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Central Banks to Cross-Examine Libra’s Founders in Switzerland

The European Central Bank (ECB) officials and 25 global central banks will be meeting with Libra’s founders to assess the project.

Libra previously reaffirmed its stance where the long launch schedule was to welcome any engagement with regulators and politicians. ECB executive, Benoit Coeure recently warned that Libra has to clear a “very high” bar as EU finance ministers have worried that cryptocurrencies such as Libra could destabilize finance and undermine the authority of government banks.

Reported by the Financial Times on September 14, Libra’s representatives are due to meet with the Committee on Payments and Market Infrastructure (CPMI) of the Bank of International Settlements in Switzerland on September 16. The CPMI of the Bank of International Settlements is a member of the Financial Stability Board which consists of 28 member banks, including the Bank of England, Deutsche Bundesbank, and the Federal Reserve Bank of New York.

Facebook has presented Libra as a way to democratize finance while providing banking to the unbanked and creating a universal format that is not exclusive and dependent on any one country.

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Accenture Partners with R3 and SAP to Improve Settlement Systems by Using Blockchain

Consultancy firm Accenture has partnered with blockchain technology firm R3, and software giant SAP to produce a prototype that uses distributed ledger technology to allow real-time gross settlements.

John Velissarios, managing director and global blockchain technology lead at Accenture, mentioned that the need for the platform stems from the current “highly complex and fragmented” payment settlement infrastructure. He believes that with real-time gross settlement (RTGS) systems, blockchain would be able to allow central banks to be more efficient.

RTGS systems allow electronic fund transfers between banks to happen in real-time and on a one-to-one basis, enabling immediate clearing for high-value transactions usually handled by central banks.

The prototype utilizes the SAP Payment Engine application, which allows for payment initiation, processing, clearing, and settlement while integrating with the R3 Corda platform to enable collaboration with the RTGS systems. With Accenture’s expertise in central bank clearing and settlement as well as blockchain experience, the prototype will allow peer-to-peer payments between banks.

Velissarios said:

The RTGS prototype, designed in collaboration with SAP and R3, demonstrates the next stage of efficiency in payment systems and ultimately, paves the way to linking tokenized-assets, like equities, to create an increasingly integrated and seamless financial services ecosystem.”

Stablecoins will be used in the prototype, as they are less volatile than regular cryptocurrencies. The companies are aiming to work alongside the traditional financial system rather than against it, which has led to many controversies Facebook’s Libra has been dealing with.

Cathy Minter, Chief Revenue Officer at R3, stated that there is a need for interoperability between the traditional financial services industry and token-based systems.

She added: “Corda was designed to execute transactions seamlessly from the outset, with the highest levels of certainty and security. Through our Accenture and SAP, R3 is collaborating with two of the tech industry’s major players to provide a real-time gross settlement token-based exchange. The end result is nearly instantaneous settlements, which will reduce friction throughout the transaction chain.”

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Central Banks Race to Adopt Fiat-Backed Cryptocurrencies

Central banks are scrambling to react to the rise of cryptocurrencies. The new form of money appears to test the powers of central banks. In an interview with media house personalities, Jalak Jobanputra – the Managing Partner at Future Perfect Ventures – discussed the significant shifts taking place in the banking sector.

Central banks have gained greater interest to adopt fiat-backed cryptocurrencies for cross-border transactions and future payment systems. Governments across the globe see the unveiling of such blockchain-based central bank digital currencies (CBDC) as something that could give them a competitive advantage in global trade.

The Central Bank Business Model Is Under Attack

According to Jalak, Facebook’s announcement to launch Libra cryptocurrency was a remarkable moment that stimulated a higher global reaction than anything people have seen in the crypto sector. The G7 countries (United States, United Kingdom, Germany, Canada, Japan, France, and Italy) created a working group to discuss the viability of Libra and stablecoins. Germany and France consequently resolved to ban Libra cryptocurrency.

The introduction of Libra brought the concept of a “sovereign” digital currency to the mainstream. Though different from CBDC, if launched as initially conceived, Libra is positioned to become a main alternative payment mechanism to fiat money, perhaps more than cryptocurrencies like Bitcoin.

Facebook has for several years attempted to make entry to the payment space. By getting hold of its billions of global users and its announced consortium partners, Facebook is poised to reach scale in payments and build a new source of revenue without becoming a bank.

