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Six Leading Central Banks to Brainstorm the Issuance of Digital Currencies in Mid-April

The leaders of six major central banks are scheduled to meet in mid-April to conceptualize on creating their own digital currencies as they can be instrumental in substituting the digital yuan or Facebook’s Libra. The Swiss National Bank, the European Central Bank (ECB), the Bank of Japan, the Bank of England, the Bank of Canada, Sweden’s Sveriges Riksbank, as well as the Bank for International Settlements (BIS) had formed a working group in January to research on this objective jointly.

Creating CBDC standards

The April meeting is speculated to draft standards that will govern how Central Bank Digital Currencies (CBDCs) are utilized when making international transactions between banks. The other objective will entail brainstorming on concrete security measures.

Expressly, CBDCs are being touted as they can make global payments cheaper and more convenient. These are sentiments echoed by Masazumi Wakatabe, the deputy governor of the Bank of Japan, who believes that cross-border settlements ought to be streamlined for optimal efficiency.

The issuance of digital currencies by central banks is being floated at a time when the debate about the future of money has intensified. For instance, China has set a precedent in researching CBDCs as they have the capability of reshaping the financial structure. As a result, the nation’s central bank, the People’s Bank of China, is contemplating issuing its own digital yuan.

Senior bank representatives, such as directors and deputy governors, have been tasked with coming up with thorough findings of digital currencies before they meet on the sidelines of an international conference in Washington.

In the scheduled April meeting, the central bankers’ primary intention will be drafting CBDCs procedures and standards when it comes to international payments. They are expected to present an interim report in June 2019, and the final one around autumn.

Image via Shutterstock

PayPal CEO Announces Plans for Cryptocurrency Business Expansion to Reach More Users

PayPal CEO Dan Schulman gave comprehensive views regarding the company’s recent investment in crypto business, discussing potential business partnerships with central banks and the development of shopping tools on the payments platform.

Schulman said that starting in 2021, PayPal would allow consumers to use crypto wallets to pay for goods and services, as 28 million merchants use PayPal to receive payments. He stated that such arrangements would not result in an increase in transaction fees for either merchants or consumers.

Schulman said that PayPal’s expansion plans scheduled to take place next year would also enable consumers using its popular peer-to-peer payment service Venmo to purchase and transact using cryptocurrencies. He added that when PayPal first announced that it was going to enable crypto payments on its platforms, the annoucement elicited positive reactions from customers who have expressed great interest in cryptocurrency.

Schulman revealed a huge waiting list of customers who intend to access cryptocurrencies through PayPal apps. He said that currently, only 10% of PayPal customers could access crypto services through its mobile app. He mentioned that within the next few weeks, all US users would comfortably enjoy the availability of PayPal crypto services in their smartphones and PC devices.

Furthermore, Schulman discussed how Central Banks and firms were conducting research on central bank digital currencies (CBDCs) and digital wallets. Such wallets are normally associated with payment services provided by Google and Apple, but they also include apps used to store cryptocurrencies and other digital assets.

Schulman said, “Digital wallets are a natural complement to all forms of digital currency.”

He hinted that PayPal is engaging in close discussions with regulators and central banks to examine new use-cases of such digital wallets.

Schulman said that PayPal sees cryptocurrency systems, which run on blockchain networks, as more efficient and cheaper than the Automated Clearing House (ACH) network that supports the existing banking system for electronic funds transfers.

Traditional Financial Institutions Embracing Cryptocurrency

Shulman’s statements follow PayPal’s announcement that the payments platform was looking to allow consumers to purchase cryptocurrencies within its mobile app in the near future.

PayPal is one of the companies that focus on bridging the traditional financial systems with the new cryptocurrency landscape. Schulman said that a conventional financial system did not work for the low-income tier. Therefore, with crypto, companies such as PayPal are working to offer cryptocurrencies to the unbanked population. Financial institutions are now seeing an accelerated financial inclusion through cryptocurrencies.

On October 28, Coinbase crypto exchange launched a debit card that consumers can use at any business that accepts visa card payments. Mastercard global payment company then also launched a digital currency platform that aims to enable Central Banks to execute the distribution of money directly to consumers without relying on commercial banks as intermediaries.

However, such efforts to make cryptocurrency go mainstream still encounter hurdles from taxation demands. The U.S tax agency and the Internal Revenue Service (IRS) treats any kind of cryptocurrency transactions as taxable events. This implies that PayPal customers who purchase goods and services using cryptocurrency could be compelled to pay a capital gain tax.

Schulman did not discuss the impact of taxation on PayPal cryptocurrency plans. However, crypto advocates have been lobbying the US Congress and the President to introduce a bill identified as “de minimus” exemption, which could exempt customers with small-scale transactions from being taxed. However, such an effort has still not become successful.

