale CBDCs for a variety of use cases, including cross-border payments.

The BIS Innovation Hub’s Project Jura explores the direct transfer of euro and Swiss-franc wholesale CBDCs between French and Swiss commercial banks.

Retail CBDCs

Retail CBDCs, issued directly by a central bank to a country’s citizens, who can use them to purchase goods and services, can theoretically cut out traditional intermediaries like commercial banks, Galhau said, addressing a more contentious type of CBDC.

Retail CBDCs are the subject of heavy debate among policymakers due to the risks these currencies could pose to financial stability. For one, in times of economic stress, retail CBDCs could give way to bank runs whereby citizens withdraw their deposits from commercial banks in large numbers and convert their holdings to CBDCs.

Galhau believes that retail CBDCs should be issued in partnership with private banks.

“The eurosystem should entrust banks with the distribution of digital euros to final users, while setting technical, functional and commercial rules – for example, the branding, logo and fee structure,” Galhau said.

Some functions, Galhau said, should remain under the “sole responsibility” of intermediaries.

“In particular, I believe that the eurosystem should not have the role of managing digital euro holdings: The Banque de France closed its last private customer accounts over 20 years ago, and does not intend to reopen any,” Galhau said.

The European Central Bank is exploring a retail CBDC. On Monday, finance ministers in the European Union discussed the digital euro and agreed that it should not replace, but rather complement, cash usage in the bloc.

Digital Dollar Could Be Good for Financial Stability, US Federal Researchers Say

Though critics of a central bank digital currency have warned it could amplify bank runs, the Office of Financial Research says it may actually help.

A government-issued digital dollar could actually help stabilize a wobbly financial system in key ways, according to U.S. federal researchers who issued a paper Tuesday.

The findings may counter financial lobbyists hoping to steer the government away from such a currency.

The Office of Financial Research (OFR) – an arm of the U.S. Treasury Department that studies risks to the financial system – looked into how a central bank digital currency (CBDC) would affect the inner workings of U.S. finance, and the paper concluded that worries about a future panic driving people to rapidly move assets into digital dollars may be overblown.

The paper’s authors said a CBDC would give the government an early-warning system, acting like a canary in the coal mine that it can study for signs of distress. More flows into digital dollars would tell regulators that trouble could be brewing.

“Observing the flow of funds into a CBDC can allow policymakers to infer when a run by a bank’s depositors is underway more quickly and to place troubled banks into resolution sooner,” according to the paper, written by Todd Keister at Rutgers University and Cyril Monnet from the University of Bern.

And knowing that such activity will trigger concern with watchdog agencies may further discourage big depositors from pulling out funds and triggering that process.

The existence of a CBDC during normal times would also set up less incentive for depositors to run from a weak bank when a crisis erupts, they said, because it will have removed some of the benefits of “maturity transformation” in which banks gain from borrowing money on shorter terms than they lend it out at. So banks would be a bit more stable before the crisis happens, the OFR paper said.

Jaret Seiberg, an analyst at Cowen Group, said the OFR report seems to be pushing back on Wall Street bankers’ objections to the digital dollar.

“We see [the report] as a tool that digital dollar advocates can use to justify proceeding with plans to prepare a central bank cryptocurrency for launch,” Seiberg wrote in a Tuesday research note to clients.

Federal Reserve Vice Chair Lael Brainard, whose agency would ultimately be the one issuing a digital dollar, also made some positive remarks about a potential CBDC last week.

“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,” Brainard said, though she’s previously warned that the effort to launch a CBDC in the U.S. could take the Fed as long as five years.

French Central Bank Head Announces Phase 2 Of Wholesale Digital Euro Project

The French presidency of the European Union winds down with the completion of wCBDC experiments, the design of a proprietary blockchain and an automated market maker platform.

The first phase of experiments with a wholesale digital euro has been completed, and Phase 2 experiments will begin this year, Banque de France governor François Villeroy de Galhau said Tuesday. Four or five new experiments are expected to be launched.

Speaking at the Paris Europlace International Finance Forum, the French central banker summed up the European Union’s achievements in crypto-asset regulation under the French presidency, mentioning the Transfer Fund Regulation (Travel Rule) and Markets in Crypto-Assets (MiCA), specifically.

The Eurosystem is looking at the scope and design of a digital euro central bank digital currency (CBDC). The main rationale for a retail digital euro is to maintain the role of central bank money in the economy even as it is “threatened by the digital revolution,” Villeroy de Galhau continued.

He spoke in favor of maximum intermediation in the design, noting that intermediaries have more experience than central banks with customer relations and Know Your Customer/Anti-Money Laundering (KYC/AML) measures. He said:

“I believe that the Eurosystem should not have the role of managing digital euro holdings: the Banque de France closed its last private customer accounts over 20 years ago, and does not intend to reopen any.”

A wholesale CBDC, to be used for interbank transfers and similar transactions, will be no less important than the retail, Villeroy de Galhau said.

He cited the critical use cases of settlement of securities issued with digital ledger technology (DLT) and cross-border and cross-currency payments.

The Banque de France designed a proprietary digital ledger technology, called DL3S, for a potential future system. It also produced an automated market maker platform based on a decentralized finance model, where settlements of multiple CBDCs could be carried out.

New experiments will involve testing a prototype digital euro with private actors and other central banks in preparation for the 2023 implementation of the pilot regime. Villeroy de Galhau stressed the importance of interoperability between DLT and the traditional system.

DLT will complement rather than replace traditional infrastructure, he said.

 

Updated: 7-13-2022

China’s Central Bank To Expand Deployment Of e-CNY

Over 4,567,000 merchants across the country now accept the e-CNY as payment.

According to China’s state institution Xinhua News Agency, Lan Zou, head of monetary policy at the People’s Bank of China (PBoC), announced that the country would be expanding the number of digital yuan (e-CNY) test sites in the country from 11 to 23.

They are spread out across 15 out of 31 of China’s provinces and autonomous regions. The PBoC is China’s central bank and is responsible for the development of the e-CNY central bank digital currency, or CBDC. During Wednesday’s press conference, Zou praised the success of the recent e-CNY rollout, stating:

“e-CNY trials during the first half of 2022, such as acting as a means of payment during the Beijing Olympics, were spectacularly successful.

The e-CNY has demonstrated to be an invaluable tool in improving quality of life, stimulating consumption, growing internal demand, and ensuring steady economic development through its functions such as smart contract utility.”

In its latest data update, Chinese consumers have spent a cumulative 264 million transactions amounting to $12.35 billion, or 83 billion CNY, as of May 31. More than 4,567,000 merchants across the country have begun accepting the CBDC.

For the next steps, Zou says the PBoC plans to further increase the number of e-CNY test sites and enhance its technological capabilities.

During China’s ongoing strict coronavirus lockdowns, provincial and municipal officials frequently partnered with the country’s tech enterprises to unveil e-CNY airdrops.

Users who received digital yuan could then spend the “gift” at specified platforms and in-app merchant terminals as part of an initiative to revitalize consumer spending.

Aside from consumer goods, the e-CNY can be used to pay for various bills, such as taxes, at various municipalities.

Updated: 7-14-2022

Digital Euro Would Be A Success Only If Widely Used, ECB Says

The European Central Bank expects to complete the investigation phase of its digital euro project in the autumn of 2023.

Only a digital euro that is widely accepted by European users could be considered a success, according to the European Central Bank (ECB).

The ECB published key objectives for the digital euro in a blog post authored by the bank’s President Christine Lagarde and executive board member Fabio Panetta on Wednesday.

An accompanying document laid out some basic design considerations for a digital version of the European Union’s single currency meant for public use.

“The digital euro can only be successful if it becomes part of the everyday lives of Europeans. It must add value compared with existing solutions,” the post said.

In the post, the two said it’s too early to settle details of the design, but the bank expects to wrap up the investigation phase of the project in the autumn of 2023.

The ECB initiated the digital euro project in June 2021 and kicked off a two-year investigation phase into a retail central bank digital currency (CBDC) in October.

Since then, the European Commission, the EU’s executive arm responsible for proposing new legislation, said it will introduce a digital euro bill in 2023.

Meanwhile, the ECB has been largely reticent about the details and findings of its experiment, apart from sporadic hints about a digital euro possibly launching within the next four years, and how the ECB would likely move to limit the amount in circulation to 1.5 trillion euros ($1.5 trillion) to control the negative effects it might have on financial stability.

Lagarde and Panetta also said the digital euro is intended as a means of payment, not a form of investment.

“Otherwise too many commercial bank deposits could be moved to the central bank – a scenario which would make it more difficult for banks to lend to consumers and companies, and which could even generate tensions in the banking system during times of financial stress,” the post said.

Although it’s too early to specify the design elements of a digital euro, some objectives are clear, the report said.

“First, a digital euro must respond to the needs of its users,” the officials said, adding that according to research, users value wide acceptance, ease of use, low costs, high speed, security and consumer protection the most.

A digital euro should also benefit people who currently have limited access to digital payments, the report said.
The officials also presented the case for a digital euro.

“Introducing a digital euro would ensure that citizens can continue to trust in the monetary anchor behind their digital payments. It would protect the strategic autonomy of European payments and monetary sovereignty, providing a fall-back solution if geopolitical tensions intensify,” they wrote.

More Than 2.6 Million Users Signed Up For The City Of Shenzhen’s Digital Yuan Airdrop

The city has about 18 million residents in its prefecture-level area.

According to data obtained from local news outlet Sohu.com, the Shenzhen Chamber of Commerce has recorded over 2.6 million signups for its latest digital yuan, or e-CNY, airdrop.

Two months prior, the City of Shenzhen announced that it would be airdropping 30 million of the e-CNY central bank digital currency, or CBDC, to local residents to stimulate consumer spending as a recovery measure to the country’s strict coronavirus lockdown.

Users who received the airdrops through a randomized lottery selection could then spend the e-CNY vouchers at various participating merchants’ terminals on Meituan, one of China’s leading e-commerce platforms.

The event, which ran from May 30 to June 19, attracted more than 67,000 merchants.

Similarly, on Wednesday, the City of Fuzhou announced that it would be airdropping 20 million e-CNY to local residents. Users who passed through Know Your Customer identification and have a local number could then log in to the “e-Fuzhou” city app and enter a lottery draw for 100 e-CNY per airdrop.

The airdropped digital yuan is dispensable at over 9,000 merchants around the city.

China’s CBDC efforts have gained momentum since the beginning of the year, with the country’s central bank planning to expand the number of e-CNY test sites to 23, up from 11.

In the City of Tianjin, it is now possible to take out a loan denominated in e-CNY as well as pay for metro tickets using digital currency.

Between April 2, when the e-CNY was introduced to Tianjin, and Sunday, local residents made approximately 1.86 million e-CNY transactions, amounting to 290 million CNY across close to 39,000 vendors.

UK’s Government-Backed Millicent Labs Demos A Retail Full-Reserve Digital Currency

The issuer says the currency avoids pitfalls of central bank digital currency and stablecoins while bridging blockchain and traditional financial technology.

A sandbox test of a retail full-reserve digital currency (FRDC) has been completed in the United Kingdom, distributed ledger fintech company Millicent Labs announced on Thursday.

The test was a demonstration for Innovate UK, a branch of the government’s U.K. Research and Innovation, which co-funded the company.

An FRDC is a privately issued digital currency pegged to a fiat currency, Millicent said in a statement. It is introducing a suite of FRDCs that are fully collateralized by cash deposits in a central bank account safeguarded by a regulated third party.

The demonstration for Innovate UK was intended to highlight the FRDC’s ability to bridge blockchain and traditional technology.

It simulated fiat on-ramping from a large U.K. consumer bank, on-chain conversion and minting of FRDC tokens pegged to the British pound sterling, and use case scenarios including micropayments, use of a QR code and peer-to-peer payments. Payments were made by mobile app, custodial wallet and non-custodial wallet.

Millicent CEO Stella Dyer said, “We are extremely proud to have presented this world-first solution to Innovate UK — especially during such a turbulent time for the crypto markets.”

Millicent noted on its website that its currency is synthetic central bank digital currency (sCBDC), a form of CBDC that overcomes the tendency of CBDCs to be “overly-focused on domestic policy—a strategy that risks simply replacing today’s siloed, closed-loop financial systems with new ‘digital islands.’”

The company also emphasized that, unlike most stablecoins, its FRDC is fully backed by liquid assets, while many stablecoins are backed only by fractionally liquid assets.

For example, Tether revealed in May that commercial paper made up 65.39% of its reserves, although it later stated its intentions to remove commercial paper from the composition of its reserves completely.

Circle announced plans to become a “full-reserve national commercial bank” centered around its USD Coin (USDC) stablecoin in August 2021.

Updated: 7-18-2022

Australian Central Bank Governor Favors Private Sector Crypto Technology

Phillip Lowe believes that there are risks in dealing with cryptocurrency that can be mitigated by strong regulations, but the tech should be made by private companies.

Australian central bank Governor Phillip Lowe said that a private solution “is going to be better” for cryptocurrency as long as risks are mitigated through regulation.

Lowe commented at a recent G20 finance meeting in Indonesia. Reuters reported on Sunday that officials from other countries discussed the impact of stablecoins and decentralized finance (DeFi) on global financial systems.

Recent risks associated with stablecoins can largely be chalked up to depegging events. In May, the Terra USD stablecoin, TerraUSD (UST), which has since changed to TerraUSD Classic (USTC), lost its peg and drove down the value of the entire Terra Classic ecosystem.

It caused a multi-billion dollar cascade effect leading to Tether (USDT) and the DEI stablecoin briefly depegging.

Lowe suggested that strong regulations or even state backing could help mitigate the risks to the public:

“If these tokens are going to be used widely by the community, they are going to need to be backed by the state or regulated just as we regulate bank deposits.”

While the regulations would come from the government side, Lowe noted that the technology would be best if it were developed by the private sector.

In his view, private companies are “better than the central bank at innovating” the best features for cryptocurrency.

He added, “there are also likely to be very significant costs for the central bank setting up a digital token system.”

The National Association of Federally-Insured Credit Unions shared Lowe’s skepticism about implementing a digital token by central banks due to high costs in a letter to the United States Commerce Department, according to Cointelegraph on July 8.

However, his view on the costs of digital token systems such as central bank digital currencies (CBDC) is not echoed by the countries currently developing or experimenting with CBDCs such as China, the European Union and the Bahamas.

In the same G20 meeting, Hong Kong Monetary Authority CEO Eddie Yue backed Lowe’s opinion that stablecoins should be scrutinized more closely.

He said that reliable stablecoins would, in turn, reduce risks in DeFi, where stablecoins act as the main transactional currency.

Referring to DeFi and stablecoins, Yue said, “the technology and the business innovation behind these developments are likely to be important for our future financial system.”

Updated: 7-27-2022

Two-Thirds of Public Commenters Oppose US Adopting Digital Dollar: Cato Institute

Research from the think tank, which is against the proposal, shows at least 66% of commenters to the Federal Reserve agree with them.

The Cato Institute has looked over more than 2,000 responses to the U.S. Federal Reserve’s invitation to comment on a digital dollar and has come to this conclusion: two-thirds of the responses appear to object to the idea.

The Washington, D.C.-based libertarian think tank, which opposes a central bank digital currency (CBDC) as a government attempt to control people’s money, reviewed the public comments and found more than 66% of them raise concerns including the loss of privacy and damage to the U.S. financial system.

However, the study released Wednesday noted that business interests have taken a more favorable view.

“The fact that two-thirds of the over 2,000 commenters are pushing back against the idea of a CBDC shows not only that this is not the niche issue it once was a few years ago, but also that Americans recognize the very real risk a CBDC could pose to their financial freedom,” Nicholas Anthony, the Cato policy analyst who compiled the statistics, told CoinDesk in an email.

Supporters of a digital dollar believe it could be a national-security benefit in the race against foreign competitors, reduce the environmental costs from the production of paper currency and improve trust in the monetary system by making it more transparent.

Officials at the Fed, which would be responsible for creating and maintaining a digital dollar, have said the agency won’t act on it without sign-off from Congress and the Biden administration, and some have predicted it would take at least five years to put in place.

Researchers for the Office of Financial Research (OFR) – an arm of the U.S. Treasury Department that studies risks to the financial system – looked into how a CBDC would affect the inner workings of U.S. finance, concluding earlier this month that worries about a future panic driving people to rapidly move assets into digital dollars may be overblown.

In fact, they found that a digital dollar could give the government an early-warning system for signs of distress.

Updated: 7-28-2022

Digital Euro Needs Curbs To Halt Lending Crunch, ECB Study Finds

The economic evidence appears to support calls to cap how much central bank digital currency people can hold, to stop them fleeing banks all together, the study suggests.

Europeans would need to have access to a new digital euro capped to prevent significant outflow from conventional banks, according to a study published by the European Central Bank (ECB) on Thursday.

The findings support a suggestion by ECB’s Fabio Panetta that accounts for the central bank digital currency (CBDC) would be limited to 3,000 euros (US$3,048) per person, to ensure there’s still enough money in conventional finance to support lending.

Inspired by the success of bitcoin (BTC) and private initiatives, like the now-aborted Facebook-backed libra, many central banks around the world are mulling whether to issue a digital fiat currency alongside banknotes and coins.

However, cautious European Union officials want to figure out the impact of CBDCs before they take any final decision.

“Advanced economies have no experience with CBDCs and, hence, there is no available data on which empirical analysis can be performed,” the study said, offering “novel empirical evidence on the impact of digital euro news on bank stock prices and bank lending behavior.”

The team of economists, including ECB Director-General Frank Smets, looked at the impact different kinds of digital euro might have on lending – based, in part, on how previous public statements about the CBDC design affected bank stocks.

The optimum amount of digital euros to have in circulation would be between 15% and 45% of quarterly real gross domestic product (GDP), the economists found.

Because the eurozone’s quarterly GDP is about 3 trillion euros, Panetta’s suggestion of a 3,000 euro cap would sit pretty much in the middle of that range, at 34%.

If left unchecked, a digital euro could prove too popular, the authors warned. “Under no quantity limits and no remuneration, the amount of CBDC in circulation would be larger (i.e., of roughly 65% of quarterly real GDP) and the steady state effects on banks’ valuations and lending would be comparatively more sizable,” the study said.

Panetta, a member of the ECB’s executive board, has suggested that a digital euro could be issued within four years – but first policymakers must grapple with issues like how to assure user privacy.

Updated: 8-2-2022

European Central Bank Bets On CBDCs Over BTC For Cross-Border Payments

ECB’s interest in identifying the best cross-border payment solution stems from the fact that it serves as the central bank of the 19 European Union countries which have adopted the euro.

A recent study conducted by the European Central Bank (ECB) on identifying the ultimate cross-border payment medium crowned central bank digital currencies (CBDCs) as the winner against competitors, including banking, Bitcoin (BTC) and stablecoins, among others.

ECB’s interest in identifying the best cross-border payment solution stems from the fact that it serves as the central bank of the 19 European Union countries which have adopted the euro.

The study, “Towards The Holy Grail of Cross-border Payments,” referred to Bitcoin as the most prominent unbacked crypto asset.

EBC’s opinion of Bitcoin as a bad cross-border payment system boils down to the settlement mechanism of the highly volatile asset, adding that:

“Since the settlement in the Bitcoin network occurs only around every ten minutes, valuation effects are already materializing at the moment of settlement, making Bitcoin payments actually more complicated.”

While the study highlighted Bitcoin’s inherent scaling and speed issues, it failed to consider the timely upgrades — Taproot and Lightning Network — that improve the network performance, concluding that “The underlying technology (and in particular its ‘proof-of-work’ layer) is inherently expensive and wasteful.”

On the other hand, the ECB recognized CBDCs as a better fit for cross-border payments owing to greater compatibility with forex exchange (FX) conversions.

Two major advantages highlighted in this regard are the preservation of monetary sovereignty and the ease of instant payments via intermediaries such as central banks.

Contradicting the ECB’s reliance on CBDCs, Australian central bank Governor Phillip Lowe believed that a private solution “is going to be better” for cryptocurrency as long as risks are mitigated through regulation.

Mitigating risks related to crypto adoption can be fended off by strong regulations and state backing, stated Lowe, adding:

“If these tokens are going to be used widely by the community, they are going to need to be backed by the state or regulated just as we regulate bank deposits.”

In Lowe’s view, private companies are “better than the central bank at innovating” the best features for cryptocurrency.

Updated: 8-3-2022

Chinese Municipal Bank Issues First-Ever Digital Yuan Loan Using Intellectual Property As Collateral

The unnamed recipient of the loan said the e-CNY transaction was fast and efficient; they received an equivalent of 500,000 CNY, which was $74,020 at the time of publication.

As reported by local news outlet Sohu, on Wednesday, the Agricultural Commerce Bank of Zhangjiagang, located in China’s Suzhou province, announced that it had issued a 500,000 digital yuan (e-CNY) loan with intellectual property backing it as collateral.

The loan was issued via unanimous approval by the city’s consumer markets regulator, financial markets regulator and municipal officials.

Unnamed in the report, the recipient of the loan is an entity manufacturing environmental protection equipment for steel factories in Suzhou province.

As told by the entity, due to an uptick in the number of client invoices, it decided to experiment with the new borrowing method, where the loan was directly released into its e-CNY digital wallet.

Meanwhile, the Agricultural Commerce Bank of Zhangjiagang said this was yet another experiment in the country’s e-CNY trial program.

Two days prior, the People’s Bank of China said it wants to expand further the number of e-CNY testing sites, which are currently in 15 provinces.

In its most recent data update on May 31, the central bank tallied 264 million e-CNY transactions totaling 83 billion CNY ($12.29 billion) since inception. Over 4.567 million merchant terminals across China accept e-CNY as payment.

Additionally, 64 companies with a total market cap of 560 billion CNY ($82.9 billion) listed on the Shanghai and Shenzhen stock exchanges are exploring blockchain technology.

In recent months, China has seemingly increased its focus on developing its central bank digital currency, citing the benefits of stimulating consumer spending after COVID-19 lockdowns had hampered the economy.

Various e-CNY airdrops are currently ongoing for participants to claim rewards and use them at various merchant platforms.

Updated: 8-5-2022

The Bank of Thailand To Pilot Retail CBDC By The End Of 2022

The Retail CBDC will be tested in a limited retail environment with 10,000 participants and three major banks.

On top of its wholesale central bank digital currency (CBDC) projects and proof-of-concept Retail CBDC testing with corporates, the Bank of Thailand (BOT) will extend the scope of CBDC development aimed at retail to a pilot phase. A possible real-life application of the “Retail CBDC” will be conducted inside the private sector on a limited scale.

he Friday announcement on the official page of the BOT goes:

“The BOT will assess the benefits and associated risks from the Pilot to formulate related policies and improve the CBDC design in the future.”

The pilot is separated into two tracks. During the first one — a “Foundation track” — CBDC will be tested in cash-like activities, i.e., paying for goods and services, within limited areas and a scale of 10,000 retail users.

Three companies participate in the experiment — the Bank of Ayudhya, Siam Commercial Bank and 2C2P. The testing should start at the end of 2022 and last until mid-2023.

A second phase dubbed the “Innovation track” will focus on presenting innovative use cases for CBDC. The private sector and the public will have a chance to present their use cases for Retail CBDC via a “CBDC Hackathon,” which will take place Friday, Aug. 5–Sept. 12, 2022. Selected participants will receiv mentorship from experienced financial institutions.

In the meantime, the BOT doesn’t plan to issue Retail CBDC, “as the issuance requires thorough consideration” of risks and benefits for the financial system in general.

On Aug. 4, Thailand’s financial regulator, the Securities and Exchange Commission (SEC) granted operating licenses to four digital asset operators, despite turmoil regarding the Singaporean exchange Zipmex, which suspended withdrawals for customers in the country in July.

Crypto volumes in Thailand surged almost 600% in early 2021 as the bull market was building momentum.

Updated: 8-8-2022

U.S. Lawmakers Look To Digital Dollar To Compete With China

The Federal Reserve is considering the idea, but in no rush to join a digital-assets space race.

Lawmakers are pushing the Federal Reserve to move swiftly toward issuing a digital dollar, to combat steps from China and others they say could one day threaten the U.S. status as the global reserve currency.

The bipartisan group of lawmakers, including Reps. Maxine Waters (D., Calif.) and French Hill (R., Ark.), has sought for the U.S. to counter global competitors launching digital versions of their currencies. The House Financial Services Committee, which both serve on, might vote on related legislation as soon as next month.

Ms. Waters has framed competition over new forms of central-bank money as “a new digital assets space race.” The Biden administration and the Fed don’t share a sense of urgency.

