Rightways: Digital yuan

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Monday, July 26, 2021

Govcoins and crypto to coexist

GOVERNMENT-backed coins and private cryptocurrencies will coexist for a while, despite rising regulatory walls set by the government to counter virtual coins, experts at a global webinar session said Thursday.

Noting that cryptocurrencies and digital currencies by governments are “two different animals,” they will coexist for now partly because current cryptocurrencies are not actually solving payment problems.

“How many of them (cryptocurrencies) are solving actual payment problem? Most of them are speculative and used as a means of storage,” said Nelson Chow, chief fintech officer of the Fintech Facilitation Office at the Hong Kong Monetary Authority.

Chow said that some central bank digital currency, or CBDC, projects such as Multiple CBDC Bridge have the potential to solve decades-old problems for cross-border transactions. Multiple CBDC Bridge is a wholesale CBDC co-creation project between the Hong Kong Monetary Authority, Bank of Thailand, the People‘s Bank of China and the Central Bank of the United Arab Emirates.

Under the current regulatory environment, John Kiffmeiste, a former senior financial sector expert at the International Monetary Fund, said that it is unlikely that the emergence of CBDC projects, now numbering nearly 60 according to Kiffmeiste’s data, would make crypto assets obsolete.

“CBDC has to operate within confines of tax regulations, anti-money laundering, KYC (know-your-customer) and so many other regulations whereas cryptocurrencies don’t operate in that environment,” the economist added.

Speakers at the webinar co-hosted by The Investor, a tech media outlet run by The Korea Herald, Malaysia’s The Star and the Asia News Network.

But, Kiffmeiste pointed out that as the regulatory and legislative walls are closing in on crypto assets, they will come under the same rules that other types of conventional currencies operate under. “In that case, that levels the playing field. Perhaps in that new world, CBDCs and cryptocurrencies coexist, but crypto assets become redundant as at least payment medium.”

Andrew Sheng, one of Asia’s top economists, stressed that authorities should understand the complex contextual backgrounds that have brought about the rising interest in CBDCs and cryptocurrencies.

Noting that the value of the cryptocurrency market has reached US$1.2tril – half the value of the official gold reserves – Sheng said cryptocurrencies had grown outside of the purview of public control. “This was the big lesson of the Covid-19, private cyber currencies will be with us whether you like it or not,” Sheng said.

The tug-of-war between regulators and cryptocurrencies is most apparent in the US in the area of stablecoins like USD Coin, a digital equivalent of the US dollar.

The US-proposed Stable Act will bring USD stablecoin issuers into conventional regulatory perimeters.

Kevin Werbach, a professor of legal studies and business ethics at the Wharton School of the University of Pennsylvania, said that the cryptocurrency industry does not have to be allergic to regulations.

“There is always a notion that we have to choose either innovation or regulation. And I think it’s a false dichotomy. For new technological markets to mature and develop, they need to be trusted. They need to get to the point where ordinary people around the world are willing to participate in these activities at scale, and regulations are an important part of that,” Werbach said.

As to the increasing public controls on crypto assets, speakers called for regulations compatible with the emerging cryptocurrency industry. They shared a similar view that cryptocurrency companies and regulators must work together on bringing the industry into the system.

“Since innovation is always ahead of regulation, it is inevitable for regulators to rely on us when drafting policies. It is crucial to reshape their ‘legacy mindset’ and make them understand the nature and dynamics of cryptocurrency,” said Marcus Lim, CEO and co-founder of Zipmex.

They were speaking at a webinar co-hosted by The Investor, a tech media outlet run by The Korea Herald, Malaysia’s The Star and the Asia News Network entitled “The rise of Govcoins & What’s next for crypto”. Speakers at the July 22 virtual seminar included a group of experts in the US, Europe and Asia who are navigating the current situation surrounding the development of central bank digital currencies and challenges posed by and to cryptocurrencies.

Experts said that central bank digital currencies have a huge potential to solve many issues, ranging from decades-old problems involving cross-border transactions to digital transformation.

