Digital Yuan

China Is Drafting Laws for the Circulation of National Digital Currency

26/03/2020 by Idelto Editor

Amid the coronavirus pandemic, China’s central bank has reportedly completed the basic development of the nation’s central bank digital currency. The central bank is now drafting legislation for its circulation, according to local media. A number of patents have revealed what the digital yuan will be like.

Also read: 2x Bitcoin — Wanna Double Your BTC to the Moon? Forget About It

Coronavirus Pandemic Could Accelerate the Launch of China’s Sovereign Digital Currency

China’s central bank, the People’s Bank of China (PBOC), is reportedly closer to issuing its own digital currency, Chinese publication Global Times reported on Tuesday, citing an unnamed industry insider. The central bank, in collaboration with private companies, “has completed development of the sovereign digital currency’s basic function and is now drafting relevant laws to pave the way for its circulation,” the publication detailed. The insider elaborated:

As more central banks around the world are cutting interest rates to zero or even entering negative territory to release liquidity into the market amid the coronavirus (covid-19) pandemic, China should accelerate the launch of its digital currency.

The next step “involves digital currency legislation and working with banking and insurance regulators on supervision,” the insider noted, adding that this step “could be more lengthy” and “poses uncertainties for the exact date of the launch.” Cao Yan, director of the Advanced Research Institute of Blockchain under the Yangtze Delta Region Institute of Tsinghua University, believes that the PBOC “should accelerate the launch of its digital currency in the face of the unprecedented coronavirus pandemic,” the publication conveyed.

China’s central bank, the People’s Bank of China (PBOC), has reportedly completed the basic development of the central bank digital currency. The bank is now drafting relevant laws for the circulation of the digital yuan.

The PBOC started researching the possibility of launching its own CBDC in 2014 with the aim “to cut the costs of circulating traditional paper money and boost policymakers’ control of money supply.” In August 2019, Mu Changchun, deputy director of the central bank’s payments department, said that the digital yuan was “almost ready.” However, Governor Yi Gang later clarified that there was no timeframe for the launch and more time was needed for further research, testing, trials, assessments, and risk prevention.

Central bank officials explained that the CBDC will use a two-tier system where both the central bank and financial institutions will be legitimate issuers. Mu detailed that it would not be a cryptocurrency like bitcoin or a stablecoin, adding that the central bank has “completed the top-level design, standard formulation, functional research and development, joint debugging and testing.”

Patents Related to China’s Central Bank Digital Currency

A large number of patents have reportedly been filed relating to China’s central bank digital currency. The PBOC is said to have filed 84 patents relating to its plans to launch a digital yuan, as news.Bitcoin.com previously reported.

According to Global Times, a number of private companies participated in the development of China’s digital currency, including Alibaba, Tencent, Huawei and China Merchants Bank. Alibaba’s payment platform, Alipay, publicized five patents related to China’s CBDC between Feb. 21 and March 17, the news outlet detailed, adding:

The patents cover several areas of digital currency, including issuance, transaction recording, digital wallets, anonymous trading support and assistance in supervising and dealing with illegal accounts.

Many patents filed by the PBOC and Alipay revealed the nature and scope of China’s central bank digital currency.

The first patent, entitled “Implementation and Electronic Equipment of CBDC transaction,” was publicized on Feb. 21, the 8btc publication reported, asserting that by filing this patent, Alipay likely plans to participate in the second issuance in the national digital currency’s two-layer structure alongside commercial banks.

The next patent, revealed by Alipay on Feb. 25, was entitled “A Digital Currency Account Control Method and Device.” It indicates that “If regulators want to restrict illegal transactions, they need to go through the bank’s currency operating agency when illegal activities have occurred and it’s very difficult to recover the transferred fund,” the publication described.

Another patent, publicized on Feb. 28, was called “Digital Wallet’s Method and Electronic Device.” It discusses many types of digital wallets for different services. The next patent revealed by Alipay on March 17 was entitled “An Anonymous Trading Method and System Based on Digital Currency.” It details a system that uses temporary passwords for anonymous transactions.