Unlike private cryptocurrencies such as bitcoin, a Fed-issued central bank digital currency would be backed by the U.S. central bank, just like the Fed backs physical currency.

Fed Chairman Jerome Powell has indicated the central bank isn’t in a rush, as it confronts inflation and a slowing economy. Mr. Powell has said it is more important to get the digital dollar right than to be first to market, in part because of the dollar’s critical global role.

He has also said the Fed won’t issue a digital dollar without support from elected officials. The White House has largely remained neutral on a digital dollar, with President Biden ordering a study to determine its implications for issues such as economic growth and stability.

Ms. Waters, who chairs the financial services panel, has drafted legislation that would require the Fed to study a digital dollar, building on the central bank’s existing work on the issue, and creating a process for the U.S. to potentially issue one in the future.

The idea faces stiff resistance. The banking industry generally says the costs of a central bank digital currency outweigh any benefits and that it would directly compete with private bank deposits, making loans more expensive.

For about a century the dollar has reigned supreme as the world’s most important currency, prized for its ubiquitous acceptance in almost any transaction from a cup of coffee at the neighborhood diner to a sale of bonds in Hong Kong and elsewhere abroad.

There is now a serious debate about whether that status could be threatened by the march of technology and if, in response, the dollar needs to go digital.

A digital dollar could provide a new option to the way consumers pay for products and services. In addition to using a credit or debit card—or Venmo or Apple Pay—individuals would have a digital version of cash on their phones that could be used anywhere, likely through existing financial firms.

That could lead to faster, cheaper and safer payments and make paper currency obsolete.

The shift could ease movement of money across borders, reducing fees on cross-border remittances. Advocates also say it could lead to faster and safer delivery of government payments, such as stimulus checks and unemployment benefits.

Some in Congress say the U.S. is already behind the curve. Among the Group of 20 major economies, 16 are in the development or pilot phase of a digital currency, according to the Atlantic Council, a Washington think tank.

The European Central Bank, on behalf of countries including Germany and France, is exploring designs for a digital euro and preparing to launch a test pilot.

Mr. Hill, the Arkansas Republican, said his concerns were animated in part by China, which began real-world testing of its own central-bank–issued digital currency in 2020.

In an interview, he said China’s lending practices in the developing world could make it easier for the country to promote international uses of its digital currency—a potential threat to the dollar-based global economy.

“We should be concerned about China’s predatory practices,” he said.

Chinese authorities haven’t ruled out international use of the e-CNY, the official name for the country’s digital currency, but say it is designed for small-scale domestic use by consumers.

Analysts are looking for signs that the People’s Bank of China will take concrete steps to join with central banks elsewhere to make it possible to use digital currencies between countries.

The bottom line is that Beijing is uncomfortable with the outsize role the U.S. dollar plays in global commerce and in particular fears being frozen out of the dollar-based financial system, such as in response to a conflict over Taiwan.

International transactions in a digitized currency created by China, the thinking goes, could be a defensive weapon in such circumstances because they would happen beyond the reach of the U.S.

The Chinese embassy in Washington didn’t respond to a request for comment.

Some lawmakers say Congress ought to authorize a digital dollar, not just study it. “I do feel some urgency because other countries are moving ahead,” said Rep. Jim Himes (D., Conn.), in an interview. “The moment is now for CBDC.”

Banks and some Republican lawmakers counter by saying that any digital-dollar benefits are best achieved through private-sector innovation.

“What specific problems, if any, will a central bank digital currency solve?” asked North Carolina Rep. Patrick McHenry, the top Republican on the House Financial Services Committee, at a hearing earlier this year.

Some analysts are skeptical that global markets would replace the dollar with the use of Chinese or other foreign digital currencies.

At the Fed, Vice Chairwoman Lael Brainard has most enthusiastically pushed the idea of a digital dollar within the central bank, though she has stopped short of endorsing it outright.

Ms. Brainard has said a digital dollar could one day provide consumers with a level of safety amid a proliferation of privately issued digital assets such as stablecoins. A high-profile collapse of a stablecoin earlier this year has raised concerns with such assets.

“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,” she said in a July speech.

Updated: 8-9-2022

The Reserve Bank of Australia To Explore Use Cases For CBDC

The pilot project will last a year, and the details for potential participants will be published in the next few months.

The Reserve Bank of Australia weighs in the central bank digital currencies (CBDCs) race to explore use cases for a CBDC in the country. It will collaborate with the Digital Finance Cooperative Research Centre (DFCRC) on a respective research project.

As stated in an announcement on Tuesday, the joint project of the Reserve Bank and DFCRC will focus on “innovative use cases and business models” that could be supported by the issuance of a CBDC. The technological, legal and regulatory considerations will also be assessed in the project’s course.

The pilot will last about a year and take the form of the CBDC operating in a ring-fenced environment. Industry stakeholders will be invited to develop specific use cases, which The Bank and the DFCRC will then evaluate.

The selected cases will participate in the pilot, resulting in a special report.

The Reserve Bank intends to publish the paper with further details on the project in the next few months. As Michele Bullock, the deputy governor of the Reserve Bank, stated:

“This project is an important next step in our research on CBDC. We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”

The DFCRC is a $180 million research program funded by industry partners, universities and the Australian Government, which aims to bring together stakeholders in the finance industry, academia and regulatory sectors to develop the opportunities arising from the next transformation of financial markets.

On Friday, the Bank of Thailand announced the two-year pilot of retail CBDC testing, which should start by the end of 2022.

 

Updated: 8-10-2022

Crypto Is Failing Where Digital Yuan May Succeed

Cryptocurrency is still no match for the dollar but China could be the game changer on the horizon.

Does an industrial-sized dog whistle go off when advocates boast about cryptocurrency’s ability to evade US government sanctions?

Back in March, a founder of Tornado Cash — a so-called “mixer” service that masks cryptocurrency transactions by mixing them with others — told Bloomberg it would be “technically impossible” for sanctions to be enforced against decentralized protocols.

Surprise: Tornado has now been sanctioned by the US Treasury’s Office of Foreign Assets Control, partly because of its use by hackers said to be linked to North Korean money laundering.

With Tornado down 95% from its all-time high and its source code removed from Microsoft Corp.’s GitHub, it’s the latest blow to the “no sanctions yay” theory of crypto — the three words used by former Ethereum Foundation scientist Virgil Griffith in 2019 when he told a blockchain conference in North Korea how to dodge sanctions by converting cash into crypto, costly advice that resulted in a guilty plea and a 63-month federal prison sentence.

In terms of technology, it shows that even the most decentralized service can’t avoid law enforcement.

Exchanges are under pressure to monitor links to regular currencies, as are other service providers, and pseudonymous blockchains can be pored over for suspicious transactions — such as the gains of North Korean cybercriminals that transited through Tornado.

As Bloomberg’s Emily Nicolle notes, the crypto industry hasn’t been able to build all its infrastructure yet.

Geopolitically, crypto is also suffering — not surging — amid an economic Cold War. After the Covid-19 pandemic and Russia’s invasion of Ukraine, Washington has been flexing its financial muscles, even amid angst about the kind of blowback that overreach or alternative currencies might bring.

Keeping crypto in check fits with the history of US regulation of encrypted tech, like the e-mail mixers of the 1990s, but is also key for US soft power in wartime.

Ironically, even opponents of a dollar-based global economy have been ambivalent — at best — about crypto. For the likes of Russia and Iran, global pariahs that are also big energy exporters, crypto’s threats undermine its potential.

While in theory they might be able to use crypto to facilitate trade and bypass US monitoring, that’s outweighed by the prospect of capital flight, instability and price volatility.

Moscow has veered between banning and encouraging digital assets, doubtless recognizing that they can help sanctioned elites on some level. But the ruble still carries muscle — as recent arm-wrestling with the European Union over gas payments demonstrated.

While Tehran this week announced its first official import order using an unnamed cryptocurrency, according to Reuters, this is only one in a long line of crypto tests that have failed to gain traction.

Regulation has also been erratic, as Iranian crypto miners have recently found.

Right now, therefore, it looks like even a world permeated by unprecedented sanctions, conflict and inflation will fail to give crypto a big boost. And as economist Eswar Prasad recently wrote, US dollar hegemony could last a lot longer than expected.

But there’s one potential twist in the tale: central bank digital currencies, notably China’s e-yuan. These forms of digital money might play a big geopolitical role depending on how they’re implemented and who gets there first.

A new book by sanctions experts Astrid Viaud and Paul-Arthur Luzu imagines a world in which China gains a first-mover advantage with a digital currency that is interoperable with others and imposes standards on other countries looking to avoid doing business in dollars.

One scenario wargamed by US officials, according to CoinDesk, is of a “fully portable” digital yuan that sees other countries using banks and payment providers as nodes effectively plugged into China’s infrastructure.

That might see North Korea or Russia buy materials without reprisals. Iran is pursuing a digital central bank currency of its own.

This is only one future among many — it may be that US and euro area digital currencies take off first, or that such projects end up fragmenting existing systems rather than strengthening them. And either way, it’s all far-off.

But it suggests that the payments cold war has a long way to go before threats to the US dollar manifest themselves. It opens up a new zone of conflict that ensures “no sanctions yay” will remain little more than a slogan.

Updated: 8-12-2022

Russia Plans To Roll Out Digital Ruble Across All Banks In 2024

Bank of Russia started CBDC testing in 2022 and expects to implement an official banking rollout in the year of presidential elections in 2024.

The Bank of Russia continues working towards the upcoming adoption of the central bank digital currency (CBDC), planning an official digital ruble rollout in a few years.

According to the Bank of Russia’s latest monetary policy update, the authority will begin to connect all banks and credit institutions to the digital ruble platform in 2024.

That would be an important year for Russia as the country is expected to hold presidential elections in March 2024 and incumbent President Vladimir Putin has the constitutional right to get re-elected.

By that time, the central bank expects to complete “real money” customer-to-customer transaction trials as well as the testing of customer-to-business and business-to-customer settlements.

In 2023, the Bank of Russia also intend to conduct beta testing of digital ruble-based smart contracts for trades by a limited circle of participants.

The bank pointed out that it expects to proceed with the CBDC rollout in a gradual manner, unlocking new different trials and features year by year.

As soon as the Federal Treasury is ready, the digital ruble will also feature consumer-to-government, business-to-government, government-to-consumer and government-to-business payments, the Bank of Russia said.

The central bank also expects to introduce the offline mode for the digital ruble by 2025 alongside integration of non-bank financial intermediaries, financial platforms and exchange infrastructure.

“The phased process of introducing the digital ruble will provide market participants with the opportunity to adapt to new conditions,” the Bank of Russia noted.

The Bank of Russia will also cooperate with other central banks developing their own digital currencies to carry out cross-border and foreign exchange operations with digital currencies, the authority added.

As previously reported by Cointelegraph, Russia debuted its first digital ruble trials in February 2022, following its official CBDC roadmap released last year.

The Bank of Russia previously formed a group of twelve banks to test the digital ruble, including major banking giants like Sber, VTB, Tinkoff Bank and others.

While keeping up with the CBDC rollout plans, Russia has been somewhat lagging behind its targets to regulate the crypto industry.

President Putin urged the adoption of crypto regulation multiple times before Russia adopted its crypto law “On Digital Financial Assets,” which didn’t change much as it still lacks many regulatory aspects like crypto mining, taxation and others.

Built To Fall? As The CBDC Sun Rises, Stablecoins May Catch A Shadow

Will central banks allow stablecoins to survive? Can they peacefully co-exist with central bank digital currency as a financial instrument for the unbanked?

There’s a ferment brewing with regard to central bank digital currencies (CBDCs), and most people really don’t know what to expect. Varied effects seem to be bubbling up in different parts of the world.

Consider this: China’s e-CNY, or digital yuan, has already been used by 200 million-plus of its citizens, and a full rollout could happen as early as February — but will a digital yuan gain traction internationally?

Europe’s central bank has been exploring a digital euro for several years, and the European Union could introduce a digital euro bill in 2023.

But will it come with limitations, such as a ceiling on digital euros that can be held by a single party? A United States digital dollar could be the most awaited government digital currency given that the dollar is the world’s reserve currency, but when will it appear, if ever? Implementation could be at least five years away.

Amid all this uncertainty, one question has persisted, at least in the cryptoverse: What impact will large-economy digital currencies have on stablecoins? Would it leave them any oxygen to breathe?

On the positive side, some believe that most large-scale CBDCs will go the wholesale route — i.e., allowing direct access to digital money by a limited number of large financial institutions.

If so, could this leave a “retail piece” for stablecoins in the payments sector?

“Their wallets or accounts might be held by intermediaries like commercial banks, who then have claims on the central bank. But effectively, most CBDCs will be used for retail payments,” Gerard DiPippo, senior fellow at the Center for Strategic & International Studies, told Cointelegraph: “This includes China’s e-CNY, which many believe will be the first large-economy CBDC to be rolled out at scale.”

“While it’s still early to make a call, I would expect that CBDCs will be accessible by both retail and wholesale parties,” Arvin Abraham, a United Kingdom-based partner at law firm McDermott Will and Emery, told Cointelegraph, adding that:

“Governments have a competitive imperative to allow for retail use of CBDCs to keep their currencies relevant in a world with stablecoins and other cryptocurrencies that are increasingly being accepted as means of payment.”

A Competition For Users?

Assuming, then, a retail contest arises between stablecoins and CBDCs, which is likely to prevail?

“The obvious advantage of stablecoins is that they exist or are at least further along than most CBDCs. This is especially true in the U.S. context,” said DiPippo. “I think a U.S. CBDC would take many years to deploy even if authorized by Congress today.”

On the other hand, others believe that CBDCs, if and when they appear, will make stablecoins redundant. Consider that the two leading stablecoins, Tether (USDT) and USD Coin (USDC), are both linked to the U.S dollar and both aim for a 1:1 peg.

“In a world with a U.S. dollar CDBC, the need for these coins goes away, as there will be a crypto native alternative that is always backed 1:1 by the dollar and is effectively interchangeable with its fiat equivalent,” said Abraham.

But maybe the outcome isn’t binary, a choice of one or the other. Perhaps they can peacefully coexist, a possibility that has been put forth by no less of an authority as the U.S. central bank’s second-highest-ranking official.

“If private monies — in the form of either stablecoins or cryptocurrencies — were to become widespread, we could see fragmentation of the U.S. payment system into so-called walled gardens,” Federal Reserve Vice Chair Lael Brainard testified in a May congressional hearing, adding that: “CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem.”

Can Stablecoins And Cbdcs Exist Side By Side?

Is this harmonious scenario realistic? “I see no reason why stablecoins and CBDCs cannot coexist,” DiPippo told Cointelegraph.

“In practice, their degree of coexistence will depend in part on regulations, specifically whether some governments even allow stablecoins for payments — especially in the cross-border context.”

Much will depend on the user experiences, cost advantages, and general usability of each instrument, DiPippo added.

“In general, I have more confidence in the private sector to succeed in these respects. I’m not so much worried about stablecoins being ‘crowded out’ as I am worried about them being banned.”

Cryptocurrency exchange Coinbase not only believes in cohabitation but says CBDCs may even boost stablecoins, according to a July white paper.

“We strongly believe CBDCs will complement and encourage robust, inclusive, and safe innovation for stablecoins and the broader digital asset economy.”

Stablecoins are in a better position to innovate than CBDCs, Coinbase adds. “In addition to having a first-mover advantage, stablecoins are expected to continue to rapidly evolve and innovate over the coming years, experimenting in ways CBDCs may not be able to due to differences in size and scope.”

CBDCs, too, may come freighted with certain constraints from which stablecoins could be exempt. In its quest for a digital euro, the European Central Bank is “exploring a 3,000 euro limitation on the amount of digital euro that can be held by one party, based on various policy considerations,” the white paper notes.

If that were to happen, stablecoins would arguably be able to serve those “needing a larger holdings of a digital fiat currency equivalent.” Stablecoins might also offer higher interest rates than CBDCs, the paper suggests.

“There could still be a role for stablecoins alongside CBDCs, although it would be more limited than today,” acknowledged Abraham. Stablecoins could have utility in providing a convenient means to have an interest in a basket of stocks, commodities and others. That is, “Their function would be more akin to tracker funds where value is pegged to several assets.”

Then, too, a U.S. CBDC may not be ready for a full rollout for another five years, wrote Thomas Cowan, part of the team at the Boston Fed that in February released a technical research paper on potential CBDC designs in a recent blog:

“By the time a U.S. CBDC is issued, regulated stablecoins could provide solutions that a CBDC may have been designed for — such as boosting financial inclusion, cutting transaction costs and settlement time, increasing access to USD, and even expanding the dollar’s role as the global reserve currency.”

MiCA Darkens Stablecoin Prospects In Europe

In Europe, though, the outlook for stablecoins — or “so-called ‘stablecoins,’” as some EU officials call them — could be more problematic.

The Markets in Crypto-Assets (MiCA) regulation, expected to take effect in 2024, presents “a number of challenges for stablecoins,” said Abraham, most notably a ban on the paying of interest by stablecoin issuers.

Such a prohibition would “deprive European citizens of an attractive investment option, particularly considering that financial stimuli instruments adopted to limit the economic impact of lockdowns are expected to result in historically high inflation rates,” noted Firat Cenzig, a senior lecturer in law at the University of Liverpool.

Meanwhile, Nicolaes Tollenaar, partner at the Dutch law firm Resor, suggested in a Financial Times opinion piece in early August that such a ban “would force issuers to adopt a business model that is only sustainable with near-zero interest rates,” which are unlikely in the near future.

Wherefore China?

Elsewhere, China’s e-CNY has already been used by an estimated 250 million, and it remains a key part of any global CBDC discussion. What would a digital yuan mean for not only stablecoins but also the U.S. dollar?

In March, a Hoover Institution study noted that “Over time, the spread of the e-CNY might diminish the role of the dollar as the world’s reserve currency and undermine the ability of the United States to deploy financial sanctions against rogue international actors.”

DiPippo, for one, doesn’t see much threat from an e-CNY on the international stage, however. “The e-CNY is unlikely to resolve the broader problems with renminbi internationalization, including China’s capital controls and geopolitical concerns.”

The primary use of the e-CNY is for domestic retail transactions, though “experiments are underway to make the e-CNY usable across borders and interoperable with some regional CBDCs,” he added.

It is unlikely to do much to dent the dollar’s standing as a reserve currency per se, primarily because it is designed as a digital cash substitute that does not pay interest.

“Central banks would not move a substantial share of their international reserves into a cash substitute with no yield; they’ll continue to hold bonds. The e-CNY will not change that,” DiPippo told Cointelegraph.

What About Financial Inclusion?

All in all, there are good reasons why CBDCs and stablecoins might be seen to be locked in a zero-sum game. They have the same design purpose — i.e., moving money more effectively — and a large-economy CBDC is not likely to be blockchain-based either because that would make it too slow, according to Cowan.

Elsewhere, Eswar Prasad, professor of economics at Cornell University and author of the book The Future of Money, told Cointelegraph earlier this year: “A widely and easily accessible digital dollar would undercut the case for privately issued stablecoins,” though stablecoins issued by major corporations “could still have traction, particularly within those corporations’ own commercial or financial ecosystems.”

In the end, consumers may determine which instrument carries the day. In terms of market adoption, “the user experience will be key,” added DiPippo. “So, in that regard, I do not see stablecoins having an inherent advantage over CBDCs.”

There is the matter, too, of financial inclusion, a goal to which both CBDC designers and stablecoin issuers pay lip service.

“Everyday people like you and me are unlikely to go to the Fed to get our CBDCs to transact with on a daily basis,” wrote Cowan.

That is, customers will still get their digital dollars from commercial banks, just as they get cash today from local banks. That might not help those who don’t have bank accounts. According to Cowan:

“Regulated stablecoins could be better positioned to improve financial inclusion. This is because stablecoins are on numerous public chains and can be stored and moved easily without the need for a central party — just like cash today.”

Cowan sees room for both financial instruments: “However value is stored and exchanged in the future, both stablecoins and CBDCs are likely to have a leading role in the upcoming transformation of finance.”

 

Updated: 8-16-2022

Bank of China Unveils New e-CNY Smart Contract Test Program For School Education

Under the pilot test, parents could enroll their children in after-school vocation programs via smart contracts.

According to local news outlet Sohu.com, on Tuesday, the state-owned Bank of China announced a new program to bridge primary school education with smart contracts.

In a combined partnership with local education and financial authorities, parents residing in the city of Chengdu, located in China’s Sichuan province, will be able to enroll their children in after-school or extracurricular lessons using the digital yuan central bank digital currency, or e-CNY.

Under the pilot test, parents start by paying a deposit to a private educational entity for a series of lessons. Afterward, a smart contract binds each lesson on a pro-rata basis to the deposit.

This way, should their children miss a lesson, the e-CNY payment is automatically credited back to their account via smart contract. The Bank of China stated:

“The program seeks to explore the benefits brought forth by e-CNY smart contracts. One potential use case is replacing the role of regulatory authorities to monitor payment transactions between parents and private education entities. Another is improving transactions’ liquidity via zero transaction fees embedded in the e-CNY design.”

Previously, the Bank of China rolled out an e-CNY airdrop program for the residents of the city of Chongqing as part of a local incentive to lower carbon emissions.

Users receiving the airdrop can dispense their funds for scooter rides, food deliveries without packaged utensils, recyclable shopping bags and tickets to public transport.

Over 4,567,000 merchants across China now accept e-CNY as payment in alignment with the country’s strategy to stimulate and digitize the economy with the aid of emerging technologies such as blockchain.on the paying of interest by stablecoin issuers.

Updated: 8-17-2022

Colombia Explores Creating A CBDC To Combat Tax Evasion

As part of a tax reform program, the government of the South American country also plans to impose limits on cash transactions.

Colombia is considering the introduction of a central bank digital currency (CBDC) to facilitate transactions and reduce tax evasion.

The information was confirmed by Luis Carlos Reyes, head of the Colombian Tax and Customs Office, who did not provide details on the proposal in an interview with the local magazine Semana on Monday.

As part of a tax reform program pushed by President Gustavo Petro, who took office in early August, the government also plans to ban cash transactions for amounts surpassing 10 million Colombian pesos ($2,350).

“One of the important objectives is that when payments are made for a certain amount, they will be recorded in an electronic medium,” Reyes said.

Colombia joins other Latin American countries working on their respective CBDCs, including Brazil, Mexico and Peru.

Updated: 8-18-2022

CBDCs Only Solution To ‘Smooth Continuation’ Of The Monetary System: ECB

The European Central Bank working paper sought to identify issues and consensus regarding CBDCs, as well as to identify gaps in the research — such as what users want.

The European Central Bank (ECB) said that the introduction of digital cash in the form of central bank digital currencies (CBDCs) appears to be the “only solution” that will guarantee a “smooth continuation” of the current monetary system.

The comments were made as part of an ECB working paper series, published this month, discussing monetary policy and financial stability as it relates to CBDCs and gathering insights from 150 academic papers on the subject.

The paper began with the observation that interest in “the economics of money and payments” has increased dramatically in the past 15 years and expanded beyond a narrow academic circle.

After an examination of that process, the paper introduced motives for the creation of a CBDC and the thorny privacy issues related to it. The authors observed:

“While consumers tend to attribute high importance to privacy in surveys, they tend to give away their data for free, or in exchange for very small rewards in practice. Analyzing the roots for this apparent dichotomy, researchers point to various contributing factors.”

Nonetheless, the paper concludes that the introduction of CBDCs is “the only solution to guarantee a smooth continuation of the current monetary system” as physical money loses its economic “fitness” and cryptocurrencies and Big Tech (large digital platforms) continue to make inroads into the financial system, noting:

“There is no regulatory alternative that promises to eliminate the threat to the two‐layer monetary system. Since cash is only available in physical form, it is by construction not ‘fit’ for the digital age.”

The importance of central banks achieving the right level of CBDC “take-up” was stressed, and the authors also looked at potential regulatory action that could help CBDCs achieve their goals.

The paper also dismisses concerns that CBDCs could cause shrinkage of the credit supply, noting claims that CBDCs could be a potentially disruptive force were unfounded. Privacy was identified as an area where more research is needed, as was end-user preferences for CBDC functions.

This is the second paper devoted to crypto issues released by the ECB this month. Previously, the central bank compared the cross-border payment potential of CBDC, Bitcoin (BTC), and stablecoin, coming out in favor of CBDC.

The paper was authored by Toni Ahnert, a research economist within the ECB, Katrin Assenmacher, head of the Monetary Policy Strategy Division at ECB, and Financial Research Division economist Peter Hoffmann, among others.

Updated: 8-19-2022

Nigeria’s CBDC eNaira Used For Nearly $10M Worth of Transactions Since October

The eNaira app has been downloaded 840,000 times and has 270,000 active wallets.

