Category: CBDCs

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Australia Banking CBDCs Crypto News

Australia Explores Multi-CBDC Platform For International Settlements

The central banks of Australia, Singapore, Malaysia and South Africa, in conjunction with the Bank for International Settlements (BIS), have released a report outlining the results of a project to create two prototype multi-CBDC platforms.

Project Dunbar, which was launched in September 2021, concluded that multi-CBDCs are technically viable but significant coordination, governance and jurisdictional challenges will need to be overcome before they can be fully implemented in real-world situations. 

What Did Project Dunbar Involve?

Project Dunbar involved the creation of two multi-CBDC platforms shared by multiple central banks to transact with each other using different digital currencies. The use of such systems could potentially reduce reliance on intermediaries and lead to significant reductions in the cost and time taken to complete international transactions between financial institutions.

Diagram illustrating multi-CBDC platform. Source: Project Dunbar report

The prototypes were built using two different technology platforms – one developed primarily by R3 on the Corda platform, the second developed on the Quorum platform.

The report found that financial institutions could successfully use these shared multi-CBDCs to directly transact with each other, stating that:

This initial phase of the project successfully developed working prototypes and demonstrated practicable solutions, achieving its aim of proving that the concept of multi-CBDCs was technically viable.

Project Dunbar report

Technically Viable But Hurdles Ahead

While the report found that shared multi-CBDCs are technically viable, it also identified governance, jurisdictional and trust issues that need to be solved before the tech can become truly viable.

The report identified three key questions that need to be addressed:

  1. Which entities should be allowed to hold the digital currencies and access the shared platform?
  2. How can cross-border payments be simplified while respecting regulatory differences across different jurisdictions?
  3. What kind of governance arrangement would make countries comfortable sharing access to critical infrastructure such as payment systems?

Michele Bullock, assistant governor of the Reserve Bank of Australia (RBA), echoed these concerns, explaining:

Project Dunbar has provided valuable insights into the opportunities and challenges associated with developing a shared platform for multiple CBDCs to enhance cross-border payments. Allowing entities to directly hold and transact in CBDCs from different jurisdictions could reduce the need for intermediaries in cross-border payments, but it would need to be done in a way that preserves the security and resilience of these payments.

Michele Bullock, assistant governor, RBA

Australia’s involvement in Project Dunbar is another indication of the Reserve Bank’s growing interest in CBDCs, having last year sought to hire cryptocurrency experts to work in its Central Bank Digital Currency research team.

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Canada CBDCs Crypto News ETFs

MIT Partners with Canada’s Central Bank to Study CBDCs

The US Massachusetts Institute of Technology (MIT) and the Bank of Canada have announced an agreement to collaborate on CBDC (Central Bank Digital Currency) research.

After exploring CBDCs for several years, the Bank of Canada has decided to step things up by partnering with MIT to embark on a 12-month research project focusing on the usefulness and technical aspects of CBDCs. As per the bank’s official press release:

The project forms part of the bank’s wider research and development agenda on digital currencies and fintech. It will focus on exploring and experimenting with potential technology approaches to determine how a CBDC could work.

Bank of Canada press release

The bank didn’t clarify if it intends to introduce a CBDC in the country. Updates on the findings will be provided at the end of the project period.

CBDC? Maybe; Crypto? Frozen and Seized

Canada embarked on CBDC studies in 2020 when it published a report titled Contingency Planning for a Central Bank Digital Currency. This was a year before the cryptocurrency market boomed and the world started exploring the possibilities. Now, a large swathe of countries are either researching or testing CBDCs, as per CBDC Tracker.

Canadian authorities, however, have proven to be anything but a Western liberal democracy, as they have described themselves. At first, the government demonstrated strong support for cryptocurrencies, allowing management firms and investment companies to launch crypto exchange-traded funds (ETFs) in the country.

However, a month ago, Canada decided to invoke the Emergency Act, cutting off crowdfunding for the Freedom Convoy, which had amassed millions of dollars in crypto donations.

If the Central Bank decides to issue a national CBDC, it can oversee all transactions being made with it. This is something the crypto community has protested about on numerous occasions, with famous whistleblower and former NSA agent Edward Snowden calling CBDCs a “perversion of crypto”.

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Bitcoin CBDCs Crypto News

Deloitte Claims Bitcoin Could Help Governments Create Cheaper CBDCs

A new report from financial services giant Deloitte has highlighted the potential of Bitcoin to form the base of a cheaper, faster and more secure ecosystem for digital fiat and central bank digital currencies (CBDCs).

