New Zealand Investigating CBDCs, But Not Yet Ready to Develop One 0 462

The Reserve Bank of New Zealand’s Assistant Governor is Christian Hawkesbay and he made a speech on October 20th regarding the bank’s research on central bank digital currencies (CBDCs). As of now, Hawkesbury has made it clear that they don’t have any immediate plans in place for launching a state-issued, centralized digital currency in the country. He shed some light on the variety of high-level benefits and challenges that can arise from the introduction of a CBDC. He spoke about this while attending the annual conference of the Royal Numismatic Society of New Zealand. One of the key benefits that Hawkesbay highlighted is the increased access they provide to cash and the fact that they promote financial inclusion.

It should be noted that New Zealand has been exploring the possibility of introducing a CBDC since 2018. At that time, a bulletin had been published in the country that was entitled ‘The pros and cons of issuing a central bank digital currency’. A report published by the Bank for International Settlements (BIS) back in January showed that nearly 80% of the central banks in the world were looking into the possibility of introducing a CBDC. In his speech, Hawkesbay summarized the findings of the BIS regarding why CBDCs were being investigated by countries in the first place. 

It had been concluded by the BIS that there was an overall indication that both private and foreign currencies are gaining more prevalence. This also comes along with the over-dependence on physical cash and ifs use does decline, then there would be a lot of people who would be stranded outside the global financial system. While CBDCs are being currently investigated by most of the world, including New Zealand, most of them will not be issuing one any time soon. 

In addition to this, it should also be noted that CBDCs can be developed in a number of forms and bank proposals have rarely described them as ‘cryptocurrencies’. Even then, most of these proposals have made use of decentralized ledger technology for their inspiration. When it comes to this particular technology, China seems to be leading the race for now. They have a large-scale program involving a CBDC, which was trialed in the Shenzhen province in China. The Bahamas are also not far behind because they are planning a nationwide release of their own CBDC this week, known as the Sand Dollar. 

Apart from this, the quasi-crypto in Cambodia and the fully-fledged cryptocurrency in the Marshall Islands are also under consideration by the countries’ respective governments. As far as New Zealand’s ambition regarding cryptocurrencies is concerned, the country is interested in creating a digital version of cash. Hawkesbay indicated that the use of cash in the country is on a decline, which deprives access to it. He also revealed that only 7% to 9% of the country’s population leverages banknotes to be used as liquid money and just 6% of citizens in New Zealand rely on cash for their day-to-day requirements.

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IMF Says Russia and Iran May Use Crypto Mining for Monetizing Energy 0 41

The April 2022Global Financial Stability Report of the IMF has highlighted the consequences of the ongoing Russian invasion of Ukraine. The document said that the role of the US dollar was bound to be affected because of the conflict, as it would lead to the introduction of central bank digital currencies (CBDCs) and the global financial system’s resiliency would also be put to a test. The climate transition goals could also be put at risk because of the priorities associated with energy security. Another issue that would have to be dealt with in the coming years by lawmakers is the ‘cryptoization’ which is likely to occur because emerging markets are experiencing a widespread use of crypto.

IMF cited an increase in crypto trading volumes seen after the introduction of sanctions on Russia to back their statement. This included the financial penalties that had been imposed by Western nations on Russia because of its military invasion. The report said that such cross-border transactions were increasing in the long-term, which means that there would be challenges when it comes to imposing sanctions and managing capital flow. The IMF noted that crypto transactions have increased in both Russia and Ukraine because of the capital restrictions that have been imposed.

However, it is important to note that there has been a fall in liquidity in centralized exchanges where the hryvnia and ruble trading pairs are concerned. Therefore, using crypto exchanges for making large transfers has become rather impractical due to reduced liquidity. But, the IMF admitted that users do have the option of evading some measures via the crypto ecosystem because the identity verification requirements are quite lax in this industry. Hence, the international organization said that blocking new deposits of ruble and freezing crypto assets meant that users could have shifted to non-complying or less transparent crypto platforms and service providers.

Experts at IMF believe that both Russia and Iran could circumvent their respective sanctions via crypto mining. The nations could use their energy resources for generating revenue via crypto mining outside of the traditional financial system. Currently, the countries have a limited share of crypto mining activities, but there is a possibility that it could be increased, considering the size of the mining industry. The IMF quoted estimates showing that almost 11% of the mining revenues of bitcoin could have gone to Russia, which was around $1.4 billion per month, while Iran’s share had been 3%.

Bank of England Says Crypto Assets have Financial Stability Risks 0 80

On Thursday, the Financial Policy Committee of the Bank of England disclosed that they are working on developing a regulatory framework for digital assets. The central bank also made a reference to the sanctions that have been imposed because of the war between Russia and Ukraine in the statements. Bureaucrats and financial regulatory authorities all over the world have become increasingly concerned in recent times that Russia could take advantage of crypto assets to bypass the economic sanctions that have been imposed. The press statement of the BOE said that it was unlikely for crypto assets to provide Russia with a feasible way to get around sanctions at a large scale for now, but there was a possibility they could do so.

Therefore, it is a must to ensure that there are effective public policy frameworksthat can accompany innovation in crypto assets for maintaining the integrity and trust in the financial system. The crypto economy has been highly criticized by some members of the Bank of England for quite a while. Last year in mid-November, Andrew Bailey, the Governor of the Bank of England, had expressed his concerns about the adoption of bitcoin as legal tender in El Salvador. Sir Jon Cunliffe, the deputy governor for financial stability for the central bank, said in the following month that prices of crypto assets could drop to zero.

On Thursday, the report of the FPC talked about financial stability. The committee of the central bank noted that the FPC is assessing the risks to the financial system’s stability and it has concluded that these are currently limited. This is because their size remains limited for now and they are not that connected with the wider financial system. However, the FPC said that if they continue to grow at the same pace, and if they become interconnected with the overall financial system, then these crypto assets could pose a risk to the stability of the financial system.

Since the conflict between Russia and Ukraine began, politicians and lawmakers all over the globe have been discussing, developing, or even proposing laws aimed at regulating and researching digital currencies. The FPC’s statements on Thursday show that the BOE wants to classify crypto assets in the same category as it does traditional financial assets. Not only does the FPC plan on developing a regulatory framework that would govern digital assets, it has also mentioned stablecoins.

The FPC said that a major stablecoin that does not have a reliable deposit guarantee could turn out to be a risk to the UK’s financial system. According to the committee, if they introduce a systemic stablecoin, which is backed through a deposit mad with a commercial bank, it would result in significant risks to the stability of the financial system. All of this talk about crypto has been brought forward because of the Russian-Ukraine conflict and the possibility of the former using cryptocurrencies to evade the tough economic sanctions that have been imposed by Western nations due to its actions.

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