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Bank of Russia Pushes to Introduce Liability for Illegal Use of Digital Assets

24/11/2021 by Idelto Editor

The monetary authority in Moscow, the Bank of Russia, wants those who use cryptocurrencies against the law to be held accountable. The financial regulator has proposed the introduction of legal liability for some operations with digital assets which it considers illegal.

Central Bank of Russia Aims to Prevent Circulation of Decentralized Currencies

Cryptocurrencies in the Russian Federation, as well as related activities, remain only partially regulated, mainly through the law “On Digital Financial Assets,” which went into force at the beginning of this year. One of the aspects that is still unclear is whether digital coins can be used to pay for goods and services.

The Central Bank of Russia (CBR) has remained consistently opposed to allowing payments with bitcoin and the like. The authority claims these are all “money surrogates” that are banned under current Russian legislation which recognizes the ruble as the only legal tender in the country that spans 11 time zones.

The CBR now wants to introduce legal liability for what it views as “illegal circulation of digital financial assets.” Remarkably, the push is part of its plans for the “creation of an enabling environment for the introduction of new technologies and support for innovation in the financial market” – two of the bank’s key “strategic directions” under the banner of “promoting digitalization.”

The proposal has found its place in the Bank of Russia’s program document titled “Main Directions for Financial Market Development of the Russian Federation” for the period until 2024. The project has been recently approved by its Board of Directors for submission with the State Duma, the lower house of the Federal Assembly.

In order to develop innovative financial instruments, the CBR says, a number of federal laws aimed at comprehensive legal regulation for digital financial assets and utilitarian digital rights must be adopted. Another aspect that needs to be addressed, according to the central bank, is the taxation of transactions involving these rights and assets, a procedure for which should be established.

Bank of Russia further notes that efforts to launch a digital version of the national currency are ongoing. The introduction of the ruble’s third form, after cash and bank money, requires a string of legislative changes, the monetary authority points out. Earlier in November, the head of the parliamentary Financial Market Committee, Anatoly Aksakov, indicated that deputies at the Duma prepare to amend 13 Russian laws and codes to accommodate the CBDC.

Meanwhile, members of the house have voiced concerns that the digital ruble may pose risks to the banking sector and information security. At the same time, Bank of Russia’s Chair Elvira Nabiullina has recently stated that the new currency is what the Russians need as it will provide them with an alternative to cryptocurrencies and stablecoins while enabling cheap and reliable payments.

The CBR started contemplating a CBDC in 2018 and decided to explore the possibility of issuing one last year. A consultation paper was published in October 2020 and in April 2021, the authority released a digital ruble concept. In June, this year, the authority formed a pilot group with over a dozen banks. It plans to complete the platform’s prototype in December and begin trials in January 2022.

Do you think the Bank of Russia will convince lawmakers to introduce legal liability for the illegal use of cryptocurrencies? Let us know in the comments section below.

Digital Euro Should Be Attractive But Not ‘Too Successful,’ ECB’s Panetta Says

07/11/2021 by Idelto Editor

The digital euro should be an attractive means of payment but its design should prevent it from becoming so successful as a store of value that it threatens banks and private money, according to Fabio Panetta, a high-ranking executive at the European Central Bank. Panetta stressed that both this paradox as well as the need to issue a successful CBDC need attention.

Europe’s Digital Currency to Complement Cash and Be Monterey Anchor

While cash currently provides people with access to central bank digital money, its importance in payments is declining as consumers increasingly prefer to pay digitally and shop online. Internet sales in the euro area have doubled since 2015 and only around 20% of the cash stock is now used for payments, compared to 35% a decade and half ago, Fabio Panetta, member of the Executive Board of the European Central Bank noted in a speech at the Elcano Royal Institute in Madrid.

“As people start to use cash more as a store of value rather than a means of payment, having a digital euro would enable them to continue using central bank money as a means of exchange in the digital era,” Panetta said during his address, focusing on the future role of central bank digital currencies (CBDCs). In his view, a digital euro and cash would complement each other to ensure that central bank money remains a monetary anchor for the payments ecosystem.

