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India’s Supreme Court Turned the Tables on Crypto Ban in Landmark Ruling

In a momentous ruling, India’s Supreme Court has lifted the ban made by the Reserve Bank of India (RBI), the nation’s central bank, on banks and other regulated entities dealing with cryptocurrencies. As reported on March 4, the court noted that preventing regulated entities from offering banking services to crypto trading stakeholders did not hold any water.

RBI’s biased decision

In April 2018, RBI made a controversial decision to impose a blanket ban on regulated financial institutions from dealing with crypto businesses. Three months later, crypto exchanges found themselves on the receiving end as banks had to close their accounts and this thwarted crypto adoption in India.

Nevertheless, relevant stakeholders in the crypto sector did not throw in the towel as they were ready for a legal battle, as evidenced by both industry and public-led petitions. In January 2020, a breakthrough seemed imminent as the Internet & Mobile Association of India (IAMAI) filed an appeal before the Supreme Court challenging the RBI’s crypto ban decision.

Interestingly, RBI had responded by stating that cryptocurrencies, such as Bitcoin and Ethereum, had not been banned as its resolution was pegged on highlighting the risks linked to crypto trading to regulated entities like banks.

The court ascertained, “When the consistent stand of RBI is that they have not banned VCs and when the government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”

The Supreme Court judges handling the case noted that the RBI’s decision was not appropriate.

India’s appetite for blockchain

India is continuously positioning itself as one of the preferred blockchain hubs globally. For instance, according to LinkedIn’s 2020 Emerging Jobs Report, sought after positions such as blockchain developers, have skyrocketed to unprecedented levels in India.

It is also speculated that Kerala, a southwestern Indian state, will churn out 20,000 blockchain experts by 2021. With crypto trading getting the green light from the Supreme Court, crypto adoption in India is now guaranteed without fear of contradiction.

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The Bahamas Racing Ahead with the Sand Dollar

When you think about national digital currencies, countries like China and Sweden immediately spring to mind, but a tiny Caribbean Island is making waves.

The ‘Sand Dollar’ has just been rolled out to the second island in the chain, putting the Bahamian central bank way ahead of most countries and aims to roll out the digital currency to all islands by the end of 2020, designed to give inhabitants easier access to financial services in light of economic difficulties following damage to infrastructure following Hurricane Dorian.

Now being trialed on the island of Abaco, the Sand Dollar is seen as a way to bring some normality following the devastation many residents have endured. Each Sand Dollar is the exact equivalent of its paper version and fully backed by the external reserves of the Central Bank.

Deputy Prime Minister and Minister of Finance Kevin Peter Turnquest clarified that it is for ‘those people who had sustained great property damage and even lost everything, this would give them easier access to financial services.’

This is another great example of a country embracing currency digitization which will allow consumers in the region to make payments through their mobile devices without incurring fees in direct peer-to-peer transfers. A key component being trialed is the ability for the Sand Dollar to be used offline, something which is vital in case of a natural disaster and has to potential to revolutionize the way business is conducted across the islands. The combination of multi-factor authentication and biometrics keep the Sand Dollar app secure on mobile devices. Still, it is vital to note that the Sand Dollar is not anonymous, but it is confidential.

While world superpowers continue the pursuit of their own digital currencies, this initiative in the Bahamas may prove to be a template for other countries to follow.

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Russia’s Central Bank Will Ban Crypto Issuance and Trading in Upcoming “Digital Financial Assets” Bill

The head of the legal department at Bank of Russia, Alexey Guznov, revealed that the coming bill on “Digital Financial Assets” will ban the circulation and issuance of cryptocurrencies. He stated that Russia’s central bank does not believe that crypto trading and issuance should be legal in the nation in an interview with the Russian News agency Intrerfax on 16th March 2020.

Russia’s Central Bank Warns on Crypto Risk

Although the original law on “Digital Financial Assets,” passed in 2018, stated that the trading of cryptos was legal in Russia, Guznov revealed that the amended bill would ban the issuance and selling of cryptocurrencies in the country. The amended document will prohibit almost everything about cryptocurrency except holding. Guznov stated that, so far, they have made consensus with market players and other government bodies that participate in the discussion. He mentioned that the consensus reached stipulates that nobody is going to ban holding (owning) of cryptos. He said that, in the end, owning cryptocurrency is not like owning arms or drugs.