With Facebook’s efforts, central banks suddenly saw how their business model could be under threat by a privately backed digital currency. Central banks manage their economies based on the use of monetary policy like credit, inflation, and cross-border trade control. If an independent currency were to gain more users than the central bank fiat, then the ability of central banks to use monetary policy as a tool would significantly be reduced.

After the Libra announcement, China quickly declared its intention to develop its own CBDC and also announced major local partners like WeChat. The central bank of China mentioned that its motivation for unveiling a digital currency is to protect the country’s monetary sovereignty. Other countries like India, Russia, and Brazil also followed suit and announced their intentions to launch their own digital currencies.

Digital Cash Gains Momentum

Many countries have developed an interest in digital currencies. There are two factors identified to fuel this interest. First, digital currencies provide central banks with the ability to closely track the currency (cash flows are more difficult to track). Secondly, with digital currencies, central banks can cut their reliance on dominant currencies like the US dollar.

Such alternatives are particularly attractive to emerging and developing countries. A good example is India, which has banned banks from engaging in crypto-related activities. However, the country has been public about its efforts to explore its own digital currency (digital rupee).

Jalak clarified that digital currencies are not always cryptocurrencies. She explained that digital currency is a currency issued in digital form by an entity. For example, a central bank is an entity that issues CBDC. But cryptocurrencies like Bitcoin rely on a network of decentralized miners to issue the currency and verify transactions. Cryptocurrencies are not issued by a central authority.

The proliferation and implementation of CBDCs may make the lives of consumers easier and ease cross-border transactions. CBDCs will also facilitate tighter controls and more tracking of transactions.

It is ironic that the interest associated with decentralized finance and the increased demand for decentralized Bitcoin across the world have woken up central banks to realize that they are under threat from new technologies.

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Six Central Banks Form Working Group to Assess Central Bank Digital Currencies

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 (CBDC). 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 for International Settlements (BIS).

Benoît Cœuré, the Head of the BIS Innovation Hub, will be the co-chair of the group along with Jon Cunliffe, the Deputy Governor of the Bank of England and the Chair of the BIS Committee on Payments and Market Infrastructures (CPMI). Cœuré is also the chair of the G7 working group on stablecoins and was previously the CPMI chair.

The announcement explicitly stated that the working group would “assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies.”

Although other Asian central banks, such as the People’s Bank of China, the Monetary Authority of Singapore, with extensive CBDC research experience, have not been included in the group. China’s central bank has been reportedly testing out its CBDC, and Singapore’s central bank has been in the process of its CBDC Project Ubin. The Bank of Thailand has been exploring CBDC as well with its Project Inthanon, with CryptoBLK.

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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.

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Canada, Netherlands, Ukraine Central Banks Say Blockchain Not Necessary for CBDC

At a recent event in Kyiv, Ukraine, during a discussion on central bank digital currency (CBDC) development between world monetary authorities, it appeared that a few of the central banks were not quite sold on the necessity of integrating blockchain technology.

The National Bank of Ukraine (NBU) organized the one-day conference whereby representatives of some of the world’s central banks shared ideas on their central bank digital currency (CBDC) projects. National Bank of Ukraine, which is itself a CBDC pioneer, has been working on its own digital currency pilot since 2018.

Testing and Discussion of Blockchain’s Viability

Although the world’s central banks are making efforts to identify the best possible alternatives to rising digital assets such as cryptocurrency and stablecoins like Libra, the seminar event highlighted a different approach to creating a CBDC. The report of the conference discussion revealed strong indications that some of the world’s central banks, especially central bankers from Canada, Netherlands, and Ukraine, view blockchain as not necessary for digital fiat currency.

Roman Hartinger, the head of innovative development department at the National Bank of Ukraine, told CoinDesk. The central banks converged in the seminar as they wanted to test and discuss their ideas and conclusions with the banking community. The event featured the representatives or speakers of central banks from South Africa, Japan, Canada, Netherlands, Finland, Uruguay, Lithuania, and Belarus. While these nations are weighing the involvement of blockchain in building CBDCs, countries like the U.S and China are ahead of the game.

While the National Bank of Ukraine is working on developing a state-backed cryptocurrency, popularly known as “e-hryvnia”, the test indicates that “there is no main advantage in using particularly the distributed ledger technology to create a centralized system for issuing e-hryvnia.”