To achieve that, the digital form of the euro should be attractive for regular use in payments, the ECB official believes. At the same time, its design should prevent it from becoming “so successful as a store of value that it crowds out private money and increases the risk of bank runs.” In his comments, Fabio Panetta emphasized:

While we have discussed at length the possibility of a digital euro being paradoxically ‘too successful,’ we need to devote just as much attention to the risk of it not being successful enough.

The effort to issue the CBDC would need to meet certain conditions for success, Panetta elaborated. Besides its attractiveness as “the only riskless digital form of money,” the digital euro would need to facilitate digital payments wherever Europeans need it for that purpose. Furthermore, merchants would have to be assured that consumers want to use it while intermediaries should find that the benefits of its distribution outweigh the costs.

“Developing a convincing value proposition for all stakeholders is therefore critical to the digital euro’s success,” Fabio Panetta insisted in the speech published by the ECB. This, he added, is a key element of the investigation phase of the CBDC project which was launched by the bank earlier this year. The executive pointed out:

The ECB and the European Commission are together reviewing at the technical level a broad range of policy, legal and design questions emerging from a possible introduction of a digital euro, including the role that legal tender status might play in achieving the desired network effects.

Digital Euro to Be Convenient and Help Privacy, Panetta Claims

Fabio Panetta revealed that for consumers, the digital euro would offer a “cost-free and convenient way to pay digitally anywhere in the euro area.” He added that it would also increase privacy in digital payments as the ECB, he said, has no interest in monetizing users’ data. In his opinion, compliance with anti-money laundering regulations would not interfere with privacy enhancement.

The representative of the ECB’s management thinks that the digital euro should not compete with digital payment services offered by the private sector and intermediaries will be able to onboard users by providing new services with “digital euro inside” such as credit facilities and automated payments. Thus, small financial institutions and fintech firms would benefit from a “level playing field” and get a chance to compete with big tech companies, Panetta said.

The member of the ECB’s executive board also sees the digital euro as supporting the international role of the common European currency and Europe’s autonomy in global payments. “Making it accessible to non-residents and interoperable with other CBDCs could facilitate cross-border payments, which are currently fraught with high costs, low speeds and limited access,” Fabio Panetta remarked.

He is convinced that the increasing supply of private digital currencies such as stablecoins and the wide availability of private digital means of payment would not make the digital euro redundant. “With digitalisation at full speed, central banks must prepare for a digital future in which demand for cash as a medium of exchange may weaken, requiring the convertibility of private money into cash to be complemented by convertibility into central bank digital money,” he insisted.

Dozens of central banking institutions around the world have been exploring the possible issuance of CBDCs in response to the growing popularity of cryptocurrencies and the declining use of banknotes and coins. Besides the ECB, these include the U.S. Federal Reserve and Bank of Russia. The People’s Bank of China has arguably the most advanced project, with domestic trials already underway and plans to test the digital yuan in cross-border transactions.

Do you think the digital euro will be a successful CBDC project? Share your expectations in the comments section below.

Laos to Study Digital Currency With Help From Japanese Fintech, Report Reveals

03/10/2021 by Idelto Editor

The central bank of Laos intends to explore issuing its own digital currency, according to a media report that provided details on the plan. A study on the matter will commence soon and will be conducted with the support of a fintech startup based in Japan.

Central Bank of Laos Joins Race to Develop Digital Fiat

The Bank of the Lao People’s Democratic Republic is going to launch the study focused on the development of a central bank digital currency (CBDC) as early as this month, Nikkei Asia unveiled on Sunday. The monetary authority has employed the Japanese fintech firm Soramitsu which was involved in a similar project in neighboring Cambodia.

The report of the collaboration comes out after Laos recently signed a memorandum of understanding with the Japan International Cooperation Agency. Soramitsu, a company specializing in blockchain finance, took part in the establishment of the Bakong digital payment system in Cambodia designed to reduce the country’s dependence on the U.S. dollar.

