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Brazil Central Bank Moves to Follow IMF Crypto Classification Guidelines

The Central Bank of Brazil has adopted the classification of cryptocurrencies being sold or purchased under the International Monetary Fund (IMF) guidelines.

According to the announcement from the Brazil Central Bank, IMF guidelines will now be followed. Cryptocurrencies will be classified as non-financial products and will be classified as goods on its balance sheet.

The external sector statistics methodology to the IMF Statistics Department recommended that Bitcoin and other cryptocurrencies should be classified as produced non-financial assets and should be put under valuables.

The report states, “These assets come into existence as outputs of a production process (i.e., through mining and/or project development) under the control, responsibility, and management of a specific institutional unit using inputs of labor, capital, goods, and services.”

Given that selling and purchasing cryptocurrencies involves the execution of foreign exchange contracts, the central bank considers crypto assets in their export and import statistics. Brazil being a net importer of crypto assets, will contribute to lowering the trade surplus on its balance sheet.

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IMF Chief Economist Says Crypto Won’t Threaten Dollar Dominance Although Global Reserves Decline

The Chief Economist of the International Monetary Fund (IMF), Gita Gopinath, expressed in an opinion piece in the Financial Times that digital currencies would not displace the US Dollar as the currency that dominates the global trade and finance.

IMF Chief Economist Gita Gopinath.

In 2019, the release of the whitepaper for the Libra currency, a stablecoin backed by a basket of global currencies, met with a lot of regulatory hurdles. Other countries, including China and Cambodia, have been looking and researching for their own national digital currency. Gopinath wrote in the report, “While these are intriguing possibilities, they are improbable in the near-term.”

Gopinath said that the US Dollar’s prominence in trade and banking in the world has an ever-growing increase of usage while comparing other digital currencies to the Euro, which has not been able to overtake the US Dollar, highlighting the number of aspects that led to the success and the widespread dominance of the US Dollar.

Gopinath made it clear that there are two separate topics: payment technologies and the requirements of a global reserve currency. The factors to consider when deciding which currency to use are liquidity, stability, and convertibility. She also added that the technological superiority of the issuing country could become vital because of privacy and security issues around digital currencies.

The economist concluded cheaper and faster cross border payments by utilizing technology is a positive outcome. However, a more balanced system with a more significant role for the Euro and Renminbi is also desirable.

Although the economist has highlighted the US Dollar’s dominance, the IMF’s figures have indicated a decline. Between Q1 of 2016 and Q3 of 2019, the US Dollar’s share of global reserves dropped from 65.46% to 61.78%.

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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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Will Bitcoin Survive? IMF Predicts Worst Economy Since "Great Depression" in Aftermath of COVID-19 Global Lockdown

The International Monetary Fund (IMF) has released its quarterly World Economic Outlook for 2020 which paints a bleak picture on how the disruptive economic effects of the COVID-19 virus global quarantine measures, dubbed the ‘Great Lockdown’—will continue to cripple the markets long after the pandemic ends.

Not yet fulfilling its anticipated safe haven status is Bitcoin, which has, in fact, shown an increasingly strong correlation with the traditional markets. Although some experts believe that the COVID-19 market crash has reduced the risk of a halving price dump and could lead to a Bitcoin bull run, the data presented by the IMF indicates that the pioneer cryptocurrency will need to make a much cleaner break away from the stock markets to rally in price in the aftermath of the lockdown.

Great Lockdown Effects Difficult To Predict

The IMF has predicted that a total of nine trillion dollars will bleed out of the market by 2022 according to the 2nd quarter World Economic Outlook report released on April 14.

The April edition of the report, describes the decline in economic growth instigated by the COVID-19 global isolation and quarantine measures as the worst economic downturn since the Great Depression almost one hundred years ago.

As the current market crisis is an abnormality and brought on by an unforseen crisis in the Coronavirus pandemic, Chief Economist and Director of IMF’s Research, Gita Gopinath highlighted that much of the future predictions hinge on coming possibilities. She wrote, “This is a crisis like no other, and there is substantial uncertainty about its impact on people’s lives and livelihoods. A lot depends on the epidemiology of the virus, the effectiveness of containment measures, and the development of therapeutics and vaccines, all of which are hard to predict.”

