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Accenture and Digital Dollar Foundation to trial United States CBDC this year

Fortune 500 company Accenture has teamed up with Digital Dollar Foundation to conduct Central Bank Digital Currency, or CBDC, trials in the United States.

Announced on Monday, May 3, the newly formed Digital Dollar Project will carry out five CBDC pilot programs over the next 12 months. The project’s objective is to generate data to inform U.S. policymakers on how to develop a domestic digital currency.

The Digital Dollar Project will launch three pilot programs in the next two months, generating data on the functional, sociological, and business benefits of a digital greenback.

Al Jazeera reports that former chair of the Commodity Futures Trading Commission and co-founder of the Digital Dollar Foundation, Christopher Giancarlo, emphasized the lack of U.S. data regarding CBDC:

“There are conferences and papers coming out every week around the world on CBDCs based on data from other countries. What there is not, is any real data and testing from the United States to inform that debate. We’re seeking to generate that real-world data.”

However, the Fed is taking a cautious approach as the guardian of the world’s reserve currency, the report added, with chairman Jerome Powell responding that it is far more important to get a digital dollar right than it is to be fast.

Giancarlo countered that Powell was correct to be cautious, but warned that the U.S. could fall further behind as China pushes ahead with its own CBDC testing and deployment.

While the U.S. Federal Reserve has been conducting research into the technology and applications for a CBDC, the United States lags behind the digital currency initiatives currently ongoing in numerous other jurisdictions.

China’s central bank and leading state banks have recently been preparing to test the digital yuan for a shopping festival on May 5.

Accenture has also worked on a number of CBDC projects in other countries, including Canada, Singapore, France, and Sweden — which has already completed the first phase of its pilot.

According to a study by the Bank for International Settlements, 80% of the world’s central banks are already researching central bank-issued digital currencies.

Accenture and Digital Dollar Foundation to trial United States CBDC this year

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ECB’s Christine Lagarde Discusses Timeline for Digital Euro

European Central Bank’s (ECB) chief Christine Lagarde said that the possibility of a digital Euro, known more technically as central bank digital currencies (CBDCs), coming into circulation is growing given the change in digital priorities.

But it could still take the European Union sometime before it decides on moving forward with the idea.

CBDC Roll-out Process Is Complicated

In an interview with Bloomberg TV, Lagarde pointed to the intricate processes needed for a decision to be made towards launching a digital Euro. According to her, there is a possibility that a state-backed digital currency could come into existence in the next couple of years once the Governing Council gives the go-ahead.

The ECB would first release an analysis of eight thousand responses it received following its digital Euro consultation exercise. According to the French business guru, these responses would first be communicated to the European Parliament, a key player. Then the ECB’s decision-making Governing Council would decide whether to proceed with the fiat replica experimentation.

The consultation results would determine whether the ECB would commence experimentation on a digital fiat in the next six months or a year.

“It’s a technical endeavor as well as a fundamental change,” Lagarde said. “We need to make sure that we’re not going to break any system, but to enhance the system,” she added.

Lagarde’s enhancement speech echoes the Bank for International Settlements (BIS) report, which noted that over 20% of national banks globally actively considered rolling out a state-sanctioned digital currency. The report published in late 2020 recommended that any efforts in this direction should not usurp the fundamental role that fiat plays in the economy. According to the BIS, CBDCs should be integrated into the extant settlement framework.

Four Years At Most

But despite this supposed positive outlook for CBDCs, Lagarde has said it may take up to four years before anything meaningful comes out.

The CBDC race is led by China, which is currently fast-tracking the digital yuan pilot tests to meet up to the Winter Olympics in Beijing. But China is not the only country that has made efforts to revolutionize the way people spend cash. The Bahamas is the first recognized economy using a state-backed digital currency called Sands Dollar, and Lagarde says she is keenly interested in this project.

According to her, any decision on CBDCs would be targeted at providing Europeans with a fairly stable, safe, and secure digital currency, given the immense shift it would bring to the European financial scape.