The Bakong payment application has been downloaded by 200,000 users since it was presented to the public. The app can be used to pay for goods and services at 2,000 stores in Cambodia while Soramitsu and other fintech entities are working to further expand the coverage of the digital payment platform across the nation.

The Laos study, assisted by the Japanese startup, will assess the role of commercial banks and other financial intermediaries as well as the country’s needs in terms of financial inclusiveness. If authorities in Vientiane eventually decide to issue a state-controlled digital currency, Soramitsu is going to play a role in its actual development, too.

A digital version of the Laotian kip would improve the government’s ability to gather data needed to “take the pulse of the economy” and better track the amount of money in circulation, Nikkei noted. The move comes as the regional powerhouse, China, advances with its digital yuan project and some neighbors want to prevent excessive yuan inflows into their economies by launching their sovereign digital currencies. Laos, a landlocked country in Southeast Asia, borders the People’s Republic which is its second-largest trading partner after Thailand, according to the World Bank.

While the Chinese CBDC is mostly tested domestically at this stage, Beijing is likely to promote it as a tool for international transactions, sooner or later. China is already working with Thailand, and UAE on a project led by the Bank for International Settlements (BIS) Innovation Hub. Its special administrative region of Hong Kong announced in June it wants to connect its domestic payments system with the e-CNY infrastructure to trial the digital currency in cross-border scenarios.

Besides the People’s Bank of China, dozens of central banks around the world are currently working to develop and launch CBDCs. These include the U.S. Federal Reserve, Bank of Russia, and the European Central Bank. In Asia, Bhutan and U.S.-based blockchain firm Ripple announced last month their partnership on a pilot digital currency project. The tiny Himalayan kingdom, which also borders China, plans to experiment with the digital version of the national fiat currency, the ngultrum, on Ripple’s private ledger.

Do you expect more Asian countries to start exploring options to issue national digital currencies? Tell us in the comments section below.

Uzbekistan Warns Citizens to Avoid Unlicensed Cryptocurrency Exchanges

02/10/2021 by Idelto Editor

A government agency in Uzbekistan has published a list of unauthorized crypto exchanges that residents of the country have been advised to avoid. The trading platforms collect personal data and bear no responsibility for the cryptocurrency transactions, officials have warned.

Authorities in Uzbekistan Blacklist ‘Unofficial’ Crypto Exchanges

The National Agency of Project Management under the President of Uzbekistan has identified a number of online platforms offering crypto trading services without authorization. During a monitoring campaign on the internet, the body registered an increase in activities of such “unofficial” digital asset exchanges.

The entities behind them offer Uzbekistani citizens the option to buy, sell or trade crypto assets without having an office in the country. They are usually registered in other jurisdictions and their servers are located abroad, but at the same time they collect personal information from residents of the Central Asian republic, the agency said in a notice published on its website.

Half a dozen crypto exchange websites targeting residents of Uzbekistan have been blacklisted: webmoneytashkent.com, wmztashkent.com, wm-torg.com, uzwmz.com, blockchainuz.com, and bitcointashkent.com. Similar services are offered through Telegram bots and groups as well. Their providers, the regulator noted, often remain completely anonymous and can quickly delete a channel.

Officials have stressed that these kinds of platforms do not bear any legal responsibility for crypto transactions between various parties and cannot guarantee their legitimacy. Furthermore, they cannot ensure the proper storage of personal data or preservation of confidentiality. The announcement states:

The Agency urges citizens to be as vigilant as possible, beware and not use services of such platforms, including so as not to become victims of fraud.

Uzbekistan legalized crypto trading in 2018 but then in December 2019 authorities in Tashkent effectively banned residents from purchasing cryptocurrencies though they were allowed to sell. The National Agency of Project Management has now reminded the public that in accordance with the presidential decree “On measures to develop the digital economy in the Republic of Uzbekistan” and the country’s law “On licensing and notification procedures,” the establishment of cryptocurrency exchanges is subject to licensing.