Comparison between state-sponsored crypto and Bitcoin. Source: Deloitte

Existing Problems Recognised

Deloitte’s report acknowledged the need for a total revamp of the current fiat financial system, suggesting it was “slow, error-prone and expensive relative to performance in other high-tech industries”.

At its core, the report highlights five areas where leveraging the qualities of Bitcoin may be able to improve the current system. In fact, in 2015 the US Federal Reserve released a paper outlining its goal to “improve the speed and efficiency of the payment system from end-to-end over the next decade”. Its key outcomes included:

  1. speed – ubiquitous, safe, faster electronic solution(s);
  2. security – very strong security and high levels of public confidence;
  3. efficiency – reduce the average end-to-end (societal) cost of payment;
  4. cross-border payments – affordable international transfers; and
  5. collaboration with other payment participants – widespread participation with all payment participants.

Deloitte Offers Hybrid Solution

Having identified the problems, Deloitte continues to offer its solution – a blend of the best attributes of Bitcoin and newly established CBDCs and digital fiat.

This, Deloitte argues, would cut costs, reduce errors, increase speed, and simultaneously maintain the privacy and anonymity of user transactions.

Comparison of CBDC and BTC. Source: Deloitte

Throughout the report, much of the emphasis rested on one of Bitcoin’s most widely acknowledged value propositions – genuine decentralisation:

With the capacity to do so without relying on a centralised entity for day-to-day operations, whether commercial or federal, the effect might be really transformative.

Deloitte report

The report argued that Bitcoin was not a substitute for CBDCs and vice versa – instead, they would co-exist and provide greater consumer choice:

Bitcoin could ultimately spawn a series of new opportunities that would transform the current payments system into one that is faster, more secure, and less expensive to run.

Deloitte report

While this isn’t Deloitte’s first venture in the crypto ecosystem, the report has caused some controversy. How do you integrate the best qualities of a decentralised, uncensorable fixed supply digital asset such as Bitcoin with a centralised, unlimited supply CBDC?

Arguably this is impossible given that in many respects, they represent the antithesis of each other. Well, that seems to be what Bitcoiners think:

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CBDCs Crypto News Cryptocurrency Law Regulation

Key Takeaways From President Biden’s Long-Awaited Crypto Executive Order

US President Joe Biden has signed an executive order calling government agencies to examine the risks and benefits of cryptocurrencies. What are the key insights and reactions from industry players?

Addressing Risks and Benefits of Digital Assets

Contrary to the fears of some market participants, no direct action will be taken from the order, at least for now. Instead, it lays out a process and series of deadlines for the alphabet soup of government agencies to work together and deliver a report to the president.

Specifically, the executive order covers seven main areas and calls for measures to:

  1. protect consumers, investors and business;
  2. protect US financial stability and mitigate systematic risk;
  3. mitigate the financial and national security risks posed by the illicit use of digital assets;
  4. promote US leadership in technology and economic competitiveness within the global financial system;
  5. promote equitable access to safe and affordable financial services;
  6. support technological advances and ensure responsible development and use of digital assets; and
  7. explore a US central bank digital currency (CBDC).

Although lacking in detail, the White House noted the order would work “across agencies and with Congress to establish policies that guard against risks and guide responsible innovation”.

Put differently, the administration appears to be making an attempt at striking a regulatory balance between consumer protection and embracing innovation. Or at least appearing to do so.

Mixed Responses to EO

Despite the order lacking any real substance, most seemed to share the sentiments of Jerry Brito, director of Coin Center:

The message I take from this EO is that the federal government sees cryptocurrency as a legitimate, serious, and important part of the economy and society, and I think it’s a good signal to serious people who’ve been holding back from getting involved. The EO also presents another striking contrast with alarmist politicians and media in that it is ultimately a call for further study and deliberate planning, not a reactive rush to legislate or regulate.

Jerry Brito, director, Coin Center

Dave Grimaldi, head of government relations at the American Blockchain Association, agreed with these sentiments:

However, crypto libertarians such as Erik Voorhees regarded the announcement as a series of meaningless platitudes. Or, in his words, “a perfectly political communication”:

Bitcoin-friendly Senator Cynthia Lummis was equally uninspired, and issued a statement questioning the need for a CBDC:

Image
Senator Cynthia Lummis’ statement. Source: Twitter

Conclusions to be Drawn

On a close inspection of the executive order, it’s difficult not to be somewhat cynical, given that it is devoid of any real substance. While it may appease some market participants, it would seem prudent to reserve judgement pending the release of concrete information.