Gopinath added to this statement expressing that the supports being engineered by world government are helpful but there will be consequences to the extreme financial crisis relief efforts. She said,“Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown.”

6.3% Drop in Growth Prediction

Since the January edition of the report, growth estimates have fallen by more than six percent. The latest edition now predicts that over 170 countries will experience a three percent a year-over-year retraction of economic activity and recession.

The IMF Chief Economist said, “This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.”

Gopinath reiterated that the growth forecast was based upon a “major revision over a very short period” and the predictions are based on the assumption that the pandemic containment will peak this 2nd quarter and recede in the second half of the year.

The Global Financial Crisis led to a global growth retraction of around a tenth of a percentage in the twelve months following the 2008 market crash. The COVID disruption has made an immediate and significant impact on the GDP of China and India.

What Do the IMF Predictions mean for the Bitcoin Price and the Halving?

The IMF’s predicted outlook for the global economy is daunting and there are concerns that Bitcoin and the cryptocurrency markets will continue their strong correlation with the S&P 500 and depreciate along with traditional assets.

According to research from Bitmex, the aftermath of the current Coronavirus market crash and the subsequent incoming inflation that will be caused by the response of the Federal Reserve and Central banks may allow Bitcoin to face its truest test and be presented its biggest opportunity to finally prove itself as a safe haven asset and may even become the foundation for our new economy.

The next big event for the crypto community is the Bitcoin halving, which is expected to take place in May 2020. Each time a Bitcoin halving takes place, the number of Bitcoins entering circulation every 10 minutes, will fall to half, to 6.25 from 12.5. As supply of the crypto decreases, the demand most likely will stay the same, but should theoretically lead to an increase in Bitcoin’s price. Experts believe that there will be less Bitcoin available in the market as the miners will be selling less of the cryptocurrency.

Bitcoin’s previous halvings have been followed by crypto bull runs, however the immediate liquidity crisis, apparent in the market, currently appears to have driven confluence across most asset classes and Bitcoin has not yet been able to break away – which will be a critical factor if we expect it to produce the anticipated post-halving bull trend.

Although Bitcoin is currently showing its strongest correlation to legacy safe haven assets like Gold and experts in the industry still believe that the pioneer crypto may have the intrinisic features to become a non-correlating asset, unfortunately its market actions have not revealed this status to be the case just yet.

Central Banks Could Monopolize Commercial Banking Sector via CBDC, Says Federal Reserve

A new working paper from the Federal Reserve Bank of Philadelphia indicates that the development of a central bank digital currency (CBDC) may create a fundamental shift in the way banks operate.

The Federal Reserve Bank of Philadelphia’s research department recently released a whitepaper entitled, “Central Bank Digital Currency: Central Banking for All?” which explores how CBDCs might directly transform the banking sector.

According to the paper, CBDC could make banking institutions more competitive with emerging financial technology (fintech) firms and investment banks. The Philadelphia Fed’s report supports the findings of CBDC research by the International Monetary Fund (IMF) released in December 2019.

CBDC Could See Central Banks Poach Commerical Banking Customers

According to the paper, “The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC.”

In other words, a CBDC amounts to giving consumers the possibility of holding a bank account with the central bank directly. The researchers also note that the lack of flexibility within a central bank’s contract with investment banks will also deter bank runs in the event of a financial panic.

The authors of the Fed’s research claim that a central bank’s digital currency could make such an institution be perceived as more stable and this perception of stability could then take hold among depositors. Ultimately this could lead to a monopoly for the central bank in terms of deposits and poses a threat to the “maturity transformation” of the commercial banking sector. In simple terms, CBDCs could allow central banks to secure more short-term sources of finance and deposits and begin offering services like mortgage lending and other types of loans usually facilitated by commercial and investment banks.

Dawn of the CBDC

The catalyst for central banks to develop CBDCs came from the rise and potential of a digital and financial global transformation that could occur through private initiatives such as Bitcoin, Ethereum, and Libra. Since the emergence and increasing traction of these decentralized projects: researchers and policymakers have explored the possibility that central banks can also issue their own digital currencies.