Do you think China will be the first country to launch a central bank digital currency? Let us know in the comments section below.

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A Sea Change to Crypto Hits America, Again

01/03/2020 by Idelto Editor

A sea change is coming to cryptocurrency in America. It is likely to hit in two separate waves: a central bank digital currency (CBDC) and draconian regulation that shuts down free-market activities, including development.

Also Read: No Backdoor on Human Rights: Why Encryption Cannot Be Compromised

The Wave of a Central Bank Digital Currency

Robert Wenzel of the Economic Policy Journal has a warning. “A [U.S.] Federal Reserve created digital coin could be one of the most dangerous steps ever taken by a government agency. It would put in the hands of the government the potential to create a digital currency with the ability to track all transactions in an economy—and prohibit transactions for any reason. In terms of future individual freedom, this would be a nightmare.” If recent statements by American lawmakers and bureaucrats are an indication, however, state-issued crypto seems to be on its way.

A shift in attitude on CBDC is in the air. Consider Federal Reserve Governor Lael Brainard. In May 2018, she stated, “There is no compelling demonstrated need for a Fed-issued digital currency.” While acknowledging the efficiency and low cost of blockchain transfers, Brainard presented a familiar check list of objections to digital currencies. They were too volatile to be utilized as money; their anonymity protected crimes like money laundering and sex trafficking; they eluded regulation. Then Brainard added what may have been the fundamental reason for dismissing a CBDC. At the beginning of 2018, digital currencies were so small a part of the financial system that they posed no stability risk. They did not threaten the monetary status quo. Or, at least, Brainard did not perceive the threat.

In February 2020, her tune differed. “The Fed is conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC.” The main public argument for a CBDC is a perceived need to stabilize crypto by pegging it to traditional fiat, which is assumed to be less volatile. The “nightmare” of which Wenzel warned already has a name: Fedcoin.

What changed between May 2018 and February 2020?

Crypto surged in popularity and price while central banks and their fiats continued a slow implosion. Several nations — including America’s financial nemesis China — announced an intention to issue e-currencies. “We are collaborating with other central banks as we advance our understanding of central bank digital currencies,” Brainard explained, all the while “making sure” we are at the “frontier of both research and policy development.” Translation: the U.S. does not want to be left behind. Neither will it eat Facebook’s dust; Brainard claimed that Facebook’s digital currency Libra, which emerged last year, “imparted urgency” to the conversation. Digital currency was becoming a large enough part of the financial system for agencies like the Internal Revenue Service (IRS), the Federal Reserve, and the Treasury Department to notice.

The Wave of Draconian Regulation

The regulation attack is surging, and it will extend far beyond the current licensing of exchanges to make them function in conformity with state law.

The IRS has stepped up crypto prosecutions and has created new rules. In his article “IRS Explains What Crypto Owners Must Know to File Taxes This Year,” Kevin Helms observed, “Among the changes to the 2019 Form 1040, the main U.S. tax form, is the addition of ‘an inquiry regarding the acquisition or disposition of any virtual currency’, the agency explained. The new crypto question appears on Form 1040’s Schedule 1, entitled ‘Additional Income and Adjustments to Income’.” This is prelude.

Treasury Secretary Steven Mnuchin recently revealed that the Department’s Financial Crimes Enforcement Network (FinCEN) was preparing “significant new requirements” in order to provide transparency to crypto in a quest to prevent “crimes” such as tax avoidance. Here, transparency is a synonym for state surveillance. “We want to make sure that technology moves forward,” Mnuchin continued, “but … we want to make sure that cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts.” He added that FinCEN and the Treasury Department are “spending a lot of time on this.”

The Department of Justice was even more blunt, declaring bitcoin mixing to be “a crime” in and of itself. Yahoo Finance’s article “US DOJ Calls Bitcoin Mixing ‘a Crime’ in Arrest of Software Developer,” indicated how seriously the DOJ takes this alleged crime. “Larry Harmon was arrested earlier this week for allegedly participating in a money-laundering conspiracy worth more than $300 million in cryptocurrency involving darknet marketplace AlphaBay. However, the family of the Coin Ninja CEO claims he was never involved with AlphaBay. Harmon’s case raises pressing questions about developer liability in the crypto industry.” The mere development of tools has been criminalized.

