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Digital currencies from central banks (CBDC) – what awaits state fiat currencies?

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US Congressmen Bill Foster and French Hill asked Federal Reserve Chairman Jerome Powell to consider issuing the United States National Digital Currency (CBDC). At the same time, the president of the Federal Reserve Bank of Philadelphia, Patrick Harker, announced the inevitability of a digital dollar.

What do parliamentarians offer, how do American regulators relate to the idea, how will the launch of the American CBDC affect the economy and the crypto market?

What is CBDC?

Digital currencies from central banks (CBDC) is a digital version of the current national fiat currencies, but without intermediaries in the form of commercial banks. CBDCs are issued and secured by the Central Bank and make the banking system easier.

Now commercial banks transfer funds from customers and work with each other through the Central Bank's correspondent accounts (therefore, such large commissions must be paid for transfers from different banks). CBDCs allow commercial banks and their customers to pay directly to each other, bypassing intermediaries.

Congressmen urge Fed to hurry up with digital currency issue

Congressmen Bill Foster and French Hill outlined their request in a September 30 letter . They believe that the advent of digital currencies marked a “turning point” in the evolution of money and payments. Congressmen expressed concern that, according to the Bank for International Settlements (BIS), more than 40 countries are already developing their own CBDCs. In their view, in the long run, this could undermine the primacy of the US dollar. Therefore, they urge the Fed to take on the project to develop the digital currency of the US dollar.

Foster and Hill believe that now cryptocurrencies are used only for speculative purposes, but in the future they can take the place of fiat money. Congressmen fear private crypto companies are becoming leaders in this area and may deprive the United States of its financial management. A vivid example is the Libra project from Facebook .

Congressmen also mention recent stablecoin launch projects from JPMorgan and Wells Fargo . This can lead to the loss of control over monetary policy, as well as to the loss of the ability to combat money laundering and terrorist financing. Foster and Hill have suggested that a state-supported digital alternative to fiat currencies will prevent private companies from controlling the cryptocurrency microeconomy.

Congressmen are wondering why the US Central Bank has not yet switched to digital currencies. They point to comments by Christine Lagarde, where she argued for a new digital currency. Foster and Hill asked Jerome Powell whether the Fed is currently considering developing a digital currency, what it is planned to do if the CBDCs are distributed, if there are any legal and regulatory obstacles to issuing the CBDC from the Fed, and what are the possible risks and benefits.

Hill and Foster are not the only ones calling on the Fed to consider launching a CBDC. In June 2018, the former chairman of the Federal Deposit Insurance Corporation, Sheila Bair, also recommended the Fed to consider creating a digital currency in order to avoid disruption by the private sector or another country. According to the expert, if the Fed does not deal with this issue, banking will suffer, and the very existence of the Fed will be in jeopardy.

Fed is not going to issue digital currency

Representatives of the Fed confirmed that they received a letter and plan to answer it. Earlier in September, Jerome Powell said that the Fed is closely monitoring the CBDC, but has not yet considered their implementation. He noted that consumers already have many payment options, and they don’t need another one, they “do not require” cryptocurrency. Powell believes that CBDC carries too many risks – in the event of a network hack, you can "create as many coins as you want."

Speaking about Libra, the Fed chairman noted that because of the scale of Facebook, stablecoin can quickly gain systemic significance, but the project must meet the highest regulatory and regulatory requirements, and therefore, its development “will not be a sprint”.

However, the Fed’s position does not mean that there will be no digital dollar in the near future.

“The hypothetical launch of the US digital currency does not have to happen on behalf of the Fed. The fact is that the Fed “printing” the current dollar is a private organization from which the US government leases money for a fee. So if we are talking specifically about the national digital currency, then it may well exist in parallel with the dollar issued by the Fed , ”said Valery Petrov, vice president of RAKIB.

A digital dollar is inevitable, but it should not be a pioneer

Congressmen are not alone in their anxiety that the US will be left behind in the CBDC race. On October 2, President of the Federal Reserve Bank of Philadelphia Patrick Harker, speaking at a conference of the banking community in St. Louis, said that central banks, including the US Federal Reserve, "inevitably" will begin to issue digital currency, possibly within the next five years. But, as Harker emphasized, the United States should not be the first country to issue a national digital coin, because technology is still in its ripening phase, and the US dollar remains the world's reserve currency.

The basis of the digital dollar, according to Harker, could be the FedNow platform – the American quick payment system that allows you to process and conduct settlements in real time. It should be launched in 2023-2024. Harker suggested that the Fed’s attempt to create a CBDC would likely follow the formal integration of the payment processor.

Harker admitted that his opinion represents the point of view of the minority in the Fed. But, despite this, some employees are still working on exploring the possibilities of CBDC release.