Currently, no central bank has managed to roll out its central bank digital currency, although many are in the advanced stages of their testing with China hinting they will go live this year.

While researchers continue to hypothesis the precise impact a CBDC could have on the global financial sector and the wider world of banking, reports of how they will be developed are conflicting and the effects will not be truly realized until the CBDCs are rolled out.

IMF Educational Cryptocurrency Video Receives Backlash from Bitcoin and Crypto Experts

A video posted by the International Monetary Fund (IMF) on its social platform has generated a lot of criticism from the cryptocurrency community.

IMF crypto video stirs up crypto community

The educational video posted on IMF’s verified Twitter account today consisted of an old informational stream that detailed the benefits of cryptocurrency use. On Twitter, crypto advocates and Bitcoin investors were quick to call out the act. Tweeters were unimpressed with this as a whole, with a lot of speculation arising from different critics.

The two-minute video, which was originally published in June 2018 by IMF and reposted today, referred to crypto as the next step forward in the evolution of fiat. However, the video failed to mention important industry terms such as decentralized ledger, blockchain, or important crypto names. Bitcoin (BTC), Ripple (XRP), and Ethereum (ETH) were not discussed explicitly but only appeared in the background of graphs depicting crypto transactions.

Reactions from the crypto Twitter community were wide-ranged. However, most were quick to point out the negative sides of the educational crypto video. Despite this, the video generated more than 137,000 views and 2,900 likes.

Tweeters said that the IMF got a lot of important things wrong, such as “calling private keys passwords.” Another said that when discussing the volatility of cryptocurrencies, the IMF painted it as “entirely negative.” Bitcoin enthusiast and educator Pierre Rochard replied to IMF’s post and said:

“Provable scarcity is what makes Bitcoin interesting, you forgot to mention that.”

Though the video was centered around cryptocurrencies—mining, coin supply, tokenization, and blockchain were not referenced which outraged the crypto community.

The IMF video outlined the advantages of cryptocurrency, in comparison with traditional fiat. It said that cryptocurrency enabled faster processing time, was more cost-friendly since there were fewer transaction fees, and had better security for the protection of sensitive information. The video also said that cryptocurrency was foolproof, but untraceable and anonymous transactions were risks that came with crypto.

What do you think of crypto?

Despite this, the video received a lot of backlash, because the crypto community felt as though it emphasized the negative aspects of cryptocurrency, more than the positive ones.

With cryptos being an ongoing hot topic, it appears that a lot of investors and big-name firms are divided on what they feel about digital assets. Coinbase CEO Brian Armstrong, for one, strongly believes that the world would greatly benefit from large-scale crypto adoption, as it would enable everyone to have access to “basic economic rights.”

European Central Bank President: Coronavirus Has Accelerated Digital Currency Adoption

COVID-19 has led to an acceleration in digital payments adoption and technological innovation, as seen by the spending pattern of European citizens.

During an online conference with the Deutsche Bundesbank, European Central Bank (ECB) President Christine Lagarde discussed current banking and digital contactless payments.

Digital era is here to stay

According to ECB President Lagarde, consumer preferences have seen an increase in digital contactless payments, with Europeans taking to online platforms for their retail needs during the pandemic. With the digital revolution at our footsteps, “more than four in five Europeans regularly use the internet, up from one in five two decades ago,” said Lagarde. Global payments have been increasingly on the surge, as the pandemic has driven the digitization trend forward.

Lagarde spoke about financial strategies that the European Union could adopt with digital payments and currency to remain competitive on a global scale. She addressed the shift in consumer preferences and the fast-paced digital trend, discussing European Central Bank officials’ current plan for a European Central Bank Digital Currency (CBDC). She said:

“The coronavirus (COVID-19) pandemic has accelerated this trend towards digitalization. E-commerce, which has grown steadily in recent years, increased by almost a fifth in terms of volume of sales between February and June 2020, while in-store sales declined.”

Since COVID-19 erupted, Lagarde has asserted that online payments have soared in volume, recording double-digit growth. With consumers globally transitioning to a new digital normal, Lagarde said:

“This trend is unlikely to be reversed once the pandemic is over.”