However unpopular, regulation appears to be an inevitable feature of any market on the path towards widespread global adoption. The hope, of course, is that regulators are not too heavy-handed, to the point where innovation flees to friendlier jurisdictions.

Australia appears to be on the right path with the Senate Committee recently publishing a 12-point reform plan designed to strike a balance between consumer protection and ensuring Australia remains competitive in the global digital asset arena. Recently, the former head of payments policy at the RBA suggested that regulation would threaten the crypto market, however money sitting on the sidelines awaiting regulatory clarity would argue otherwise.

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Blockchain CBDCs Crypto News Stablecoins

UK’s Cambridge University Launches Crypto Institutional Research Group

Cambridge, one of the UK’s most famous and prestigious universities, is launching a research initiative focusing on digital assets, dubbed the Cambridge Digital Assets Programme (CDAP).

IMF and Global Banks to Collaborate

The Cambridge Centre for Alternative Finance (CCAF) is backing the initiative and will collaborate with 16 companies, including financial organisations such as the International Monetary Fund (IMF), leading global banks, and private organisations.

The idea behind CDAP is to bring further insights into the growing cryptocurrency industry, and debate the risks and opportunities associated with the ongoing adoption of digital assets.

CDAP will focus on three main fields:

  • blockchain infrastructure;
  • the environmental implications of cryptocurrencies; and
  • the overall use of digital assets, stablecoins and CBDCs (Central Bank Digital Currencies).

[CDAP] aims to meet the need for greater clarity by providing data-driven insights through collaborative research involving public and private sector stakeholders.

Bryan Zhang, CCAF executive director

Other notable research collaborators are British International Investment PLC, London Stock Exchange Group, Mastercard, Visa, World Bank, and the Dubai International Financial Centre.

Link to Australian Research Program

The CCAF’s initiative is similar to that of the DFCRC – Digital Finance Co-operative Research Centre, an Australian-based research program that focuses on the digital finance sector and the latest fianancial technologies. The project raised A$181 million through local industry leaders including the Reserve Bank of Australia, National Australia Bank, and the National Stock Exchange of Australia.

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Banking CBDCs Cryptocurrencies NFTs

Mastercard to Offer Crypto and NFT Consulting Services, May Help Develop CBDCs

Mastercard has announced plans to cater to open banking, ESGs, open data, and crypto and digital currencies, by expanding its payments-focused consulting service. It is believed the move may help it develop central bank digital currencies (CBDCs), which has been met with contempt from the industry.

https://www.mastercard.com/news/press/2022/february/mastercard-expands-consulting-with-practices-dedicated-to-crypto-open-banking-and-esg/
Mastercard Consulting Practices. Source: Mastercard

Mastercard Sets Eyes on the Future

In a February 15 press release, Mastercard announced new offerings, directed at banks and merchants, intended to cover crypto and NFT strategies, along with loyalty programs and crypto cards.

Mastercard is also exploring the possibility of developing CBDCs, having previously expressed interest in the potential of digital currencies by working on crypto cards for BitPay and Wirex.

Raj Seshadri, Mastercard’s president of data and services, has said that payments are only the beginning, and that the company will continue to help its clients “understand and navigate” the challenges and opportunities thrown their way.

https://www.linkedin.com/in/seshadriraj/

This evolution of consulting is in recognition of the changing world and of our changing business. It’s about helping customers navigate today’s challenges and anticipating what’s next.

Raj Seshadri, Mastercard’s president of data and services

While consulting efforts are set to cover topics from early-stage education to bank-wide crypto and NFT strategies, those within the industry are not so sold on the idea of CBDCs:

Securing its Place in the Industry

In mid-January, Mastercard solidified a partnership with crypto exchange giant Coinbase, which seeks to enable easier NFT purchases for users. And, in late 2021, the company secured a deal that enables consumers to buy, sell and hold assets through the crypto trading platform Bakkt.

By Lauren Claxton, Crypto News Guest Author

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Banking CBDCs Crypto News

Zambia Exploring CBDCs but Remains Anti-Crypto  

The Zambian central bank has revealed that it is in the process of researching central bank digital currencies (CBDCs), and plans to implement them by the end of the fourth quarter if the outcomes look positive. This comes after the government of the landlocked East African republic issued warnings about cryptocurrencies earlier in the year.

