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European Central Bank to not Release a CBDC Anytime Soon

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Many of those who expected the European Central Bank (ECB) to follow China’s model would be disappointed to hear that the financial institution has no plans to launch a native Digital Currency Central Bank [CBDC]. The official publication claimed that there were several reasons why the CBDC was not needed at this time and provided guidance on the future of the industry.

On May 11, ECB board member Yves Mersch stated that there was no business case for the ECB to launch its own CBDC. He opined that there were bigger concerns in the financial world with the impact of the coronavirus being felt on a daily basis. Proponents of a digital banking future were given a ray of hope when Merch added that the bank would follow up with the industry and work towards it if the need occurred.

Mersch made his comments at a virtual conference where he also touched on the different requirements that the CBDC will have to meet. In his words:

“The lack of a concrete ‘business case’ for a CBDC (Central Bank Digital Currency) at present should and does not stop us from seriously exploring the optimal design of a CBDC so that we will be well prepared should we ever take (that) policy decision.”

He went on to state that much of the money released by central banks are already in digital form. The only difference was that they weren’t CBDCs connected to the virtual asset world. According to him, access to the central bank balance sheet offers access to digital central bank money. Merch confirmed that the ECB was experimenting with the concept of a retail CBDC and would reveal details if and when they were finalized.

The EBC official also talked about the legal and security aspects of the implementation of the CBDC. There are several reasons against the cryptocurrency world, and we need to look at them before we come to a conclusion, Merch said. If token-based digital currencies do not guarantee complete anonymity, the chances of the adoption of the CBDC would be extremely minimal. If a retail CBDC is launched, then it is expected to be based on digital tokens.

A digital token structure would enable the currency to move in a decentralized manner and therefore provide an extra layer of security. The ECB was not the only major bank interested in the evolving crypto field, as shown by the most recent study by the Bank of International Settlements. According to the BIS, most of the world’s big banks have been playing with blockchain or digital assets.

The report concluded that the resources being pumped into the industry were still not sufficient to create the main CBDC platform. Progress may still be hindered as the coronavirus continues to wreak havoc across sectors. Researchers have also shown that the virus has the capacity to mutate constantly, making it harder to fight than ever before.

Conclusion

The introduction of cryptocurrency through traditional industries has been seen as the main focal point for the development of the virtual asset world. Many countries around the world have seen the potential of cryptocurrencies with super-powers like China to establish their own centralized digital currency.

 

 

China’s Digital Currency Project Lessons to the Entire World

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China’s digital currency may not conquer the present financial ecosystem which has already been controlled by the United States dollar, however, the central bank digital currency (CBDC) project is a good foundation for world economies to build on.

Back in March, the Peoples Bank poof China (PBoC) launched the testing phase for its state-issued digital currency. The test, which is stipulated to be conducted in the Chinese cities of  Suzhou, Shenzhen, Xiong’an, and Chengdu and will entail the transfer of remuneration to state employees in the embodiment of the new CBDC.

China’s digital currency to derange the contemporary financial order?

The PBoC is planning for the central bank digital currency to be ready for use before the 2023 Olympics which will be held in an Asian country, takes place. China’s decision to develop a digital currency created waves among the policy community. Back on April 20, China commenced on the first testing stage of the CBDC. Following the launch of China’s digital currency, a report by the state media outlet, China Daily, stated that:

“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level”.

Despite the increased fuss on China’s digital currency threatening the contemporary financial system, there are several reasons to hesitate on this quickness and extent of this rather long declaration.  Firstly, as illustrated by Kenneth Rogoff, a professor of economics at Havard, the present dollar dominion is backed by “America’s deep and liquid markets, its strong institutions, and the rule of law”.

The professor’s observation becomes evident in the September 2019 Bank of International Settlements (BIS) study. As per the survey, the United States dollar holds onto its supreme currency reputation, being on one side of 88 percent of the entire trades, the SWIFT banking network, and as the report points out, dominating the worlds’ bank-to-bank money transfers,

The Chinese renminbi is the eighth most traded currency

Chinese renminbi, which is popular as yuan, is the eighth most traded currency in the world. Basically, the reason behind this is highlighted by Professor Rogoff who states that:  “China’s burdensome capital controls, its limits on foreign holdings of bonds and equities, and the general opaqueness of its financial system leave the Yuan many decades away from supplanting the dollar in the legal global economy.”

All in all, the subject of China’s digital currency begs for additional probe and given it will not depose the current financial order should not restrain us from questioning the inherent value proposition of a cryptocurrency. Back in 2019, ex-PBoC digital currency head, Yao Qian, made a captivating case for CBDCs. His observations should hold great weight to countries seeking to create a central bank digital currency.

Japan to Implement Revised Crypto Laws By 1 May 2020

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As the world continues to tackle the immediate threat of COVID-19 spread across the globe, recent reports suggested that the Japanese government was moving forward with their plans to instill new laws in the country in order to regulate cryptocurrencies.

According to an official government newsletter dated 3 April, it was reported that the revised reversion of PSA and FIEA will be administered in Japan from the beginning of next month, i.e. 1 May.

PSA or the Payment Services Act and the Financial Instruments and Exchange Act (FIEA) are two separate bills passed by the Japanese House of Representatives at the beginning of 2019 to regulate digital assets in Japan. The legislation was expected to come into effect by the beginning of April 2020, but with the current pandemic outbreak tightening up on various enforcement actions, the dates were postponed to May.

Japan has always been active in the digital asset ecosystem as the infamous Mt.Gox exchange operated from Shibuya, Tokyo, before meeting an uneventful end.

At the time of writing, the country had lacked official regulations to supervise crypto in Japan, hence the amendment of current regulations was identified as the best-case scenario to introduce a form of legal status to digital assets in the country.

With the PSA, basic terminology was also altered, as ‘crypto-assets’ rather than ‘virtual currency’ would be used to tighten restrictions on crypto custodians.

The legislation also emphasized that crypto exchanges in the country would now need to manage their user’s capital separately and not mix them up with their own cash flows, by using ‘reliable methods’ such as cold wallets.

However, in the event that any users insist on the use of hot wallets, it is mandatory for the platform to hold the same kind and amount of crypto assets in order to repay to its users in the event of a hack or theft.

Certains changes were also made to the FIEA, which included the idea of electronics recorded transferable rights (ERTRs), which will be used to categorize ICOs and STOs, and these will be regulated under the act. It was indicated that ERTRs would be referred to tokens that are expecting a certain amount of profitability, such as security tokens.

Japan’s push for CBDC on the horizon?

The country has been plotting its move in the crypto-space for a long period of time and earlier this year, A member of the ruling party in Japan, disclosed to Reuters that some of the country’s policymakers were contemplating on the issuance of a CBDC or Central Bank Digital Currency, which will be a joint initiative between the government and the private organizations.

Norihiro Nakayama, the parliamentary Vice-Minister for Foreign Affairs, believed that such a partnership would put Japan in line with the current changes taking place in the global financial ecosystem and the country will be more than inept to adopt technological changes.