Digitalization of Europe

The former chair of the International Monetary Fund (IMF) quoted a survey conducted in 17 European countries that indicated that most European consumers expected to continue leveraging digital services “as often as they do now or even more often,” after the pandemic.

With digital payments, scalability is an important issue, and Lagarde addressed the importance of dominating payments on a global scale to remain competitive. She said that foreign countries have taken the lead in digital payment options, referencing China. The European Central Bank President said:

“Europe has fallen behind in this competition. The lack of payments integration in Europe means that foreign providers have taken the lead. […] In a digital world, consumers must have the possibility to pay with sovereign money.”

Will China be the first to roll out a national CBDC?

The European Central Bank president added that China had managed to transition from cash to mobile payments within a decade and that tech firms were also responsible for driving this digital trend forward. Lagarde mentioned that to stay ahead of the global competition, a CBDC must be implemented. The former head director of the IMF said that the European Union was currently still working out the logistics behind the launch of a central bank digital currency to facilitate more efficient cross-border payments and overall digital transacting.

The results studying the potential effects of the launch of a CBDC in Europe are to be announced in the upcoming weeks.

China has on its end been gaining momentum in the global race to be the first to launch a regulated and national digital currency. The country has been developing its CBDC for quite some time, testing its digital currency electronic payment (DCEP) in wealthier cities around China with small-scale retail transactions.

Federal Reserve Chairman Powell to Address IMF on Digital Currencies Next Week

Federal Reserve Chairman Jerome Powell will be speaking to the International Monetary Fund (IMF) next week as part of its panel on the future of cross-border digital payments.

Fed Chair Jerome Powell will speak next week at the IMF’s annual meeting as part of a panel that will discuss digital currencies and cross-border payments.

The panel discussion which will be webcast at 8 am ET on Monday, is entitled “Cross-Border Payment—A Vision for the Future.”

Other members of the IMF’s panel include Agustín Carstens, general manager of the Bank for International Settlements; Nor Shamsiah, Governor of Bank Negara Malaysia; and Governor of the Saudi Arabian Monetary Authority Ahmed Abdulkarim Alkholifey, whose central bank is collaborating with the UAE on a blockchain-based transaction platform.

Along with Fed Chairman Powell, the panelists are set to discuss the benefits and risks of cross-border digital currencies and their policy implications, according the IMF.

Although it is not clear whether it will be included in Powell’s discussion—the Federal Reserve has grown bullish on digital payments technology as the COVID-19 pandemic has highlighted the need to provide faster methods of relief. The United States central bank has announced the accelerated development of its own platform—FEDNow and is also working on a CBDC known as the digital dollar.

Two Major Events Will Influence the Bitcoin Price in the Next 24 Hours

Bitcoin and cryptocurrency traders face a moment of pause as they await two major events that will likely either send the BTC price soaring or cause a major bearish correction in the crypto markets.

The Bitcoin price is currently hovering around the $11,400 per Bitcoin and has moved in line with the mainstream equity markets over the last two months.

Despite the fanfare made regarding Square’s recent $50 million investment into Bitcoin and joining the list of public companies hedging with the crypto asset—the BTC price has remained mostly uninfluenced by what many have viewed as a catalyst for further mainstream investment.

However, in the next 24 hours—two events will occur that could give Bitcoin traders the buy or sell signal they are seeking. The first is that in the next few hours, Federal Reserve Chairman, Jerome Powell is set to speak on the digital currencies at the International Monetary Fund’s (IMF) annual meeting.

The second event is the impending deadline on a pre-election round of stimulus—set by House Democrat Speak Nancy Pelosi for the Trump Administration to reach a deal with Democrats by Tuesday, Oct. 20.

Fed Chairman’s Influence on BTC Price

As reported by CNBC, on Feb. 12, Fed Chairman Powell’s address to Congress in which he appeared to acknowledge the power of digital currencies had a significant impact on the Bitcoin market, sending the BTC price surging above the $10,000 mark for the first time in 2020.

