This Week in Policy (8/3)
Hint: It is the home country of the most expensive rug in the world! It is also the country in relation to which Kraken, the U.S.-based crypto exchange, has been under investigation by the U.S. Treasury Department since 2019 for potential non-compliance with U.S. sanctions.
Last week, most of the attention in the world of crypto policy was directed at stablecoins. This week we have a clear winner: central bank digital currencies or CBDCs. We are starting to see a clear divergence between three camps of countries on this front. The first is led by China which, in 2020, became the world’s first major economy to launch a CBDC. Since its adoption, however, China’s CBDC, also known as the digital yuan, has been struggling to gain a foothold in the massive Chinese e-payments market against the established giants Alipay and Tencent’s Wechat Pay. This week, China’s central bank, the People’s Bank of China, announced its plans for an orderly expansion of the scope of the “digital yuan pilot” as one of its key goals for the second half of the year. The number of Chinese cities where the digital yuan is available has grown from 4 in 2020 to 23 in 2022.
The other major player in the CBDC-enthusiasts’ camp is the EU. Two weeks ago, we discussed the unprecedented restrictions MiCA will impose on stablecoins, which are largely viewed as a competing means of payment. This week, the European Central Bank published a report titled “Towards the holy grail of cross-border payments.” The report sought to name the best cross-border payment solution that will emerge in the next ten years. Contestants included banking, fintech solutions, Bitcoin, stablecoins, and CBDCs. And the holy grail title went to…CBDCs! The report portrayed a bright future for a cross-border payment system in which domestic payment systems are interlinked, CBDCs are interoperable, and AML/CFT regulations are closely observed.
On the other end of the CBDC spectrum is Japan. The Japanese central bank, the Bank of Japan, announced this week that it is halting its digital yen pilot, citing the lack of popular interest. Japanese central bankers clarified that many cheap, highly efficient banking and e-payment solutions not only are widely available to the general public, but also offer benefit programs that make it very hard for a CBDC to compete.
What about the U.S.? So far, it has been the leader of the undecided. In January 2022, the Federal Reserve solicited public comments on a U.S. CBDC in a famous report on the future of the USD. This week, Cato Institute, a D.C.-based libertarian think tank, reported that after reviewing more than 2000 of those comments, it found that two-thirds of commenters are against a U.S. CBDC. A top official of the Federal Reserve stated earlier this year that even if Congress were to approve the issuance of a U.S. CBDC, “it could take five years to put in place the requisite security features and design features."
In your opinion, what factors could push the U.S. into one of the other two camps? And to what extent do the challenges cited by the Bank of Japan also apply to stablecoin issuers?
Let’s wrap up this week’s discussion with some futuristic crypto news from the UK. The England and Wales Law Commission, an independent commission empowered by law to review and propose legal reforms, released a consultation paper on digital assets. The paper noted that current property law recognizes two types of property rights: “Things in possession,” such as a “bag of gold,” and “Things in action,” such as “shares in a company.” The paper proposed creating a new class of property rights, “data objects,” which would be especially tailored for digital assets, with a view to enabling investors to claim losses in cases of theft or fraud. The new category would include things “composed of data represented in an electronic medium” such as domain names, databases, and cryptoassets. The Commission underscored that the proposed reforms aim to help achieve the UK Government’s strategic goal of becoming a global cryptoasset technology hub. Such proposals also come one week after the UK Treasury Minister proposed a new stablecoin regulation.
Can you foresee the citizens of England and Wales settling “data-object” disputes over “real estate” in the metaverse under a reformed property law soon?
See you next week!