The Two Waves Flood Together

As yet, Mnuchin has not supported a CBDC. He merely echoes President Trump’s loud concern that crypto is being used by bad actors, and the “abuses” must be reined in by careful state monitoring. The easiest way for this to be done is to create some form of CBDC on a blockchain protocol that the state controls, however.

The state’s pattern in monetary matters can be judged by how it handled private competition to the money it has issued in the past. Whatever the politicians say now, the same pattern is likely to hold with crypto as soon as it becomes pragmatically possible.

First, state money is issued through a central bank and free-market competitors are controlled by regulation. “To start with, I suspect it’s going to be a parallel currency,” the investment guru Doug Casey explained. “Perhaps usable just within the U.S. which, in effect, would be a form of foreign exchange controls even more effective than the inability of Americans to open up foreign bank and brokerage accounts today … I think it’s a near certainty that they’re going to do something like this and soon.” Second, the state will attempt to establish a monopoly by criminalizing the ownership of free-market crypto and, perhaps, mandating the ownership of state-issue. One manner in which a fiat has been historically mandated is by making taxes or other state fees payable only in that form of money.

Establishing a CBDC may be irresistible to Trump, not only as a way to stay competitive with rival monetary powers but also because of the extreme political power it offers. A CBDC would serve the state in at least two ways:

By controlling the design of the Fedcoin’s blockchain and its terms of use, the state can strip away encryption and anonymity so that every transaction is identifiable. Every user can be taxed. Every coin can be confiscated; the threat of confiscation or of being shut out of the financial system is a means to impose social control.
The CBDC eases people into a cashless society. States dislike cash because it offers an anonymity that blocks their ability to tax and control. If only the CBDC were permitted, however, extra “taxes” could be levied and social control asserted. If the state wanted to prevent someone from traveling, for example, it could block the person’s ability to buy a plane ticket … or ammunition for a gun.

As usual, the freedom and prosperity of individuals will be stolen in the name of a noble cause: fighting sex traffic or child pornography. In reality, it will be done to empower the state. The title of an Electronic Frontier Foundation (EFF) article stated “In Foreshadowing Cryptocurrency Regulations, U.S. Treasury Secretary Prioritizes Law Enforcement Concerns.”

The wording of the coming regulations and probable Fedcoin are not yet known. Their purpose is clear, however; the state wants to convert cryptocurrency into a form of state fiat and a technology of financial surveillance. The latter can reveal far more than economic transactions. As EFF observed, they can point “to everything from your friend network to your sexual interests to your political affiliations.”

State-controlled e-currency means state-controlled individuals.

Op-ed disclaimer: This is an Op-ed article. The opinions expressed in this article are the author’s own. Bitcoin.com is not responsible for or liable for any content, accuracy or quality within the Op-ed article. Readers should do their own due diligence before taking any actions related to the content. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any information in this Op-ed article.

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84 PBOC Digital Currency Patents Show the Extent of China’s Digital Yuan

16/02/2020 by Idelto Editor

The People’s Bank of China (PBOC) has reportedly filed 84 patents relating to its plans to launch a digital currency. The patents reveal the central bank’s plans which include integrating digital currency wallets into existing retail bank accounts. The potential for the Chinese central bank digital currency to achieve scale from the get-go has put several other central banks worldwide on high alert.

Also read: Trump Views Crypto a Threat, Proposes Countermeasures in New Budget

PBOC’s 84 Digital Currency Patents

The People’s Bank of China (PBOC) has filed 84 patents relating to its plans to launch a digital yuan, the Financial Times reported on Wednesday. The publication claims to have seen and verified all of them, which include:

Proposals related to the issuance and supply of a central bank digital currency, a system for interbank settlements that uses the currency, and the integration of digital currency wallets into existing retail bank accounts.