CBDCs Are Bad News to European Banks, says Bank of America Analysts

Although Central Bank Digital Currencies (CBDCs) are important, they could hurt banks. Bank of America analysts Alastair Ryan and Philip Middleton have explained how the pursuits to launch CBDCs could have a damaging impact on already-depressed European banks.

The European Central bank (ECB) is one of the few aggressive monetary institutions that have considered issuing a CBDC in Europe. The ECB recently announced its decision to carry out a pilot test of its CBDC in mid-2012. Apart from that, the Bank of England has also expressed positive comments on such engagements. Two Euro Area banks of the Eurostoxx Index are also positive towards CBDCs this year.

The Bank of America analysts said that they understand some of the reasons behind the push for CBDCs. They mentioned that the Coronavirus pandemic has hastened the declining use of physical cash.

They further stated that pursuits of the private institutions to launch digital currencies, led by Facebook’s Libra cryptocurrency, have awakened Central Banks in Europe and around the world. Moreover, they revealed another reason, which is the fact that the European card payment market is dominated by non-European companies Visa and Mastercard.

However, Ryan and Middleton said that CBDCs not only are going to replace all banknotes and physical cash in people’s wallets but also present significant risks of financial stability thus challenging countries’ monetary sovereignty (ability to control monetary policy and provide services as lender of last resort) as well as posing a challenge to the European Central Bank itself.

The analysts identified another worry associated with the CBDC as such government-issued digital currencies would cut the link between banks and customers. The analysts said: “If current accounts become less important, banks could become providers of balance sheet capital only. This leaves fee income highly vulnerable.”

Lastly, the analysts mentioned that CBDCs engagements would also be deflationary as there would be no deposits put in banks and therefore banks would have no business to issue loans, and thus would not be making profits majorly generated from loan servicing.

Most Central Banks have joined the bandwagon as they don’t want to be left out of the digital craze. Over 80% of the world’s Central Banks are examining the potentials of CBDCs. However, financial experts and analysts have argued that Central Bankers should carefully consider the benefits and risks of the CBDCs. The US Federal Reserve has taken a cautious approach and has yet to decide to launch a digital currency. Besides the benefits of CBDCs, some operational issues and sensitive public policy matters require careful assessments, including the impact on financial stability and monetary policy and the risks of cyber-attacks.

BOJ Governor: Japan Should Prepare "Thoroughly" for the Issuance of its Digital Currency

Haruhiko Kuroda, the Bank of Japan (BOJ) governor, has highlighted the need for the nation’s central bank to prepare “thoroughly” for the rollout of its digital currency with initial experiments expected from next month.

Preparing for changing circumstances

He revealed that experiments with CBDC in Japan will begin in spring 2021. Kerudo acknowledged the need for central banks to stay in line with changing global situations. He explained:

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

In July last year, the BOJ revealed that the development of its central bank digital currency (CBDC) was a top priority because this would propel a global outreach. It was planning on issuing a proof-of-concept that would guarantee universal access.

The first phase to test distribution and issuance

Japan’s central bank has disclosed that the first experimental phase will test the issuance and distribution of its CBDC. The issuance of CBDCs seems to be a race against time because, in the eyes of many countries, owning a CBDC is instrumental in having control of the global markets.

In October last year, the Bank for International Settlements (BIS), along with seven central banks, released a report identifying the foundational principles necessary for publicly available CBDCs to help central banks meet their public policy objectives. For instance, it was stressed that CBDCs should co-exist with cash and other types of money in a flexible and innovative payment system.

Once rolled out, CBDCs are expected to drive the financial inclusion of nearly 1.7 billion people left out of the banking system. This is because CBDCs are digital assets, which are pegged to a real-world asset and backed by the central banks meaning that they represent a claim against the bank exactly the way banknotes work. Central banks will also be in full control of the supply of CBDCs.

Coinbase Crypto Exchange to Support CBDCs in the Future as Long as They Meet Listing Standards

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Brian Armstrong, the CEO of Coinbase cryptocurrency exchange, has said that the crypto startup may someday support central bank digital currencies (CBDCs) on its network.

His comment came via a video response to an “Ask Me Anything” session on Reddit hosted by Coinbase ahead of the exchange’s forthcoming direct listing on Nasdaq.

Armstrong’s remarks were in response to a question regarding the “full integration of crypto payments into internet services” and whether central bank digital currencies might serve that role. Armstrong recognized CBDCs as a vital trend.

During the video session, Armstrong said that central bank digital currencies are going to become really huge, with pretty much every major government out there beginning to think about how to develop them. He further added:

“We are cryptocurrency agnostic, so we will support and cryptocurrency, including CBDC and stablecoins and decentralized ones like DAI as long as they meet our listing standards.”