Nigeria’s central bank digital currency (CBDC), the eNaira, has been used to carry out transactions worth 4 billion naira ($9.3 million) since it was introduced last October, according to country’s central bank governor.

In a speech on Thursday, Central Bank of Nigeria (CBN) Governor Godwin Emefiele described the volume and value of transactions on the platform as “remarkable,” noting the eNaira app has been downloaded 840,000 times and now has about 270,000 active wallets.

Nigeria has a population of about 200 million, and it is the largest economy in Africa with a gross domestic product of about $430 billion.

It is estimated, however, that around 40% of the population doesn’t have a bank account, including 59 million unbanked adults, a matter that the CBN intends to tackle with the CBDC.

The bank is seeking to get 8 million more people to start using the eNaira platform in its second phase.

That phase begins next week, when both banked and unbanked Nigerians will be able to open a eNaira wallet by dialing a four-digit code on their mobile phones, Emefiele said.

Nigeria was the second country to introduce a CBDC, following the Bahamas a year earlier. In the months preceding the eNaira’s inception, the CBN attempted to stave off cryptocurrency use among the public, ordering banks to close any accounts that had crypto transactions.

 

Updated: 8-23-2022

China Begins Next Phase Of CBDC Testing With e-CNY Payment For Public Transport

Scan and pay with e-CNY is now available in multiple Chinese cities for citizens looking to ride their local buses and subways.

According to multiple sources, on Tuesday, China officially began rolling out the next round of its central bank digital currency (CBDC) pilot test program.

In the city of Guanzhou, it is now possible to pay for public bus rides with the digital yuan (e-CNY) CBDC on 10 transit routes, which is a first for the country.

To do so, passengers simply need to download the e-CNY app, deposit funds and scan the QR code located in the bus payment section to pay for their ride.

Similarly, the day before, the city of Ningbo said that passengers can now pay for subway rides at 125 stations with e-CNY. Ningbo is the ninth city in China to roll out the e-CNY pilot test in its subway lines, where passengers can simply scan and pay for the journey.

The Chinese government has rapidly expanded the utility of the e-CNY this year. Just last week, it became possible to pay for employee housing fund contributions in the city of Guangzhou with the CBDC.

To revitalize consumer spending in the face of strict coronavirus lockdowns, the government partnered with food-delivery giant Meituan and e-commerce platform JD.com to create e-CNY air-drops that can be spent at listed venues.

In its last data update dated June 20, over 6 million unique users had ordered services with e-CNY funds on Meituan.

Meanwhile, as of July, JD.com said that it had processed more than 4 million e-commerce transactions worth an estimated 900 million CNY ($131.6 million) since it began accepting the e-CNY as tender. Approximately 830 billion ($121.4 billion) worth of e-CNY transactions were recorded in the first five months of 2022.

 

Updated: 8:24-2022

Crypto Prices Are Fanned by Flawed Economics and Conspiracy Theories; CBDCs Are Immune: Bank of Finland Governor

While making a case for digital euro, Bank of Finland Governor Olli Rehn said central bank digital currencies won’t be subject to the price volatility of private cryptos.

The volatile prices of private cryptocurrencies are “fanned by popular misunderstanding of monetary economics and even conspiracy theories,” while central bank money in digital form can be trusted implicitly, the governor of Finland’s central bank says.

“Some have joked that a central bank digital currency is ‘a solution looking for a problem.’ While I may not be an outright fan of CBDCs, I think the detractors unfairly downplay the potential merits,” Olli Rehn, governor of the Bank of Finland, said during a panel at the University of California, Berkeley on Tuesday.

Central banks around the world are exploring the benefits of CBDCs, and some, such as China and Nigeria, have succeeded in launching one.

The European Central Bank (ECB), the apex bank of the European Union (EU), is still in the middle of an experiment into a digital euro, set to wrap up in October 2023.

The bank’s public communication on a digital euro so far has involved lambasting crypto over perceived dangers and risks while praising the merits of a digital euro issued by the ECB.

Rehn cautioned against potential risks of transitioning to a more digital economy as demonstrated by the growth in crypto markets over the last five years. The high volatility of crypto assets means monetary policy can “only explain a small part” of their overall price movement, according to Rehn.

“Central banks must prepare for a digital future in which demand for cash as a medium of exchange may decrease, requiring the convertibility of private money into cash to be complemented by convertibility into central bank digital money.

And we should recall that solid and safe access to central bank money is the foundation for price and financial stability,” Rehn said.

Rehn closely echoed the ECB’s previous statements on how a digital euro can help assure central banks always act as the anchor of the EU monetary system.

“This would be the primary reason if the ECB were to decide to issue a digital euro,” Rehn said.

Updated: 8-29-2022

Federal Reserve’s FedNow Real-Time Payments Set For Mid-2023 Debut

The instant payments service is seen as a step towards eventual rollout of a CBDC.

The U.S. Federal Reserve has tightened the window for the launch of its FedNow instant payments platform to between May and July of 2023.

According to a press release, FedNow will be open to financial institutions of any size, allowing them to facilitate instant payments for consumers and businesses, giving customers immediate full access to funds.

The platform is currently in pilot phase with more than 120 organizations participating, including lender U.S. Bank and payment processor Alacriti Payments among them.

Initially announced in August 2020 by then-Fed Governor (now Vice Chair) Lael Brainard, the FedNow platform is seen as a stepping stone to an eventual central bank digital currency (CBDC).

“The benefits of instant payments are increasingly important to consumers and businesses, and the ability to provide this service will be critical for financial institutions to remain competitive,” Ken Montgomery, FedNow Service program executive, said in the central bank’s press release.

Cash Is King For South African Banks Planning Digital Transition

South African banks see physical money remaining key to their business as almost a third of their customers aren’t ready to go cashless, according to a survey.

While 86% of people already use digital banking, almost all customers said they still withdraw cash at least once a month to meet various needs, according to the survey conducted by Discovery Bank and Boston Consulting Group.

As long as a significant percentage of the population uses cash, the country can’t move to a fully cashless system, according to the report.

“South Africa still has a high reliance on cash relative to some other countries,” Hylton Kallner, chief executive officer of Discovery Ltd.’s banking unit, said in Johannesburg. “But the direction, and the acceptance by consumers and embrace of digital payments, and the fact that they see the future in that direction, is accelerating.”

While digital transactions are affordable and secure in countries such as Kenya, the cost of online banking is expensive in South Africa.

That deters as many as 11 million people living in townships — a relic of the apartheid era — and in rural areas of Africa’s most industrialized nation from switching to cashless banking, according to the report.

Regulatory changes will be needed to drive costs lower.

South Africa’s central bank has unveiled a National Payment System Framework and Strategy plan aimed at increasing financial inclusion, reducing dependence on cash and creating an integrated platform for digital payments.

The Reserve Bank is also expected to begin its Rapid Payments Programme this year that will offer a real-time clearing system for instant payments between banks, and allow users to request payments digitally.

Updated: 9-1-2022

Digital Dollar Project Plans To Explore CBDC Technical Solutions With New Sandbox

The nonprofit organization advocating for a U.S. central bank digital currency plans to work with crypto platforms like Digital Asset and Ripple to explore technical and policy aspects of a digital dollar.

The Digital Dollar Project (DDP), a nonprofit organization advocating for a U.S. central bank digital currency (CBDC), is starting a technical sandbox to explore technological, business and policy solutions for a digital dollar.

* According to a Wednesday press release, the program, which will kick off this October, plans to bring the private and public sectors together to evaluate CBDC infrastructure solutions. Initial participants of the sandbox include California-based crypto firm Ripple, Digital Asset, EMTECH and Knox Networks.

* DDP started working with the Depository Trust & Clearing Corporation (DTCC), one of the nation’s largest financial services providers, on a CBDC pilot called “Project Lithium” in April. In 2021, DDP announced it would be launching five pilot projects to test a digital dollar this year.

* The U.S. is still in the early stages of considering a digital dollar. Out of the 105 countries currently exploring a CBDC, 50 are serious about it and are in development, pilot or launch phases but the U.S. is still in the research phase, Josh Lipsky, senior director at the Atlantic Council’s GeoEconomics Center, told CoinDesk TV in July.

* In June, Federal Reserve Chairman Jerome Powell said the U.S. really needs to explore a CBDC. Earlier this year, the Office of Financial Research (OFR) – an arm of the U.S. Treasury Department that explores risks to the financial system, said that a digital dollar could help stabilize a financial system.

* CoinDesk has reached out to Ripple, Digital Asset and other participants for comment.

New Global CBDC Platform Could Cut Payment Costs, IMF Says

The International Monetary Fund remains skeptical about a private system, but is pushing for new ideas on state-backed digital currencies.

Staffers at the International Monetary Fund Thursday called for a global platform for cross-border payments, and reiterated calls to regulate a crypto sector that officials say is unstable, inefficient and riddled with fraud.

The international organization dedicated its quarterly magazine, Finance & Development, to the “money revolution” – including a contribution from CoinDesk’s Michael Casey.

But other authors offer scant hope for crypto advocates, with public officials largely favoring state-backed solutions such as central bank digital currencies (CBDCs).

The magazine also touched on health, fiscal policy and climate change.

Tobias Adrian, director of the IMF’s monetary and capital markets department, wants the IMF to develop a new system to cut the costs of international transfers. The platform would accept CBDC payments, hold them in escrow and issue tokens against them, he said.

“The private sector would be able to extend the uses of the platform by writing smart contracts,” Adrian said, promising further papers on how the world’s central banks could work together on the project.

Figures published by the IMF suggest that about 97 countries are researching, testing or deploying a CBDC, raising the question about how the different CBDCs would work together to enable cross-border payments – a process that would be costly and unreliable under the current, traditional finance system known as correspondent banking.

In March, a project that included Australia and South Africa concluded that cross-border CBDC platforms are “technically viable,” but officials have been more skeptical about the potential of a private crypto firm taking over the reins.

The IMF’s own wariness of bitcoin is now echoed by other international bodies, such as the Bank for International Settlements, the Switzerland-based body made up of the world’s major central banks.

“Any legitimate transaction that can be carried out with crypto can be accomplished better with central bank money,” BIS General Manager Agustín Carstens wrote in an article published Thursday. “Crypto is neither stable nor efficient … its participants are not accountable to society. Frequent fraud, theft and scams have raised serious concerns about market integrity.”

Those concerns are echoed by jurisdictions such as Singapore, whose central bank governor Ravi Menon wrote that “private cryptocurrencies – of which bitcoin is probably the best known – fail as money.”

Menon repeated previous promises to impose further restrictions on people’s access to crypto and said the case for a CBDC that can be used by ordinary citizens is “not compelling for now.”

But with jurisdictions such as Japan, the U.S. and the European Union all drafting new laws, the plethora of national and regional laws on crypto is starting to cause concern, as incompatible regulations could deadlock the global financial system.

“The worry is that the longer this takes, the more national authorities will get locked into differing regulatory frameworks,” Aditya Narain, deputy director of the IMF’s monetary and capital markets department, wrote in a paper. He called for a global response to be coordinated, consistent and comprehensive, to cover “all actors and all aspects of the crypto ecosystem.”

Updated: 9-2-2022

Australian CBDC Research Project Could Provide Crypto Clarity, Legal Expert Says

Michael Bacina, partner at law firm Piper Alderman, joined CoinDesk TV’s “First Mover” to discuss why the country is the prime location to test asset digitization.

A research project spearheaded by Australia’s government, financial institutions and universities is a significant step for the country in determining the potential of a central bank digital currency (CBDC), according to a Sydney-based attorney specializing in digital law.

“This has been a really important move towards seeing what a CBDC can do,” said Michael Bacina, partner at law firm Piper Alderman, on CoinDesk TV’s “First Mover” Thursday.

The research project, which began this month, involves the Reserve Bank of Australia and the Digital Finance Cooperative Research Center (DFCRC), made up of 25 prominent institutions.

The goal of the project is to explore the economic impact of a CBDC’s use-cases in the country and how digital assets such as bitcoin (BTC) should be regulated.

“Now we have banks [that] are coming out being incredibly bullish about decentralization,” Bacina said.

Bacina noted that crypto was not part of the agenda for the new Labor Party (ALB) government of Prime Minister Anthony Albanese unlike the pro-crypto stance of the previous government of the Liberal Party’s Scott Morrison. The Albanese government is most likely playing “a significant amount of catchup,” Bacina said.

Last week, the country’s government said it would begin token mapping the crypto asset sector in an effort to protect users.

Given the importance of natural resources in the Australian economy, the country could very likely in the near future look to “tokenize and securitize resources and commodities,” Bacina said.

“Right now, we are looking into the efficiencies and the automation that comes from bringing in that kind of tokenization,” Bacina said.

Updated: 9-5-2022

Reserve Bank Of India Preparing To Trial A CBDC With Public Sector Banks And Fintechs

The trial may lead up to the introduction of a CBDC in India before the end of this fiscal year, most likely in three steps; U.S.-based FIS had reportedly participated.

The Reserve Bank of India (RBI) is in talks with fintech companies and state-controlled banks about a trial run of a central bank digital currency (CBDC), local publication Moneycontrol reported on Sept. 5.

An unnamed public sector bank official told the publication that the trial may precede an RBI launch of a CBDC this fiscal year.

U.S.-based financial services company FIS was mentioned as one of the fintech companies with which the RBI had consulted. FIS senior director Julia Demidova confirmed to Moneycontrol that, “FIS has had various engagements with the RBI […] and, of course, our connected ecosystem could be extended to the RBI to experiment various CBDC options.”

FIS announced the launch of its CBDC Virtual Lab on Aug. 25. The company was already active in the CBDC sphere as the host of conferences and roundtables on the topic.

The RBI is reportedly in talks with public sector banks State Bank of India, Punjab National Bank, Union Bank of India and Bank of Baroda on participating in the trial. The government owns at least a 50% share in those banks.

The RBI has long stated that it was looking at a phased implementation of a CBDC, most recently saying that an Indian CBDC would be introduced in three steps in 2022 and 2023. Indian finance minister Nirmala Sitharaman has spoken favorably about the influence a CBDC would have on the country’s economic growth.

India’s Unified Payments Interface real-time payment system has been presented as a competitor to cryptocurrency and, by its nature, to CBDCs.

An RBI official also told an IMF conference in June, “We believe that central bank digital currencies (CBDCs) could actually be able to kill whatever little case that could be for private cryptocurrencies.”

The RBI has been deeply suspicious of cryptocurrency and, while crypto trading is not illegal in the country, taxes imposed this year have had a chilling effect on the industry.

Updated: 9-6-2022

Exiled Myanmar Democratic Leaders Want To Issue CBDC To Fund The Revolution

The National Unity Government is considering using the country’s frozen reserves as a backing for the digital currency.

Half a year after the military junta in Myanmar revealed its plans to launch a digital currency, the country’s government, ousted in a coup in 2021, voiced its own intention to launch one using frozen national funds.

In a Tuesday interview with Bloomberg, the Minister of Planning of exiled Myanmar’s National Unity Government, Tin Tun Naing, asked for the “U.S. blessing” to use “virtually” the country’s reserves, frozen by the Federal Reserve Bank of New York since Feb. 2021.

The funds Naing mentions have been frozen on Singaporean, Thai and Japanese accounts and could amount to billions of dollars, according to Bloomberg.

While Naing doubts the United States could decide to allocate these assets directly to National Unity Government, he points to the possibility of using them as reserves for backing the digital currency of the alternative central bank in exile.

The money is needed to support “revolutionary efforts” in the country.

The National Unity Government consists largely of lawmakers who won the democratic elections in November 2020, only to be ousted by the country’s long-lasting military junta in Feb. 2021. Its previous efforts to gain financial support include the issuance of revolutionary bonds and auctioning the mansions owned by junta leader Min Aung Hlaing.

In February 2022, a representative of the junta claimed that the military was planning to issue a digital currency to support payments within Myanmar and “help improve financial activities” in the country. Before the military seized power, the Central Bank of Myanmar had warned that anyone in Myanmar found to have traded digital assets could be imprisoned or fined.

However, in December 2021, the National Unity Government announced that it would recognize Tether (USDT) as an official currency.

CBDCs Require Governments To Put A Special Focus On Security

Any nation implementing a CBDC in the near future must make sure it’s ready to defend its digital assets and, most importantly, its private keys.

Today’s financial world is becoming increasingly digitized, and naturally, central banks want to adapt to the changing environment. The use of cash is rapidly declining.

Globally, the rise of digital payment apps and COVID-19 have only accelerated the decline in cash usage, fueling interest in digital currencies and demand for easier payment solutions.

As crypto adoption continues to expand, the idea of central bank digital currencies (CBDCs) has also gained momentum. Governments across the world have been flirting with, and examining, the idea of issuing their own CBDCs, with a handful already launching.

It isn’t clear when CBDCs will become normalized. Don’t expect CBDCs to resemble Bitcoin’s (BTC) decentralized characteristics because, by definition, a central bank is a centralized entity.

That being said, they can provide some of the same benefits, such as reducing payment verification times and providing proof of transaction. There are, however, still quite a few challenges to overcome.

Among these challenges are the operational risks of the “cyber sphere.” While banks are accustomed to investing resources in safeguarding their “fiat” reserves, safeguarding digital currencies requires a different mindset.

Blockchain technology has some inherent vulnerabilities — including anonymity and irreversibility — that can be exploited by clever scammers. Although, it’s not clear if CBDCs will leverage blockchain technology.

Could CBDCs potentially expose central banks to new types of cyber threats? And how would these potential threats or vulnerabilities manifest themselves?

Cybersecurity Isn’t Easy

Hackers have become increasingly sophisticated and brazen in their attacks over the last few years. Both traditional finance and blockchain protocols find themselves victims of malicious intent.

In fact, Denmark’s central bank was hacked as part of the SolarWinds operation in late 2020. This should sound alarm bells for governments everywhere.

Imagine a group of dedicated hackers finds, penetrates and gains access to a backdoor that gives them control of the central bank’s private key.

Private keys are the most important elements of a blockchain system, as any transactions conducted with the private key are registered by the system as valid and secure.

At this point, the bulk — or a significant chunk — of the country’s treasury could effectively be held hostage by a criminal organization. The hacker could mint or burn digital currency at will.

An influx or reduction in a digital currency could affect the value of the genuine currency, have an impact on consumers through inflation, and lead to monetary losses for companies.

A breach to this extent could be catastrophic and potentially lead to the devastation of the nation’s entire economy.

Of course, an attack of this scale would be far too advanced for even some of the most talented criminal masterminds, but the threat cannot be dismissed. Such an attack would be unprecedented, so predicting the aftermath is anyone’s guess.

But it wouldn’t be pretty: The world’s economic and political order and stability would, undoubtedly, be tested.

Clearly, any government would spend top dollar on cyber defenses to protect its newly established digital infrastructure. But simply investing an abundance of resources isn’t a guarantee against hacks. Naturally, any central bank launching a digital currency would be an attractive target.

So how can a country that is determined to launch its own CBDC protect its treasury from criminals trying to steal it?
Securing the national treasury

Disincentivizing malicious cyber attackers is no easy task — they are always on the lookout for new and rewarding targets while exploiting the slightest vulnerabilities.

Crypto hackers are adept at identifying attack surfaces, exploiting them, injecting malicious code, and taking control of individuals’ and organizations’ private keys.

Banks invest millions, if not billions, each year to defend their databases and IT infrastructure. Various security layers are employed to protect against hackers, inside jobs or unintentional leakage of sensitive information.

While banks are familiar with information security, safeguarding digital assets requires a vastly different approach than traditional assets.

If they decide to leverage blockchain, central banks must consider how existing banking frameworks can be adapted to blockchain’s distributed architecture, with extra attention paid to the system architecture, governance and consensus mechanisms.

When it comes to safeguarding a nation’s treasury, there is no such thing as “too secure.” In the case of CBDCs, banks must take great measures to protect and defend their private keys. Today’s custody solutions have come a long way, and yet, almost all of them suffer from the same deficit.

Due to the anatomy of a blockchain transaction, all transactions must be conducted while connected to the internet at some point.

This connectivity is their single point of failure and the reason they cannot be 100% secure. It is suggested that governments find a “never internet-connected” solution to store and manage the private keys while issuing the CBDCs, providing custody and conducting on-chain settlements.

Most central banks are rightfully taking their time and conducting all the necessary due diligence to weigh the risks and rewards of CBDCs properly.

Some may actually decide to push off their involvement, especially given the crypto market’s volatility. But any nation implementing a CBDC in the near future must make sure it’s ready to defend its digital assets and, most importantly, its private keys.

When it comes to blockchain, central banks should completely rethink everything they know about IT security needs. Only then can they launch their digital currencies with enough peace of mind.

Lior Lamesh is the co-founder and CEO of GK8, a blockchain cybersecurity company that offers a custodial solution for financial institutions.

Having honed his skills in Israel’s elite cyber team reporting directly to the prime minister’s office, Lior led the company from its inception to a successful acquisition for $115 million in November 2021. In 2022, Forbes put Lior and his business partner Shahar Shamai on its 30 Under 30 List.

Updated: 9-7-2022

Digital Euro To Focus On Personal Use, Not Web3, EU Officials Say

The central bank digital currency could fail if it doesn’t offer something more than what cash and credit cards do, industry representatives remarked.

A retail digital euro will, in the first stage, only enable payments initiated by people, rather than allowing businesses to settle invoices, issue paychecks or be used in decentralized finance, European Union (EU) officials said Wednesday.

The bloc has not yet taken a decision on issuing a central bank digital currency (CBDC), or even whether it would use Bitcoin-style blockchain technology. But a bill to enable the digital alternative to banknotes and coins is due to be published early next year.

“We have singled out, for the first release of the digital euro, three use cases,” said Evelien Witlox, digital euro program manager at the European Central Bank, at an event hosted by the European Economic and Social Committee, a body that advises the EU government.

The three immediate applications will be peer-to-peer payments that enable transactions among family and friends; consumer-to-business payments in physical or online stores; and payments to or by governments, she said.

Other potential uses of the CBDC – including the payment of wages, settlements among businesses, payments initiated automatically by machine and the functionality required to support decentralized finance – could still be considered in a later phase, Witlox said.

“Whether or not blockchain will be used as a technology is currently not in the investigation phase,” she said, adding that officials would first consider the requirements of the system to be secure and have sufficient throughput. “Technology should not drive the functionality.”

Officials at the central bank still have to decide where they stand on issues like how transactions with a digital euro will be settled and intermediaries be compensated before finalizing the start of development in September 2023, Witlox said.

Officials at the European Commission, which is responsible for proposing the draft laws that could underpin a digital euro, want the CBDC to be future-proof and able to fit with Web3 – but appear to agree there’s no rush to do so.

“A digital euro needs to meet new payment needs. … we need to also be open and adjust and cater for those [Web3] users,” said Jan Ceyssens, head of the digital finance unit at the commission, at the same event.

While decentralized finance applications “are more trends which may be expected to take room in the future … they are not the reality today,” Ceyssens said.

Yet the industry has warned the ECB’s step-by-step approach could jeopardize the whole plan. Some earlier CBDC projects fell through when they didn’t improve the status quo in which people can easily pay via cash and card, said Jonas Gross, chairman of the Digital Euro Association, a think tank specializing in CBDCs and other forms of digital money.

“A digital euro needs to have clear advantages and use cases,” Gross, whose organization is supported by companies such as Ripple and Circle, said during the same event. “It’s not sufficient from my perspective to say it’s used for peer-to-peer payments [or] for e-commerce payments … it has to do something better than currently existing payment methods.”

Figures published by the International Monetary Fund last week suggest that about 97 countries are researching, testing or deploying a CBDC.

Ripple Adviser Teases ’More CBDC Announcements In The Next Few Weeks’

The blockchain company has been pushing hard into the CBDC space since piloting its CBDC Private Ledger aimed at central banks in March 2021.

Ripple may soon unveil positive developments in its central bank digital currency (CBDC) projects, following hints from Ripple CBDC adviser Antony Welfare of more announcements to come.

Crypto influencer Sentosumosaba shared on Twitter on Tuesday that Ripple was in the midst of several CBDC pilot programs, including one in Bhutan and the other in Palau.

Ripple’s senior adviser Welfare, who handles CBDC Europe and global partnerships, responded on the same thread, teasing there could be “more CBDC announcements” in the “next few weeks.”

The company has become increasingly active in the development of central bank digital currencies since piloting a private version of the XRP Ledger in March 2021, providing a platform for central banks to securely issue CBDCs.

Just last week, Ripple was identified as one of the initial participants of a “Technical Sandbox Program” launched by United States-based think tank Digital Dollar Project, aimed at exploring the potential technical and business ramifications of a CBDC in the United States.