But he stated that the legalization of issuance and circulation of cryptos pose an unjustified risk. This is the reason why the coming law will prohibit the circulation and issuance of cryptos and would introduce penalties for the violation of this law. Guznov said: “We believe there are big risks of legalizing the operations with the cryptocurrencies, from the standpoint of financial stability, money laundering prevention, and consumer protection.”

People will not face punishment for owning cryptocurrency if they make transactions in a jurisdiction, which does not prohibit that. But the upcoming bill would outlaw institutions that make cryptocurrency trading and usage.

Guznov identified that the bill might finally be passed during this spring session of the parliament (in November or December 2020).

Russia’s Cryptocurrency Law Taking A Confusing Shape

The latest statement about Russia’s upcoming crypto regulation came after several uncertainties and many delays in providing clarity to regulate digital assets. In early 2019, president Vladimir Putin urged the government to go for a more regulated crypto industry by adopting the bill on “Digital Financial Assets.” But the bill has not yet taken a practical shape to date.

While Russia’s finance ministry has been attempting to legalize cryptos in the nation, the central bank has been fighting to ban citizens from legally using cryptocurrencies. Russia’s central bank seems to associate crypto-related transactions with potential money laundering risk.

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IMF Official Talks Benefits and Shortcomings of CBDCs, Proposes a Hybrid Solution

The deputy managing director of the International Monetary Fund (IMF), Tao Zhang, talked about Central Bank Digital Currency (CBDC) at a conference hosted by the London School of Economics. He highlighted the advantages and disadvantages of a CBDC.

CBDC a new asset class holding great potential

In his keynote speech, Zhang recognized lower costs and greater efficiency associated with a CBDC. He said that the cost of managing cash could be extremely high in some nations, and the access to the payment systems may not be available to those who live in poorer populations or rural areas.

Zhang added that CBDCs could lead to increased financial inclusion by providing a public means of payment for both unbanked and banked. He commented that CBDCs could also assist in stabilizing and strengthening the monetary policy.

He revealed that a revolution is advancing across the global economy, and state-backed digital currency would pay the way for change likely to disrupt the industry. Central banks, therefore, must innovate themselves to avoid being rendered obsolete.

Zhang discussed how CBDCs could assist in maintaining the sovereignty of a country’s currency. He explained that CBDCs have the potential to stem the rising popularity of privately issued currencies (i.e., stablecoins). He commented that the privately issued currencies may be difficult to regulate and could pose a risk to financial stability and transmission of monetary policy.

Possible challenges associated with the adoption of CBDCs

Zhang also identified adverse impacts that CBDCs could have on the financial system. For example, the current global financial space is not designed to accommodate borderless digital currencies. Therefore, a few or one strong CBDCs could turn to dominate the world. Zhang used the term “dollarization” to recognize such a possibility.

He said, “On the one hand, a CBDC used as an international means of exchange could improve the efficiency of cross-border payments, which are currently costly, slow, and opaque. But at the same time, CBDC available across borders could increase the probability of currency substitution (“dollarization”) in countries with high inflation and volatile exchange rates, and therefore reduce the ability of the central bank to conduct an independent monetary policy.”

He identified that CBDCs could drive away customers from the banks and also strain balance sheets of central banks.

The IMF official stated that central banks could incur expenses and risks involved in such an endeavor. He highlighted that offering CBDCs could be extremely costly for the central banks and also could pose a risk to their reputation. He clarified that the issuance of CBDCs expects the central banks to be active through many processes of the payment value chain. He also identified that computer hackings and other faults could interfere with such operations, and therefore compromising the reputation of central banks.

The IMF official then proposed a viable hybrid solution identified as a synthetic CBDC, which would involve the collaboration between the private sector and central banks. He stated that the private sector would issue digital coins fully backed with central bank reserves, which would be under the oversight of the central bank.

Central banks’ unity to explore CBDCs

The list of central banks interested in developing CBDCs continues to grow. Central banks throughout the globe are acknowledging the significance of CBDCs, and are actively exploring what it would take to digitize fiat currencies. R3’s Corda enterprise ledger is the most popular platform that central banks use to explore the development and/ or launch of their CBDC. It makes sense that central banks are becoming interested in digital currencies. Of course, new payment technologies like cryptocurrencies are changing the global financial systems. Thus, central banks seek to understand how that will impact their role.