According to a Bloomberg report, Zambia has joined the growing list of countries researching CBDCs with the joint aim of cutting transaction costs and increasing citizens’ participation in the formal financial system, as well as providing a major upgrade to traceability.

Jamaica is planning to roll out a CBDC in early 2022, and even Australia’s indigenous Sovereign Yidindji Nation in the rainforests of far north Queensland has digitised its own currency.

CBDCs Making Headway

In a recent speech by Kristalina Georgieva, managing director of the International Monetary Fund (IMF), there are about 100 countries currently in some phase of exploring CBDCs, be it research, testing, or distribution.

We have moved beyond conceptual discussions of CBDCs and we are now in the phase of experimentation. Central banks are rolling up their sleeves and familiarising themselves with the bits and bytes of digital money.

Kristalina Georgieva, managing director, IMF

Georgieva added that if CBDCs are well designed, they could offer “more resilience, more safety, greater availability, and lower costs than private forms of digital money”.

Governments Want CBDCs, Not Crypto

According to Bloomberg, earlier this month the Zambian central bank made it clear that cryptocurrencies are not legal tender and should be used “at your own risk”.

Many countries are planning on replacing fiat money with CBDCs due to the advantages they bring to enforce monetary policy. With the advent of digital currency, many more people will be able to participate in the financial system. However, in third world countries, many people don’t have access to devices or the internet, which makes the use case more difficult.

One of the other driving factors is that people are now able to use more methods of payment and currencies than ever before. If the citizens of a country start preferring another currency to their own, it could have negative effects on that native currency.

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Australia Blockchain CBDCs Crypto News Payments

Sovereign Aboriginal Yidindji Nation Launches Own CBDC

The Sovereign Yidindji Nation, an indigenous micronation located in the Australian rainforest region of far north Queensland, has created history in launching its own digital currency.

The micronation’s self-proclaimed financial technology minister, Murrumu of Walubara (see YouTube video, above), formed the Sovereign Yidindji Nation (SYN) in 2014 after renouncing his Australian citizenship. Now also the territory’s minister for foreign affairs and trade, renewable energy and communications and broadband, Murrumu this week announced the launch of a central bank digital currency (CBDC), making SYN the first indigenous nation on the Australian continent to become fully digitised.

Murrumu of Walubara. Source: sbs.com.au

Murrumu describes the so-called Sovereign Yidindji Dollar as a significant step in building the nation. “It was too expensive to mint coins and to print physical notes,” he explains. “It just didn’t make sense because it’s cheaper and better for the environment to go down the digital currency road.

We actually create the money in accord with our laws and that is then minted and verified on a digital platform, so we’re not just printing money out of thin air.

Murrumu of Walubara, Yidindji minister for financial technology, foreign affairs and trade, renewable energy and communications and broadband

Four Pillars of the Yidindji CBDC

The Yidindji CBDC has four distinctive features that differentiate it from others already established, such as the Sand Dollar in the Bahamas and Nigeria’s eNaira:

  • It is the first CBDC issued using the MetaMUI CBDC platform.
  • It has been issued exclusively in digital currency, without the need for paper bills.
  • It incorporates a payment system connected with MetaMUI’s service set identifier system, which can be used in all retail stores and government offices. Payments can be processed without using the dedicated network, there are no transaction fees, sales settlements are immediate, and cross-border payments can be made without using credit cards.
  • It is a convertible currency whose collateral assets are gold, silver, and other minerals and natural resources, such as green and blue carbon. Money issuance, backed by a digital certificate, is also backed with collateral assets.

MetaMUI combines the concept of a self-sovereign identity and a decentralised blockchain, thus safeguarding users’ privacy and avoiding centralised censorship and the abuse of private information.

Nation Already Using MetaMUI Identity System

The Sovereign Yidindji Government (SYG) has already built a national identity system using MetaMUI’s technology, meaning all Yidindji citizens, companies and organisations can create their own digital identities, own digital assets and make payments with the Yidindji Dollar.

The SYG has 17 ministers and 22 ministries, and plans to be the first government to become fully digitised. For the 40 SYN citizens with the digital identification app on their phones, using the new CBDC is simple. “Basically you can pay through a QR code,” Murrumu says.

