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Central Bank Digital Currency ‘Incredibly Rich Area’ Says IMF

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Tao Zhang, Deputy Managing Director of the International Monetary Fund (IMF) has made a strong argument for the development of Central Bank Digital Currency (CBDCs). He asserts that as a new asset class they hold tremendous promise, notably for the developing world.


BENEFITS OF DIGITAL CURRENCY EMPHASIZED

Zhang discussed CBDCs in an address given at a conference hosted by the London School of Economics. He pointed to numerous advantages that these currencies can bring to the financial space, particularly by enabling rapid, seamless transfers and providing financial services for the unbanked.

Notably, however, was his recognition that a revolution is underway across the global economy, and that central banks must innovate in order to avoid being rendered obsolete. Specifically, he asserts that CBDCs have the potential to stem the growing popularity of stablecoins, which he stated “may be difficult to regulate and could pose risks to financial stability and monetary policy transmission.”

Zhang was also quick to point to the challenges that may come with the mass adoption of these assets. Most notably, the current global financial space is not designed to accommodate borderless digital currencies. Thus, one or a select few strong CBDCs could come to dominate the world. He referred to this possibility as “dollarization.”

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.

One interesting suggestion was the possibility of banks creating fiat-backed digital currencies, which Zhang termed “synthetic CBDCs.” Such tokens would enable the banking sector to assume the challenges related to managing these digital assets. For example, enforcing anti-money laundering and know-your-customer regulations. The tokens would, however, have the backing of a trusted central bank.

ADDRESS UNDERSCORES BLOCKCHAIN’S REVOLUTIONARY APPEAL

Over the past several months central banks across the globe have begun aggressively searching for a means to stem the mass adoption of cryptocurrencies such as Bitcoin. CBDCs are not an innovation introduced by these central authorities for the altruistic benefit of their users. Rather, central banks now understand that blockchain assets threaten to render them obsolete, and CBDCs are a desperate attempt to introduce viable competition.

The true challenge for central banks rests with the fact that the open, borderless, and anonymous nature of cryptocurrency cannot be replicated by any centrally controlled asset, even if it were digital. In fact, most fiat currency is already used in digital form. The private banking sector has come to realize this fact, and is now taking steps to form business models around blockchain technology. Perhaps the best move by central banks will be to acknowledge the changes ahead, and begin legitimizing this new asset class rather than seeking to undermine it.

What do you make of the IMF Director’s recent comments on central bank digital currency? Add your thoughts below!


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London Stock Exchange-listed firm inks FCA’s approval for crypto services

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Mode Global Holdings, a London Stock Exchange-listed fintech group, has secured major regulatory approvals for cryptocurrency and fintech operations in the United Kingdom.

The company announced Thursday that Mode has secured its Electronic Money Institution license and AMLD5 registration from the U.K. Financial Conduct Authority.

The AMLD5 registration has been granted to Mode’s crypto arm Fibermode Limited, establishing it as an official crypto asset firm in the United Kingdom, pursuant to the amended regulations on money laundering, terrorist financing and transfer of funds.

The AMLD5 registration is a requirement for crypto-related businesses in the country that fall within the scope of money laundering regulations. According to the announcement, Mode is the fifth company to have received this registration to date since the FCA became the official AML supervisor of the crypto industry in the U.K. in January 2020.

Alongside the AMLD5, Mode’s subsidiary Greyfoxx Limited also acquired the EMI license, which enables Mode to offer a “range of innovative financial services” to both businesses and consumers in the United Kingdom, the announcement notes.

Following the acquisition of new regulatory approvals, Mode is planning to further expand its crypto services, including decommissioning its investment product known as the “Bitcoin Jar.” The product aims to allow Mode customers to use Bitcoin (BTC) to generate BTC interest rather than simply holding it in a wallet or on an exchange.

Mode CEO Ryan Moore noted that the new regulatory developments provide a major step in Mode’s mission to deliver a trusted and regulated environment. “It means we now have the ability to scale our operations and continue delivering innovative payments products for our customers under our own EMI licence. Both the EMI licence and the AMLD5 registration ensure business transparency, strong oversight and give our customers confidence in our offering,” he said.

Related: UK regulator warns against 111 unregistered crypto companies… and FOMO

The latest news comes shortly after a member of the British Parliament pointed out major difficulties in the process of registering crypto firms under the FCA’s AML regulations in late May. Economic secretary John Glen elaborated that FCA was not able to process and register all applications by its previous deadline due to a significant number of firms failing to adopt robust AML control frameworks as well as employ proper staff.