Ripple also joined the European think tank Digital Euro Association as a supporting partner in February to jointly drive the development and growth of CBDCs and the Digital Euro.

In September 2021, Ripple Labs announced it was partnering with the Royal Monetary Authority of Bhutan to pilot a CBDC in the south-central Asia kingdom to issue and manage a digital ngultrum aimed at improving cross-border payments.

Two months later, the blockchain company formed a partnership with the Republic of Palau to help the Pacific island develop its own climate-friendly digital currency, though it said it would act more like a USD-backed stablecoin than as a CBDC.

In June, the blockchain company also launched its first online CBDC hackathon called “Ripple CBDC Innovate.”

The competition attracted 483 participants to build CBDC-focused applications that either improve interoperability of CBDCs and digital assets, make it easier for retail use and interaction, or bring banking to underserved populations.

According to the CBDC Innovate website, the first stage finalists are set to be announced on Sept. 8, who will then move to the second phase of the competition.

Updated: 9-8-2022

US Treasury To Recommend Issuing Digital Dollar If In National Interest

The Treasury Department, in what may be its most important recommendation spurred by President Joe Biden’s executive order on crypto, will suggest how to move forward on a CBDC.

The U.S. Treasury Department will advise the federal government to press forward on work to issue a digital dollar, though it should only take the final step if there’s sign-off that the government-created tokens are in the “national interest,” according to a person familiar with a report emerging soon.

The question of national interest will depend on further approval of the Biden administration and – potentially – action by Congress, said the person, who requested anonymity because the Treasury’s “Future of Money” report hasn’t yet been released.

This national-interest decision is made murkier by the question of whether U.S. legislators need to pass a law to authorize the Federal Reserve to create a central bank digital currency (CBDC) – a question that may be answered soon in a separate analysis.

President Joe Biden’s executive order this past March called for crypto recommendations from several corners of the federal government, and many of those reports have come due.

The Treasury’s document on how to handle the question of a digital dollar – expected to be released in the coming days – is among the most eagerly awaited, because issuing such a token could upend the digital assets industry and have major implications for consumers’ relationships with traditional banks.

A spokesman with the Treasury Department declined to comment on the report.

Still, the final decision on issuing a CBDC belongs with the Fed board, and Chair Jerome Powell – along with other senior Fed officials – has repeatedly stated the central bank won’t move without support from the administration and Congress.

So far, the Fed has been reticent to clarify what congressional approval needs to look like, despite Republicans’ best efforts to dig out a response.

The Department of Justice may soon answer whether the project requires the backing of a new law when it issues its own crypto report.

If Justice says the president is the only one who needs to decide whether a CBDC is in the country’s best interest, Powell and the board will have a choice to make: What signal of support do they need from Congress?

While the “Future of Money” report won’t explicitly provide an administration endorsement for the digital dollar, it will suggest potential ideas for how it could be designed, the person said.

It will also highlight work being done on a government real-time payments system expected to begin next year, which may take some pressure off the CBDC decision.

Long-term Project

Though other nations – such as China – have moved ahead with CBDCs, President Biden hasn’t yet made his view known on whether he’d favor issuing a government token.

Even if Biden, Congress and the Fed eventually decide to put out a digital dollar, it could take as much as five years to design and launch one, according to Fed Vice Chair Lael Brainard.

That would give the crypto industry a long time to establish private stablecoins as an alternative for users. Fed officials have said they believe there would be room for the private sector to operate dollar-pegged cryptos alongside a public token.

The industry inadvertently shoveled some fuel into the CBDC fire this year when one of the largest stablecoins – algorithmic terraUSD (UST) – imploded and sent damaging shockwaves through the rest of the crypto infrastructure.

Since then, regulators and lawmakers have been wary of stablecoins, which are meant to be the steadiest part of the crypto market because of their ties to underlying assets such as the dollar.

CBDCs have also been praised as a possible solution for widening financial access to consumers who don’t, or can’t, use banks.

“Unlike private digital assets, a CBDC issued by the Federal Reserve would be backed by the full faith and credit of the U.S. government, like the dollar bills in our wallets,” said Rep. Maxine Waters, (D-Calif.), the chairwoman of the House Financial Services Committee, in a statement earlier this year.

She said a digital dollar could “hold the promise of deepening financial inclusion for underserved communities as more economic activity moves online.”

Fed officials have assured the wider financial industry that it would still have the role of managing customers’ digital dollars, and that the central bank wouldn’t have direct digital accounts for consumers.

To date, Biden’s executive order has produced three reports – including one on Thursday that focused on crypto’s environmental record.

That document made a splash because it called for environmental standards for the industry and suggested that a failure to improve could lead to recommendations that crypto’s proof-of-work mining be limited or even banned.

Updated: 9-13-2022

SWIFT And Symbiont Announce Corporate Data Blockchain Pilot

The message-system processes over five billion transactions a year and seeks to maintain its relevance by integrating disruptive technologies to its business.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) disclosed on Tuesday a partnership with fintech company Symbiont to provide more accurate data for financial firms through blockchain technology.

Vanguard, Citigroup, American Century Investments and Northern Trust are among the companies participating in the initiative.

According to the announcement, the pilot project “could help providers distribute data in near real time to global custody clients.” Through Assembly, Symbiont’s proprietary technology platform and smart contracts will be used “to create a network effect that leverages the 11,000+ institutions connected to SWIFT globally.”

In 2017, Symbiont partnered up with Vanguard to improve price index data distribution through blockchain, consuming data from funds worth $1.3 trillion at the time.

“By bringing Symbiont’s Assembly and smart contracts together with SWIFT’s extensive network, we’re able to automatically harmonize data from multiple sources of a corporate action event,” said Tom Zschach, chief Innovation Officer at SWIFT, adding that Assembly’s smart contract would allow to “compare information shared between participants and flag discrepancies, contradictions or inconsistencies across custodians.”

Due to the rise of central bank digital currencies (CBDC), the company has been making efforts to maintain its relevance in the international economic order. In 2017, the interbank cooperative launched its global payments’ innovation, gpi, seeking to enhance payments tracking and fee transparency, allowing customers to send cross-border payments 24 hours per day.

In February, the European Commission decided to deactivate the SWIFT network for several Russian banks due to the war in Ukraine. Recently in a panel session at the Blockchain Central Davos conference, Michael Miebach, Mastercard’s CEO, said that he does not expect SWIFT to exist in five years. Founded in 1973, SWIFT handles over five billion financial messages a year and has a presence in 200 countries.

Updated: 9-15-2022

Digital Euro Must Be Green, Private and Possibly Capped, National Officials Say

A leaked paper written by France, Germany and Italy, seen by CoinDesk, seeks to guide the European Central Bank’s plans for the digital currency.

A digital euro should keep people’s details private, be environmentally friendly and potentially be subject to caps on holdings, officials from the five leading nations in the currency zone said in a leaked paper seen by CoinDesk.

The European Central Bank (ECB) is currently considering whether to issue its currency in digital form, and a bill is due early next year that could form the legal basis.

The “digital euro could play a vital role to strengthen the strategic autonomy of the European Union and to foster financial sector innovation,” said the paper, authored by senior Treasury officials from France, Germany, Italy, Spain and the Netherlands and dated Sept. 13.

The central bank digital currency (CBDC) was first put forward as a way to stop foreign, private sector players like Facebook from usurping the state’s role in issuing currency with its own stablecoin, known first as libra and then renamed diem.

The digital euro should not replace cash, and should also complement private sector means of payment such as digital money issued by commercial banks, the paper said.

ECB officials have said the digital currency will start out by looking at people-based applications like payments among friends and in stores, and should only use blockchain technology if it’s deemed speedy and secure enough.

The Dutch government has argued the currency shouldn’t be able to be programmed – since determining how a coin can be used in advance in effect reduces its value.

Officials are, for now, skirting around those questions, saying merely that “a political discussion is needed on which functionalities and underlying technologies the digital euro should be based on,” with the CBDC a building block for further innovation.

“A digital euro would need to allow for financial privacy,” the paper added, echoing a discussion which took place with ECB officials earlier in the year. “In general terms, the identity of payers and payees shall not be disclosed to the central bank or to third-party intermediaries that are not involved in the transaction, except on the basis of [European] Union law.”

The officials also appear to back a suggestion by ECB Executive Board Member Fabio Panetta that people’s holdings of the CBDC could be limited, either through lower interest rates or hard caps, to stop money flowing out of the conventional banking system.

“We look forward to further robust and quantitative analysis on mechanisms to mitigate the impact of a digital euro on the financing of the economy, including but not limited to caps and tiered remuneration,” the paper said.

The officials also appear to intervene in a fraught debate over the environmental impact of certain crypto technology, including the proof-of-work validation mechanism that underpins bitcoin. On Thursday, the Ethereum blockchain completed its transition to the greener alternative, proof-of-stake.

“A digital euro also needs to be environmentally sustainable by design,” the paper said.

 

Updated: 9-16-2022

Money Is Evolving. The Dollar Needs To Keep Up

To remain competitive, the US should make its currency as user-friendly as possible.

A modern currency must meet the needs of a modern economy. Yet in an important way, the US dollar is failing: As currencies around the world become more user-friendly, it’s in danger of falling behind.

The Federal Reserve is rightly working to remedy this, but the broader government must do more to ensure that the dollar remains competitive, within the country’s borders and beyond.

In recent decades, countries ranging from the UK to China have introduced payment systems enabling people to transact instantly, directly from their bank accounts and at extremely low cost, with everyone from friends to the phone company.

By one estimate, this transition to real-time payments has boosted global economic output by $78 billion a year — meaning faster paychecks, smoother transactions and generally accelerated commerce.

Not so much in the US. Less than 1% of all transactions settle in real time. The fastest retail payment systems — such as Venmo and Zelle — have only limited uses or coverage. Bank transfers can still take days to process, with all the frustration, expense and risk that entails.

Card payments, albeit relatively convenient, incur merchant fees as high as 3%, amounting to tens of billions of dollars a year in added costs that consumers ultimately pay.

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

To its credit, the Fed is trying to address at least part of the problem: the country’s outdated “automated clearinghouse,” which processes by far the largest share of payments by value — more than $70 trillion in 2021 — but only in batches and during weekday business hours.

In mid-2023, the central bank intends to launch a new service called FedNow, which will operate around the clock. If successful, it will complement and expand upon existing private services, enabling a wide range of instant payments among financial institutions, businesses and consumers.

So far, so good. But the rest of the world isn’t standing still.

Consider international payments. Governments can facilitate trust between banks within their territories, but things become more complicated across borders.

Payments often need to travel convoluted paths among banks that have established correspondent relationships, adding delay, risk and expense.

Workarounds such as Wise or Western Union don’t fully address the issue. The typical international remittance fee, for example, is about 5%, extracting billions of dollars a year from people sending money to family and friends.

One promising solution, borrowed from cryptocurrencies: Create a true digital form of cash. This could come in various forms, such as regulated versions of stablecoins tied to fiat currencies, or tokens issued directly by central banks. Much like bearer instruments, these wouldn’t require trust.

They could be exchanged on platforms that transcend borders, making international transactions fast, secure and cheap. Among others, the central banks of Australia, China, France, Singapore and Switzerland have tested such platforms, and the International Monetary Fund is advocating a more robust version to connect payment systems worldwide.

The US hasn’t been entirely idle in this respect. The Fed has been exploring the possibility of a digital dollar — and to some extent, the issuer of the world’s dominant currency can afford to wait and learn from the experience (and mistakes) of others. That said, policy makers need to ensure that the US helps shape whatever legitimate payment infrastructure emerges.

To that end, regulators should get a grip on stablecoins, insisting that any token purporting to be worth a dollar be backed by actual dollars. And Congress should grant the Fed the authority to issue a central bank digital currency if needed.

The next iteration of money has the potential to benefit billions, enhance global trade, and broaden access for previously marginalized people and places. The US shouldn’t allow itself to fall behind again.

ECB Picks Amazon, Nexi, 3 More to Prototype Digital Euro Apps

The European Central Bank plans to test how well the technology underlying a digital euro integrates with user interfaces developed by companies.

The European Central Bank chose five organizations to help develop user interfaces for a potential digital euro, it said Friday.

The organizations include Amazon, the world’s largest e-commerce company by market capitalization, and the European Payments Initiative, a group of 31 banks and credit institutions.

The other participants, selected from 54 applicants because they met “specific capabilities” required to test a range of uses, are Spanish multinational CaixaBank, French payments platform Worldline and Italian payments-focused bank Nexi, the ECB said.

The ECB is in the middle of a two-year investigation into whether to issue a digital euro, which it says would be a central bank-issued alternative to cash.

While a decision has yet to be taken, current thinking is to use it exclusively to facilitate personal payments within the European Union, if issued.

A decision on whether the ECB will issue one is due September 2023. In the meantime, the prototyping project will test potential design options, with results expected in the first quarter of next year.

The EU is among some 100 jurisdictions actively exploring central bank digital currencies, which are digital forms of sovereign currencies like the U.S. dollar or the euro.

Although the EU might be considered far behind countries like China – which already has citizens using a CBDC in real-world trials – it is ahead of other major jurisdictions like the U.S., which has yet to decide if one is of national interest.

For the ECB’s design trial, each of the five companies was chosen to test specific uses. Amazon, for instance, will work on e-commerce payments, according to the ECB.

“The future will be built on new technologies that enable modern, fast, and inexpensive payments,” said Max Bardon, vice president of Amazon Payments, in an email to CoinDesk.

CaixaBank will be developing a mobile app that simulates the steps users will take to transfer digital euros to their bank accounts or transfer digital euros to other individuals.

Worldline will explore offline payments between individuals, while EPI and Nexi will work on point of sale retail payments.

 

Updated: 9-17-2022

White House OSTP Department Analyzes 18 CBDC Design Choices For The US

The technical analysis of the 18 CBDC design choices was made across six broad categories — participants, governance, security, transactions, data and adjustments.

As directed by the President of the United States, Joe Biden, the Office of Science and Technology Policy (OSTP) submitted a report analyzing the design choices for 18 central bank digital currency (CBDC) systems for possible implementation in the United States.

The technical analysis of the 18 CBDC design choices was made across six broad categories — participants, governance, security, transactions, data and adjustments.

The OSTP foresees technical complexities and practical limitations when trying to build a permissionless system governed by a central bank, adding:

“It is possible that the technology underpinning a permissionless approach will improve significantly over time, which might make it more suitable to be used in a CBDC system.”

However, the analysis assumed there is a central authority and a permissioned CBDC system.

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

Helping policymakers decide on the ideal U.S. CBDC system, the OSTP report highlighted the implications of including third parties in the two design choices under the “participants” category — transport layer and interoperability.

For governance, the report weighed various factors related to permissioning, access tiering, identity privacy and remediation.

Other important factors OSTP wants policymakers to consider topics including cryptography and secure hardware (for security), signatures, transaction privacy, offline transactions and transaction programmability (for transactions), data model and ledger history (for data) and fungibility, holding limits and adjustments on transactions and balances (for transactions).

The technical evaluation for a U.S. CBDC system highlighted the report’s inclination toward an off-ledger, hardware-protected system. Upon the launch of a United States dollar CBDC, the report will eventually highlight the various trade-offs policymakers decided to make when finalizing the design choices.

On Sept. 8, the OSTP recommended monitoring and regulation while weighing the environmental and energy impact of crypto assets in the United States.

The related OSTP report highlighted that crypto assets use approximately 50 billion kilowatt-hours of energy per year in the U.S., which is 38% of the global total, while adding:

“Noting direct comparisons are complicated, Visa, MasterCard, and American Express combined […] consumed less than 1% of the electricity that Bitcoin and Ethereum used that same year, despite processing many times the number of on-chain transactions and supporting their broader corporate operations.”

The report further noted the high energy consumption of proof-of-work (PoW) staking in crypto assets.

 

Updated: 9-19-2022

Australian Senator Proposes Crypto Bill Targeting China’s Digital Yuan

The proposal lays out disclosure requirements for banks that could make China’s central bank digital currency available for use in Australia, and seeks to set up licensing frameworks for stablecoin issuers.

Australian politician Andrew Bragg wants to prepare the country for the widespread use of China’s central bank digital currency, the digital yuan, according to a draft digital assets bill introduced on Monday.

In his draft bill, Bragg – who is a senator for the Australian state of New South Wales and a member of the opposition – proposes strict reporting requirements for banks that could potentially make the digital yuan available for use in Australia.

China is currently running cross-border trials of a digital version of its sovereign currency. Lawmakers in major economies around the world are cautious of the implications of a widely used digital yuan.

Earlier this year, nine Republican senators in the U.S. proposed a bill aimed at setting up rules and guidelines concerning the digital yuan.

Bragg’s draft “Digital Assets (Market Regulation) Bill 2022” identifies seven Chinese banks, including the Agricultural Bank of China and the Bank of China, that have branches in Australia and can potentially facilitate the use of a digital yuan in the country.

The bill establishes disclosure requirements for those designated banks including reporting the number of Australian businesses that have accepted payments using digital yuan facilitated by the bank, and the total amount of digital yuan held in digital wallets by Australian customers of the designated banks.

Individuals or entities that violate the reporting requirements will face fines, according to the proposed rules.

Australia’s new labor government, led by Prime Minister Anthony Albanese, has introduced token mapping to identify characteristics of all crypto tokens how and how they are managed, and its central bank has started a pilot test to explore potential use cases for Australia’s own CBDC.

Australia needs to be prepared for the widespread use of a digital yuan in the Pacific, or even within Australia, because it would give the “Chinese state enormous power, economic and strategic power that it doesn’t have today,” Bragg said during an interview on RN Breakfast on Monday.

Bragg also wants to set up licensing frameworks for crypto exchanges, custody services as well as issuers of stablecoins – which are cryptocurrencies pegged to the value of other assets like the U.S. dollar or gold – through his proposed bill.

Such a bill was needed due to “inaction” from an “indolent” government that believes cryptocurrency is a “scam” and is “only responsive to vested interests,” Bragg said in a press release.

The new government is also “starting its work from scratch” after disregarding the “enormous progress” made by the previous Coalition Government on crypto regulation, according to Bragg.

Bragg has previously chaired a Senate committee on how to improve cryptocurrency regulation.

Australia’s new labor government, led by Prime Minister Anthony Albanese, has introduced token mapping to identify characteristics of all crypto tokens how and how they are managed, and its central bank has started a pilot test to explore potential use cases for Australia’s own CBDC.

Private member bills have a slim chance of getting through parliamentary procedure, but Bragg told RN Breakfast he is an “optimist” and that he would talk to his colleagues in the Senate “to see if they are open to supporting” his proposed rules.

The draft bill is open for community feedback until Oct. 31, 2022.

Updated: 9-20-2022

Hong Kong Monetary Authority To Begin CBDC Trials In Q4

The city’s de facto central bank will look at use cases and design issues related to a digital currency.

The Hong Kong Monetary Authority (HKMA) plans to start trials of its central bank digital currency (CBDC) in the fourth quarter, the South China Morning Post (SCMP) reported Tuesday, citing a media briefing.

Hong Kong’s de facto central bank now plans to lay the technology and legal foundations to support the development of “e-HKD” while exploring the use cases and design issues related the digital currency by conducting a series of tests.

HKMA issued a discussion paper in April inviting views on key issues surrounding CBDCs. It received 75 responses from industry bodies, fintech firms, financial institutions and tech companies.

“Overall, the respondents are supportive of the e-HKD initiative and believe that e-HKD has the potential to make payments more effective while supporting the digital economy,” the HKMA said on Tuesday.

“At the same time, the respondents also pointed out the need to further examine issues such as privacy protection, legal considerations and use cases.”

The central banks of almost every major economy worldwide are studying or developing CBDCs, partly to safeguard their currencies from potential threats posed by privately issued digital currencies.

China is leading the way with its “e-CNY,” which had 260 million individual users as of January, with testing set to extend to four of the country’s largest provinces in the near future.

Hong Kong has its own financial and judicial systems, separate from the Chinese mainland as part of the “One Country, Two Systems” framework under which Hong Kong is governed.

China Will Expand CBDC Trials To Most Populous Province

PBoC deputy governor Fan Yifei said expanding e-CNY trials to the provinces of Guangdong, Jiangsu, Hebei and Sichuan would happen “at a proper time.”

The People’s Bank of China, or PBoC, will reportedly expand deployment of its central bank digital currency, the e-CNY, to four of the country’s provinces, including Guangdong.

According to a Tuesday report from the South China Morning Post, PBoC deputy governor Fan Yifei said at an event in Suzhou that the bank would be rolling out e-CNY trials in the provinces of Guangdong, Jiangsu, Hebei and Sichuan.

With a combined population of more than 360 million people, the reported move would be a marked expansion of the central bank’s CBDC plans, which have been largely limited to individual cities, merchants and select regions.

With its first CBDC trials launched in April 2020, China’s central bank has been aiming to eventually replace cash with the digital yuan. As of January 2022, a reported 261 million users have set up digital wallets for the e-CNY with more than $13 billion worth of transactions.

The country also rolled out the digital currency for visiting foreign athletes during the Beijing 2022 Winter Olympics and began allowing the use of the e-CNY as payment for certain public buses in August.

To date, neither the PBoC nor Chinese government officials have announced a plan to make the CBDC available across the entirety of the country. Fan said the expansion to the four provinces would happen “at a proper time.”

The Bahamas became the first country to officially launch a CBDC nationwide — its Sand Dollar — in October 2020.

Both Nigeria and China rolled out their respective digital currencies in trial runs, while the largest economic power in the world, the United States, has not announced definite plans to launch a digital dollar.

As part of U.S. President Joe Biden’s executive order on digital assets in March, government agencies and departments have begun exploring CBDC designs as well as their potential benefits and risks.

 

Updated: 9-21-2022

Hong Kong Monetary Authority Provides Update On Retail CBDC That May Become DeFi Onramp

The monetary authority is developing a wholesale CBDC separately and earlier; it is looking at prospective retail use cases despite the lack of an “imminent role” for the currency.

The Hong Kong Monetary Authority (HKMA) published a paper outlining the state of research on its proposed retail central bank digital currency (rCBDC) and plans for its further development. This is the third paper the HKMA has published on the e-HKD, as the proposed CBDC is called.

The proposed rCBDC would have a two-tier structure consisting of a wholesale interbank system and the retail user wallet system.

No wholesale Hong Kong CBDC has been introduced yet, but research on it began in 2017, four years before rCBDC planning started. The rCBDC would be disintermediated. The paper notes:

“While it appears that e-HKD might not have an imminent role to play in the current retail payment market, we believe prospective use cases for e-HKD can emerge quickly out of the rapid evolution, or even revolution, in the digital economy.”

One of the use cases under consideration is “using CBDC as the on- and off-ramp instrument for [decentralized finance, or] DeFi .”

Although no start date is targeted in the paper, the local press reported that testing of the rCBDC may begin in the fourth quarter of this year.

The bulk of the paper was devoted to responses to the previous papers, one of which was a request for comments on the technical aspects of the rCBDC, while the other dealt with policy and design. Between them, the papers received 75 responses from stakeholders.

The majority of commenters on the technical aspect preferred that privacy and cybersecurity take precedence over efficiency. There was wider range of opinions on performance and scalability.

Offline and cross-border payments and interoperability with existing payment systems were chief concerns expressed in regard to design. Interoperability with mainland China’s e-CNY CBDC, which is now in the pilot stage, was especially noted.

Iran To Begin ‘Crypto Rial’ CBDC Trial Despite Possible Lack Of Infrastructure

The crypto rial has been in preparation for years; its introduction comes on the heels of the country’s introduction of cryptocurrency for foreign trade.

The Central Bank of Iran will make a pilot launch of a central bank digital currency (CBDC) on Thursda, the Iranian Chamber of Commerce has announced. The so-called “crypto-rial” has been in the planning stage for several years.

The launch of the crypto rial was originally planned for November, according to the Chamber, which said the CBDC was intended “to help improve financial inclusion and function as a powerful tool for the CBI to compete with other stable coins globally.”

It added that experts within the country had concerns about businesses’ preparedness to use a CBDC, the public’s understanding of digital wallets and the effect the introduction would have on banks.

The crypto rial has also been seen as a means of counteracting the corruption that is pervasive in Iran. Development of the crypto rial began in 2018, and the Central Bank has been promising to trial the CBDC all year.

Al Jazeera reports that the CBDC will operate on the Borna platform, developed using the Hyperledger Fabric, an IBM open-source distributed ledger technology platform.

The news agency adds that banks will trade paper rials for an electronic one. Since the platform is permissioned, the central bank will select banks to participate.