Several of the patents “indicate that China may plan to algorithmically adjust the supply of a central bank digital currency based on certain triggers, such as loan interest rates,” the news outlet detailed. Some patents “outline mechanisms to allow customers to make deposits with their existing banks and then exchange that for digital currency … Other patents are focused on building digital currency chip cards or digital currency wallets that banking consumers could potentially use, which would be linked directly to their bank accounts.” The patents were uncovered by the Chamber of Digital Commerce.

Patent attorney Marc Kaufman, a partner at Rimon Law who worked with the chamber on the project, commented:

Virtually all of these patent applications relate to integrating a system of digital currency into the existing banking infrastructure.

The majority of the patents are attributed to the PBOC’s Digital Currency Research Institute, with some attributed to state-owned corporations or government subsidiaries. The institute was set up at the end of 2016 to study the possibility of issuing a sovereign digital currency when commercial tradeable cryptocurrencies started gaining traction, the South China Morning Post described. The director of the institute, Mu Changchun, previously said that the digital yuan was almost ready. In December, the official Shanghai Securities News reported Mu explaining that this new currency is not for speculation and would not need the backing of a basket of currencies, emphasizing that it is different from bitcoin and stablecoins.

Global Responses to Digital Yuan

China’s claim to be close to launching its central bank digital currency (CBDC) has put other countries on high alert. In the U.S., Representative Bill Foster pointed out during a House of Representatives’ Committee on Financial Services hearing on Tuesday that besides Facebook’s Libra project, China is the only one in a position to launch its own digital currency and immediately achieve scale. However, both the chairman of the Federal Reserve and the Secretary of the Treasury believe that the U.S. does not need a digital dollar yet.

Meanwhile, the Bank of International Settlements (BIS), the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank, and the Swiss National Bank formed a group last month to assess potential cases of central bank digital currencies. According to reports, they will meet in mid-April in Washington on the sidelines of an International Monetary Fund (IMF) conference to discuss this issue. Bank of Japan board member Takako Masai told a news conference in Nara on Feb. 6:

In Japan, we don’t have any plans now to issue central bank digital currencies … But we need to make an effort so we’re ready to respond, in case public demand for central bank digital currencies rises dramatically.

To help central bankers decide whether to issue a central bank digital currency, the World Economic Forum published a toolkit for policymakers last month. It aims to provide high-level guidance and information on different types of CBDCs — such as retail, wholesale, and cross-border — and alternatives in private money for large, small, emerging and developed countries.

In the same month, the BIS released the outcome of a survey it conducted of 66 central banks’ digital currency efforts. The results show that 40% of central banks have progressed from conceptual research to experiments, or proofs-of-concept, and another 10% have developed pilot projects. However, only a few from small and medium-sized economies have progressed to intensive development and have firm intentions to issue a digital currency soon. “Central banks currently not looking at CBDCs are typically from smaller jurisdictions and/or report that they face more pressing priorities,” the survey finds.

What do you think of the PBOC filing 84 patents relating to a central bank digital currency? Let us know in the comments section below.

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Fed Chair Powell Reveals US Response to China’s Digital Yuan, Libra, Public Payments Ledger

12/02/2020 by Idelto Editor

Fed Chair Jerome Powell Reveals US Response to Digital Yuan, Libra, Public Payments Ledger

In his testimony before the House Financial Services Committee, Federal Reserve Chairman Jerome Powell answered a number of questions regarding digital currencies. While stating that “a ledger where you know everybody’s payments” is not a problem in China, he believes it is not attractive for the U.S. Admitting that Facebook’s Libra project was a wake-up call to the Fed, the chairman provided a progress update of the Fed’s digital dollar.

Also read: Bitcoin, Tesla Stock, Tron: How Warren Buffett Got His First Bitcoin

Public Ledger Not Attractive for the US

Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, testified before the House of Representatives’ Committee on Financial Services on Tuesday. The hearing, entitled “Monetary Policy and the State of the Economy,” was chaired by Rep. Maxine Waters.

Illinois Representative Bill Foster asked Powell a number of questions about digital currencies, including the progress of the digital dollar, citing that the Chinese claims they will be rolling out their digital yuan “sometime very quickly.”