The ultimate goal for Murrumu and the SYN is a treaty with the Australian Commonwealth. When that happens, Murrumu says, it will “enable our money to cross borders into the Australian system and vice versa”.

In September last year, the Reserve Bank of Australia (RBA) joined Singapore, Malaysia and South Africa in launching a CBDC pilot for international settlements. At the time, the RBA announced it was looking to hire experts for its “CBDC research team” and expected the results of the pilot to be published “in early 2022”.

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CBDCs Crypto News Cryptocurrency Tax India Regulation

India Set to Tax Crypto Income at 30% and Plans to Launch ‘Digital Rupee’ CBDC

Following the country’s annual budget speech, India’s finance minister Nirmala Sitharaman announced a 30 percent taxation rate on any income stemming from the transfer of virtual digital assets. She added that the country is likely to issue the digital rupee in the 2022-2023 financial year.

News Welcomed by Indian Crypto Investors

In a country where crypto investment has shot up by 19,000 percent in a year, and the younger cohort is opting to invest their assets in crypto rather than traditional options such as gold, the news has been welcomed.  

“There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime,” the minister said in the budget speech delivered on February 1.

Clarity regarding taxation suggests that crypto would not be banned as some had feared. Apart from the high tax rate, India will not provide any deductions on crypto income except the cost of acquisition. Further, losses incurred by transferring crypto cannot be offset against any other income, unlike losses from stocks.

According to the speech, tax deductions at source will also be imposed on payments for the transfer of crypto assets at a rate of 1 percent for transactions over a certain threshold. Any gifts of crypto assets will also be taxed in the hands of the recipient.

Although the words “crypto” and “cryptocurrency” were not used during the speech, the minister used the phrase “virtual digital asset”, which the industry takes as a term for cryptocurrencies and NFTs.

India to Launch ‘Digital Rupee’ CBDC in Fiscal Year 2023

The budget speech also gave a specific timeline for the launch of India’s central bank digital currency (CBDC). Minister Sitharaman has said that a “digital rupee using blockchain and other technologies” is set to be issued by the Reserve Bank of India starting in the fiscal year 2022-2023. According to the minister, “digital currency will lead to a more efficient and cheaper currency management system”.

Although the clarity given regarding taxation is a step in the right direction, the country still awaits regulatory clarity. The government was scheduled to introduce a crypto bill for discussion in parliament but has not done so yet. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, when presented, will provide specific details on whether India is going to embrace cryptos officially or not.

Will Taxation Deter Retail Investors?

The news from India is significant, seeing as it will affect over one billion people and is likely to set a trend. But the question remains whether imposing a 30 percent tax on virtual digital assets will deter retail investors. While some have argued that 30 percent is too much, others disagree, saying it is in line with taxation on personal income.

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Banking CBDCs Crypto News

South Korea Becomes 14th Nation to Successfully Complete Phase 1 CBDC Trial

The first phase of South Korea’s CBDC (Central Bank Digital Currency) trial has been successfully completed, as per an announcement from the Bank of Korea.

Following the issuance and distribution pilot, June 2022 is the potential date to start working with financial institutions to publicly distribute the digital won. One of these financial entities is Ground X – a subsidiary of Korea’s largest social network, Kakao – selected as the bank’s technology partner for the digital won simulations.

A simulation environment [will be] created in the cloud for the basic functions of the implemented CBDC (manufacturing, issuance, distribution, etc). Based on this, we plan to verify the possibility of implementing various additional functions (offline payments, etc) and applying new technologies, such as enhancing personal information protection.

Bank of Korea report

The bank emphasised that the digital won would not replace its fiat currency, rather it will be used as a “backup payment method” in situations where telecommunication companies experience failure.

Travel Rule Puts Pressure on Crypto Exchanges

South Korea has become the 14th nation to officially and successfully complete a CBDC pilot, following China, the Bahamas and Nigeria, to name a few.

The CBDC announcement comes after many South Korean financial entities have placed a lot of pressure on crypto exchanges following the Travel Rule, which requires exchanges, digital wallet providers and other crypto-related companies to share personally identifiable information (PII) for transactions over a certain amount.

On January 25, South Korea’s second-biggest exchange, Bithumb, had to suspend crypto withdrawals following pressure from the Korean Financial Intelligence Unit.

An odd sidelight to all this is that, as Crypto News Australia reported earlier this month, South Korean presidential candidate Lee Jae-Myung is using non-fungible tokens (NFTs) as part of his fundraising campaign.