Borna wasy adopted in 2019 to help modernize the outdated Iranian banking system. According to an Al Jazeera source, the Borna platform will allow for the provision of fee-based financial services, although that will not be part of the current trial.

The use of cryptocurrency for payments inside Iran is prohibited, but in August, Iranians began to use crypto to pay for imports, leading to concerns among Iranian businesses about the lack of cryptocurrency regulation. The Iran Blockchain Association has made similar appeals in the past.

Iran To Start Testing A Digital Rial This Week

The country’s central bank published a draft document outlining goals and opportunities for a digital currency in August.

The Central Bank of Iran will start a central bank digital currency (CBDC) pilot on Thursday, according to the news service of the country’s Chamber of Commerce, Industries, Mines and Agriculture.

* In the report, the CBI was quoted saying the goal of the “crypto-rial” is to turn banknotes into programmable entities.

* The announcement comes after the bank published a draft document outlining the “goals, dimensions, threats and opportunities for the development” of a digital rial in August.

* In May 2021, former CBI Governor Abdolnaser Hemmati said the bank had already developed a “primary version” of a digital rial. The CBI’s current head, Ali Salehabadi, said earlier this month that the bank had the necessary infrastructure and rules in place for a CBDC.

* Although the country’s government views crypto as a means of circumventing strict U.S. sanctions – even placing a $10 million import order to be paid in crypto earlier this year – the CBI has revealed little about its work on a digital rial, or its function.

* The digital currency is not designed to compete with global cryptocurrencies like bitcoin, according to the report.

* The central bank did not immediately respond to requests for comment.

 

Updated: 9-21-2022

Digital Dollar Likely Won’t Be Part of Retail Banking World, US Lawmaker Says

White House reports on central bank digital currencies “point the way” but Congress still has to pass legislation on these issues, Congressman Jim Himes told CoinDesk.

A U.S. central bank digital currency (CBDC) may be one step closer to reality after the White House published several reports analyzing the technical and policy aspects of a digital dollar last week. Congressman James Himes (D-Conn.) has been an outspoken advocate for a U.S. central bank digital currency, going so far as to publish a white paper on the issue in June 2022.

Himes, who chairs the House Financial Services Committee’s Subcommittee on National Security, International Development and Monetary Policy has also overseen a number of hearings on crypto assets and their role in national security and related issues.

The six-term congressman spoke to CoinDesk after the White House, Treasury, Commerce and Justice Departments published half a dozen reports in response to U.S. President Joe Biden’s executive order on crypto on Sept. 16.

CoinDesk: Thank you so much for joining me. I really appreciate it.

Congressman Jim Himes: Yeah, happy to be with you.

I’m sure you must be busy and it’s Friday, so let’s get right into it. It’s been a pretty intense day with the six reports published by the White House as well as several federal agencies or departments today.

But I know you in particular have been talking about central bank digital currencies for quite a while now and, of course, you published a white paper titled “Winning the Future of Money,” I think in June, right, a few short months ago.

What’s your take on the multiple papers published today by the White House and the Treasury Department on this issue of central bank digital currencies?

The element of the various releases on central bank digital currency didn’t break a lot of new ground. I was very happy to see that in the text they emphasize the importance of the United States not getting left behind technologically.

I actually think that may be one of the more compelling reasons to continue, but it is a lot of work on the technological side, on the implementation side, making sure that if we do a CBDC that it’s really a very robust network with all of the safety considerations we would have.

I was glad to see they said, “let’s keep cranking away.” But that’s not enormously groundbreaking, I think. Overall, sort of when you move outside of just the narrow alley of central bank digital currency, I think the White House’s releases were a good contribution to an effort that is really picking up very notable momentum in Washington.

I actually think the action is largely on Capitol Hill. In the Financial Services Committee on which I sit, there’s a bipartisan effort to get a stablecoin bill put together.

On the Senate side, you’ve got an Agriculture Committee bill that would describe the authorities of the Commodity Futures Trading [Commission].

Where the rubber meets the road, I think Congress is making good progress. Now, not necessarily like we’re going to pass new laws in the next couple of weeks progress, but you have to remember that two years ago if you’d said “digital asset” or “cryptocurrency” in the halls of Congress most people would look at you funny and not know what you were talking about. So I do think that there’s been real progress on Capitol Hill.

Out of curiosity, have the reports today, or even just your own views on central bank digital currencies, have they evolved? Or where do you see any changes between what you’ve published, what the Federal Reserve is looking at, what Treasury published, and just this conversation in general that we’re hearing right now around CBDCs?

I think the story of the last couple of months has been one of the market re-instilling some rationality to the digital assets market.

An awful lot of people have lost an awful lot of money, and that makes me sad, but – and when I say an awful lot of money, I mean, you hear figures like $2 trillion thrown around.

That’s just a staggering amount of money. That says two things. Number one, clearly people’s desire to expose themselves to digital assets got way ahead of the underlying value, however you would wish to define that. And for that and other reasons I think it’s actually really good that Washington is beginning to focus hard.

Now, that doesn’t mean that Washington is going to satisfy people. When you talk about digital assets, you’ve got points of view often extremely aggressively expressed, I’m here to tell you, ranging from the pure libertarian – total anonymity, untraceable, whatever – to the world of a central bank digital currency, where you see China actually operating what, my guess is, there’s not a lot of privacy protection there.

You also have the interesting fact that we still don’t have a digital asset that is proving to be a robust means of exchange, and it may be fun to contemplate questions like whether bitcoin is an appropriate asset class in your 401(K).

But where this will really be interesting for people is if and when it becomes a medium of exchange, and you can send money to South America or buy a consumer good in the U.K., and obviously, we’re not there yet.

To that point, do you think that the reports that we saw today are really doing enough to address these questions of usability and still maintaining some semblance of privacy, some semblance of not being a tool for just censorship or surveillance?

Yeah, I think they point the way. The language was pretty strong on urging the regulators to really take a firm hand with the more irresponsible behavior that we’ve seen.

There are an awful lot of people buying into digital assets that are either imperfectly described, maybe that’s a euphemism, where people really don’t know what they’re buying, to out and out fraud. Of course, the [Securities and Exchange Commission] and others have been pretty aggressive about going after the fraudsters

I think that the administration’s releases point the way, but the real action, the real specifics aren’t in those releases, right? The real action and the real specifics will ultimately be incorporated into legislation in the place where I work.

And like I said, I’m gratified that there’s been a lot of education, but I do think that the time is now to start to start moving something.

I’m very hopeful, for example, we’re running out of time in this Congress, but I’m very hopeful that the Financial Services Committee might produce a stablecoin regulation bill, and … the Senate seems to be taking the lead on the jurisdictional questions of what regulator has authority over what product and hopefully, we’ll make some real progress.

And if we don’t actually get anything done in this Congress in the few months remaining, then in the next Congress, we’re in a position to do so.

Just jumping on that, do you think that the level of education is at a point now where once you’re done with this stablecoin bill, and, between you and me, I think the stablecoin bill sounds a lot like, with libra, between the collapse of Terra/LUNA, there’s been a lot of stablecoin-specific action.

Do you see other crypto issues, to the SEC and [Commodity Futures Trading Commission] jurisdiction, for example, coming up and being something that we can see actual legislation on within the next maybe a year or two?

Yeah, absolutely. In fact, you already see it on the Senate side. It’s not where I work, but on the Senate side, you already see the Senate Agriculture Committee defining the role for the CFTC, so you already see that happening.

Again, I wouldn’t anticipate – particularly with an election coming up in seven weeks or so – I wouldn’t anticipate that that will pass. But this is how we start educating and discovering kind of what the various equities are.

I sometimes joke, this is a really interesting and important space, but it was introduced to the Congress in just about the most catastrophic way possible. And, of course, I’m referring to the hearings that the Financial Services Committee held on libra.

Prior to that, I don’t know that many members of Congress had ever even considered the concept of a stablecoin or knew much about digital assets.

I sometimes joke that if you had a bunch of evil lobbyists sitting around after a bottle of whiskey and saying, “what’s the most catastrophic way to introduce the Congress to a concept,” one guy would say, “well, give me [Meta (formerly Facebook) CEO Mark] Zuckerberg.” And then let’s have him talk about a pervasive global currency.

I mean, it was just a catastrophe, right? That sort of soured an awful lot of people for no particularly good reason. I mean, I don’t know that there’s anything wrong with Mark Zuckerberg, I’m just saying that as a sort of presentational matter that may not have been the best introduction.

You’ve had a lot of work done since libra to educate people. I am hopeful that in the next year or so, we may see a really serious stab at providing some regulatory clarity here.

Not to get into specifics here, but do you see any projects or any efforts out there – and feel free to not name specific names – but any projects that are kind of the counterexample to libra? Ones that lawmakers can look at and say, “wow, okay, this makes sense, this is something that appeals to me, and this is helping me understand what you’re trying to do better?’

I probably would not get in the business of predicting which models which stablecoins are likely to again cross that gap of becoming a common medium of exchange. We’re not there yet, but there’s no question in my mind that there’s a use case there.

Whether stablecoins are going to replace the current payment systems that are out there, everything from your debit card to Zelle and Venmo and all the various payments, I don’t know, I’m a little skeptical about it. You don’t you don’t look at those current payment methodologies and say, “boy, this is really a pain in the neck.”

But I have no doubt that two things are gonna happen. I sometimes draw an analogy, and maybe I’ll be accused of being naive here, but I sometimes draw an analogy between the way we’re thinking about crypto assets generally today, and the way we were thinking about the internet in, let’s say 1996 or 1997.

We sort of sensed that there was something there. There were all kinds of what, in retrospect, were absolutely wacky ideas.

We’re going to deliver cat food or kitty litter to your door for free, all these sorts of models that turned out to be sort of crazy. I’m not sure that we would have necessarily in the mid-1990s predicted exactly what the internet was going to do. But lo and behold, it transformed our lives, really. I sort of feel like we’re in a parallel moment like that.

If we sort of expand the aperture to blockchain generally, not just digital assets, there’s no question in my mind that there’s going to be some transformative aspects of it. But in the meantime, we’re going to see a lot of nonsense, and we may not know that it’s nonsense until an awful lot of people have lost a lot of money and in a non-common sense business model.

So I want to jump on something you said just now, referring to existing payment systems and tools, and this is kind of tying back to CBDCs, but the Federal Reserve recently announced that it’s hoping to launch FedNow as a real time payment system within the next year.

Given that, does the calculus around focusing on a central bank digital currency or digital dollar, is it the same? Or does it have to change now that the Fed is actually moving to be more active with this new system that you can argue solves a lot of the same kind of issues that digital dollar would try to solve?

Yeah, I think so. I think that’s right, in the wholesale arena. I think that FedNow [the Fed’s payment system coming in 2023] is probably a part of a really good, innovative modernization of our financial sector generally.

It was not that long ago that trading 100 shares of stock was a $200 commission proposition with five days of closing, there’s all kinds of risk associated with that.

There’s no reason for it, right? The only reason that transactions don’t close instantaneously today is that the architecture doesn’t support that.

And so I do think FedNow is a really good step in the direction of where we want to be, which is taking out an awful lot of the time that used to be involved in the clearing and settlement of securities and currencies and commodities.

I think it’s really good, but where I don’t think we’re going to go, I wouldn’t say, “well, it’s going to penetrate into the retail banking world.” There are those who make the argument that individuals should be able to open an account at the Federal Reserve, or maybe they think it’s a postal banking thing, a public banking thing. The idea of postal banking is certainly not unprecedented, and it’s worth thinking about, I guess.

I do think that the notion that we’re going to take the Federal Reserve, who already has massive regulatory duties, and by the way, needs to run our monetary policy and say, “now, you’re going to be the banker to 320 million Americans,” and in doing that, we’re going to wipe out what is one of the primary competitive advantages of the United States, which is our banking sector, I think that’s probably not likely.

There may be those who think it’s a good idea, but I think they’re in a pretty small minority.

Fair enough. So something that I think is a little unique about your experience is you chaired the Subcommittee on National Security in House Financial Services and you’re part of the Select Committee on Intelligence.

Just looking to this idea through those lenses specifically, are there any maybe national security or national interest questions that you think a digital dollar could really address? Or just how are you looking at these questions or even the accessibility through those lenses?

I might add to your list, too, I chair the Select Committee on Economic Disparity and if I can take you off course for one second, I get really excited about the possibility that digital assets could ultimately bring more people into a bank environment, or if not a bank environment, at least provide products and services that are cheaper and more relevant to more people.

So let’s imagine a central bank digital currency exists. My intuition is, and it’s only my intuition, that it might have a special appeal because it’s full faith and credit, it might have a special appeal to a percentage of Americans who are people in our country, by which I mean immigrants, who don’t trust the banking system, who are skeptical of financial institutions, but if they believe that the money on their phone is full faith and credit, they might actually use it for payment, they might use it to do cheaper, money transfers, perhaps to family and other countries.

So I get pretty excited about the opportunity to expand in a cost effective way, services to people who are underserved, or if they are served, they’re served by very high cost financial products.

That’s not your question, but let me come back to your question, which is that of course, I think that, like anything else, like any technological innovation, digital assets pose both opportunities and threats to our security.

The obvious one that one talks about all the time is, anonymity poses some very serious issues. I mean, who really wants to use a fully anonymous payment mechanism? Yes, my libertarian friends want to use that because they don’t want the government knowing what they’re doing.

But the other group of people who use that, of course, are those who are up to no good, whether it’s drug dealers or terrorists or human traffickers.

So there’s that and then there’s also the interesting question and if you were British or Chinese or Korean, you would probably regard this differently than then I, that we regard it as Americans, which is the U.S.-built SWIFT Network, the clearing programs, the international payment mechanisms are one tool with which we are familiar and when we need to we can get visibility when and – this may be a particularly American thing – when you go before a judge and demonstrate probable cause you can actually access the information of those of whom you suspect breaking of breaking the law. That may not be true of other payment systems that are hosted or sponsored by other countries.

Editor’s Note: Due to technical difficulties, Rep. Himes was asked to repeat his response to the final question.

An awful lot of people, the estimates are that 19% or so of Americans are unbanked or underbanked. Part of that, of course, is that a lot of people have suspicions about the big financial institutions and I’m intrigued by the possibility that a full faith and credit CBDC for example, might might offer the confidence that would cause somebody to use that as a payment mechanism or as a way to remit money to a home country or something like that.

I do think there’s real possibilities there, not to mention the possibilities that could be generated either by the private sector directly or by the private sector building on a digital token that was a full faith and credit card thing.

In the more traditional realm of national security there’s what we always worry about, which is the question of anonymity if you have a payment system into which we have no visibility and that could be a foreign payment system or a payment system, which is deliberately obscured like what you see with some of these mixtures and such.

There’s, I think, two categories of people who really need anonymity. There’s libertarians, who want that for their own reasons, and then there’s, of course, people for whom anonymity is a professional necessity and that’s the folks that are up to no good.

There may be others but obviously, we do not want a totally opaque means of payment that could be abused by terrorists or dealers or human traffickers.

The other and the last thing I would say is to the point of transparency we’re good in this country in terms of not abusing American civil rights or U.S. person civil rights, I should say, the distinction being that if you’re in this country, regardless of if you’re a citizen or not, you’re entitled to constitutional protection.

We have a system that says that if you convince a judge that Sam is potentially committing a crime, that judge will give you permission to get evidence of that crime. There are plenty of countries where you wouldn’t want that, because they don’t care about civil rights. That’s a pretty important part of our justice system here.

Lastly, I would just note we don’t want technological developments to get radically away from us. The United States since World War II has been a technological leader in every realm, and we don’t want to be – I suppose it’s okay to be a fast follower, but we really don’t want to be left behind by Chinese innovations or even European innovations.

We may not worry about the Europeans as a foe, but every time I contemplate the possibility that we might not be at the technological forefront, it’s sad.

Updated: 9-23-2022

BofA Strategists Dial Back Predictions For A US Digital Dollar

* Prior Estimate ‘Too Optimistic,’ They Say In New Report
* Other Countries’ CBDCs Could ‘Pressure The Dollar’s Status’

Strategists at Bank of America Corp. are walking back a previous prediction that the US would issue its own digital dollar between 2025 and 2030, saying that the estimate now seems “too optimistic.”

The US is still early in the research and development stage, Alkesh Shah and Andrew Moss wrote in a report Thursday. “An extensive set of complex design choices will need to be discussed before moving into any potential pilot phase,” they said.

Further research and technology development could take years, the Treasury Department said in a recent report on the future of money and payments. The Treasury study was one of several released last week under a March executive order that called for a government-wide strategy for digital assets.

Proponents of a US digital dollar — also known as central bank digital currency or CBDC — have argued that it would help preserve the dollar’s dominance as other countries, like China, move forward with their own forms of virtual money. But critics have warned of potential risks, including the possibility for a CBDC to disrupt the US banking system.

“Our view is that it‘s better to be right than first when it comes to CBDC issuance,” the Bank of America strategists said. “But the digital yuan is already in circulation and a US CBDC issued significantly after a digital euro issuance could potentially pressure the dollar‘s status as the world‘s reserve currency.”

Apart from the Treasury Department, the White House Office of Science and Technology Policy also released two reports last week on a possible US digital dollar — one looking at the technical aspects of designing a CBDC and another on the US’s policy objectives. Other executive-order reports released last week covered a range of topics from illicit finance to US competitiveness in the digital-asset space.

 

Updated: 9-26-2022

Australian Pilot CBDC Test For eAUD To Commence Mid-2023: RBA White Paper

The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks and operational models for a CBDC in Australia.

Making it to the list of countries that intend to launch an in-house central bank digital currency (CBDC), the Reserve Bank of Australia (RBA) released a white paper outlining an elaborate plan for conducting a pilot project for eAUD.

On Aug. 9, 2022, the RBA announced a collaboration with the Digital Finance Cooperative Research Centre (DFCRC) to explore CBDC use cases for Australia. The joint research resulted in the launch of a project to test a general-purpose pilot CBDC. As outlined in the ‘Australian CBDC Pilot for Digital Finance Innovation’ white paper:

“The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks, and operational models for a CBDC in Australia.”

The report on Australia’s CBDC pilot project is expected to be released in mid-2023 based on indicative project timelines, as shown below.

Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin) Ultimate Resource On Central Bank Digital Currencies (#GotBitcoin)

As a central bank, the RBA will be responsible for the issuance of eAUD, while the DFCRC will oversee the development and installation of the eAUD platform. Industry participants can join the pilot as use case providers once approved for implementation.

The white paper suggests the use of Ether (ETH)-based private, permissioned instance. “Pilot participants will bear their own costs for the conception, design, development, implementation and piloting of use cases, if selected,” clarifies RBA.

On Sept 6, 2022, Australia’s ministerial department of Treasury approached the general public for their opinion on taxing cryptocurrencies. Assistant Treasurer Stephen Jones revealed the intention to exclude crypto assets from being taxed as a foreign currency.

Australian investors were provided with a window of 25 days to share their opinion on this decision, which expires on Sept. 30 — in the next four days.

The legislation, if signed into law, will amend the existing definition of digital currency in the Goods and Services Tax (GST) Act to exclude it as a foreign asset.

 

ECB Exploring Distributed Ledger Technology For Interbank Settlements: Panetta

A system that builds on existing interbank settlement infrastructure instead of one based entirely on DLT can be implemented “more rapidly” according to ECB executive board member Fabio Panetta.

The European Central Bank (ECB) is looking at “the potential” of distributed ledger technology (DLT) in improving the efficiency of interbank settlements, said Fabio Panetta, a member of the executive board.

After listing the many benefits of DLT, Panetta also highlighted some drawbacks, and made a case for a system that builds on the ECB’s existing infrastructure for wholesale settlements instead of building a new one based entirely on DLT.

A distributed ledger is a decentralized database that is maintained and updated independently by individual participants in a large network.

Wholesale central bank digital currencies (CBDC), which are typically framed as a new type of DLT-based central bank digital currency that can be used exclusively for settling interbank transfers, have actually existed “for decades” according to Panetta.

“But wholesale CBDC is not synonymous with DLT, as it can be based on any digital technology,” Panetta, who is a vocal critic of crypto, said during a Monday speech. In the European Union, banks can already settle wholesale digital transactions using the ECB’s own TARGET Services on a centralized ledger, he said.

Cryptocurrency markets reached a market capitalization of around $3 trillion in 2021, which prompted central banks around the world to consider how to keep up with the crypto world and the DLT technology that backs it.

Around 100 countries around the world are exploring retail CBDCs, which are consumer and payments-focused digital currencies, while The Bahamas and then Nigeria became the first countries to issue them. The ECB is also in the middle of its own two-year investigation into a retail CBDC.

However, wholesale CBDC experiments have been progressing faster – something Panetta attributes to the “narrower set of stakeholders” involved in interbank settlements compared to retail payments.

France recently kicked off the second stage of a wholesale CBDC experiment while numerous monetary authorities around the world are working with the Bank for International Settlements (an association of central banks) on multiple wholesale CBDC experiments.

Panetta says DLT can enable the instant settlement of transactions in a wider range of assets around the clock “with a broader spectrum of participants, potentially including non-financial corporations.” Although he said DLT could also be more secure than existing systems, Panetta outlined some drawbacks as well.

He pointed to the ongoing debate around the efficiency and scalability of the Bitcoin network powered by the proof-of-work consensus mechanism, and the environmental implications of the large amounts of energy needed to power the system. Bitcoin’s distributed ledger is permissionless – meaning anyone can participate – which “may still compare unfavorably” to centralized infrastructures according to Panetta.

“Importantly, the governance of major DLT technologies and networks is dominated by actors who are either unknown or based outside Europe, which raises concerns about strategic autonomy,” Panetta added.

Despite these drawbacks, Panetta says the ECB must be prepared for a scenario where market players “adopt DLT” for wholesale payments as well as securities settlement. But a system that builds on the ECB’s existing TARGET Services could be “implemented more rapidly” than a system “based entirely” on DLT, Panetta said.

Updated: 9-27-2022

French Central Bank CBDC Projects Aim To Manage DeFi Liquidity, Settle Tokenized Assets

The Bank of France is looking at a wholesale central bank digital currency that would be used by banks and financial markets.

The Banque de France Tuesday announced new projects to achieve the benefits of central bank digital currencies (CBDCs) used at a wholesale level by banks and financial markets.

“A wholesale CBDC could significantly contribute to improving cross-border and cross-currency payments,” Villeroy de Galhau, a governor at the Bank of France, the country’s central bank, said in an appearance at the bank’s digital currency conference.

CBDCs at the wholesale level attract less attention than their headline-grabbing retail equivalent, he added.

One venture will look to improve CBDCs’ liquidity management in decentralized finance (DeFi) – such as via automated market makers – which would play a role equivalent to that of investment banks that seek to sustain trading in a particular security, de Galhau said.

Another project will focus on issuing and distributing tokenized bonds on a blockchain, he said, building on previous findings about CBDCs being used to settle Web3 securities, such as the French central bank’s Project Jura.

Further details will be detailed in the coming weeks, he promised.

The European Central Bank is considering whether to issue a digital euro as soon as 2026, de Galhau said. The ECB is one of many central banks exploring the possibility of a CBDC for everyday use and for financial markets.

Landmark International CBDC Test Deemed Success, BIS Says

Over $22 million in foreign exchange was aided via the pilot involving China, Thailand and Hong Kong, the Bank for international Settlements said.

A project involving multiple Asian central bank digital currencies (CBDC) has been badged a success, facilitating over $22 million in foreign-exchange transactions, the Bank for International Settlements (BIS) said Tuesday.

The trial, described as the first of its kind ever, used a custom-built distributed-ledger technology platform, is supported by central banks from China, Hong Kong, Thailand and the United Arab Emirates, and was completed Sept. 23, the BIS said in a LinkedIn post.

Multiple jurisdictions around the world are looking at creating a central bank digital currency, but they also want to ensure that any dematerialized form of state-backed fiat allows for fast and safe payments across borders, which are today often costly.

A statement issued in November said that Goldman Sachs, HSBC, Societe Generale and China’s six biggest state-owned lenders are among the 20 commercial banks involved in the project, known as mBridge.

A detailed report will be released in October, said the BIS, a grouping of the world’s central banks based in Basel, Switzerland.

 

Updated: 9-28-2022

Digital Euro Could Be More Popular Beyond EU’s Borders: Lagarde

Authorities in the EU, U.S. and other jurisdictions need to compare notes on central bank digital currencies to regulate them better, according to the ECB chief.

A digital euro “could well be” more popular beyond the European Union’s borders, according to European Central Bank (ECB) President Christine Lagarde.

The digital version of a euro should be “borderless” and it should be “regulated and properly supervised” Lagarde said, responding to a question while speaking at the Atlantic Council’s Frankfurt Forum on U.S.-European GeoEconomics on Wednesday.