“Do you feel you have adequate visibility into what the Chinese are doing on this. Do you have working-level contacts that give you some idea of what their rollout is likely to do, like likely to look like?” Foster asked. Powell quickly answered, “Yes, I mean, we certainly have, that.” However, he clarified that the circumstances in the U.S. are completely different from China, elaborating:

For example, the idea of having a ledger where you know everybody’s payments is not something that would be, you know, particularly attractive in the United States context. It’s not a problem for China.

Enormously Important to Keep Currency Centralized

Referencing his discussion with Governor Lael Brainard, Foster asked Powell: “Do you think that establishing a digital dollar would help ensure that the U.S. dollar continues to serve as the core of the U.S. and the world’s financial system?” The Fed chairman replied, “Having a single government currency at the heart of the financial system is something that has served us well,” advocating for “preserving the centrality of a central widely accepted currency that is accepted and trusted is an enormously important thing.”

Citing that the private sector is innovating and every major central bank is currently studying central bank digital currencies, the chairman remarked: “It’s very much incumbent on us and other central banks to understand the costs and benefits and trade-offs associated with a possible digital currency.”

Foster also asked Powell how he would characterize the Fed’s progress on a central bank digital currency compared to other countries. The Illinois representative pointed out that one of the reasons why there is so much concern about the Libra project is that it would immediately have scale. He emphasized that another entity in a position to achieve similar scale is the Chinese government.

“How would you characterize our ability to respond to this potentially competitive threat?” Powell was asked. “We are working hard on it. We have a lot of projects going on, efforts going on, on that right now,” he replied, noting that the U.S. hasn’t had a problem of people moving away from cash as several European countries have. According to the Fed chair, “The amount of cash in the U.S. economy continues to grow faster than nominal GDP.” He continued:

There are many questions that need to be answered around digital currency for the United States, including cyber issues, privacy issues, many many relational alternatives present themselves.

“So we are going to be working through all that and doing all that work thoroughly and responsibly,” Powell added.

Libra: The Fed’s Wake-Up Call

Noting that the adoption of cell phone payments could happen in a couple of years, Foster asserted that the U.S. should be able to respond quickly when that happens, such as with a digital dollar. “I completely agree with that,” Powell responded, adding:

Frankly, Libra really lit a fire under that and it was a bit of a wake-up call that this is coming fast and could come in a way that it’s quite widespread and systemically important, fairly quickly if you use one of these big tech networks like Libra did.

In her opening speech, Waters also urged Powell to keep a watchful eye on Facebook and its Libra project. She asserted that Facebook’s planned Libra cryptocurrency and digital wallet launch “could have profound implications on monetary policies and compete with our own U.S. dollar.” Waters and a few other Democrats previously asked Facebook to halt the Libra project until Congress has time to examine the issue of big tech companies launching digital products and take action.

What do you think of Powell’s testimony on digital currencies? Let us know in the comments section below.

Images courtesy of Shutterstock and PBS.

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Deutsche Bank Report: Digital Yuan Could Upset Global Power Balance, Plastic Will Die, Cash Survive

29/01/2020 by Idelto Editor

A new report from Deutsche Bank Research, Digital Currencies: the Ultimate Hard Power Tool, predicts that cash payments will remain for decades, but the emergence of digital payments “will lead to the death of the plastic card.” The report, which is the third installment in a series on payments by the group, points to economies like China in their rapid digitization and heavy reliance on online payment systems. Should the newly developed digital yuan come to prevalence, the report maintains, it could seriously challenge USD hegemony.

Also Read: Singapore Introduces Licensing for Crypto Platforms, New Payment Services Now Act in Force

End of Plastic, Survival of Cash

Deutsche Bank Research’s third installment to their Future of Payments series opens with quotes from European Central Bank (ECB) President Christine Lagarde and Nobel Prize winning economist Milton Friedman, discussing digital currencies and their predicted importance to future markets and commerce.

Unlike many prominent prognosticators of finance, the authors are perhaps unique in that they see cash as surviving for decades to come, despite rapid developments in digitization of payments. The report boldly proclaims:

When people discuss the future of payments they tend to predict the end of cash. Our view is different. Not only do we think cash will be around for a long time, we see the transition to digital payments as having the potential to do no less than rebalance global economic power.