Why did they talk about CBDC more often?

Earlier, representatives of central banks announced their negative position regarding CBDC. However, Facebook’s plans to create Libra attracted the attention of officials and slightly changed the rhetoric. The European Central Bank (ECB) recently announced plans to create a common European CBDC that counteracts Libra.

In the summer, Agustin Carstens, head of the Bank for International Settlements (BIS), said that central banks would soon be required to issue their own digital currencies. BIS supports the development of national central banks in this area.

CBDC's release may occur "earlier than expected" by the market and society. At the same time, the BIS annual report states that currencies supported by technology giants can “quickly establish a dominant position” in global finance and pose a potential threat to competition, stability and social welfare.

In recent months, among the main goals of launching the CBDC are called Libra growth prevention . The launch of such a global project – Facebook has two billion users – could significantly change the situation and deprive central banks of a significant part of the control over the movement of funds.

At the same time, calls are increasingly being heard for the world financial system to move away from the dollar. Thus, the head of the Central Bank of England Mark Carney believes that the CBDC can withstand the destabilizing influence of the US dollar in international trade and its dominance in credit markets. The expert believes that the protectionist trade wars unleashed by the current Trump administration have led to increased instability in world trade. Carney suggested a number of possible dollar replacements, including the Chinese yuan, and primarily the digital currency, supported by an international coalition of central banks.

According to IMF analysts, developed countries, in which the use of cash is reduced, see CBDC as an alternative to traditional methods of payment, which reduce costs, increase the effectiveness of monetary policy, and increase the competitiveness of the payment market. And for countries with developing financial systems, CBDC can be a means of improving the accessibility of financial services, their democratization and greater digitalization.

China launches its own digital currency

The creation of the national digital currency is being worked out by 40 central banks , but most of them are only exploring possible scenarios, fearing possible negative consequences from the launch of CBDC.

China has gone further and seems to be pursuing its own strategic goals. The country's national bank is about to launch its national cryptocurrency. The regulator did not publicly comment on the timing, but, according to rumors, this currency will start at the end of this or the beginning of next year. China's digital currency will be significantly different from the Bitcoin model , while the Central Bank will control the money supply and track transactions. Most likely, it will be a currency for interbank settlements, inaccessible to a private user.

Apparently, the country's authorities are hoping for the international use of their CBDC – this is a direct challenge to the dominance of the dollar, a way to break out of US power, become less dependent on them and their sanctions. This is an important geopolitical and strategic step of China.

If China's belt and road infrastructure project succeeds, a digital and barrier-free currency can facilitate international trade between more than 60 countries. China does not set a goal to overthrow the dollar, but it wants to give its allies an alternative, creating a system more independent from the United States, in which they would not have to use the dollar for their imports and exports.

Is the digital dollar the next chapter in cryptography?

Suppose the United States decides to issue a digital dollar. What would it look like and what consequences could it lead to? Indeed, unlike other currencies, the dollar is the main reserve and settlement currency of the world economy.

The digital dollar will be different from the dollar in the bank account, as it will use the same infrastructure as cryptocurrencies. People from developing countries will have direct access to the most important world currency without restrictions in the form of currency control, restrictions on transfers, import and export of currency. It seems logical that this will only strengthen the position of the dollar. However, everything is more complicated.

The digital dollar directly threatens the Fed, which controls the money supply to modulate inflation and stimulate the economy. No central bank wants a currency to be something that it does not control.

In addition, it is necessary to take into account not the most favorable situation with the balance of payments and the US public debt, the servicing of which may soon become very problematic.

“This is happening against the background of the fact that more and more countries are abandoning the dollar as a single reserve currency. Accordingly, in the case of the release of a new digital currency, it must be fundamentally ensured, otherwise its demand will be minimal, and the dollar will not be able to create competition. However, the United States has virtually no resources for such provision, which calls into question the prospects of the “digital dollar” in the foreign market. In addition, all the laws and regulations in the world are set to work with the ordinary dollar, and rebuilding this system to the new currency will require tremendous effort, ” Valery Petrov specified.

The competition of the digital dollar with the traditional currency in the domestic market can only exacerbate the identified economic problems of the United States.

“Thus, we can regard the news about the discussion of the national digital currency as an intensification of attempts by US officials to break the national financial system from a dead end, but it is too early to expect global influence on the cryptocurrency market ,” the expert added.

CBDC – the future of the global financial system

The future of cryptocurrencies can greatly disappoint many crypto enthusiasts and convinced libertarians – the revolution, which started with bitcoin almost 11 years ago, is taking root. The central banks that crypto users hoped to abolish themselves are more and more inclined towards the idea of digitizing national currencies. How this will work specifically is not yet clear, but Libra and TON significantly accelerate the development of the industry.