“But it can facilitate cross-border payments in a big way, which is why between the United States authorities, the European authorities and others beyond that, we need to compare notes,” Lagarde said.

The ECB is halfway through a two-year investigation into a digital euro for retail payments, and although it has yet to make a decision on issuing one, the EU Commission responsible for proposing new legislation, is preparing a digital euro bill.

The ECB has also picked five payments providers to work on prototypes for digital euro apps.

Although Lagarde did not directly address the implications of a digital euro potentially being adopted by a country as an official currency – in the same way that El Salvador and Ecuador use the U.S. dollar – the ECB has previously addressed the risks of currency substitution associated with a digital euro when used beyond EU borders.

“Similar design features would have to be applied to the use of a digital euro by non-residents. This would stop a digital euro replacing other forms of investment and facilitating currency substitution in countries outside the euro area,” Fabio Panetta, an ECB executive board member, said in a 2021 speech.

“In any event, international cooperation on design, cross-border use and interoperability would be key to reap the potential benefits of CBDCs for cross-border payments, while addressing risks to the international financial system.”

Responding to a question on why EU residents would be interested in a digital euro when digital payments are already widespread in the bloc – where cash usage is on the decline – Lagarde reiterated the ECB’s stance that a central bank digital currency should be something the ECB should be ready to make available if people want it.

ECB Official Defends Amazon’s Role In Testing A Digital Euro

Being independent in payments shouldn’t mean protectionism, central banker Jürgen Schaaf said.

A European Union official defended the bloc’s decision to give Amazon (AMZN) a prime role in testing a digital euro.

The U.S. retail giant was one of five companies selected by the European Central Bank to develop a user interface for a potential central bank digital currency (CBDC) earlier this month, ahead of a September 2023 decision over whether to actually issue a digital euro.

“The prototyping experiments for the front end are driven by technological considerations,” Jürgen Schaaf, an adviser to ECB senior management on payment issues, said Wednesday in a panel discussion in London that was hosted by the Association for Financial Markets in Europe.

“The companies that have been chosen for that five were the most appropriate in terms of the needs that we have for technological tests and experiments.”

Amazon, which will look into the use of CBDC’s in e-commerce, is the only non-EU company included among the five selected. Others include payment companies Nexi and Worldline, Spain’s CaixaBank (CABK), and the European Payments Initiative, a consortium of euro-area banks.

The results of the prototypes won’t automatically feed into the subsequent experimental phase, Schaaf said, suggesting Amazon won’t continue to have favored access.

Ensuring Europe’s resilience and autonomy is one of the stated goals of the digital euro, in a payments market that is dominated by non-European companies like Visa and Mastercard.

Schaaf cited the risks if financial sanctions imposed from abroad put the brakes on the EU economy by limiting transactions, but said he didn’t want to see a “political” exclusion of U.S. companies.

“Our wish to strengthen our monetary autonomy with a digital euro does not mean that Europe would shut down all its gates for retailers from abroad,” Schaaf said. “There’s no protectionist intention behind that.”

The EU is one of a number of jurisdictions across the world contemplating a CBDC, and if agreed to, the digital euro could be issued in 2026.

Bank Of Ghana To Foster Financial Inclusion Through CBDC Project

Kwame Oppong, an executive at Ghana’s central bank, told Cointelegraph that a CBDC could give their citizens the opportunity to use a “decent form of payment.”

As more countries make progress in terms of developing and implementing central bank digital currencies (CBDCs), Ghana’s central bank aims to keep up and complete its research on CBDCs with the goal of financial inclusion, according to Kwame Oppong, the head of fintech and innovation at the Bank of Ghana.

In an interview with Cointelegraph’s Elisha Owusu Akyaw at the Africa Money & DeFi Summit, Oppong laid out the reason behind the West African country’s venture into CBDCs. According to the government official, their main goal at the moment is to finish testing and eventually give their citizens the opportunity to use a “decent form of payment.” He explained that:

“I think in terms of CBDC, our goal is to be able to finish testing it. We’ve seen the results. We’re going to look at the study each and every time in the future. But our real reason for doing it is more financial inclusion.”

The official said that in the offline pilots of their “E-Cedi,” Ghana’s CBDC, at a town called Sefwi Asafo, participants were able to buy products and services from merchants in all kinds of places without any internet connectivity.

Oppong believes that another benefit of a CBDC is having the data generated by the participants.

The fintech executive explained that this data can help people become eligible for loans if they provide the information to banks.

Oppong also highlighted the potential cost savings if a CBDC is implemented in the country. He said that when CBDCs are implemented, there is a lot of potential in terms of cost reduction because of its instant settlement feature.

Despite the potential benefits of CBDC, the central bank official reiterated that the world is still at the stage where various entities are trying to determine its pros and cons. “I think as a society, we need to determine whether it’s useful for us or not,” he said.

During a panel discussion titled “Stablecoin, Crypto & CBDC, Risks and Opportunities for Ghana,” Oppong also discussed the importance of stablecoins. He noted that in terms of cross-border transactions, stablecoins can play a very important role in finance.

Apart from this, the executive highlighted that one of the most attractive things in crypto is the simplicity of its user experience. He noted that many entities have started to see the significance of studying the blockchain and implementing its use cases.

While there are supporters of CBDCs, there are also those who believe that they are not truly good for the people. The Bitcoin Policy Institute, a think tank based in the United States, recently argued that Bitcoin and stablecoins are better alternatives to CBDCs.

Israel, Norway And Sweden Central Banks Partner With BIS To Explore CBDC Payments

The Project Icebreaker initiative aimed to improve cross-border payments by reducing costs and increasing speed and transparency, with a final report expected in Q1 2023.

The Bank for International Settlements, or BIS, has reported it will be partnering with the central banks of Israel, Norway and Sweden to explore international retail and remittance payments use cases for central bank digital currencies, or CBDCs.

In a Sept. 28 announcement, the BIS said the collaboration — named Project Icebreaker — will involve the bank’s Innovation Hub Nordic Centre testing key functions and the technological feasibility of interlinking domestic CBDC systems.

The central banks will develop a new hub in which the Central Bank of Norway, the Bank of Israel, and Sveriges Riksbank can connect their proof-of-concept CBDC systems.

Beju Shah, the head of the Innovation Hub Nordic Centre, said the experiment will explore CBDC designs and architecture, as well as related policy concerns. The project aimed to improve cross-border payments using CBDCs by reducing costs and increasing speed and transparency, with a final report expected in the first quarter of 2023.

“Efficient and accessible cross-border payments are of extreme importance for a small and open economy like Israel and this was identified as one of the main motivations for a potential issuance of a digital shekel,” said Bank of Israel deputy governor Andrew Abir. “The results of the project will be very important in guiding our future work on the digital shekel.”

The BIS reported on Sept. 27 that a CBDC pilot involving the central banks of Hong Kong, Thailand, China and the United Arab Emirates was “successful” after a month-long test facilitating $22 million worth of cross-border transactions.

Other countries’ central banks have launched similar initiatives related to improving cross-border settlements, as institutions in Australia, Singapore, Malaysia and South Africa announced in September 2021.

The Central Bank of Norway, the Bank of Israel and Sveriges Riksbank have all been considering the benefits of rolling out their respective CBDCs, while China reportedly expanded the trials of its digital yuan to larger swaths of the country in September.

In the United States, lawmakers and regulators have taken different approaches to explore the digital dollar, while a March executive order from President Joe Biden had government departments and agencies research the benefits and risks of a CBDC.

 

Updated: 9-29-2022

The Caribbean Is Pioneering CBDCs With Mixed Results Amid Banking Difficulties

Emtech’s Cadet talks about CBDCs in emerging markets as the U.S. Congress and United Nations hear about the traditional banking crises.

The Caribbean region is in a tough situation for banking. The 35 nations comprising the region face challenges common to many tiny economies, such as dollarization and dependence on foreign trade and remittances.

In addition, the increasingly common banking practice called de-risking is taking a heavy toll. So, it is probably no coincidence that the region is also at the forefront of digital currency adoption.

Carmelle Cadet, the founder and CEO of banking solutions company Emtech, is a native of Haiti who has experience working with central banks in Haiti and Ghana.

Her company is also a member of the new Digital Dollar Project Technical Sandbox Program, which is exploring aspects of a United States central bank digital currency (CBDC).

Cadet spoke to Cointelegraph about her experiences in the Caribbean and the United States. She said rolling out functioning CBDCs in the region is “a long game.” It is easy to see why.

The Risks Of Banking In The Caribbean

The Financial Action Task Force (FATF) lists countries that are under special monitoring for money laundering or other illegal activities. Although only four countries in the region were on the so-called gray list as of June, the list seems to cast a pall over the region as a whole.

Because of it, extra due diligence efforts are required when large international banks provide services such as settlement to smaller local banks in those countries in a process called correspondent relationships.

Additional due diligence drives up the costs of doing business for international banks. Banks often choose to sever ties with banks in gray-listed countries rather than pay the increased costs.

That decision is referred to as de-risking. Some Caribbean countries have lost 50% of their correspondent relationships, with severe consequences for their economies and societies.

The United States House of Representatives Financial Services Committee held hearings titled “When Banks Leave: The Impacts of De-Risking on the Caribbean and Strategies for Ensuring Financial Access” on Sept. 14. Prime Minister of Barbados Mia Amor Mottley and Prime Minister of Trinidad and Tobago Keith Rowley attended the hearings.

Mottley Described What Banking Services Are Like In The Region:

“When we were growing up, opening a bank account was part of our rites of passage in becoming an adult. Today […] we spend weeks, and businesses that come into our region spend weeks and months, just to open a bank account.”

Ten days after the Congressional hearings, on Sept. 24, Bahamian Prime Minister Philip Davis brought the issue of de-risking before the United Nations General Assembly.

“Why are all the countries being targeted small and vulnerable and former colonies of European states?” he asked. The Bahamas is not currently on the gray list.

CBDCs To The Rescue?

According to the Atlantic Council CBDC tracker, three CBDCs have been launched in the Caribbean region: the Bahamas’ Sand Dollar, Jamaica’s Jam-Dex and the Eastern Caribbean Central Bank DCash in seven of its eight member states.

The council lists Haiti’s Digital Gourde as under development. Cadet said Emtech and its Haitian partner HaitiPay presented a proof-of-concept for a CBDC at the Haitian Embassy in Washington on May 5.

Cadet, who immigrated to the U.S. in her youth, was an executive in the IBM blockchain division when the Bahamas made its request for proposals for the Sand Dollar.

She was “by luck a little bit in the front seat.” In 2019, when Haiti was “making the rounds with a roadshow” to develop its CBDC, “I thought ‘if the Bahamas can do it, why not Haiti?’” Cadet said. She added, “Kudos to the central bank governor for seeing the possibilities.” She left IBM and founded Emtech.

The first financial technology companies appeared in Haiti in 2010, after the earthquake that ravaged the country, and technologies relying on mobile wallets took the lead, Haitian Central Bank Governor Jean Baden Dubois said in 2021.

Dubois said mobile telephone penetration was about 60% in 2008 and “likely higher in 2021.”

Emtech’s proposed CBDC design functioned online and through mobile telephone unstructured supplementary service data. The rollout of a Haitian CBDC would include device distribution through a partnership with a charity, Cadet said.

The use of telecommunications rather than data networks to support CBDC functions is a hallmark of emerging economies, she added.

Dubois said the Haitian Central Bank saw a CBDC as a means to achieve greater policy efficiency and increased transparency, which would help the FATF gray-listed country meet Anti-Money Laundering/Combating the Financing of Terrorism standards.

“Dollarization undermines the central bank and its mission of stability,” Cadet said. “Using CBDCs for cross border payments would provide better liquidity and visibility on reserves.”

The Peculiarities Of Emerging Markets

Cadet said there are a number of ways in which a CBDC design for an emerging market will differ from one intended for a developed market. Developed markets can “afford to go slower,” she said, as they work toward a real-time settlement, while in emerging markets, CBDCs have a more pressing mission of inclusion.

Emerging markets have “less baggage,” she continued, so fintechs can thrive. In developed markets, commercial banking can make adoption easier, but the CBDC has more legacy systems to integrate with.

Be that as it may, it is not clear how much success CBDCs are enjoying in the Caribbean. The Sand Dollar, commonly considered the first CBDC when it launched in 2020, had only about $300,000 worth of electronic currency in circulation and 30,000 digital wallets in July 2022, with about 845 merchants accepting it. The Bahamian government makes regular efforts to promote it.

DCash, introduced in April 2021, crashed in January and was down for almost two months. A spokesperson for Grenada-based conglomerate Geo. F. Huggins & Co., the first company to accept a DCash payment, said during the outage that the CBDC represented a “minimal” portion of its sales.

Cadet said her company had been in talks with the Haitian Central Bank “to understand licensing and risk” for about a year before its proof-of-concept presentation and has been in touch with the bank since then.

She said the company is now waiting for the central bank to issue a request for proposals for vendors.

ECB Reports On Digital Euro Validation, Privacy One Year Into Investigative Phase

The ECB’s two-year investigative phase is halfway completed, with key use and policy issues clarified; more stakeholder engagement is planned before the decision is made to proceed.

The European Central Bank (ECB) Eurosystem digital euro project’s two-year investigative phase has reached its halfway point. The ECB published a progress report Sept. 29 that looked at design and policy issues that are under consideration or have been decided.

The report said commerce in physical stores and online is the biggest use case for a euro central bank digital currency (CBDC). Currently, most digital payment solutions are limited in reach and not of European origin.

Thus, a digital euro could harmonize payment solutions and strengthen European strategic autonomy in line with policy goals. The report said:

“A digital euro would preserve the role of public money as the anchor of the payments system in the digital age. It would ensure the smooth coexistence, convertibility and complementarity of the various forms that money takes.”

The ECB Governing Council has approved exploration of online payments validated by a third party as part of a first digital euro release, as well as an offline peer-to-peer validated solution with no timeline. Online peer-to-peer solutions will not be pursued further in this phase.

Anti-Money Laundering requirements and the desire to limit the CBDC’s use in investments prevent the full anonymity of a digital euro, but the report suggested a digital euro would have privacy provisions similar to current digital payment options, with potentially greater privacy for low value and low-risk transactions.

The digital euro will restrict large holdings and be designed to limit its use as an investment tool, due to financial stability considerations.

The Governing Council has approved a waterfall mechanism that could transfer digital euro holdings above the limit to a commercial bank account.

An offline holding limits may also be imposed. A “wide set of tools” will be incorporated into the design to respond to future financial conditions.

The European Commission will propose a regulation to establish the digital euro in the first quarter of 2023. The Governing Council will decide in October 2023 whether to move on to development and testing. That phase may last around three years.

The progress report looked exclusively at a retail CBDC. ECB executive board member Fabio Panetta recently discussed the possibility of creating a wholesale digital euro for use by banks and financial institutions.

Panetta summed up progress on the digital euro in his quarterly presentation to the Committee on Economic and Monetary Affairs of the European Parliament also on Sept. 29.

EU Lawmakers Attack Amazon’s Involvement In Digital Euro Project

Lawmakers from different parties cited worries over data privacy and taxation.

A cross-party coalition of members of the European Parliament on Thursday turned their fire on the European Central Bank for picking U.S. retail giant Amazon to help develop a digital euro.

Fabio Panetta, an Italian economist who’s on the ECB’s executive board, turned up to a morning meeting of the Economic and Monetary Affairs committee with a prepared speech on the currency’s design features – perhaps expecting the usual placid exchange of views over plans for the European Union’s central bank digital currency.

Instead, he was met with demands from furious lawmakers to backtrack on his decision to pick the U.S. company – the subject of numerous controversies – to develop a prototype for e-commerce applications of the putative new CBDC.

“We know that the reputation of Amazon in terms of social and tax policy is questionable, I have to say,” said center-left lawmaker Eero Heinäluoma, citing a record-breaking fine of 746 million euros ($720 million) the company received from data protection regulators last year for allegedly breaching privacy rules, a decision that the company has since appealed. “What does Amazon have that could not be found in the European Union?”

Other lawmakers questioned whether the choice would undermine the stated goals Panetta has for the digital euro – to keep EU payments competitive and free from foreign meddling.

“How do you explain this choice really?” asked Stéphanie Yon-Courtin, a lawmaker from French President Emmanuel Macron’s centrist Renew Europe coalition.

“In July 2022, you were saying about the digital euro that it would protect the strategic autonomy of European payments and monetary sovereignty … You were also saying that a digital euro would help to avoid market dominance.

Three months later, we’ve been announced that Amazon has been selected over 54 companies.”

Lawmakers from the Green Party went further, calling for the ECB to reverse the decision to avoid undermining the entire project.

“I would like to know whether you would consider revising the decision,” said the Greens’ Ernest Urtasun. He drew parallels with the now-abandoned Libra initiative, in which the involvement of the “big American company” Facebook (now Meta Platforms) in a cryptocurrency project drew “strong opposition.”

If there is no change of heart, Urtasun asked if Panetta is worried that “this project – which is essential and that the parliament supported – will not start with a very strong lack of credibility.”

Panetta defended his decision, arguing that Amazon had been chosen based on pre-issued criteria that he was powerless to change now and that the prototypes Amazon develops would not be reused later on.

“We wanted to have one merchant, and only one merchant applied” to the call for tender, Panetta said. “We want to learn [from] the best technology not from the worst one … there are not many companies in Europe that could show their experience in dealing with hundreds of millions of users.

“There is no impact of this prototyping exercise on the future development on the actual participation to the terms of the digital euro,” Panetta said. “You are concerned what could be the consequences of this exercise? Zero.”

Panetta also stressed that, for its participation, the company received neither financial rewards, nor privileged data about the project or its users – but if anything, those assurances seemed to increase lawmakers’ disquiet.

“Honestly, I am now more worried than before,” said the Socialist Party’s Jonás Fernández, because the lack of a financial reward implied the company was profiting in some other way.

Amazon declined to comment on the hearing, but reiterated a previous statement that it was “excited to work with the European Central Bank on their digital euro prototyping exercise.”

Updated: 9-29-2022

SWIFT Partners With Chainlink For Cross-Chain Crypto Transfer Project

The project will connect SWIFT’s network to nearly every blockchain to allow traditional finance players access to digital and traditional assets on one network.

Interbank messaging system SWIFT has partnered with price oracle provider Chainlink to work on a proof-of-concept (PoC) project which would allow traditional finance firms the ability to transact across blockchain networks.

Chainlink co-founder Sergey Nazarov announced the project at its SmartCon 2022 Conference in New York on Sept. 28 alongside SWIFT strategy director Jonathan Ehrenfeld Solé.

At the conference, Solé said there is “undeniable interest from institutional investors into digital assets,” adding these traditional finance players want access to digital and traditional assets on one platform.

The PoC utilizes Chainlink’s cross-chain interoperability protocol (CCIP), allowing SWIFT messages to instruct token transfers across nearly every blockchain network, which, according to Nazarov, will accelerate the adoption of distributed ledger technology (DLT) blockchains across capital markets and traditional finance.

The SWIFT interbank messaging system is the most widely used platform for traditional cross-border fiat transactions, connecting over 11,000 banks around the world. In August the system recorded an average of 44.8 million messages per day.

However, transactions on SWIFT’s network can take several days to complete. The company has been exploring blockchain and DLT technology and central bank digital currencies (CBDCs) to facilitate faster payments.

Chainlink added this collaboration with SWIFT allows financial institutions to gain blockchain capability without replacing, developing and integrating new connectivity into legacy systems, something it said would require substantial modifications with an “exceptionally high” cost.

Mastercard CEO Michael Miebach said at a panel session in May on CBDCs that he doesn’t expect SWIFT to exist in five years, likely due to the rising competition from CBDCs for cross-border payments and settlements.

Mastercard later clawed back the statement, noting that Miebach simply meant that SWIFT’s operations will continue to evolve from its current form.

Updated: 10-5-2022

Republican Lawmakers Who Oppose A Fed-Issued CBDC Ask For Justice Department’s Assessment

The report came in response to President Biden’s executive order on crypto.

A group of Republican lawmakers on the House Financial Services Committee have asked U.S. Attorney General Merrick Garland to share the Justice Department’s assessment on whether the Federal Reserve has the necessary authority to issue a central bank digital currency (CBDC).

The Justice Department has published two reports in response to President Joe Biden’s March executive order on crypto, including one on information sharing on crypto crimes internationally and one announcing the formation of a group of prosecutors who would specialize in crypto crimes. Another report, which would detail whether Congress has to authorize a CBDC, has yet to be published.

The latter report is what the lawmakers, who include the committee’s ranking member, Rep. Patrick McHenry (R-North Carolina), and French Hill (R-Arkansas), are asking Garland to share.

The lawmakers believe that the Fed doesn’t have the authority necessary to issue a CBDC, the letter said, which also pointed to requests from Fed Chairman Jerome Powell and Vice Chairwoman Lael Brainard calling on congressional action.

“As you know, Congress’ authority over coining money is exclusive. The Supreme Court has recognized Congress’ power to coin money and regulate the value thereof, confirming Congress’ authority to regulate each phase of currency.

Relatedly, Congress may charter banks and grant them the right to issue circulating notes, and it may restrain the circulation of notes not issued under its own authority,” the letter said.

The lawmakers set an Oct. 15 deadline for Garland to respond.

 

US Lawmakers Request Justice Dept Share CBDC Assessment

The House members claimed the “appropriate place for the discussion” on legislation concerning a digital dollar would be in the U.S. legislative branch.

Republican members of the U.S. House Financial Services Committee have requested the Department of Justice provide its assessment and legislative proposals regarding a digital dollar within 10 days.

In an Oct. 5 letter addressed to U.S. Attorney General Merrick Garland, 11 Republican lawmakers asked the Justice Department for a copy of its “assessment of whether legislative changes would be necessary to issue a CBDC,” as required by President Joe Biden’s executive order on digital assets issued in March.

The House members claimed the “appropriate place for the discussion” on legislation concerning a central bank digital currency would be in the U.S. legislative branch rather than the federal executive department.

“The House Committee on Financial Services […] has spent considerable time and resources examining both the potential risks and benefits of a CBDC,” said the letter.

“The Committee’s review has included analyzing whether the Federal Reserve has the authority to issue a CBDC without authorizing legislation. Committee Republicans emphasized in our CBDC principles that the Federal Reserve does not have the legal authority to issue a CBDC absent action from Congress.”

The letter included signatures from ranking member Patrick McHenry, who recently made a virtual appearance at the Converge22 conference in San Francisco, and Representative Tom Emmer, who has criticized the Treasury Department’s sanctions of crypto mixer Tornado Cash. The lawmakers requested Garland respond by Oct. 15.

On Sept. 16, the White House released its report on a comprehensive framework for cryptocurrencies in the United States, including exploring a CBDC. The Justice Department was tasked with reporting on potential threats due to illicit uses of digital assets, suggesting changes to policies and laws.

 

SWIFT Says It Has Reached A ‘Breakthrough’ In Recent CBDC Experiments

“For CBDCs, our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway,” said chief innovation officer Tom Zschach.

On Oct. 5, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, announced that it had successfully moved central bank digital currencies and tokenized assets on existing financial infrastructure through two separate experiments.

According to SWIFT, the results demonstrated that “CBDCs can be rapidly deployed at scale to facilitate trade and investment between more than 200 countries and territories around the world.”

SWIFT is a Belgian messaging system that connects over 11,500 financial institutions worldwide and plays a paramount role in facilitating international transactions. Globally, nine out of 10 central banks are actively exploring digital currencies.

Via its collaboration with Capgemini, SWIFT managed to settle transactions using CBDCs based on different distributed ledger technologies, as well as using a fiat-to-CBDC payment network.

Fourteen central and commercial banks — including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo — are now collaborating in a testing environment to accelerate the path to full-scale CBDC deployment.

In the second experiment, SWIFT demonstrated that its infrastructure could integrate tokenization platforms with different types of cash payments.

Working in collaboration with Citi, Clearstream, Northern Trust and SETL, SWIFT explored 70 scenarios simulating the market issuance and secondary market transfers of tokenized bonds, equities and cash.

The World Economic Forum estimates the tokenization market could reach $24 trillion by 2027. Regarding the developments, Tom Zschach, chief innovation officer at SWIFT, said:

“Digital currencies and tokens have huge potential to shape how we will pay and invest in the future. But that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together. We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a significant step towards unlocking the potential of the digital future.”

 

Updated: 10-6-2022

Atlantic Council Director Sees ‘Splintering’ Financial System If US Falls Behind On CBDCs

Josh Lipsky, senior director of the Atlantic Council, joined “First Mover” to discuss how a U.S. CBDC could be a trendsetter for the rest of the world, once it gets beyond the research stage.

