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India’s central bank has announced that it will enable non-bank payment system operators to offer central bank digital currency (CBDC) wallets. Noting that “necessary changes will be made to the system to facilitate this,” the Reserve Bank of India (RBI) said the initiative is expected “to enhance access and expand choices available to users.” Non-Bank […]
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India’s Digital Rupee Expands: Non-Banks to Offer Central Bank Digital Currency Wallets
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Central Bank of Kenya Releases Discussion Paper on CBDCs
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Central Bank Digital Currencies (CBDCs), a phenomenon that took over the global financial system in 2021, is now getting popular among African economies. Recently, the Central Bank of Kenya (CBK) published a discussion paper on CBDCs to highlight different opportunities and risks associated with the central bank digital currencies.
CBK noted that AML, technology risks, and infrastructure costs are some of the major risks associated with CBDCs. However, the bank also outlined a few prominent features of the digital currencies including the expansion of cross-border payments, financial stability, innovation, and financial inclusion.
The Kenyan central bank highlighted the rising popularity of digital tools in the global payments industry. “Following the outbreak of the coronavirus (COVID-19) pandemic, digital platforms have emerged as important financial inclusion tools across the world. To reap the full benefits and manage risks, policymakers are looking to step up. Central banks are exploring the possibility of rolling out CBDC solutions to meet their future payments needs in a digital economy,” CBK mentioned.
According to a recent survey conducted by the Bank for International Settlements, nearly 86% of central banks around the world are exploring the possibilities of CBDCs.
Risks
The Central Bank of Kenya said that it is monitoring the ongoing developments in the global CBDC ecosystem. While the bank outlined the potential advantages of CBDCs, it added that the disadvantages of digital assets must be considered before further developments.
“There are significant potential risks with CBDC issuance. These include financial exclusion, technology risks, competing with bank deposits and undermining bank intermediation, hampering monetary policy transmission, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), and data privacy balance and infrastructure costs,” the Central Bank of Kenya added.
Recently, the Bank of Korea announced the completion of the first phase of its central bank digital currency testing.
Central Bank Digital Currencies (CBDCs), a phenomenon that took over the global financial system in 2021, is now getting popular among African economies. Recently, the Central Bank of Kenya (CBK) published a discussion paper on CBDCs to highlight different opportunities and risks associated with the central bank digital currencies.
CBK noted that AML, technology risks, and infrastructure costs are some of the major risks associated with CBDCs. However, the bank also outlined a few prominent features of the digital currencies including the expansion of cross-border payments, financial stability, innovation, and financial inclusion.
The Kenyan central bank highlighted the rising popularity of digital tools in the global payments industry. “Following the outbreak of the coronavirus (COVID-19) pandemic, digital platforms have emerged as important financial inclusion tools across the world. To reap the full benefits and manage risks, policymakers are looking to step up. Central banks are exploring the possibility of rolling out CBDC solutions to meet their future payments needs in a digital economy,” CBK mentioned.
According to a recent survey conducted by the Bank for International Settlements, nearly 86% of central banks around the world are exploring the possibilities of CBDCs.
Risks
The Central Bank of Kenya said that it is monitoring the ongoing developments in the global CBDC ecosystem. While the bank outlined the potential advantages of CBDCs, it added that the disadvantages of digital assets must be considered before further developments.
“There are significant potential risks with CBDC issuance. These include financial exclusion, technology risks, competing with bank deposits and undermining bank intermediation, hampering monetary policy transmission, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), and data privacy balance and infrastructure costs,” the Central Bank of Kenya added.
Recently, the Bank of Korea announced the completion of the first phase of its central bank digital currency testing.
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Russia’s Central Bank Proposes Ban on the Use and Mining of Crypto
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On Thursday January 20, the Bank of Russia published a report that proposes ban of the use and mining of cryptocurrencies within Russian territory. In the report, the Central Bank of the Russian Federation stated that
cryptocurrencies pose threats to financial stability, citizen’s wellbeing, and its monetary policy sovereignty. Furthermore, the regulator mentioned that the rapid growth of crypto coins was determined majorly by speculative demand and could lead to a market bubble that threatens citizens’ welfare and financial stability. The regulator further stated that crypto coins carry characteristics of a financial pyramid.The Russian Central Bank has therefore proposed prevention of financial institutions from conducting any operations involving crypto transactions. Moreover, the central bank identified that a mechanism should be created to block transactions aimed at selling or purchasing cryptocurrencies for fiat or traditional currencies. The regulator’s proposed ban includes cryptocurrency exchanges. In the report, the central bank described Russians as active crypto users making transactions volume of around $5 billion made per year. The authority disclosed that Russia is the third largest cryptocurrency mining country in the world. According to the new report, the “potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including in Russia.”
Governments Are Strengthening Rules on Cryptocurrency
The move by the Central Bank of Russia is the latest attempt to crackdown cryptocurrencies as multiple governments have also expressed similar concerns that crypto assets are a threat to their financial systems. Governments across the globe worry that privately operated digital currencies are highly volatile and could undermine their control of their monetary and financial systems. A few days ago, Erik Thedéen, the vice chairman of the European Securities and Markets Authority, expressed concerns that Bitcoin mining has become a national issue for his native country, Sweden. Thedéen warned that
crypto mining poses a risk to meeting climate change goals highlighted in the Paris Agreement. Recently, the Central Bank of Pakistan proposed a ban on cryptocurrency while US authorities discuss about the need for more regulations within the industry. Last year, China’s PBOC imposed a complete ban on cryptocurrencies, citing illegal activities involving cryptocurrencies (such as pyramid schemes, gambling, and money laundering) could disrupt the national economy.On Thursday January 20, the Bank of Russia published a report that proposes ban of the use and mining of cryptocurrencies within Russian territory. In the report, the Central Bank of the Russian Federation stated that
cryptocurrencies pose threats to financial stability, citizen’s wellbeing, and its monetary policy sovereignty. Furthermore, the regulator mentioned that the rapid growth of crypto coins was determined majorly by speculative demand and could lead to a market bubble that threatens citizens’ welfare and financial stability. The regulator further stated that crypto coins carry characteristics of a financial pyramid.The Russian Central Bank has therefore proposed prevention of financial institutions from conducting any operations involving crypto transactions. Moreover, the central bank identified that a mechanism should be created to block transactions aimed at selling or purchasing cryptocurrencies for fiat or traditional currencies. The regulator’s proposed ban includes cryptocurrency exchanges. In the report, the central bank described Russians as active crypto users making transactions volume of around $5 billion made per year. The authority disclosed that Russia is the third largest cryptocurrency mining country in the world. According to the new report, the “potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including in Russia.”