The central bank does, however, not rule out the alternative “decentralized” model whereby multiple trusted payment processes would issue the state-backed digital currency (e-hryvnia). But the experiment is currently on hold and is awaiting pass on laws regulating digital assets in Ukraine and more inputs from the banking community.

During the conference, the representatives from the Netherlands and Canada share the skepticism about the distributed ledgers. Scott Hendry, Bank of Canada’s senior special director of fintech stated that distributed ledger technology is not necessary to build a CBDC. On the other hand, Harro Boven, policy adviser at the Dutch central bank said that the essence of the distributed ledger technology infrastructure is that no single party or individual should be trusted completely, the same way as a central bank may not be trusted to maintain the integrity of the global ledger.

Facebook’s Libra a Wake-up Call for Governments

The rise of CBDCs came as a result of Facebook’s intention to launch Libra cryptocurrency. Libra coin was a wake-up call that challenged central banks to innovate. Libra was a shock to central banks in two major ways. First, Libra is poised to take over the majority of transactions due to the 2.7 billion users on Facebook’s combined platforms. Secondly, if the development and launch of Libra succeed, then central banks risk losing control of monetary policy. Central banks now consider creating central bank digital currencies as a response to Facebook’s Libra.

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Bank of Lithuania Launches First Blockchain-Based Digital Collector's Coin As Test for CBDC

The Bank of Lithuania has launched the first central bank-produced digital collectors coin dubbed “LBCOINS” as part of its trial of blockchain technology and testing in its development of central bank digital currencies (CBDC). The Central Bank of Lithuania has been developing the project since March 2018 and is currently entering the final phase of the trial.

Wake-Up Call for Central Bankers

Deputy governor of the Bank of Lithuania, Marius Jurgilas, said: “No one in the central bank community was thinking about digital currency seriously before we realized that there is a legitimate threat that someone else will take our space.” Jurgilas further stated: “We need to provide society with what it wants.”

The Bank of Lithuania said that its project is more of an experiment rather than an official launch of a tradable digital currency. Lithuania’s central bank sets to issue the blockchain-based LBCOIN on July 23.

The LBCOIN design consists of one physical silver collector coin and six digital tokens. This means that users who purchase LBCOIN would first get a set of six digital tokens, which can then be exchanged for a physical silver collector coin.

Pre-sales for 24,000 digital LBCOINs will begin this week, sold in packs of 6 digital tokens for €99. Each digital token would feature a portrait of one of the 20 signatories who signed Lithuania’s Declaration of Independence in 1918, which has been divided into six categories: academics, diplomats, presidents, industrialists, municipal servants, and priests.

Users will be able to buy LBCOINs in form of six digital tokens and then exchange for a credit card-sized physical silver coin worth €19.18. The Bank of Lithuania clarified that: “Their use as a means of payment will not be encouraged” as it is meant to “engage more people, especially the youth, in coin collecting” while gaining “valuable experience and knowledge in the field of digital currencies.”

Jurgilas said that the LBCOIN is based on a similar method of creation as the one being developed for their CBDC (central bank digital currency). This initiative puts Lithuania at the forefront of the development of a state-backed digital currency. Jurgilas said that LBCOIN is the most advanced experimental project to test different reincarnations of the central bank digital currencies.

LBCOINs can be exchanged directly with the central bank as well as on private blockchain networks. LBCOIN is built on top of the NEM public blockchain. Once purchased, the LBCOIN can be stored in a NEM wallet or a wallet dedicated to the LBCOIN’s online shop. Furthermore, LBCOIN can be swapped with other purchasers and also sent as a gift.

CBDCs Hit Top Gear Amid COVID-19

The steady decline in the use of physical cash and the prospect of Facebook’s 2.5 billion users adopting Libra cryptocurrency has led central banks to explore how they can issue their own forms of state-backed digital currency. The COVID-19 outbreak has accelerated the development of central-bank digital currencies as it has prompted people across the world to turn to cashless payments. Central banks are seeking to introduce CBDCs to avoid fragmenting the monetary and financial systems.

Bitcoin Will Be the Best Performing Asset in Two Years by a Big Margin, says Wall Street Veteran

Wall Street veteran and CEO of Real Vision Raoul Pal believes that Bitcoin will be the best performing asset in the next two years. Although Bitcoin’s price has struggled to stay above $12,000 twice this month, he thinks that the world’s first cryptocurrency could rally to $100,000 soon, even mentioning the $1 million threshold.