The U.S. dollar’s place as the world’s dominant reserve currency, while not in immediate danger, could eventually change as countries continue to explore central bank digital currencies (CBDC), according to one financial institution expert.

“While the dollar is not in any risk at the moment, over a long time period, three [to] five [to] seven years, there could be a fracturing of the international financial system,” Josh Lipsky, senior director of the Atlantic Council GeoEconomics Center, said during an appearance on CoinDesk TV’s “First Mover.”

Lipsky added that doesn’t necessarily mean another currency will replace the greenback, but it does suggest that a “real splintering of different means of transactions, not just dollar-based,” could follow.

According to the think tank, 105 countries representing over 95% of global GDP are exploring creating CBDCs. As the name suggests, CBDCs are digitally native, central bank-issued currencies that operate primarily via the use of blockchain technology.

Last week, a research project comprising an estimated 20 Asian-based commercial banks across four countries, successfully settled upwards of $22 million in foreign-exchange transactions, according to the Bank for International Settlements (IBS).

“We haven’t seen that before,” Lipsky said. “We’ve seen the technology tested. We’ve seen the hypothetical settlement, but we haven’t seen actual money in a serious amount flowing between countries.”

Lipsky said it represents “significant developments” in the world of CBDCs. The U.S., however, is still in the research phase, as are other notable players, including the U.K. and Mexico, according to Lipsky.

In the next two years, the U.S. could build a CBDC model that is “cyber secure, protects privacy and delivers near instant settlement,” Lipsky said, and could even be the “international standard setter,” prompting other countries to follow suit.

“We’re the dollar. We’re the issuer of the world reserve currency and other countries that are in a further state of CBDC development would say to themselves, ‘Well, we should probably be aligned with what the U.S. and what the ECB [European Central Bank] is doing,’” Lipsky said.

 

 

Updated: 10-7-2022

India Plans Phased Central Bank Digital Rupee Launch

India’s central bank is working toward a phased introduction of a digital currency and will put forth a final design after it has conducted large scale pilot projects.

The Reserve Bank of India is exploring the option of implementation of an account-based central bank digital currency or CBDC for the wholesale segment and token-based currency for the retail sector, it said in a paper released on Friday.

The digital currency will be referred to as the e-rupee and will provide an additional option to all the available forms of money, it said.

Cash-dependent India is joining countries including China in pushing forward with digital versions of their currencies as they look to harness new technologies to make transactions and payments more efficient.

In her budget speech in February, Finance Minister Nirmala Sitharaman said the RBI would launch the digital currency this year.

“As there are multiple compelling motivations for the introduction of CBDCs, the RBI is currently engaged in working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch,” the paper said.

The RBI will soon kick off a limited pilot launch for the e-rupee.

The “CBDC holds a lot of promises by way of ensuring transparency, and low cost of operation among other benefits and the potential to expand the existing payment systems to address the needs of a wider category of users,” the RBI said.

In the note the RBI acknowledged that privacy and data protection were a matter of concern when it comes to designing CBDCs.

“Ensuring anonymity for a digital currency particularly represents a challenge, as all digital transactions leave a trail. Clearly, the degree of anonymity would be a key design decision for any CBDC and there has been significant debate on this issue,” the note said.

“In a rather roundabout way, the RBI acknowledges India’s love for crypto by saying that CBDCs will provide the public with the benefits and features of crypto without the associated risks,” said Rajagopal Menon, vice president at crypto exchange, WazirX.

India has had a hot and cold relationship with crypto assets. In 2018 the RBI had cut crypto startups from the country’s payment network and earlier this year India announced a new crypto tax regime, under which a 1% transactoinal tax has decimated volumes on crypto exhchanges as the are down by over 90% since the start of the year.

India’s Central Bank Crystalizes CBDC Vision In Concept Note

“Currently, we are at the forefront of a watershed movement in the evolution of currency that will decisively change the very nature of money and its functions,” said the RBI.

The Reserve Bank of India (RBI) has published a 50-page concept note for the introduction of a central bank digital currency (CBDC).

The document is the first such comprehensive report by the RBI’s Fintech Department, which was created in January 2022 with the responsibility of forming cryptocurrency regulations and creating a central bank digital currency.

The RBI said it will commence a pilot of the digital rupee for specific use cases soon, though it did not give a clear timeline. Earlier this year, Indian Finance Minister Nirmala Sitharaman announced a digital rupee via blockchain and other technologies would be issued some time in 2022 or 2023.

And just last month, RBI’s Deputy Governor T Rabi Sankar said a digital currency pilot project would be launched later this year.

The digital rupee will provide an additional option to the currently available forms of money, the RBI said in its concept note. “It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper.”

The central bank’s note stressed the importance of identifying “innovative methods and compelling use cases that will make CBDC as attractive as cash if not more.”

It said it has been working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, calling the current zeitgeist a “watershed moment in the evolution of currency that will decisively change the very nature of money and its functions.”

The RBI’s motivations in creating a CBDC range from reducing operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in the payments system, to boosting innovation in cross-border payments space, to providing the public with uses that any private virtual currencies can provide, without the associated risks, to offer availability and resilience benefits when electrical power or mobile network is not available in remote locations.

While re-emphasizing the dangers of cryptocurrencies as a threat to the stability of the financial system, the RBI has touted its CBDC as a “risk free central bank digital money which will provide the users the same experience of dealing in currency in digital form, without any risks associated with private cryptocurrencies.”

The bank went so far as to say “the inherent design of cryptocurrencies is more geared to bypass the established and regulated intermediation and control arrangements that play a crucial role of ensuring integrity and stability of monetary and financial eco-system.”

The RBI has maintained that banning cryptocurrency is the most suitable choice for India. In June 2022, Sankar said that CBDCs could “kill” whatever little case that could be for private cryptocurrencies.

The concept note comes at a time when India’s once-burgeoning crypto ecosystem has faced difficult challenges, including stiff new taxes, a shadow ban on exchanges which served to send trading volumes sharply lower.

Added to that were the global bear market in crypto, macro factors like inflation and the war in Ukraine, a probe against 10 exchanges, layoffs and the implosion of the policy body representing crypto interests.

The concept note released on Friday appears to go a step further than previous RBI statements, indicating more confidence in releasing both wholesale and retail CBDCs.

A retail CBDC would be able to provide access to safe money for payment and settlement, said the bank, and a wholesale product has the potential to transform the settlement systems for financial transactions and make them more efficient and secure.

Getting to specifics, the RBI note indicates a preference the retail CBDC to be token-based, or closer to physical cash, while the wholesale CBDC would be account-based.

The RBI has not indicated a preference on whether it will choose a controlled database or distributed ledger technology for its CBDC. Instead, it has indicated a desire to be flexible to accommodate the evolution of the technology.

India’s Central Bank Outlines Digital Rupee CBDC Plans

India’s Reserve Bank outlined the pros and cons of a digital rupee as it looks to raise awareness around its CBDC project.

The Reserve Bank of India (RBI) has outlined the proposed features and reasoning behind its in-development central bank digital currency (CBDC) in a 51-page note published on Oct. 7.

The country’s central bank is looking to raise awareness of CBDCs, which are being developed by a number of central banks around the world, and to clearly define the objectives and choices as well as the potential positive and negative elements of introducing a digital rupee in India.

The document summarizes the key motivations for the issuance of an Indian CBDC, highlighting trust, safety, liquidity as well as settlement finality and integrity as key components of a sovereign digital currency.

A primary motivator for issuing a CBDC in India is to reduce the operational costs involved in managing physical cash in the country. The RBI also touts improved financial inclusion in addition to an increasingly resilient, efficient and innovative payments system.

Improved cross-border payments and settlements are also underlined through the promise of an offline feature for the CBDC, which would be beneficial in remote locations and in areas without a stable electricity supply or mobile network access.

The RBI has long held public blockchains and cryptocurrencies at arm’s length, with the document outlining its continued view that cryptocurrencies pose a significant risk to Indian consumers due to market volatility.

“These digital assets undermine India’s financial and macroeconomic stability because of their negative consequences for the financial sector.”

The RBI also highlighted its concern that the continued proliferation of cryptocurrencies would diminish its ability to regulate monetary policy and the monetary system, which the central bank holds to b a threat to financial stability in India.

A digital rupee CBDC is being touted to have the same benefits as public cryptocurrencies while “ensuring consumer protection” by avoiding what it described as “damaging social and economic consequences.”

The note goes on to outline the differences between a retail and wholesale CBDC, with the former serving the public sector while the latter would have restricted access catered toward financial institutions.

The RBI hinted that there might be merit in introducing both forms into the Indian marketplace.

The Indian central bank also touched on the possibility of direct and indirect issuance and management. Direct issuance would see the RBI responsible for managing the entire system, while the indirect model would involve the use of intermediaries like banks and other payment service providers.

The RBI also noted that a token-based CBDC would be preferred for retail use given its similarities in use to physical cash. Account-based CBDC issuance would be considered for wholesale users.

The document also considered the potential infrastructure underpinning the digital rupee, highlighting conventional, centrally controlled databases or distributed ledger (blockchain) technology as the two options on the table:

“While crystallising the design choices in the initial stages, the technological considerations may be kept flexible and open-ended in order to incorporate the changing needs based on the evolution of the technological aspects of CBDCs.”

The note also touches on the role of physical currency in providing anonymity, universality and finality. Given that digital transactions would leave a trail, the degree of anonymity provided is still being assessed while the RBI suggested that reasonable anonymity for small-value transactions like physical cash may be a “desirable option” for a retail CBDC.

The ongoing development of a digital rupee will likely involve further stakeholder engagement and iterative design to produce a CBDC that suits a broad range of use cases.

The Indian central bank also stressed its intent for the CBDC to complement current forms of money and provide additional digital payment avenues to users.

 

Updated: 10-11-2022

Central Banks Will Face Challenges In Digital Money Adoption, ECB Study Finds

* Current Bank-Issued Currencies Provide Little Insights On Use
* Replicating Traditional Cash Could Make It More Attractive

Central banks will likely have a much tougher time getting consumers to use their digital money than they do issuing them, according to researchers from European Central Bank.

While ongoing discussions by policy makers and academics often don’t touch on adoption of digital currencies or assume it’s “a given,” broader adoption might in fact force central banks to weigh difficult trade-offs, the ECB paper by Alejandro Zamora-Perez, Eliana Coschignano and Lorena Barreiro said.

Previous and ongoing experiments in countries like Ecuador with central-bank-issued digital currencies are limited and provide little insights but they do reveal it hasn’t always been easy to convince consumers or merchants to use them, the paper said.

Global central banks including the ECB are still exploring the benefits and drawbacks of issuing digital money. The ECB has indicated that it could launch a digital euro as early as the middle of this decade and is even examining whether it should award it legal-tender status.

“Central banks may find themselves on the horns of a dilemma in seeking to balance” certain policy goals, broader adoption, and potential adverse economic effects, according to the paper.

For instance, while replicating certain features of traditional cash — such as its highly sought-after store-of-value function — could make a digital currency attractive for users and possibly expand its role in retail transactions, central banks might want to prevent competing with commercial banks for deposits.

“Deciding between these two options may depend on the central bank’s hierarchy of desired policy goals,” the researchers said, such as weighing improvements in retail payment markets against financial stability concerns.

Slicing The Elephant: Inside The Design Of A Digital Euro

There are plenty of decisions yet to be made about the landmark CBDC, the head of the ECB’s digital euro project, Evelien Witlox, tells CoinDesk.

Evelien Witlox is a busy woman.

When she’s not running between events – briefing European Union policymakers, banks or the Sibos finance conference this week – she’s designing the digital euro, a new format for the world’s second-biggest reserve currency.

As European Central Bank program manager for the central bank digital currency (CBDC), she has already set out exactly who would use it (initially people and governments, with intra-business and machine payments following later).

Just two weeks ago, the ECB set out how its new form of money could work offline, safeguard privacy and prevent bank runs.

Those aren’t the last or most controversial topics on the agenda before the ECB’s senior executives make a decision, due in September, on whether to actually issue the thing. Witlox, previously an executive at Dutch bank ING, has an appropriate metaphor for such a mammoth task.

“We have sliced the elephant,” Witlox said in an interview with CoinDesk. “We have sliced this development of this design into many smaller decisions.”

The eurozone isn’t the only jurisdiction looking at a CBDC; Nigeria and the Bahamas have already deployed one, and around 100 jurisdictions in total are researching or developing.

Yet, other major central banks, such as the U.S. Federal Reserve, don’t seem to be in a rush – not least because of the many design and policy issues a digital currency raises.

Rulebook

One of those issues, highlighted recently by ECB board member Fabio Panetta, is what kind of rules will apply to financial intermediaries – the banks and payment companies that would process digital euro transactions.

Witlox is now looking to hire a coordinator to draft that rulebook, according to an ECB statement made on Monday, after our interview.

Witlox told CoinDesk the rulebook could look like the direct debit messaging standards already used by many Europeans to pay household bills via bank transfer – allowing more flexibility in how the digital euro is used.

“The solution will be interoperable and standardized, so that it doesn’t matter which intermediary you work with,” Witlox said.

That’s needed precisely because, as it stands – and much to the ECB’s chagrin – there’s currently no single European bank or payment system that operates across the euro area.

But there’s plenty more decisions that will follow, and not all are going to be straightforward for lawmakers and the finance industry to agree on, Witlox said.

Blockchain Or Not?

The supposedly technocratic selection of U.S. web giant Amazon to aid with ecommerce prototypes for a digital euro has already led to political backlash.

Other squabbles seem likely to follow over thorny topics such as how intermediaries will be compensated, or how to protect peoples’ privacy.

Plus the ECB must decide what technology it’s going to use for the CBDC – and, crucially, whether it will adopt Web3 innovations like decentralized ledgers and blockchain technology.

Witlox, no starry-eyed blockchain evangelist, isn’t in a rush to make that call.

“The focus now is on the functionality,” she said. “The decision on which technology to use will only be taken later when it has become clear which technology is best suited.”

Cryptocurrencies like bitcoin (BTC) have decisions validated by consensus without any central entity. Panetta has already said he wants to keep “full control” over issuance and settlement, suggesting the ECB won’t be following that model. The C stands for Central, after all.

But Witlox said she’s still looking to work with a decentralized technical infrastructure, in part to mitigate concerns that a single data store would prove an attractive honeypot for hackers.

“Obviously we need to keep track of our ledger,” she said – just as a bank would do, or a regular person managing a household budget. “But this would not exclude the usage of [distributed ledger] technologies.”

It’s still possible that, even after making so much fuss, the ECB will decide to abandon its project. Witlox said the final decision will rest on a cool-headed weighing of pros and cons – testing whether the putative CBDC meets the objectives set out in July, such as fostering innovation and boosting efficiency.

And then will come the final challenge for the digital euro: whether people actually use it in daily life. Even without using cash, European shoppers have a range of options available to them – they can pay via contactless cards, mobile wallets and QR-code scans – and, Witlox said, the digital euro will complement those payment means, not replace them.

The ultimate question is whether anyone would bother, amid such an embarrassment of riches, to use the ECB-backed system – and it’s a question that is still hanging.

A report published Tuesday by the ECB shows that previous CBDC initiatives haven’t always been successful – and there’s no guarantee of success from using whizzy technology or fancy public information campaigns. Witlox is undeterred.

“It’s a safe asset to pay with, because it is a liability of the central bank,” Witlox said. “We will make sure that this is indeed a product that the end user would want to regularly use.”

 

Updated: 10-13-2022

Janet Yellen Stresses Need For Central Bank Digital Currency Work

The U.S. Treasury Secretary also reiterated the need for regulation in light of the recent turmoil in the crypto industry.

Washington D.C. — U.S. Treasury Secretary Janet Yellen on Wednesday reiterated the importance of building a regulatory framework for digital assets, referencing Terra as one possible danger and the tether stablecoin’s “breaking the buck” as a result of the crypto crash.

In a conversation at the International Monetary Fund’s (IMF) annual meeting here, Yellen said that while there are more existing regulations “than people think” that can be applied to crypto, there are also many “holes” that need to be addressed.

Yellen said she would like to work with Congress to fill those holes as digital finance is “a tough thing to regulate,” she said.

As for a U.S. central bank digital currency, Yellen thinks a CBDC has advantages and the potential to solve many problems. While the process of creating a CBDC could take many years, it is “certainly worth getting involved in developing.”

“We can continue to think about whether it’s right to implement,” she said, but the U.S. should be “in a position where we could issue one.”

Last week, the Financial Stability Oversight Council (FSOC), of which Yellen is a member along with Federal Reserve Board Chair Jerome Powell, among others, published a report asking Congress to step in to provide guidance on what should be the limits of securities regulation.

China’s CBDC Transactions Reach $14B As Uptake Slows

Transaction volume in e-CNY has only increased by 14% in 2022 from the end of last year compared with the 154% growth recorded in the last six months of 2021.

China’s central bank digital currency (CBDC) reached the milestone of 100 billion yuan (US$13.9 billion) worth of transactions amid a slowdown in uptake, South China Morning Post (SCMP) reported Thursday, citing People’s Bank of China (PBOC) data.

This year, transaction volume in China’s e-CNY has increased by 14% from the 87.6 billion yuan ($12 billion) recorded at the end of 2021, which is a big decrease when compared to the 154% growth seen between June and December of last year.

The PBOC did not provide an update on the number of e-CNY wallets opened, which reached 261 million at of the end of 2021, the report said.

The 100 billion yuan figure is also dwarfed by the volumes recorded by the country’s top payment providers such as Tencent’s WeChat Pay and Ant Group’s Alipay.

The latter, for example, processed payments worth 118 trillion yuan ($16.4 trillion) in the 12 months ending in June 2021, according to the SCMP’s report. Ant Group is the fintech affiliate of Chinese e-commerce giant Alibaba, which also owns the SCMP.

China’s e-CNY is being rolled out on a trial basis across the country, with 23 cities including Beijing, Shanghai and Shenzhen now covered, the report said.

The central banks and governments of almost every major economy around the world have signaled intent to explore the development of a CBDC, partly in response to the rise in the use of cryptocurrencies and with one eye on China’s ambitions in this area.

 

Updated: 10-14-2022

Fed Governor Waller Says US CBDC Would Not Enhance Things The World Loves About US Fiat

The U.S. and the world benefit from the primacy of the U.S. dollar in the world economy, but it is stablecoin, not a CBDC, that will enhance the fiat’s place, according to Waller.

A United States central bank digital currency (CBDC) would not enhance the qualities of the U.S. fiat dollar that foreign companies value most, member of the U.S. Federal Reserve Board of Governors Christopher Waller said in a speech released on Oct. 14.

CBDC skeptic Waller took a look at the question through the lens of national security at a symposium held at Harvard University. Waller had a more favorable view of a dollar-backed stablecoin.

The role of the U.S. dollar worldwide is an area where economics, CBDCs and national security dovetail, Waller said. The indisputable primacy of the U.S. dollar in the world brings benefits to the United States and other countries where the dollar plays a role in the local economy or as a reserve currency.

This primacy is not due to technological factors, and so the introduction of a U.S. CBDC would not impact the reasons for that primacy, Waller argued.

He expressed doubt that “the purported shifting payments landscape as a result of the growth of digital assets, particularly CBDCs” is a threat to the U.S. dollar’s status in the world in terms of making settlements or storing value, although foreign CBDCs might make gains against the dollar as a medium of transaction.

On The Home Front, According To Waller:

“A U.S. CBDC is unlikely to dramatically reshape the liquidity or depth of U.S. capital markets. It is unlikely to affect the openness of the U.S. economy, reconfigure trust in U.S. institutions, or deepen America’s commitment to the rule of law.”

This contrasts with the role of stablecoins, in Waller’s view. He dismissed suggestions that stablecoins could threaten the effectiveness of economic policy with the simple statement, “I don’t believe that to be the case.”

Noting that “nearly all major stablecoins” are dollar-denominated, Waller concluded, “U.S. monetary policy should affect the decision to hold stablecoins similar to the decision to hold [U.S.] currency.” Presumably, this would extend U.S. economic influence.

Waller included sizable doses of both scholarship and opinion in his argument. He stated, “The factors driving the dollar’s role as a reserve currency are well researched and well demonstrated,” for example.

Other elements of his argument were self-produced. “I am highly skeptical that a CBDC on its own could sufficiently reduce the traditional payment frictions” and “I am unsure whether even a large issuance of a stablecoin could have anything more than a marginal effect” on the role of the U.S. dollar, he said.

Waller also said, “I remain open to the arguments advanced by others in this space.” He has stated his positions on CBDCs and stablecoins in the past and advanced other arguments against a U.S. CBDC.

China Floats Idea Of ‘Asian Yuan’ To Reduce Reliance On US Dollar

The proposed distributed ledger technology-backed “Asian yuan” token would supposedly help reduce Asia’s dependence on the U.S. dollar for international business.

Researchers from a Chinese state-run think tank have floated the idea of an Asia-wide digital currency with the aim of reducing its reliance on a United States dollar-based economy.

The views of researchers Liu Dongmin, Song Shuang and Zhou Xuezhi from a unit of the Chinese Academy of Social Sciences (CASS) were published in an issue of the World Affairs journal posted online in late September, who said the establishment of an Asian yuan token would lower Asia’s reliance on the USD.

Much like similar existing and trialed central bank digital currencies (CBDCs), the researchers said distributed ledger technology (DLT) would form the backing of the Asian token, which would be pegged to a bundle of 13 currencies.

The currencies would include those of all 10 of the member nations in the Association of Southeast Asian Nations (ASEAN) along with China’s yuan, Japan’s yen and South Korea’s won, according to the researchers.

“More than 20 years of deepened economic integration in East Asia has laid a good foundation for regional currency cooperation. The conditions for setting up the Asian yuan have gradually formed,” the researchers wrote in the journal seen by the South China Morning Post.

The journal is affiliated with China’s Foreign Affairs department, with the researchers hailing from the “Institute of World Economics and Politics” one of many research units under CASS, a think tank with various ties to the country’s ruling party.

The U.S dollar and, more recently, cryptocurrencies have become a popular method for those in South East Asia to conduct business, send remittances and hedge against the inflation of their respective local currencies.

The research came a few weeks before a milestone in China’s CBDC pilot, the Bank of China on Oct. 10 said its e-CNY had transacted around $14 billion in value, or 100 billion yuan, with around 5.6 million merchant stores already supporting the digital yuan.

The country’s central bank is also partaking in Project Inthanon-LionRock, a DLT-backed cross-border payment CBDC trial also involving the ​​Thai, Hong Kong and United Arab Emirates central banks.

In September the trial saw the “successful” transaction of over $22 million worth of value in a month on its “Multiple CBDC Bridge” platform overseen by the Bank for International Settlements (BIS).

 

Updated: 10-16-2022

A Pan-Asian Digital Currency? Good Luck Getting Rivals To Cooperate; Cryptos Hold Steady In Weekend Trading

Chinese researchers say such an initiative would increase monetary cooperation and reduce dependency on the U.S. dollar, but that probably isn’t what different countries want.

Asia’s economies can be both the best of friends, and the worst enemies. Are they really going to be charmed by a proposed pan-Asia central bank digital currency to erode dollar hegemony backed by China?

Chinese state researchers say such an initiative would bolster monetary cooperation between the regions’ economies, lessening their dependence on the U.S. dollar. But such an effort would present formidable obstacles.

While the world’s modern industrial supply chain crisscrosses the Asian continent, the same companies that, say, provide Apple parts for its iPhone also compete to replace each other for parts for next year’s model.

Samsung provides the display for the iPhone, yet its foundry division competes with Taiwan Semiconductor to fabricate Apple’s latest chips for the phone.

Technological Rivalry

There’s a deep technological rivalry between nations in Asia. Japan is the region’s oldest industrialized economy and a target for South Korea’s chaebols.

Although the origin of the likes of Sony and Panasonic differ from Samsung and LG, ultimately South Korea’s consumer electronics industry bested its Japanese rival, and Trinitron TV’s are no longer a mainstay in every home.

Part of that is technological – Samsung and LG didn’t invent the LCD display but were better at innovation – but part of it involves economics and exchange rates.

In the mid-2000s, South Korea, an emerging market, had a much lower cost of labor. But from the late 1990s, Japan’s consumer electronics companies sounded the alarm on the strong yen’s impact on their bottom line.

Although Sony’s PlayStation 2 was a must-have for any gamer in 2000, its immense development cost, a sky-high yen, and slowing sales of televisions made the year disappointing for the company’s balance sheet and stock.

In May 2000, ComputerWorld reported that had it not been for the strong yen, operating income would have been 39% higher.