Making Sense of Digital Currencies

With advanced technological developments, digital currencies have evolved rapidly and adapted as an exchange medium. As consumers are flocking to digital assets, active companies in the payments industry including PayPal, Mastercard, Visa, crypto exchanges, and others are eager to provide solutions to enable customers to pay with various digital assets.

Coinbase deliberating over the addition of CBDCs on its network comes a time when Mastercard had said that it planned to soon directly support the use of cryptocurrencies, stablecoins, and CBDCs for payments.

Of course, CBDCs are currently one of the most revolutionary disruptions discussed in the global financial ecosystem as they have been attracting attention from the media and the financial industry.

Central banks across the globe are carrying out research and development in the field of CBDCs, with some nations – mainly China – carrying out advanced tests ahead of the anticipated public launch. So far, the Bahamas has launched its digital currency. Meanwhile, the US Federal Reserve continues researching this area and has emphasized the need to research it well before considering a potential CBDC issuance. CBDC would basically serve as an additional payment mechanism to compete with the rise of centralized digital assets like Diem -formerly known as the Libra cryptocurrency – which is being developed by Facebook.

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Bitcoin Transaction Fees as a Percentage of Total Miner Revenues Hit Lowest Point Since June 2020

Bitcoin (BTC) was down by 2.26% in the last 24 hours to hit $33,259 during intraday trading, according to CoinMarketCap. However, the ongoing Chinese crackdown on BTC mining facilities has dragged its upward momentum, given that some Bitcoin miners have been selling their holdings to attain the needed capital to establish new facilities in other nations.

As a result, BTC transaction fees have plunged. Analytic firm Arcane Research explained:

“Bitcoin transaction fees as a percentage of total miner revenues are now at the lowest since June last year, even with the decline in hashrate and less frequent blocks.”

Reportedly, Bitcoin on-chain transactions recently nosedived to a two year low of 8,843.054, as China’s crypto mining restrictions triggered FUD (fear, uncertainty, and doubt) among investors.

Bitcoin needs to break through $35K

According to market analyst Michael van de Poppe:

“Bitcoin rejects the crucial barrier here. Breaking through $35K would mean continuation to $38.5K and maybe $41K. Rejecting here means – looking for a higher low to confirm bullish divergence. Levels to watch; $33K and $31.5K.”

The analyst stated that the $31.5K was vital because a higher low is needed to be created so that it could trigger a bullish divergence.

A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power and that bulls are ready to control the market again.

Michael van de Poppe had previously noted that if the $31.5K didn’t get the support, a further drop to the $24K area would happen.

Meanwhile, The Bank for International Settlements (BIS) recently announced its full support for developing central bank digital currencies (CBDCs) in pursuing financial and monetary stability through international cooperation with the mandate and support by central banks.

CBDCs are digital assets pegged to a real-world asset and backed by the central banks, meaning that they represent a claim against the bank exactly how banknotes work. Furthermore, they are blockchain-enabled, representing a new technology for issuing central bank money at the wholesale and retail level.

The Bank for International Settlements Gives CBDCs Full Backing

The Bank for International Settlements (BIS) announced its full support for developing central bank digital currencies (CBDCs) in pursuing financial and monetary stability through international cooperation with the mandate and support by central banks.

CBDCs are crucial in modernising finance

The BIS acknowledged that CBDCs must modernise finance and keep ‘Big Tech’ in check not to control money.

Benoit Coeure, a member of the BIS, warned:

“Without CBDCs, digital money would become increasingly dominated by big tech firms, as they would leverage enormous social media user bases.”

CBDCs are digital assets pegged to a real-world asset and backed by the central banks, meaning that they represent a claim against the bank exactly how banknotes work. Furthermore, they are blockchain-enabled, representing a new technology for issuing central bank money at the wholesale and retail level.

According to the announcement:

“As part of its upcoming annual report it estimated that at least 56 central banks and monetary authorities, representing around a fifth of the world’s population, are now looking at digital currencies as commerce shifts online.”

The issuance of CBDCs seems to be a race against time; many nations believe owning a CBDC is instrumental in having control of the global markets.

The Bahamas- the first nation to launch a CBDC

The Bahamas launched the Sand Dollar in October last year, making it the first country in the world to release a CBDC beyond the testing phase officially.

As more nations reveal their interest in CBDCs, the BIS noted that authorities would have to decide whether citizens require digital IDs to use them or choose the token-based route, making transactions more anonymous.

In November 2020, the International Monetary Fund (IMF) advised central banks not to overlook some essential legal frameworks needed for a CBDC to work.

Once rolled out, CBDCs are expected to drive the financial inclusion of nearly 1.7 billion people left out of the banking system.