The government has tried to encourage certain crypto activities. In January 2020, Tashkent unveiled a plan to set up a national mining pool and the initiative was presented as a priority. The state also said it’s going to establish a licensed cryptocurrency exchange where miners will be able to sell their coins and promised to create a blockchain valley as well as introduce crypto tax exemptions. Uznex, a regulated trading platform operated by the South Korean entity Kobea Group, was launched later that month.

However, in September this year, a high-ranking central bank official was quoted as saying that cryptocurrencies such as bitcoin will never be recognized as legal tender. Speaking to local media, deputy chairman of the Central Bank of the Republic of Uzbekistan (CBU) Behzod Hamraev pointed out that unlike cryptocurrencies, the national fiat, the sum, is backed by the bank’s assets. He also expressed his opinion that bitcoin will never be equal to “world currencies” such as the dollar, euro, yen, and ruble.

What are your thoughts on this story? Tell us in the comments section below.

Privacy Is Key for Successful Digital Euro, Data Protection Body Says

22/06/2021 by Idelto Editor

The European Data Protection Board (EDPB) has issued a call for EU institutions to uphold privacy when designing a digital version of the euro. The agency is ready to provide advice on data protection matters surrounding the project. Meanwhile, an ECB executive has vowed that the digital euro will protect users’ privacy.

EDPB Insists Data Protection Should Be a Priority in Eurozone’s CBDC Project

The EDPB has shared its views on the privacy and data protection aspects of a possible digital euro in a letter addressed to European Union institutions. The independent body insists that ensuring privacy and data protection will be decisive for the success of a project to digitalize Europe’s common fiat currency. In an announcement published on its website, the board emphasized:

A very high standard of privacy and data protection is crucial to reinforce the trust of end users and should be considered a distinctive element in the offering of a digital euro, representing a key factor of success.

The agency added that its concerns should be taken into account during the design stage for the Eurozone’s central bank digital currency (CBDC). In the document, the EDPB recommends conducting a high-level data protection impact assessment as well. The body indicates its readiness to provide advice to the ECB and other EU institutions involved in the development of the digital euro.

The European Data Protection Board is tasked to facilitate the implementation of the General Data Protection Regulation (GDPR). It was established in 2018 to replace the Article 29 Working Party. The EDPB issues guidelines and recommendations on the application of the GDPR, which was enforced in May of the same year. It also advises the European Commission on related matters and resolves disputes between national authorities.

Digital Euro to Boost Privacy, ECB Official Vows

On the CBDC front, the Eurozone’s monetary policy regulator is lagging behind other major central banks, such as those of China, Russia, and the U.S. Earlier this month, the ECB said in a report that a digital euro could potentially boost the global appeal of the European fiat currency. A decision on whether to proceed with a digital euro project is expected in mid-2021, officials indicated earlier this year. The Governing Council will discuss the matter at a meeting in July, ECB Executive Board Member Fabio Panetta recently told the Financial Times.

Panetta believes that ECB’s involvement in digital payments would better protect privacy as the bank is not a private company. “We have no commercial interest in storing, managing or monetizing the data of users,” the official noted. A digital euro, he added, would also help the Eurozone to deal with the threat from other digital currencies. While Panetta called cryptos such as bitcoin “very dangerous animals,” he also warned about fiat-backed coins such as Facebook’s diem. He thinks there is “an inherent instability in the function of these coins” due to the potential volatility of their reserves.

The board member revealed that the ECB has already tested mechanisms to separate identities from payment details as well as offline payments for small amounts in which data is recorded only in the wallets of the sender and the receiver. Such transfers, of up to €100 for example, could be done using Bluetooth. “For very small amounts, we could permit really anonymous payments, but in general, confidentiality and privacy are different from anonymity,” Fabio Panetta emphasized. He elaborated that most transactions would be subject to checks to prevent money laundering, financing of terrorism, or tax evasion.

What are your expectations about the future of the digital euro project? Share your thoughts in the comments section below.