Lagarde is a well-known critic of Bitcoin being perceived as a medium of exchange.

Noting the potential harm the digital asset may bring to the financial system, Lagarde said the pseudonymous nature of Bitcoin could serve criminal intents like money laundering and terrorist financing.

To many like her, the CBDC is a concept to regain the financial system disruptively usurped by decentralization.

ECB’s Christine Lagarde Discusses Timeline for Digital Euro

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Norway Central Bank Chief Calls Bitcoin Unstable and Resource Intensive

Norway’s Central Bank does not seem so keen on cryptocurrencies despite being known as a cashless society. This was deduced from the recent comments made by the Governor of Norges Bank, Oystein Olsen.

Norway’s Problem With Bitcoin

Olsen described Bitcoin as being too resource-intensive, far too costly, and unstable. These features are enough reason not to recommend Bitcoin as an alternative to fiat or a government-backed currency.

“The basic property and task for a central bank and central bank currency is to provide stability in the value of money and the system, and that is not done by Bitcoin,” Olsen told Bloomberg.

The apex bank chief said Bitcoin wouldn’t replace the money currently controlled by central banks. Olsen also doesn’t see cryptos like Bitcoin disrupting the operations of banks.

Although Olsen is not interested in Bitcoin or other cryptocurrencies, he’s not dismissing emerging technologies’ potential monetary applications. According to him, digital currencies are the new wine, and it gets better now that central banks are entering the scene.

The bank supports the cashless idea fully. We can see this in Norway’s mode of operations and payments. The Central Bank’s Deputy Governor, Ida Wolden Bache, revealed that only 4% of all payments are made with physical banknotes and coins.

While Norway’s apex banks won’t budge on crypto, Norwegian firms are embracing Bitcoin. Norwegian multinational Aker ASA launched a crypto-facing business unit, Settee AS, earlier this month.

Settee AS would invest in Bitcoin companies operating and hold its liquid assets in the BTC.

Norway’s CBDC Plans

While Norway welcomes the idea of developing Central Bank Digital Currencies (CBDCs), the country is not one of the first front-runners on the scene. Countries like China and Sweden are taking the lead.

Bache had disclosed in November that the central bank was exploring the need for a CBDC. But, they’re in no hurry to push out a prototype.

“The lack of urgency reflects our view so far that there is no acute need to introduce a CBDC. The introduction of a CBDC could have considerable consequences in a number of areas. Our decision must be well-informed.”

Just like the United States, Norway believes that CBDCs would not replace cash. Bache said that a CBDC would not change the private sector credit intermediation. 

Norway Central Bank Chief Calls Bitcoin Unstable and Resource Intensive

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CipherTrace and Blockchain Industry Insiders Comment on Updated FATF Guidelines on Virtual Assets and VASPs

Blockchain security firm CipherTrace has provided an analysis on the proposed Financial Action Task Force (FATF) guidance for digital assets and virtual asset service providers (VASPs).

On March 19, 2021, global anti-money laundering watchdog, the FATF, released a public consultation for its latest Draft Guidance on a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.

As noted by CipherTrace, some important changes in the draft guidance are as follows:

  • DEXs or decentralized/non-custodial crypto exchanges and crypto-asset escrow services are considered Virtual Asset Service Providers (VASPs)
  • Stablecoins are virtual asset (VAs) and FATF Standards apply to these financial instruments
  • Only non-fungible tokens or NFTs that are able to potentially carry out money laundering (ML) and terrorism financing (TF) activities may be considered VAs
  • VASPs need to “assess and mitigate” proliferation financing (PF) risks
  • “Best practices” for counterparty VASP due diligence
  • Options for “mitigating peer-to-peer transaction risks”
  • Updated Travel Rule “clarifications and guidance”

As mentioned in CipherTrace’s blog post, FATF has clarified the definitions of Virtual Assets and Virtual Asset Service Providers.

The FATF doesn’t consider central bank digital currencies (CBDCs) to be a form of virtual assets. The agency “applies standards similar to any other form of fiat currency issued by a central bank,” CipherTrace noted.