Kiffmeiste noted that almost 60 jurisdictions are currently exploring retail CBDCs, with countries like the Bahamas and China at the forefront, but they are divided in their motivations for issuing the CBDCs. For instance, emerging economies consider CBDCs as a way to spur financial digitalisation, while advanced economics mull digital currency as part of financial stability and to improve monetary policies. — The Korea Herald/Asia News Network

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Sunday, March 21, 2021

Bitcoins, Cryptocurrencies under fire

Bitcoins

India and China come down hard due to concerns of financial market stability, illegal fundraising

N THE latest twist involving the world of cryptocurrencies, India’s government plans to impose a massive ban on the asset class.

Reports have indicated that the Indian government plans to pass a bill that would ban just about every activity involving cryptocurrencies, including the possession, issuance, mining, trading and the transferring of crypto-assets.

Once passed, this would make it one of the world’s strictest policies on cryptocurrencies. Government officials have said that the move is because they believe cryptocurrencies threaten the stability of financial markets, tend to fund unlawful activities and even resemble ponzi schemes.

The move by the Indian government falls in line with the school of thought that cryptocurrencies could increasingly suffer bans by governments around the world.

In India’s case, the move comes after an earlier ban two years ago. But last year, the courts in India overturned the decision, citing the ban as “disproportionate” after cryptocurrency exchanges filed a lawsuit against the central bank’s ban.

The strong stance against cryptocurrencies has also been shown by China’s government. More than three years ago, China was the first country to ban initial coin offerings (ICOs), calling it “illegal fundraising”.

Since then, the Chinese government has accelerated efforts to clamp down all businesses involved in cryptocurrency operations, including bitcoin miners.

China’s government says its stance is based on investor protection, money laundering concerns and the unnecessary consumption of energy due to crypto mining activities.

Last month alone, there were plans to ban new cryptocurrency mining projects and shut down existing ones in China’s Inner Mongolia region.

As one financial analyst puts it, “the problem with cryptocurrencies is that while it thrives to work in an unregulated world, it is bound to come under the scrutiny and regulation of governments, which are mostly afraid of its misuse and potential negative impact to financial markets. Perhaps somewhere in the future, a balance will be struck but that is anyone’s guess”.

While governments have a tendency to ban cryptocurrencies, many are embracing blockchain technology with the intention of issuing state-backed digital currencies.

This is essentially an electronic version of notes or coins which would replace physical cash entirely and dubbed central bank digital currencies or CBDC.

China is one of the leading countries for this and has already passed a law to legalise its own official digital currency. Similarly, India is an example of another country that is considering having its own digital currency. Interestingly, India’s move to pass the bill to ban cryptocurrencies comes soon after the mother of all cryptos, namely, bitcoin has hit its all-time high past US$60,000 (RM246,449) for the first time earlier this week.

The world’s biggest currency rally was driven by speculative demand, increased adoption by firms and institutional investors that see bitcoin as a store of value. Last month, Tesla bought over a billion dollars worth of bitcoins.

The electric car maker said it plans to accept the digital coin as payment for its products. Mastercard has also said it would also soon accept bitcoin as a form of payment.

Asset manager BlackRock and payment companies Paypal and Square have also recently backed cryptocurrencies.

Back home, the question remains whether the government, central bank or the Securities Commission (SC) would take a stronger stance against cryptocurrencies.

Malaysia’s regulators have held the view that digital assets are not legal tender and have warned investors to be cautious when dealing with cryptocurrencies.

SC chairman Datuk Syed Zaid Albar tells StarBizWeek that “investors must understand that unregulated, offshore investments are not protected under Malaysian securities law”.

“The SC has put in place a regulatory framework for such new emerging investment channels to provide certainty to issuers and investors who are keen to explore these new instruments.

“For example, our regulatory framework has tried to address issues such as putting investors’ money in trust accounts, accurate disclosures, cooling-off periods and conflict of interest situations are also regulated, ” Syed Zaid explains.

The country’s central bank, Bank Negara, also echoes a similar view, explaining that digital assets lack the characteristics of money and suffer from several limitations such as price volatility and risks of cyber threats.

“Digital asset activities are also subject to anti-money laundering and counter-terrorism financing regulations administered by the respective authorities, ” the central bank reported in its annual report in 2019.

Malaysia is also one of the countries studying the feasibility of issuing its own digital currency. “The bank is no exception, and we continue to engage closely in discussions surrounding CBDC with other central banks, ” it said.

More collaborations among central banks around the world are taking place to study the impact of a digital currency for financial stability and the monetary policy of a country.