CBDC is the future of the global financial system. This is the result of the gradual evolution of fiat payment systems. CBDCs do not have to be on the blockchain . But they have one of the main advantages of cryptocurrencies – the ability to pay each other directly without intermediaries, without their drawbacks in the form of volatility and lack of legal protection.

With the widespread occurrence of CBDC, private and decentralized cryptocurrencies will not disappear. The former will compete with national currencies, while the latter will remain a means of hedging risks , a reserve asset and a means of settlement for those who prefer anonymity and confidentiality.

Publication date 10/09/2019
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Institutionals bet on bitcoin growth, positions on BTC futures doubled

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One of the indicators that signal a possible change in the price of bitcoin is the number of open futures positions on the Chicago SME exchange.

In October 2019, institutional investors doubled the cost of long positions in BTC futures contracts , the Cointelegraph reports.

Institutional Investors Interested in BTC

According to a study conducted by analysts on October 22, the estimated value of the long positions of institutional investors rose to a value above 1000 bitcoins, compared with data on October 1, when this value fell below 500 BTC.

Data on long-term futures on the CME exchange indicate a turning point in the downward interest of the institutional, outlined in September 2019. The sharp collapse coincided with the launch date of physically delivered bitcoin futures from the Bakkt platform , when interest fell from 1300 VTC to below 500 bitcoins.

Analysts at Skew Markets have additionally indicated that institutional investors include:

"… pension funds, insurance companies, mutual funds and investment portfolio managers."

Such analytical data may indicate the continuing desire of large investors to enter the cryptocurrency market.

Recall, the head of CFTC believes that next year, the market may begin to trade futures on Ethereum (ETH) . He also noted that in addition to Bitcoin and Ethereum, other cryptocurrencies can also be classified as goods.

Publication date 10/23/2019
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Tim Draper believes that Ripple coin is preparing for a sharp increase in

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The investor, Bitcoin bull Tim Draper, believes that the current situation in the Ripple market can be called the “calm before the storm” – in his opinion, in the near future, the XRP rate may suffer explosive growth.

During his communication with the participants of the crypto market at the Quora forum, Draper noted that, given the three-fold increase in the Bitcoin exchange rate over the past 5 months, it can be expected that the Ripple coin will also demonstrate similar behavior.

According to the investor, the price of XRP should have already increased to about $ 0.6 or $ 0.9, taking into account all the latest developments of the project and the conclusion of new partnerships. Draper drew attention to the fact that the project is constantly improving its technology for cross-border payments. Moreover, Ripple belongs to the largest SBI corporation, which includes such a serious company as R3. So, according to the investor, everything indicates that now there is only a “calm before the storm”, that is, a calm before the explosive increase in the value of the coin.

Meanwhile, Ripple is developing further. On the eve it became known about the intention of the project to expand its presence in Washington. Brad Garlinhouse, CEO of Ripple, noted that this step will allow the company to be closer to regulators, to train them on the principle of operation of blockchain technology and cryptocurrencies.

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Opera became the first browser in which the built-in bitcoin-wallet

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Opera web browser developers have added support for TRON bitcoin payments and cryptocurrencies to their application for Android devices, CoinDesk writes.

From now on, Opera users will be able to make payments in Bitcoin (BTC) directly from the digital wallet built into the application and interact with decentralized applications on the TRON network. According to the company, these features can help attract new holders to its cryptocurrencies from its database of 300 million users.

“Most people heard about Bitcoin, and we decided to add its support, as well as introduce a wider group of users to this function ,” said Charles Hamel, head of cryptocurrency business at Opera.

In July 2018, an Ethereum wallet was added to the Opera app for Android. The company explained this decision by its desire to contribute to the development of Web 3.0 and implement the vision of creating a decentralized Internet of the future on the blockchain. Later, the release of a cryptocurrency- oriented browser for iOS and a desktop version with support for a digital wallet took place.

Hamel claims that Opera applications are already optimized for working with Web 3.0, however, the integration of bitcoin required additional resources due to the differences of the first cryptocurrency.

“Bitcoin is a completely different phenomenon, which requires its own infrastructure and has a payment-oriented application scenario,” he added.

Publication date 10/23/2019
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Name Price24H (%)
Bitcoin (BTC)
$7,483.99
-8.64%
Ethereum (ETH)
$159.48
-7.29%
XRP (XRP)
$0.273973
-6.69%
Bitcoin Cash (BCH)
$209.46
-8.44%
EOS (EOS)
$2.76
-5.55%
Stellar (XLM)
$0.059993
-5.58%
Litecoin (LTC)
$49.15
-9.28%
Cardano (ADA)
$0.036517
-7.22%
Tether (USDT)
$1.00
0.14%
Monero (XMR)
$53.38
-7.76%
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