The blockchain firm also mentioned that FATF considers decentralized exchanges, platforms, or apps to be VASPs.

As stated in CipherTrace’s blog post:

“A decentralized or distributed application (DApp), is not a VASP under the FATF standards—the Standards do not apply to underlying software or technology—but entities involved with the DApp such as owners or operators may be VASPs under the FATF definition.”

CipherTrace’s blog post added:

“VA escrow services, including services involving smart contract technology, brokerage services, order-book exchange services, advanced trading services, and custody providers are all VASPs.”

The CipherTrace analysis further noted:

“Some non-fungible tokens (NFTs) that may not initially appear to constitute VAs may in fact be VAs due to secondary markets that enable the transfer or exchange of value or facilitate money laundering, terrorist financing, and proliferation financing.”

CipherTrace added that assets “should not be deemed uncovered by the FATF Recommendations because of the format in which they are offered and no asset should be interpreted as falling entirely outside the FATF Standards.”

John Paul Koning, who focuses on monetary economics, financial inclusion, and cryptocurrency, pointed out that if you’re a shareholder of Uniswap (a leading non-custodial Ethereum token or ERC-20 exchange), then you’re likely a VASP.

Koning claims that these developments indicate that decentralized finance or DeFi “might be on the cusp of becoming KYC’ed.”

Brendan Blumer, CEO and Block.one, the company behind the development of EOS, a major blockchain platform for developing DLT-powered applications, has argued:

“DeFi is too often an intentional excuse to violate KYC & AML laws, but this will end abruptly. Compliant programmable finance will radically transform our financial system by displacing inefficient fee-taking middle-men and driving more value back to end-users.”

(Note: you may check out FATF’s complete report here.)

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Asian Banks Collaborate on Cross-Border CBDC Project

Global regulators continue to work on strategies in a bid to regulate their prospective crypto markets. One topic that continues to pop up even in regions that are averse to cryptos is CBDCs. In Asia, some major banks are planning to join hands to launch a pilot on the blockchain.

Apex Banks Look To Control Crypto Rise

Financial regulators from four Asian economies have announced that they intend to create cross-border central bank digital currencies (CBDCs) in the coming years.

The project rightly named the Multiple Central Bank Digital Currency (m-CBDC) is an ongoing partnership between four major Asian countries. The project aims to resolve challenges like the traditional cross-border payments system’s inefficiencies, high transaction cost, and complex regulatory guidelines. The body of regulators hopes to attract more apex banks to join in the study of blockchain technology.

The m-CBDC sees the Hong Kong Monetary Authority, the Bank of Thailand, the Central Bank of the United Arab Emirates, and the Digital Currency Initiative of the People’s Republic of China collaborate to develop a prototype leveraging blockchain technology.

The m-CBDC project builds upon the Inthanon-LionRock project set up in 2019 to facilitate cross-border payments. The new efforts will see the Asian nations further explore the potential of DLT by developing a proof-of-concept (PoC) prototype. The bridge project will also look to investigate “business use cases in a cross-border context using both domestic and foreign currencies.”

Pilot Tests Are Underway On CBDC

As Bitcoin prices rose up to $50K, global capital markets are seeing an outflow of funds into the crypto markets. Financial regulators are left in dire straits as digital assets continue to court attention and generate juicy returns for investors despite their associated risks.

In response, many countries have been on the march to create a digital version of their fiat currencies. Pilot programs launched in China and some parts of Europe have seen significant progress in this field. Although CBDCs do not address the inflationary question, world governments see it as a way to put a cap on cryptocurrencies’ rise.

While several developed countries are making progress, the world’s largest economy, the United States of America, has continued to drag its feet on the CBDC question. Although regulatory agencies like the Securities and Exchange Commission (SECC) and Commodity Futures Trading Commission (CFTC) have been doing their bit marshaling the crypto space, no official announcement has been made concerning a CBDC program.

Asian Banks Collaborate on Cross-Border CBDC Project

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