The global shift does come with one casualty, however, and that’s plastic cards, says the group. “While cash will stay, the coming decade will see digital payments grow at light speed. That will lead to the death of the plastic card.” The paper notes: “Over the next five years, we expect mobile payments to comprise two-fifths of in-store purchases in the US, quadruple the current level.” As for developing countries, Deutsche Bank Research maintains that “Many customers in these countries are transitioning directly from cash to mobile payments without ever owning a plastic card.”

Crypto Adoption Mirrors Internet Adoption, But There Are Still Many Barriers to Mainstream Use

The report goes on to predict a continued mass adoption of crypto, which will closely follow the ever-growing number of internet users in the world. Still, when it comes to cryptos, Deutsche Bank Research is careful to clarify that “They have not been widely accepted as a means of payments despite their well-known benefits: security, speed, minimal transaction fees, ease of storage, and relevance in the digital era.” However they say that this could change.

“If the Chinese government, along with Google, Amazon, Facebook, or Apple (the so-called GAFA group), or a Chinese company like Tencent can overcome some of the barriers to cryptocurrencies … then cryptocurrencies could become more appealing. This will hasten their adoption and give them the potential to replace cash,” the publication notes. Further, “if the growth in blockchain wallet users continues to mirror that of internet users, then by the end of the decade, they will number 200 million, quadruple the current level.”

Upsetting the Global Power Balance

Broaching the topics of “hard power” and “soft power,” Deutsche Bank Research sees China’s central bank digital currency (CBDC) potentially going either way. The group notes at the outset:

As China (and India) develop electronic, crypto, and peer-to-peer strategies, the epicentre of global economic power could shift. China is working on a digital currency backed by its central bank that could be used as a soft- or hard-power tool. In fact, if companies doing business in China are forced to adopt a digital yuan, it will certainly erode the dollar’s primacy in the global financial market.

In other words, should the Chinese government take a hardline stance on forcing commerce to be done in the new CBDC, given their significant economic clout, USD hegemony could be dealt a hefty blow. In the report’s view, the first major CBDC to market will also have a decisive advantage over even the Googles, Amazons, Facebooks, Apples and Microsofts of today. While the politically embattled libra could be huge, for example, it lacks regulatory approval and is weakened considerably by this.

“China is gaining a decisive advantage over financial applications that use DLT,” the report details. “This will likely disrupt the GAFAMs, which have prospered with the help of the personal data of customers. Whoever dominates a blockchain will control the trust of users on that platform. Whoever dominates the first major state digital currency will control the banking and e-commerce sector within that nation (at least).”

The report makes clear that USD still dominates global trade by leaps and bounds, but affirms, “The Chinese government has made tremendous efforts to internationalise the renminbi, similar to the US intervention in the early twentieth century. From 2000 to 2015, the RMB share as a settlement currency in China’s trade has increased from zero to 25 percent.”

Government Good, Regs Necessary

Sadly for the cryptocurrency enthusiasts clicking on the Deutsche Bank report in hopes of seeing Satoshi’s vision for a peer-to-peer electronic cash system affirmed, the publication mostly praises central banks, heavy regulations, and operates under a bizarre assumption that state actors themselves aren’t subject to similar corruption as other markets. Not to mention an overall theme dismissive of concerns about privacy.

The report details:

Specifically, private cryptocurrencies significantly increase the risk of financial crime (e.g. AML, KYC, bribery, sanctions, and tax evasion). We expect that technological solutions and regulation will evolve to sufficiently address this concern.

“Our twentieth-century payment system needs to be upgraded and digitised. Governments, particularly those in Western countries need to wake up before it is too late,” the group declares. “That is because a private, loosely regulated digital currency is probably not the best response to the coming financial disruption … [Cryptocurrencies] must become legitimate in the eyes of governments and regulators.”

What are your thoughts on the Deutsche Bank Report? Let us know in the comments section below.

Images courtesy of Shutterstock, Deutsche Bank Research, fair use.

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