Raoul Pal was the former head of sales at Goldman Sachs’ hedge fund and has been a Bitcoin bull since he realized the potential Bitcoin has.

The investment strategists debunked the notion that only gold could perform as a safe haven asset in times of monetary inflation. He explained that G4 central bank balance sheets have grown much faster than traditional safe-haven assets like gold.

Pal added that Bitcoin is the only asset in the world that is has outperformed the growth of the G4 central bank balance sheet.

So far, central banks around the world have tried to combat the economic downsides of the coronavirus pandemic by printing money. With the ongoing macroeconomic environment and recent geopolitical issues, Pal said that Bitcoin (BTC) will be the best performing asset in the next two years, by a big margin. He tweeted:

“These are all INCREDIBLY BULLISH long-term chart patterns. The probabilities in the charts suggest that Bitcoin is likely set to be the best performing major asset in the world over the next 24 months and by a big margin.”

Bitcoin recently witnessed a major push, as the world’s largest intelligence firm, MicroStrategy announced its new capital allocation, with a purchase of $250 million in Bitcoin. The investment decision was made as part of the company’s two-pronged capital allocation approach as announced in the company’s second-quarter 2020 financial results in late July this year.

MicroStrategy’s CEO Michael J. Saylor stated that Bitcoin is “harder, stronger, faster, and smarter than any money that has preceded it.”

A British hedge fund manager with tens of billions of pounds under management predicted Bitcoin could trade at $40,000 to $50,000 within two years in the best-case scenario. Bitcoin (BTC) could see a fivefold increase in value by 2023, as traditional investors enter the market.

The fund manager further stated that the fund could end up moving 30 percent of its gold investments into Bitcoin for 18 months to profit from a “sharp rise” in price if other institutional hedge funds did the same; seeing that Bitcoin’s price has surged 70 percent in 2020.

According to JPMorgan strategists, while the younger cohort is starting to invest in cryptocurrencies like Bitcoin, the older cohort remains to favor gold.

Central Bank Digital Currencies Are Not Like Bitcoin or Cryptocurrency

Central bank digital currencies are perhaps one of the most transformative developments in our world financial system currently in development. CBDC are digital assets, but they are not cryptocurrencies and in fact strike at the heart of the very philosophy that brought Bitcoin into existence.

Central banks around the world are competing to be the first to release their central bank digital currencies (CBDC) as the world economy is being reshaped by the challenges of the COVID-19 pandemic. China has been the frontrunner, aggressively piloting its own DCEP (Digital Yuan) and the most powerful central banks including the Federal Reserve and the European Central Bank collaborating on research to assess the positives and negatives of CBDC implementation.

The move by central banks to create sovereign backed digital currencies have accelerated as the cryptocurrency market has matured. Ethereum is no longer the hypothetical flaccid unused base layer blockchain but instead finds itself hosting an entirely new ecosystem of decentralized finance. Bitcoin appears to have come even further, after weathering the storm of being labeled a bubble pump and dump scheme, the pioneer cryptocurrency is now being leveraged more than ever in retail use cases and particularly as an institutional hedge.

While these cryptos have been maturing, there is no doubt the real scare for central banks occurred at the announcement of the impending launch of Facebook’s Libra token. While central banks were wary of Bitcoin’s power, the reality is that with less than 5% global adoption, there remained little to fear. Facebook however was preparing to enter the world of finance with their platform already consisting of over two billion users ready to leverage Libra, which would have created a seismic shift in the global monetary system.

Making a comparison between the soon to be launched central bank digital currencies and decentralized cryptocurrency is understandable, but from what we know the core principles behind a CBDC actually run counter to the philosophy of crypto. Bitcoin itself was created as a means to escape the monolithic central banks and debasing monetary policy of the Federal Reserve in reaction to the 2008 global financial crisis. BTC and crypto are a way to escape the banks and hedge against the loss of spending power in cash. CBDC is playing for the other side, desperate to maintain the oligopoly of the world’s banking system.

Crypto VS CBDC—What’s the Difference?

Centralized Vs Decentralized

The first and most obvious critical difference between a cryptocurrency like Bitcoin and a CBDC is one is decentralized, and the latter is very centralized. Cryptocurrencies are supported by numerous distributed nodes that are incentivized through block rewards to maintain the network. CBDC is supported by one central network, driven to serve only the public policy of the sovereign state that issues them.