That story was the same for most of the decade, with staggering losses every year, and by 2012 obituaries were being written for Sony’s consumer electronics business and Japan’s manufacturers as a whole.

Despite the pain it was causing for Japan’s exporters, the yen stayed strong because of the world’s macroeconomic condition at the time.

For a while, manufacturing Toyota vehicles in Kentucky to export to Korea was more viable because of the strength of the yen, as the Financial Times reported. in 2011.

Meanwhile, as the decade wore on, high-end LG’s 4K and 8K Korean TVs started to steal market share from Sony and Panasonic in Japan (despite a strong consumer preference for homegrown brands) because of LGs’ competitive price.

This trend occurred, although Sony invented the OLED technology they use.

So with that in mind, what interest would Seoul have in adopting a pan-Asia digital currency? For most of the last two decades, the relative strength of the yen compared to the won has turbocharged exports since Japan and Korea’s economies are direct competitors.

A Falling Yen

Now the yen is at a historic low, which will make it easier for Tokyo to boost exports. It’s also convenient for those in the hospitality industry, as Japan looks like a compelling post-COVID tourism destination now that border controls have been relaxed.

Most other central bankers in the region are aware of the need to keep their currencies competitive; perhaps too keenly aware of this.

In 2017, S&P Global showed that Taiwan, South Korea and Thailand were some of the world’s largest currency manipulators (ironically, Taiwan is the larger currency manipulator than China). Having one, unified, Euro-like currency for the region isn’t going to be a popular move.

Keeping The Status Quo Is Desirable

And none of these countries want to disrupt U.S. dollar hegemony, for the same reason. In markets like Taiwan and South Korea there are no foreign holdings of their respective currencies (which gives them the ultimate control over their exchange rates).

Exports and imports are largely denominated in U.S. dollars, with both nations claiming that there are no capital controls as foreign currency flows freely.

These countries are such fans of the hegemony of the dollar that many have increased their holdings of U.S. treasury bills during the last two quarters.

But that’s been the trend worldwide during the last decade as foreign and international investors held $5.3 trillion in U.S. debt during the second quarter of 2012 and now hold $7.4 trillion in Q2 2022 according to FRED.

Sure, there’s been the quarter-on-quarter slowdown and the occasional trimming of holdings, but they certainly aren’t selling to buy China’s digital yuan.

 

Updated: 10-17-2022

Macau’s Digital Currency Embrace Could Be A Nightmare For Its Casino Industry

The Special Administrative Region passed a bill that would create a legal framework for accepting digital currency, but would also allow China to monitor Chinese nationals visiting Macau; the largest cryptocurrency by market cap is trading above $19.5K.

Macau’s Executive Council has passed a bill creating a legal framework for the territory to begin accepting digital currency. But what does this mean for the gambling industry, which relies on a strong local privacy framework and a steady supply of gamblers?

Macau, one of China’s two Special Administrative Regions (SAR), tends to be the more obedient territory than its cousin, the erstwhile British territory of Hong Kong. Macau is smaller and more focused: Its entire economy is based around gambling.

While Macau is an autonomous legal jurisdiction (after all, gambling is illegal in mainland China) there’s not the same interest in contesting Beijing’s rule as in Hong Kong because of the divergent history of the two SARs.

Consider: Census data from 2016 shows that just over 55% of Hong Kong can speak English while less than 1% of Macau speaks Portuguese.

But local law still prevails in Macau, which has what UNSW Australia Faculty of Law Professor Graham Greenleaf called some of the strongest data protection laws in Asia, in a 2014 paper on the topic.

There’s a ban on recording images and sounds in casinos, and in 2019 Macau’s Director of Gaming Inspection warned casino operators that their use of facial recognition, RFID-enabled casino chips and digitally enabled baccarat tables – all of which are used to give the house an edge – must conform to Macau’s Personal Data Protection Law.

Consent for collection would be required, as would best practices like removing personally identifiable information before sending it to a third party. Gamblers prefer discretion.

But that’s Macanese law, of which Beijing respects but doesn’t approve. Beijing doesn’t want to be seen as rescinding the guarantees of autonomy it promised with The Basic Law of Macau, the territory’s mini-Constitution, but at the same time it doesn’t want its people gambling there.

In 2021, China’s criminal law was amended with a supranational flavor. Gambling is now illegal for its citizens overseas.

Later in 2021, China’s Ministry of Culture and Tourism banned the organizing of tour groups to “cross-border gambling tourist destinations,” which includes Macau and other regional gambling hubs like Sihanoukville, Cambodia.

Macau embracing China’s digital currency is the logical conclusion of all of this. Macau’s own currency isn’t widely used, even at home, as it pegs the Hong Kong dollar 1:1 to the Macanese pataca, with the HKD being the currency of choice on casino floors.

There’s a precedent to using a “foreign” currency for gambling, so there’s not much of a leap required to embrace a version of China’s digital currency in the territory.

Digital Currency As A Tool For Oversight

And for Beijing, it gives bureaucrats, as well as law enforcement, much more granular insight into the gambling industry while bypassing Macau’s strong privacy laws.

Beijing knows it can’t eliminate the gambling industry entirely in Macau because it would decimate the local economy, so better off controlling it instead via its central bank digital currency.

Foreign nationals may be allowed to keep using cash, but Chinese nationals would need to use this digital currency in order to keep being allowed at casinos.

Macau has nothing to lose. Once upon a time, at the peak of China’s boom, the territory netted more gambling revenue than Las Vegas. But COVID-19 changed things.

Macau’s casinos are estimated to bring in $680 million in revenue for October, which should be its busiest month because of China’s Golden Week mega holiday.

In contrast, the latest data available from Nevada shows Vegas cleared just over $1 billion in revenue for August, with the Las Vegas Strip reporting a 5% year-over-year increase.

With things looking so dire, how can Macau say no?

 

Updated: 10-21-2022

CBDCs Can Work With Stablecoins, Central Bank Trial Finds

The Hong Kong Monetary Authority claims its retail central bank digital currency prototype safeguards flexibility and privacy.

A new experiment shows central bank digital currency (CBDC) can work with private stablecoins, even if intermediary operators go bust, the Hong Kong Monetary Authority said Friday.

Private stablecoins are designed to maintain stable values relative to a reference currency like the U.S. dollar or an asset like gold, while CBDCs are digital versions of sovereign currencies.

Project Aurum – named after the Latin word for gold – shows CBDCs used by retail customers can be private and flexible, said its architects, who also include the Bank for International Settlements Innovation Hub and a research institute.

“Project Aurum has made a number of ground-breaking achievements,” said the study. “We have no doubt that the Aurum prototype will catalyze and inspire the global quest for the most suitable rCBDC [retail CBDC] architecture.”

Over 100 jurisdictions worldwide are looking into issuing a CBDC, according to the Atlantic Council, and experiments are taking place across the world.

Those projects often assume banks or other payment companies would intermediate the service. Crucially, Aurum also tested out a system where regular shoppers don’t get their hands directly on a CBDC but instead use private stablecoins – in the same way modern-day card payments use commercial bank money backed up by central bank guarantees.

“Bringing CBDC-backed stablecoins to life has never been done before,” the study said. “The system developed for the CBDC-backed stablecoins is unique and can be useful” for central banks, it added.

Funds were made traceable on the prototype so customers could get their money back if the intermediary goes bust – but it would still safeguard privacy through the use of pseudonyms, the study said.

Hong Kong Unveils Completed Retail CBDC Project That Has A CBDC-Backed Stablecoin

The Hong Kong Monetary Authority and the BIS Innovation Hub cooperated on a unique CBDC design that reflects the realities of money issuing in the special administrative region.

The Hong Kong Monetary Authority presented its completed Aurum retail central bank digital currency (CBDC) prototype on Oct. 21. The system, developed in conjunction with the Bank for International Settlements (BIS) Innovation Hub, has a unique structure that reflects the intricacies of the existing system for issuing money in Hong Kong.

Aurum consists of a wholesale interbank system and retail e-wallet. The e-wallet is created at a local bank and has a smartphone interface. A validator system prevents bank over-issuance and user double redemption.

The intermediated retail CBDC is used in the e-wallets, and CBDC-backed stablecoins are used in the interbank system. The unusual CBDC-backed stablecoins digitally mirror Hong Kong’s existing currency system, in which bank notes are issued by three financial institutions and backed by the central bank. The CBDC is a direct liability of the central bank, while the stablecoins are liabilities of the issuing bank, with backing assets held by the central bank. The authors stated:

“Bringing CBDC-backed stablecoins to life has never been done before and we therefore felt that doing so may supplement the growing body of research on private sector stablecoins. Indeed, what distinguishes Aurum from private sector stablecoins is that Aurum’s stablecoin balances are reconciled, versus real time gross settlement (RTGS) balances of the issuing bank with the central bank.”

The high level of decoupling between the wholesale and retail ledgers gives the system a high level of cyber-resilience, the designer said.

Hong Kong unveils completed retail CBDC project that has a CBDC-backed stablecoin

The Hong Kong Monetary Authority and the BIS Innovation Hub cooperated on a unique CBDC design that reflects the realities of money issuing in the special administrative region.

Retail transactions are performed with aliases. Only the intermediary that performs Know Your Customer functions can see the identity of users.

Unspent transaction output records are used to track digital currency ownership anonymously through multiple transactions as a safety measure in case of commercial bank bankruptcy.

Hong Kong launched its CBDC research in June 2021 as part of its comprehensive Fintech 2025 Strategy. The monetary authority is pursuing retail and wholesale CBDC implementation separately.

It noted earlier that the retail CBDC has no “imminent role” to play in the payments market, but use cases may emerge quickly. Aurum is the first project completed by the BIS Innovation Hub.

Updated: 10-24-2022

Japan’s International Payments System Will Test Plastic Cards For CBDC

Japan Credit Bureau will develop its CBDC infrastructure in collaboration with IDEMIA and Softspace.

Japan Credit Bureau (JCB), a Japanese analog to international payments systems like Visa or Mastercard, announced the start of its central bank digital currency (CBDC) infrastructure testing.

The project will assumably prepare the payments platform for a national CBDC, which is currently being tested by the Bank of Japan (BoJ).

The infrastructure project, announced by the company in local media, will come under the title JCBDC and aims at adjusting the JCB’s existing credit card infrastructure for CBDC payments.

The France-based provider of facial recognition technology IDEMIA and Malaysian Softspace will collaborate with JCB in the platform’s development.

The platform will consist of three major directions — a touch payment solution, an issuance and provision of plastic cards for CBDC and a simulation of the working CBDC environment. JCB also plans to adjust the mobile payment tools and QR codes, but in the later stages of testing.

JCB plans to develop a payment solution by the end of 2022 and start the demonstration experiments at actual stores by the end of March 2023.

The BOJ shared a three-phase trial outline for its CBDC back in Oct. 2020. The second phase of the trials, which would test the technical aspects of the issuance of the digital yen, should start this year.

According to the BoJ governor, the digital yen could launch by 2026, and the decision won’t be made by the central bank alone.

There is still no certainty about the project launch or the possible scope of its implementation. In January, the former head of the BOJ’s financial settlement department advised against using the digital yen as a part of the country’s monetary policy.

JCB is not a newcomer to digital innovations — it started a pilot of a digital identity interoperability system based on blockchain technology in collaboration with Fujitsu Laboratories in 2020.

 

Updated: 10-25-2022

Central Bank Of Turkey Plans To Launch A CBDC In 2023

The proposal was mentioned in the executive branch’s annual plan presented on Monday.

Turkey is poised to launch a central bank digital currency (CBDC) next year.

Turkey’s Presidential Annual Program for 2023, presented on Monday by the Presidential Strategy and Budget Directorate, contains the discussion of a central bank digital currency.

The announcement came a year after Turkey’s central bank announced in September 2021 that it was considering issuing a CBDC to complement its existing payments infrastructure, in a project entitled “Central Bank Digital Turkish Lira Research and Development.”

The Balance of Payments section of the program, under the sub-heading of Policies and Measures, stated that a “blockchain-based central bank digital currency will be put into practice.”

The responsible institution is Turkey’s central bank, with the cooperation of the local Ministry of Finance and Scientific and Technological Research Institution.

“The Digital Turkish Lira system will be integrated with digital identity and FAST,” the official report stated. FAST is a payment system operated by the Turkish central bank.

The report also stated that the Turkish central bank will carry out the research and development efforts and testing of its CBDC in collaboration with other banks.

Fed’s Waller ‘Not A Big Fan’ Of Central Bank Digital Currencies

Federal Reserve Governor Christopher Waller is again pushing back on arguments that the US central bank should issue a digital dollar.

“It’s just a checking account at the Fed,” Waller said in remarks during the Money 20/20 conference in Las Vegas. “I’m not a big fan of it, but I’m open to having someone convince me that this is something that’s really valuable.”

Waller has emerged as a skeptical voice about the utility of a central bank digital currency, or CBDC, at a time when lawmakers and Biden administration officials weigh moving ahead with one.

The Fed issued a discussion paper in January, calling it a “first step” in a public discussion.

Supporters say a Fed-backed digital currency would help ensure the dollar’s dominance as countries including China move forward with their own versions.

But, Wall Street lenders have asked the US to hold off, arguing that a virtual currency backed by the Fed risks draining hundreds of billions of dollars out of the banking system.

“It’s not clear why China giving their citizens a checking account at the People’s Bank of China, why that’s going to undermine the reserve role of the dollar in the global payments system,” Waller said.

 

Updated: 10-26-2022

Foreign Exchange Transactions Take Center Stage In New BIS CBDC Report

The Bank for International Settlements tested its mBridge project for foreign exchange transactions.

A six-week pilot project to evaluate whether central bank digital currencies (CBDC) would be useful for foreign exchange transfers successfully had 20 different commercial banks conduct over 160 payments worth around a total of $22 million, the Bank for International Settlements (BIS) revealed in a report Wednesday.

Central banks – based in Hong Kong, China, the United Arab Emirates and Thailand – issued over $12 million on the platform, allowing the commercial banks to conduct payment and foreign exchange payment versus payment transactions (PvP), the report said.

The pilot was part of BIS’s ongoing Project mBridge, a collaboration between the international financial institution and the central banks of those four nations that is studying CBDCs and their possible role in cross-border payments and multi-CBDC transactions.

The group hinted at the trial in a brief LinkedIn post published last month, but only shared full details ahead of next week’s Hong Kong Fintech Week conference.

Liquidity was one key concern for the banks involved, the report said.

“One important observation is the limited number of FX PvP transactions which were conducted during the pilot compared with one-way payments,” the report said.

“This reflected in part the relatively short window of time banks had to off-load their foreign CBDCs due to the requirement set by some central banks to clear balances of their CBDCs at the end of the day, along with the limited overlapping RTGS [real-time gross settlement] hours between the four jurisdictions.”

According to the document published Wednesday, one issue the banks found was that the on-bridge transactions lacked “an efficient FX price-discovery mechanism.”

The FX rates were instead determined off-bridge, before the transactions occurred, which led to the banks needing to tap preexisting balances in nostro accounts rather than using mBridge itself.

“Given the need to rely on existing correspondent banking relationships for liquidity, the real-value nature of transactions and the short time span of the pilot, transactions took place, for the most part, between banks with pre-existing business and service relationships,” the report said.

The group recommended integrating functions to address liquidity concerns in future tests.

Centralized Test

Much of the report delves into how the pilot was actually set up, saying it “required extensive coordination and engagement both within and among central banks and commercial banks.”

The banks also used a centralized version of the mBridge ledger for the purposes of the pilot, the report said. The group plans to look at “further distributing the deployment and operations” in future pilot programs.

The pilot itself occurred in three phases between Aug. 15, 2022 and Sept. 23, adding new jurisdictions in each phase.

Over the course of those six weeks, the banks trialed transacting in the recipient bank’s CBDC, issuing and redeeming their own CBDC and swapping from one CBDC to another.

“On the platform, a commercial bank can transact with any other commercial bank directly in a peer-to-peer manner. Among the 20 participating commercial banks, five from each jurisdiction, this connectivity enabled 150 different bilateral and direct potential connections,” the report said.

The pilot also incorporated safeguards to prevent excess or insufficient liquidity issues. Looking ahead, the report went on to note the potential implications of allowing commercial banks to engage in foreign CBDC transactions.

During this summer’s pilot, a domestic bank had to be involved in at least one part of any given transaction, the report said, except for transactions in a currency foreign to both counterparties.

“During the pilot, while participating banks were able to directly transact in the CBDCs of other jurisdictions on the platform, foreign banks were limited in terms of how they could move CBDCs on mBridge,” the report said. “

“This ensures that significant amounts of domestic currency cannot accumulate offshore beyond the central bank’s control, limiting opportunities for the currency to be used for speculative purposes.”

The central bank group plans to focus on liquidity management, FX price discovery, legal frameworks, data privacy, decentralized deployments and other business use cases in further pilot projects over the next two years, the report said.

“Equipped with the lessons from the pilot and earlier phases of the project, Project mBridge will continue its work,” the report said. “This includes the technology-build and testing – including improving on existing functionalities and adding new functionalities to the platform – in an effort to move from the current pilot phase towards MVP and eventually a production-ready system.”

BIS Releases Full Report On Mbridge Wholesale CBDC Platform After Successful Pilot

The Bank for International Settlements is on a roll with its third publication within days detailing how commercial banks in four jurisdictions transferred funds using CBDCs.

The Bank for International Settlements (BIS) has released the full details of its mBridge pilot project to use central bank digital currencies (CBDCs) for foreign exchange.

Commercial banks in four jurisdictions made cross-border transfers using CBDCs and distributed ledger (blockchain) technology in the project, which was heralded as a success.

Twenty commercial banks in Hong Kong, China, the United Arab Emirates and Thailand used the custom-made mBridge Ledger platform and CBDCs issued by their respective central banks to conduct payment and foreign exchange payment-versus-payment transactions on behalf of their corporate clients between Aug. 15 and Sept. 23. Over $12 million was issued on the platform, facilitating over 160 transactions worth more than $22 million in value.

The mBridge Ledger platform used single-platform, direct-access infrastructure to make real-time, peer-to-peer transactions with the HotStuff+ consensus mechanism. The Dashing dynamic-threshold consensus protocol is also being tested.

The project brought to light a number of policy challenges. According to the authors of the project paper, the legal categorization of a CBDC is the most pressing issue. They wrote:

“The typical question is whether CBDC on the platform would be classed as currency, a representation of funds on account with the central bank, a debt or something else.”

The new technology raised even more fundamental issues than that, with the authors continuing:

“Extending access to central bank money directly to foreign participants and conducting transactions on a shared ledger requires further exploration of policy, data privacy and governance considerations.”

Practical matters that will be addressed in 2023 and 2024 include integrating liquidity management and FX price discovery.

The BIS Innovation Hub Centre in Hong Kong has produced a series of papers in recent days. The BIS center, along with the Hong Kong Monetary Authority (HKMA) and United Nations Climate Change Global Innovation Hub released the results of their Genesis 2.0 project to create tokenized green bonds on Oct. 24.

BIS and the HKMA have been studying retail and wholesale CBDCs separately. They published the latest report on their Project Aurum retail CBDC project on Oct. 21.

Updated: 10-30-2022

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Trump Bashes Bitcoin And Alt-Right Is Mad As Hell (#GotBitcoin?)

Goldman Sachs Ramps Up Development Of New Secret Crypto Project (#GotBitcoin?)

Blockchain And AI Bond, Explained (#GotBitcoin?)

Grayscale Bitcoin Trust Outperformed Indexes In First Half Of 2019 (#GotBitcoin?)

XRP Is The Worst Performing Major Crypto Of 2019 (GotBitcoin?)

Bitcoin Back Near $12K As BTC Shorters Lose $44 Million In One Morning (#GotBitcoin?)

As Deutsche Bank Axes 18K Jobs, Bitcoin Offers A ‘Plan ฿”: VanEck Exec (#GotBitcoin?)

Argentina Drives Global LocalBitcoins Volume To Highest Since November (#GotBitcoin?)

‘I Would Buy’ Bitcoin If Growth Continues — Investment Legend Mobius (#GotBitcoin?)

Lawmakers Push For New Bitcoin Rules (#GotBitcoin?)

Facebook’s Libra Is Bad For African Americans (#GotBitcoin?)

Crypto Firm Charity Announces Alliance To Support Feminine Health (#GotBitcoin?)

Canadian Startup Wants To Upgrade Millions Of ATMs To Sell Bitcoin (#GotBitcoin?)

Trump Says US ‘Should Match’ China’s Money Printing Game (#GotBitcoin?)

Casa Launches Lightning Node Mobile App For Bitcoin Newbies (#GotBitcoin?)

Bitcoin Rally Fuels Market In Crypto Derivatives (#GotBitcoin?)

World’s First Zero-Fiat ‘Bitcoin Bond’ Now Available On Bloomberg Terminal (#GotBitcoin?)

Buying Bitcoin Has Been Profitable 98.2% Of The Days Since Creation (#GotBitcoin?)

Another Crypto Exchange Receives License For Crypto Futures

From ‘Ponzi’ To ‘We’re Working On It’ — BIS Chief Reverses Stance On Crypto (#GotBitcoin?)

These Are The Cities Googling ‘Bitcoin’ As Interest Hits 17-Month High (#GotBitcoin?)

Venezuelan Explains How Bitcoin Saves His Family (#GotBitcoin?)

Quantum Computing Vs. Blockchain: Impact On Cryptography

This Fund Is Riding Bitcoin To Top (#GotBitcoin?)

Bitcoin’s Surge Leaves Smaller Digital Currencies In The Dust (#GotBitcoin?)

Bitcoin Exchange Hits $1 Trillion In Trading Volume (#GotBitcoin?)

Bitcoin Breaks $200 Billion Market Cap For The First Time In 17 Months (#GotBitcoin?)

You Can Now Make State Tax Payments In Bitcoin (#GotBitcoin?)

Religious Organizations Make Ideal Places To Mine Bitcoin (#GotBitcoin?)

Goldman Sacs And JP Morgan Chase Finally Concede To Crypto-Currencies (#GotBitcoin?)

Bitcoin Heading For Fifth Month Of Gains Despite Price Correction (#GotBitcoin?)

Breez Reveals Lightning-Powered Bitcoin Payments App For IPhone (#GotBitcoin?)

Big Four Auditing Firm PwC Releases Cryptocurrency Auditing Software (#GotBitcoin?)

Amazon-Owned Twitch Quietly Brings Back Bitcoin Payments (#GotBitcoin?)

JPMorgan Will Pilot ‘JPM Coin’ Stablecoin By End Of 2019: Report (#GotBitcoin?)

Is There A Big Short In Bitcoin? (#GotBitcoin?)

Coinbase Hit With Outage As Bitcoin Price Drops $1.8K In 15 Minutes

Samourai Wallet Releases Privacy-Enhancing CoinJoin Feature (#GotBitcoin?)

There Are Now More Than 5,000 Bitcoin ATMs Around The World (#GotBitcoin?)

You Can Now Get Bitcoin Rewards When Booking At Hotels.Com (#GotBitcoin?)

North America’s Largest Solar Bitcoin Mining Farm Coming To California (#GotBitcoin?)

Bitcoin On Track For Best Second Quarter Price Gain On Record (#GotBitcoin?)

Bitcoin Hash Rate Climbs To New Record High Boosting Network Security (#GotBitcoin?)

Bitcoin Exceeds 1Million Active Addresses While Coinbase Custodies $1.3B In Assets

Why Bitcoin’s Price Suddenly Surged Back $5K (#GotBitcoin?)

Zebpay Becomes First Exchange To Add Lightning Payments For All Users (#GotBitcoin?)

Coinbase’s New Customer Incentive: Interest Payments, With A Crypto Twist (#GotBitcoin?)

The Best Bitcoin Debit (Cashback) Cards Of 2019 (#GotBitcoin?)

Real Estate Brokerages Now Accepting Bitcoin (#GotBitcoin?)

Ernst & Young Introduces Tax Tool For Reporting Cryptocurrencies (#GotBitcoin?)

Recession Is Looming, or Not. Here’s How To Know (#GotBitcoin?)

How Will Bitcoin Behave During A Recession? (#GotBitcoin?)

Many U.S. Financial Officers Think a Recession Will Hit Next Year (#GotBitcoin?)

Definite Signs of An Imminent Recession (#GotBitcoin?)

What A Recession Could Mean for Women’s Unemployment (#GotBitcoin?)

Investors Run Out of Options As Bitcoin, Stocks, Bonds, Oil Cave To Recession Fears (#GotBitcoin?)

Goldman Is Looking To Reduce “Marcus” Lending Goal On Credit (Recession) Caution (#GotBitcoin?)

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