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 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.

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.

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)

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.

???????????? “One of the major central banks in the world will collapse in 2021. The central banks are leveraged at 50, 60, 70-to-1.

They’re leveraged more than Long Term Capital Management was at its highest point of leverage.”-@MaxKeiser

— Crypto News Alerts ???????? (@CryptoNewsYes) January 12, 2021

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.

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.

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.

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. https://t.co/wn6CqzzZZT

— Nick Boles (@NickBoles) February 9, 2021

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

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

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.

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.”

“They tried to ignore it to make it go away. Jamie Dimon will tell you that,” says @GOPLeader on #bitcoin. “This is something that those who regulate, those who are in government that make policy better start understanding what it means for the future.” #btc pic.twitter.com/pO2eVbxLff

— Squawk Box (@SquawkCNBC) April 13, 2021

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.

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.

OMG they did it on Parliament too pic.twitter.com/jijp6RutXj

— Dominic Frisby (@DominicFrisby) May 1, 2021

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.

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.

Employees of some Chinese commercial banks are required to promote digital renminbi wallets, and each person must promote 200 to 300 individuals. By Jiemian https://t.co/Trl8bF7I22

— Wu Blockchain (@WuBlockchain) July 6, 2021

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.

We’ll be consulting extensively over the remainder of 2021 on issues key to the future of how New Zealanders pay and save, driven by our new stewardship mandate for cash and a broader currency system https://t.co/vniv2aULCZ #rbnz pic.twitter.com/OHdsuIhpGd

— Reserve Bank of NZ (@ReserveBankofNZ) July 7, 2021

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:

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:

• Bank for International Settlements on CBDCs
• International Monetary Fund on crypto’s risk to stability

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.

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 will gladly pay you 10 times this in Tethers to keep your mouth shut, I’d bet https://t.co/CSgei3yWIx

— Cas “Mildly Interesting” Piancey (@CasPiancey) October 19, 2021

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, bu