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Bank of France Tests Out Potential Central Bank Digital Currency by Launching Experiment Program

The Bank of France (Banque de France) is launching a program of experiments testing out a potential central bank digital currency (CBDC) aimed for interbank settlements. Potential participants are being invited to submit their applications, as the Bank of France is calling for applications to experiment with the use of a digital euro.

The French central bank is open to test out new technology, although it did not specify using blockchain. The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement.

A maximum of ten CBDC-related applications created by groups or individuals will be selected based on “innovative nature” as a major criterion for selection. The French central bank is only accepting applications submitted by applicants within the European Union, or in a state party to the European Economic Area agreement. Applicants are welcomed by the bank to submit their applications until May 15, 2020, and the results of the selection process will take place on July 10, 2020.

The document states that the results of these experiments will “act as a contribution by the Banque de France to a broader discussion within the Eurosystem, which will make any decision on whether to set up a CBDC. The tests are not intended to be continued on a long-term basis or applied on a wide scale by the Banque de France itself.”

The French CBDC vs. the digital Euro

Four months ago, at the Global Blockchain Congress which took place in Malaga, Spain, the European Central Bank (ECB) confirmed that it has been working on a digital Euro. The Association of German Banks released a detailed plan for a crypto-based digital Euro, which will be launched by regulators.

Dirk Bullman, Innovation Team Leader of the ECB said, “The ECB is exploring the matter. I think that should be made clear. We are doing theoretical research, but we are also doing practical experimentation. And we look at what we call, a wholesale CBDC and we also look at retail, general-purpose CBDC.”

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South Korea’s Central Bank Launches Central Bank Digital Currency Pilot Program in Case of Future Necessity

South Korea’s central bank recently announced that it has launched a pilot program assessing the issuance of a central bank digital currency (CBDC). The Bank of Korea has stated that there are no immediate plans to launch a CBDC, however, the pilot program will allow the central bank to be prepared in the future if the changing market conditions require its issuance.

This pilot program comes at a time where China’s central bank digital currency has said to be ready to roll out. Six central banks around the world have come together to create a working group to share experiences on use cases on central bank digital currency. With significant expertise in exploring digital currencies, these six central banks are the Bank of Canada, Bank of England, Bank of Japan, European Central bank, Sveriges Riksbank in Sweden, and the Swiss National Bank, along with the Bank of International Settlements.

The pilot program began in March 2020 and is set to run for 22 months, until December 2021. Theoretical research was conducted a month prior to the launch of the program, and the initial phase will allow the central bank to define the requirements and design of the CBDC, and this phase will take until July 2020.

According to the announcement, the central bank emphasized that the bank will not be pushing out a CBDC any time soon, but the bank wishes to be prepared in case there will be a need for it in the future.

South Korea’s largest bank files trademark application for crypto custody service

The largest bank in South Korea, KB Kookmin Bank has revealed its filing of a trademark application for KB Digital Asset Custody (KBDAC), its crypto custody service.

The crypto custody service will be made available for assets including Bitcoin (BTC) and Ether (ETH). The trademark application was filed with the Korean Intellectual Property Office, as reported by a local news outlet.

The application stated that the bank could potentially launch the service shortly, and also means that the entity has already begun the branding of products and the development has almost been finalized.

KB announced its partnership with Atomrigs Lab in June 2019, to develop a crypto custody service leveraging a product that secures crypto utilizing multi-party computation (MPC) technology which Atomrigs Lab specializes in. MPC technology generates random key parts rather than a single private key. These key parts can be stored separately to protect the assets from the vulnerability of being stolen.

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China's Pursuit of Digital Yuan "Unswerving" in Wake of COVID-19 Global Pandemic, says Central Bank

China’s central bank has further galvanized its public commitment to creating the first central bank digital currency (CBDC), a digital version of the Yuan, at an annual meeting hosted last Friday by the People’s Bank of China (PBoC) vice-governor Yifei Fan.

A summary notice of the 2020 National Currency Gold Silver and Security Work Video and Telephone Conference released on April 4 outlined the People’s Bank of China priorities for the year ahead which reaffirmed its commitment to the digital Yuan which is also being called a Digital Currency Electronic Payment (DCEP).

According to the summary, the PBoC’s continuous improvements to cash systems and securities will be guided by Chinese Leader Xi Jinping’s new era socialism with Chinese characteristics. Per the release, “One is to strengthen the top-level design, unswervingly advance the research and development of legal digital currency, systematically promote the reform of cash issuance and return systems, and accelerate the promotion of banknote processing business, issuance of bank guards and issuance funds.”