IMF to Play a Crucial Role in Monitoring Digital Money Evolution

The International Monetary Fund (IMF) has unveiled the role it has to play in helping to court the rapid advancement in digital money around the world.

Per a Reuters report, drawing on a Public Policy paper published by the Fund on Thursday, the IMF acknowledges the positive impacts all forms of digital money, including Central Bank Digital Currencies and stablecoins, amongst others, can have on an economy, noting the benefits could foster financial inclusion.

“Rapid technological innovation is ushering in a new era of public and private digital money,” the report reads, highlighting the benefits of digital assets. “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 achievement of these benefits entails so much, and the IMF said it is ready to work with central banks around the world to “monitor, advise on, and help manage this far-reaching and complex transition” to a digital money era. According to the paper, IMF also submitted that it “has a critical role to play to help its members harness the benefits and manage the risks of digital money.”

The exploration of financial innovation through the launch of a Central Bank Digital Currency (CBDC) by central banks and cryptocurrencies by private issuers is undoubtedly gaining momentum today. The IMF, in its role, has lent support for innovations of all kinds. However, it cautions against the quick shift by monetary watchdogs to endorse volatile private cryptocurrencies as legal tender as it has vocally criticised the related move made by El-Salvador.

Per the Reuters report, the IMF wants governments to step up and meet the financial benefits privately issued cryptocurrencies offer. However, it noted that “attempting to make cryptoassets a national currency is an inadvisable shortcut.”

Four Countries to Conduct Cross Border CBDC Payment Trials

The Bank for International Settlements (BIS) has joined forces with the central banks of South Africa, Malaysia, Singapore, and Australia to kick start a project dubbed Dunbar aimed at testing the use of central bank digital currencies (CBDCs) in cross border payments.

Per the announcement on Thursday:

“Led by the Innovation Hub’s Singapore Centre, Project Dunbar aims to develop prototype shared platforms for cross-border transactions using multiple CBDCs. These multi-CBDC platforms will allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks.”

By rolling out the trial, the central banks intend to enable financial institutions to cut the time and cost of transactions and eliminate the need for intermediaries.

CBDCs represent the digital form of a nation’s fiat money. They are controlled directly by the country’s central bank and are backed by national credit and government power.

To stabilise the control over the supply and demand of currency for the seemingly inevitable cashless society in the future, countries are now launching experiments to test the workings of CBDC.

Enhancing the G20 roadmap for cross-border payments

According to the report:

“Project Dunbar’s work will explore the international dimension of CBDC design and support the efforts of the G20 roadmap for enhancing cross-border payments.”

The CBDC payment trials facilitate seamless multi-currency fund transfers, which is a significant step towards the global vision of making payments cheaper and faster.

In October 2020, the BIS released a report identifying the foundational principles necessary for any publicly available CBDCs to help central banks meet their public policy objectives. Some of the principles entailed CBDCs coexisting with cash and other types of money in a flexible and innovative payment system.

Singapore and Cambodia to Explore CBDC to Boost Payments Ecosystem

Singapore and Cambodia are notably exploring the use of Central Bank Digital Currencies (CBDCs) and digital currencies to improve their payment ecosystem efficiency as well as bolster the growth of startups across the board.

Both ASEAN countries are capitalizing on the growth of e-commerce on their shores to bolster efficiency in their payments ecosystem, according to a South China Morning Post (SCMP) report.

“Southeast Asia has been a very fertile ground for digital payment innovation,” Benedicte Nolens, head of the Hong Kong centre of the Bank for International Settlements (BIS) Innovation Hub, said during a panel discussion. “When you see online e-commerce growth, typically it goes fairly well with new payment mechanisms.”

Singapore is known to be particularly warming up to the growth of digital currencies with a number of startups springing forth to offer services in this regard. While regulation may be slow in comparison with other nations, the Monetary Authority of Singapore (MAS), as well as the other regulatory bodies in the country, are more focused on long term value, hence the thought out process for licensing a business with emerging technology looking to do business on its shores.

Besides the growth of private digital currency startups, Singapore is upfront in the CBDC race as is a part of BIS Project Dunbar which seeks to build a multi-CBDC platform for a variety of Central Banks developing their digital monies. Cambodia on the other hand is a relatively growing economy whose growth has been fast-paced compared with the internet’s advancement.

“There is a lot of room to grow in the internet economy in Southeast Asia. Cambodia is a small country of 16 million people, where we have about 20 million mobile phone subscriptions,” said Serey Chea, Assistant Governor of the National Bank of Cambodia, adding that “It’s like a newborn baby who immediately is given a mobile phone subscription or two or three subscriptions.”

Per the SCMP, the obvious drive by these Southeastern Asian countries to boost their payments landscape has spurred tech startups in Singapore to grow more than 10 times since 2015, a trend that is billed to continue into the near future.