Governments Are Strengthening Rules on Cryptocurrency
The move by the Central Bank of Russia is the latest attempt to crackdown cryptocurrencies as multiple governments have also expressed similar concerns that crypto assets are a threat to their financial systems. Governments across the globe worry that privately operated digital currencies are highly volatile and could undermine their control of their monetary and financial systems. A few days ago, Erik Thedéen, the vice chairman of the European Securities and Markets Authority, expressed concerns that Bitcoin mining has become a national issue for his native country, Sweden. Thedéen warned that
crypto mining poses a risk to meeting climate change goals highlighted in the Paris Agreement. Recently, the Central Bank of Pakistan proposed a ban on cryptocurrency while US authorities discuss about the need for more regulations within the industry. Last year, China’s PBOC imposed a complete ban on cryptocurrencies, citing illegal activities involving cryptocurrencies (such as pyramid schemes, gambling, and money laundering) could disrupt the national economy.[ad_2]
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Central banks generate trust, not big techs or “anonymous ledgers”
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In a speech entitled “Digital currencies and the soul of money,” Agustín Carstens, the general manager of the Bank of International Settlements,’ criticized private stablecoins and decentralized finance (DeFi), touting central bank-led financial innovation as the best possible path to the future of money.
Carstens, who served as governor of the Bank of Mexico between 2010 and 2017, delivered his remarks at the conference on “Data, Digitalization, the New Finance and Central Bank Digital Currencies: The Future of Banking and Money” at the Goethe University in Frankfurt.
The economist’s argument revolved around the institutional foundations of money and how, even in the digital age, central banks remain in a position to provide trust in money and ensure “an efficient and inclusive financial system to the benefit of all.” Alternative designs of monetary systems that emerged throughout history, according to the BIS’ top official, “have often ended badly.”
To advance his point, Carstens discussed three plausible scenarios of financial innovation. In addition to the global monetary system led by central banks, he envisioned a world where big tech-powered stablecoins are the dominant form of money, and another where the bulk of financial activity is decentralized and runs on distributed ledgers.
The stablecoin scenario, Carstens maintained, is fraught with market power and data concentration at the hands of a few dominant private money issuers. National and global monetary systems would become fragmented, while the disintermediation of incumbent banks would threaten financial stability.
Speaking of DeFi, the BIS boss claimed that the reality that DeFi applications are delivering is at odds with their proclaimed foundational principles of disintermediation. Carstens said:
To date, the DeFi space has been used primarily for speculative activities. Users invest, borrow and trade cryptoassets in a largely unregulated environment. The absence of controls such as know-your-customer (KYC) and anti-money laundering rules, might well be one important factor in DeFi’s growth.
Furthermore, echoing BIS researchers’ recent claims, Carstens stated that “there is a lot of centralization in DeFi.” He also cited scalability issues and liquidity mismatches as problematic aspects of decentralized finance.
In the vision of the monetary future that the economist extolled, central banks are at the core of the financial system, facilitating innovation such as building a global network of CBDCs. Because they are not profit-driven, central banks would act to advance the interests of the public, according to Carstens.
These statements come as no surprise when voiced by a chief officer of an institution that is often called a bank for central banks. As Cointelegraph reported earlier, the BIS’ innovation arm is actively engaged in several CBDC trials, including the cross-border settlement initiative ran jointly by central banks of France and Switzerland.
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European Central Bank announces digital euro advisory group members
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The European Central Bank (ECB) has announced the formation of a Market Advisory Group for the purpose of exploring the infrastructural and circulation potential of the digital euro from the perspective of industry spearheads.
The group also aims to uncover the digital euros optimal function within the pan-European currency’s vast payments ecosystem.
The group includes a number of well-established experts from the banking and financial sector, including Aleksander Kurtevski, managing director of Bankart, Antonio Macías Vecino, head of payments discipline at BBVA and Axel Schaefer, payment regulation and innovation specialist at Ingka Group (Ikea), among others.
It is expected that initial consultation meetings will commence in November 2021 and will operate on a monthly basis. The 30 members will work in advisory roles and report their findings for consideration in retail payments discussions within the Euro Retail Payments Board (ERPB).
In mid July this year, the Governing Council of the ECB disclosed plans to commence a two-year preliminary research initiative into the feasibility of the digital euro project, assessing parameters such as infrastructure creation, distribution and design, with an assured intention to “complement cash, not replace it.”
Related: Stablecoins are assets — not currencies, says ECB president
ECB Board Member Fabio Panetta expressed his high-expectations for the project’s success:
“I am pleased that many high-quality experts from the private sector are willing to contribute to the digital euro project. Their expertise will facilitate the integration of prospective users’ and distributors’ views on a digital euro during the investigation phase.”
This is a developing story, so more detail will be added shortly.
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