This marks the third time that the DCEP has been raised at the annual meeting and the intensity of the language used seems to signal a strengthened commitment by the PBoC.

The DCEP Top-Level Design

So how will China create its digital currency? First of all, we know that the digital currency will not be running on a blockchain. After a review of the 50 patent applications submitted by the PBoC, it will be powered by a two-tier operating system and will not be fully decentralized.

According to Binance, the central bank DCEP will be backed 1:1 by Renminbi fiat, following a two-tiered structured system involving the central bank, commercial banks, and the retail market. The first layer consists of the PBoC issuing and redeeming China’s digital Yuan via commercial banks. The second layer is responsible for connecting the commercial banks with the retail market. The plan is to replace notes and coins in circulation, known as the M0 supply.

China’s central bank mentioned that their digital currency would be issued to seven institutions in the coming months, but that was last September.

Paul Schulte, who worked as the global head of financial strategy for China Construction Bank up until 2012 says that the largest and second-largest banks of the world, Industrial and Commercial Bank of China and Bank of China as well as the Agricultural Bank of China, along with Alibaba, Tencent and Union Pay will be receiving the digital currency first.

COVID Incentives

Although China’s digital Yuan project has been in development for years, given the effect of the coronavirus outbreak and its spreadability through surface contact, there may be added motivation to move beyond physical bank notes. The PBoC previously announced that it would disinfect cash for up to two weeks before absorbing it into their vaults and put around 600 billion of new yuan into circulation on Feb. 15

Researchers at the Bank for International Settlements (BIS) recently released its newest quarterly report on the changes in the payment industry, including the market impact of the recent coronavirus outbreak.

The report highlighted the ways the COVID-19 could be the catalyst to spark mainstream digital payments. Per the report, “The most transformative option for improving payments is a peer-to-peer arrangement that links payers and payees directly and minimizes the number of intermediaries. Many peer-to-peer arrangements use distributed ledger technology (DLT),”

Bitcoin and Libra have also caught the institution’s attention, while the BIS acknowledged that central banks are increasingly exploring the “desirability and feasibility of establishing their own peer-to-peer systems through digital currencies.”

China's Central Bank Says Digital Yuan Will Not Raise Inflation

China’s central bank has been secretive and silent when it comes to the testing of its national digital currency, which has piqued the curiousity of its citizens. A bank representative recently appeared at a state-owned television company responding to such public curiosities and gave an explanation of how the digital yuan would function.

Race to Ramp Up China’s Digital Yuan Progress

The representative confirmed that the digital yuan, commonly recognized as Digital Currency Electronic Payment (DCEP), has had a pilot test conducted. The testing has been carried out in several cities such as Beijing, Chengdu, Xiongan, Shenzhen, and Suzhou, and future testing is intended to take place in the winter Olympics.

The researcher put great emphasis that such current tests do not mean that the DCEP has been officially issued for public use.

The representative further said that this closed test of the national digital currency would not negatively affect the commercial operation of the listed institutions. The spokesperson stated that it would have no adverse effect on the traditional fiat currency (renminbi) system of circulation and issuance. The representative further mentioned that no effect would be caused on the financial market or social economy of China outside of this testing environment.

As a countermeasure against overselling the digital yuan, the bank mentioned that commercial institutions would be required to pay a 100% reserve to the central bank, first. In other words, the national digital currency would act as a kind of stablecoin, with the central bank first exchanging the virtual currencies to relevant operating agencies and various commercial banks. Such agencies will then release the digital currencies for public circulation. It is an organized system that works well to prevent any inflation because the digital yuan being staked to the traditional fiat yuan at a 1:1 ratio.

Concerning technical designs, the central bank has officially completed the top-layer of the design. The digital yuan will soon adopt a two-layer architecture as well as a two-tier delivery system besides that. The central bank also gave an important explanation with regards to connectivity. It revealed that if payment functions for payment platforms and online banking were to go offline because of weak signals, the Digital Currency Electronic Payment incorporates dual offline technology to compensate. Therefore, the digital yuan will be just as efficient as paper yuan. The bank also said that so long as two mobile phones touched with the Digital Currency Electronic Payment wallet incorporated into both, a transfer of payment can be conducted.