In his testimony in front of Congress on Tuesday, Powell was asked about central bank digital currencies and the Fed’s view on a digital dollar. The Fed Chairman acknowledged that Facebook’s Libra project served as a wake-up call that a digital currency could come “fairly quickly” and in a way that is “quite widespread and systemically important.”

Depending on what Powell says in today’s panel at the IMF on digital currencies, comments along the same lines as those in February are likely to send the BTC price higher. Fed Chair Jerome Powell’s panel will be webcast at 8 am ET on Monday, and is entitled “Cross-Border Payment—A Vision for the Future.”

Democrat Pelosi’s Pre-Election Stimulus Deadline

The second factor sure to move the Bitcoin price needle one way will be the outcome of the Democrats ultimatum to reach a consensus on a pre-election stimulus package with the White House by Oct.20.

As reported by Blockchain.News, Senate Democrat Nancy Pelosi has put a hard deadline on the stimulus negotiations between Democrats and Republicans as no agreement has yet been reached. House Democrats have proposed a $2.2 trillion relief package, and although President Donald Trump has said that he’s prepared to go beyond his own party’s $1.8 trillion proposal—Senate Republicans remain in favor of a much more modest package and have been pegged as unlikely to support Trump in this compromise.

This outcome of Pelosi’s ultimatum should affect the Bitcoin price one way or the other—largely based on the bet by investors that the trillions in government and central bank money printing and relief spending globally in response to the COVID-19 market disruption will likely lead to very high inflation and US dollar debasement.

This inflation theory is currently being heavily supported by an onslaught of public companies and notable Bitcoin investors such as the Winklevoss Twins and Max Keiser.

For now, a further impasse between the Republicans and Democrats on reaching a stimulus amount agreement could see the Bitcoin price stall or even fall slightly. However, should the two sides reach an agreement by Tuesday, the price of BTC should also rise significantly.

Fed Reserve Chair Says Central Bank Needs to Issue Digital Currency Right not First

According to Jerome Powell, the Federal Reserve Chair, the United States will not be cutting any corners with its potential central bank digital currency (CBDC) or digital dollar, choosing not to aim to do it first but do it right.

During the panel discussion on Oct 19 at the annual meeting of the International Monetary Fund (IMF), Powell clarified the US plans for a CBDC. The Federal Reserve chairman said that the he is less concerned about other countries being first with their own CBDC issuance than he is with the United States getting their own digital dollar right.

CBDC Issuance

There are a number of ways that a CBDC might improve the payments system, and it is mainly this area that motivates our interest […] For the Federal Reserve, our main focus is on whether and how a CBDC could improve an already safe, effective, dynamic, and efficient domestic payments system.”

Powell discussed that while the US central bank is still examining the benefits of digital currency or digital dollar, he argued that they had to do it right rather than doing it first. The Fed Chair stated that the US, unlike many other countries, already has a highly banked population. Speaking at on the IMF’s panel on cross-border payments, he stated:

“We have a highly banked population so that many—although not all—already have access to the electronic payments system.”

The Fed Chairman later said:

“We have not made a decision to issue a CBDC, and we think there’s a great deal of work yet to be done. […] In fact, I actually do think that CBDC is one of those issues where it’s more important for the United States to get it right than it is to be first.”

Talking about private solutions like Libra, Powell mentioned that such cryptocurrencies and stablecoins are likely to promote innovation that is why private players have to work together with central bankers. He said: “We need to work to collaborate. The private sector is likely to be able to contribute to broad innovations.”

China Closing on Its Digital Currency

Another important question concerns the U.S’s stance on China’s recent progress to launch its CBDC, which is already much ahead. Powell responded that each nation has to carefully consider their own stance in CBDCs. He also revealed that about 80% of all central banks are working on developing their own CBDCs. In its latest move to test its DCEP, the People’s Bank of China (PBOC) issued 10 million-yuan ($1.5 million) worth of digital currency to 50,000 people in the city of Shenzhen via a lottery. Those who were successful obtained digital “red packets” worth an estimate of 200 yuan that they could download and spend such digital funds at more than 3000 merchants in Luohu district. The China’s Central Bank stated that it plans to launch its national digital currency later this year, though it’s yet to set a date.