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PBoC's Digital Currency Lab Launches New Research Center Outside of Beijing

The Digital Currency Research Lab of the People’s Bank of China (PBoC) is further expanding its ongoing research efforts to several cities outside of Beijing to encourage deployment of fintech, including blockchain, in real-life projects.

According to a report on Wednesday from local financial news source Securities Times, the lab has launched a fintech center in Nanjing, the capital city of the eastern Jiangsu province, in partnership with the municipal government.

The goal is to apply technologies developed by the lab in pilot programs with banks and academic institutions such as the PBoC’s Jiangsu branch, the Bank of Jiangsu and the University of Nanjing – all of which also co-founded the center.

Newly created municipal fintech centers will also serve as hubs for testing the PBoC’s planned central bank digital currency when it goes from prototype to production in the future, the report adds.

The Jiangsu entity has been announced just months after the Digital Currency Research Lab established a fully owned subsidiary in the southern city of Shenzhen. According to a Chinese business registration database, a firm called Shenzhen Fintech Limited was incorporated by the lab on June 16 with an initial starting capital of around $300,000.

As previously reported by CoinDesk, the research lab, led by Yao Qian, has filed more than 40 patent applications relating to the creation of a central bank digital currency incorporating core features of a cryptocurrency.

CoinDesk also reported on Tuesday that a blockchain-based trade finance platform initiated by the PBoC has entered the testing phase across several participating commercial banks seeking to ease the financing burden for small businesses.

PBoC image via Shutterstock

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EU Lawmakers Weigh 'Standard' for ICOs Under Crowdfunding Rules

Members of the European Parliament held a meeting on Tuesday to discuss a proposal that, if approved, would create new regulations on initial coin offerings (ICOs) held within the economic bloc.

The All-Party Innovation Group within the EU Parliament met to examine the potential benefits and issues with rules for ICOs that would form part of a wider crowdfunding framework.

As CoinDesk previously reported, the proposal was written by Ashley Fox, a Member of the European Parliament (MEP). Fox called for an 8 million euro cap on token sale proceeds as well as know-your-customer/anti-money laundering requirements.

Perhaps more significantly, if the regulations are adopted by the European Parliament, it could create a standard for token sales, allowing projects to raise funds and conduct business in any of the 28 member-nations.

“Be assured, that as legislators we’re trying to make ICOs more possible and more successful, that certainly is our objective,” Fox remarked.

France Digitale managing director Nicolas Brien said during the meeting that “there is an emergency to act” to create such a standard, explaining that “the market wants legitimization … from every jurisdiction. In the UK it’s particularly bad, none of the banks will bank you if you have crypto.”

Brien went on to explain:

“Having the certainty, but also having that legitimization, I actually welcome having a European-wide proposal because it gives people the certainty to know. I think we need to be clear whether this is a utility token or a transferable security, or how the regulator regime looks at that, but I think this can be done because an ICO is another form of crowdfunding. It’s different, but it is a form of crowdfunding.”

That said, the meeting also saw many of the representatives and regulators highlight the need for stricter scrutiny of ICOs, given the prevalence of scams that employ the blockchain funding model.

Laura Royle of the Financial Conduct Authority (FCA) said that “we certainly do see a huge potential benefit in this space for firms to raise capital from a broad array of investors and without the cost of an intermediary, but there are risks associated [such as] the potential for fraud, with a lack of transparency and the volatility.”

The FCA, in particular, has seen a “high proportion” of fraud, she continued, though exact figures are difficult to establish. The regulator estimates that anywhere from 25 to 81 percent of ICOs may result in fraud.

While no clear consensus on a path forward was reached during the meeting, European Parliament members can submit amendments to the proposal by September 11 – thus setting the stage for further debate.

European Parliament image via Alexandra Lande / Shutterstock

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PBoC-Backed Blockchain Trade Finance Platform Enters Test Phase

A blockchain trade finance platform spearheaded by China’s central bank has entered the testing phase ahead of an official roll-out.

According to a report from 21st Century Business Herald on Tuesday, the first phase of the so-called Bay Area Trade Finance Blockchain Platform is already deployed across financial institutions in the southern city of Shenzhen and is currently undergoing final trials.