The bank says that the national digital currency is not tied to any kind of bank account and is free from the control of the traditional banking system. Unlike other cryptocurrencies, the national digital currency is launched by China’s central bank and backed by the country’s credit. This is similar to the electronic version of the traditional fiat renminbi. However, it remains to see how accurate the technicality of the DCEP would be.

China’s Digital Yuan to Be Operational for Local Government Employees Starting in May

China could be set to introduce its national digital currency in the market by May 2020. The Chinese administration plans to release the central bank digital currencies for its local government employees. It will be a real test to examine the usage of digital currencies among its government workers. However, it will be a pilot test of using the Digital Currency Electronic Payment for government workers’ transportation allowance. The country will also be testing the use of its digital currency electronic payment for paying salaries to its government employees.

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Argentina’s Central Bank Set to Prove Non-Crypto Use Cases of Blockchain Technology with its New Clearing System

The Central Bank of Argentina (BCRA) is now looking to test a blockchain-based clearing system to be used by the country’s major financial institutions. The aim of the blockchain clearing system is to provide efficiencies for fiat payments and enable them to be more reliable and to provide end-to-end traceability.

A proof-of-concept for the permissioned blockchain network has been created, based on RSK Smart Contract network, along with the major commercial banks in Argentina, including Santander and BBVA, according to a blockchain developer IOV Labs. One of the major goals of the proof-of-concept was to show that there are other use cases for blockchain such as smart contracts, other than just cryptocurrencies.

The clearing system is currently in its testing phase, while Diego Zaldivar, the CEO of IOV Labs emphasized the importance of using technology to optimize processes and provide better services to Argentinian citizens during these global circumstances. Banks, clearinghouses, BCRA, and other financial institutions will be participating in the network.

Although the central bank is willing to look into blockchain as a technology to be incorporated into its clearing system, the BCRA has issued a statement in 2014 to citizens to remind them that digital assets such as Bitcoin were not a form of legal tender.

Other central banks have been propelling towards a blockchain-based currency to be used in the nation.

Bank of France launches program of experiments testing out CBDC

The Bank of France (Banque de France) has launched a program of experiments testing out a potential central bank digital currency (CBDC) aimed for interbank settlements. Potential participants are being invited to submit their applications, as the Bank of France is calling for applications to experiment with the use of a digital euro.

Sweden’s Sveriges Riksbank tests out CBDC

Sweden’s Sveriges Riksbank announced that it had started testing an e-krona, taking one step closer to the release of a central bank digital currency.

The e-krona aims to simulate everyday banking activities, including payments, deposits, and withdrawals from a digital wallet on a mobile phone. The pilot testing program has been scheduled to operate for one year, until February 2021 and will be running on blockchain.

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Dutch Central Bank Aims to Play Leading Role in Developing CBDC in Europe as Part of Plan to Become Increasingly Digital

The Dutch central bank, De Nederlandsche Bank made an announcement in its bulletin, saying that it aims to become the European leader in the development of central bank digital currencies (CBDCs). The report highlighted that the topic of CBDC has gained more public exposure in the Netherlands than in “several other euro area countries for several reasons.”

The Dutch central bank has a positive outlook on CBDCs, as it believes that central bank money is essential to preserve as it is important for people to maintain essential trust in the monetary system.

The European Central Bank (ECB) previously expressed its interest in launching a digital Euro and stated that they have been doing theoretical research and practical experimentation. The report stated that the Netherlands could be a suitable testing ground for its testing. Even after evaluating the potential risks of CBDCs, the Dutch central bank said, “We are ready to play a leading role.”

The central bank emphasized that the use of cash is declining in the country, signaling that its citizens are using less central bank-issued currency for purchases. A CBDC could potentially allow more diversity in the payments market, as well as making cross-border payments to be more efficient, according to the central bank.

Similar to other countries in its catalyst for development for the digital payments, the report stated, “Many stores now ask clients specifically not to pay in cash, which effectively means that only private money is accepted. Due to the coronavirus pandemic, using cash has become more risky due to its risks of transmission.

However, the Dutch central bank was not included in the working group formed by six central banks to share experience on use cases on CBDCs. The six central banks were: the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Sveriges Riksbank, Swiss National Bank, and the Bank for International Settlements.

Sweden’s central bank has also started testing an e-krona, its CBDC to be run on blockchain, to simulate everyday banking activities, including payments, deposits, and withdrawals from a digital wallet on a mobile phone.

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