Having central banks in control will mean more central bank decisions, which is what has brought us to this precipice of having to reconsider our global financial system. As has been the case throughout COVID-19, central banks are likely to focus on one issue while ignoring another, perhaps focusing on creating employment and buoying the markets while allowing their debt to pile up and without adequately dealing with inflation. Privacy and Autonomy

The second point of contention between a CBDC and Bitcoin or crypto, is the idea of financial autonomy and privacy, with the former being less likely to respect your privacy and data. Central banks are infused to regulatory bodies, while crypto remains largely independent particularly in a peer-to-peer sense. As identified in the Bank for International Settlements recent report, in terms of data the question is which agencies should have access to it and how much access?

Cryptocurrencies in a peer-to-peer setting allow the user to decide how much data they choose to share about themselves, but it does seem inevitable that every transaction of a future CBDC would see chunks of data automatically shared with regulatory authorities or tax agencies.

While this may not seem like a huge issue if you aren’t doing anything illegal, as was apparent in the Department of Justice’s recent Cryptocurrency Enforcement Framework, and highlighted by Ripple co-founder Brad Larsen—the default assumption is that people who wish to use privacy-preserving technology are presumed to be bad actors. However, there are many reasons for this that are not just related to criminal activity. Although privacy is obviously a necessity for criminals, law-abiding citizens need privacy as well to protect themselves from such criminals who are constantly on the hunt for a vulnerable target.

Security

The final point of difference pertains to security, and so far cryptocurrencies have weathered this storm while central banks have not. Weaknesses in blockchains and particularly exchange security have been identified—issues with self-custody and identification of wallet addresses after reuse, the possibility of a chain-wide 51% attack and more.

While it may not appear obvious, CBDCs present an even larger attack surface and are likely to be cyber-attacked by rival states who now have to contend with one centralized point of failure for financially motivated hackers to attack. States that issue CBDC will most likely face an onslaught of cyberattacks, particularly in the early years and as has been highlighted this year—government agencies and countries are very susceptible to coordinated hacking efforts as well.

The Philosophical Difference

Although the rise of CBDC development is an obvious testament to the success of cryptocurrency, the differences are numerous. CBDC will effectively compete and attempt to negate crypto, not necessarily find ways to bring Bitcoin into the fold.

While central bank digital currencies will have the speed and practicality of cryptocurrency, opposition to crypto is fundamentally why CBDC will soon exist and philosophically they are the antithesis of everything Bitcoin was created for—to escape the constraints of a broken financial system, empower individuals with financial autonomy, and to bring transparency and trust to finance.

Messaging Giant LINE is Developing a Platform for CBDC

Japanese messaging giant Line is developing a platform to aid Asian central banks in their pursuit of central bank digital currencies (CBDC).

As reported by a South Korean news outlet on Oct.19, LINE—a Japan-based subsidiary of Korean internet search engine firm Naver—is developing a platform for developing central bank digital currencies.

A LINE official acknowledged the fact of the CBDC platform provision business, they said:

“We want to provide CBDC platform technology to several central banks interested in CBDC.”

The messaging company is reportedly in discussions on the application of its blockchain-based CBDC platform with several central banks in major Asian countries, LINE executives said that they cannot disclose the exact countries that are considering the platform’s application.

LINE’s aim is to support the customization of national CBDC development, in a format that reflects the requirements of central banks in each country while maintaining the advantages of its own blockchain platform, such as scalability and stability.

The messaging company is currently discussing the application of blockchain platform technology with central banks in major Asian countries as part of LINE’s strategy to expand across the globe.

Line officials stated:

“It is difficult to disclose the exact country where the discussion is taking place,” and “It is a major Asian country focusing on the development of CBDC for micropayment.”

Line in Blockchain and Crypto

Beyond its CBDC platform announcement, LINE has been venturing further into the crypto and blockchain industry. In August 2020, LINE launched a new blockchain digital wallet that can be used to manage various crypto assets.

The digital wallet, dubbed BITMAX, can be used to combine digital tokens coming from different blockchain services into a single wallet. On top of the new addition, LINE messaging app also released a new blockchain development platform for LINE Blockchain Developers to run tokenized assets, decentralized apps (dApps), and more on the network. The newly offered BITMAX wallet feature on LINE is solely available in Japan, where the communications app is most famous.