The Bay Area in Southern China is an economic development zone consisting of major cities along the Pearl River and the special administrative regions of Hong Kong and Macau.

The trade finance project was jointly pushed through and coordinated by the Digital Currency Research Lab of the People’s Bank of China and the central bank’s Shenzhen branch, the report indicates. Major commercial banks in the country, including the Bank of China, the Bank of Communications, China Merchants Bank, Ping’An Bank and Standard Chartered, also participated and assisted with development.

The platform is aimed to boost the efficiency of interbank transactions and to help small- and medium-sized businesses access a wider range of financing tools, such as asset-backed securities, as data can be easily shared across participants via a distributed network

Further, greater levels of transparency of transactions and information shared on the blockchain is expected to give local regulators more granular oversight for improved risk control and fraud prevention, the report added.

The trade finance effort comes as Hong Kong’s de facto central bank is also deploying a blockchain-based trade finance platform, with participation from a group of financial institutions in the Chinese special administrative region.

As CoinDesk has previously reported, the Hong Kong Monetary Authority was set to roll out the project by September – one technologically developed Ping’An Insurance, the entity that owns Ping’An Bank.

Shenzhen skyscrapers image via Shutterstock

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Venezuela's Petro Cryptocurrency Is a Gift to Future Generations

Leon Markovitz is a serial entrepreneur and marketing professional. Born in Venezuela, he now lives in Israel where he is researching and marketing stablecoin projects.

I really got into cryptocurrencies when I heard about Venezuela’s stablecoin attempt, the petro, late last year.

The idea that the dictatorship was going to try using blockchain to further centralize its power was terrifying, and it’s pushed me to research solutions that could work in Venezuela’s near future.

The petro was launched in March and, until recently, it was all but forgotten – with the project lead fired for having failed to raise $5 billion for a national cryptocurrency project.

But late last month, President Nicolas Maduro announced on live TV the slashing of five zeros from the hyper-inflated currency, and announced a “Hail Mary” attempt to revive the petro by tethering the new bolivar’s value to it, calling a meeting with all banks to improvise something.

The dictatorship in Venezuela is actually doing future generations a favor by creating mistrust in central authority, devaluing central-bank issued fiat, and educating the people about cryptocurrencies. The ground is ripe for a true revolution where power is wrested away from the government and entrusted to the blockchain. Venezuela does not deserve to continue down its current path.

The country’s economy has contracted drastically in the past five years, with a rampant 1 million percent annual hyperinflation, and people dying in the streets from diseases like polio – yes, it reemerged during the socialist revolution – the highest homicide rate in the world, and the lowest salaries in the region. This is the result of 20 years of a failed socialist experiment printing currency like confetti, and a complicit ruling class that is silent, almost absent, to the clamors of the people.

People are using bolivar bills as toilet paper because it’s cheaper, and the entire world woke to the fact that the socialist revolution of the twenty-first century is a scam. Yet the corrupt henchmen of a dead man are bent on restarting the scam with the petro. They want to ride the blockchain wave, but blockchain is incompatible with this communist fraud.

This is a decentralized revolution, diametrically opposed to centralized control. The petro was born as a failure because it was conceived to maintain centralized powers in control, and no one in their right mind would use it unless someone put a gun to their face. The project is dead.

But let’s talk about this radical experiment in a hypothetical scenario. Assuming the regime is gone tomorrow, could this experiment work?

A decentralized alternative

For generations, Venezuela was drunk on petrodollars. People became lazy and used to getting cheap dollars at preferential exchange rates to import 90 percent of goods consumed. The current disaster is the consequence of generations of Venezuelans spoiled by the easy revenues from the black gold.

But that’s the past. Now imagine the day after in Venezuela, breaking free from the chains of communism, with the world ready to help. We would need at least a projected $80 million to jump-start the economy, provide humanitarian aid, and create a radically different market.

Since Venezuela’s production capacity has been decimated, getting a loan from the IMF won’t do, but re-branding the country as the blockchain nation could prove to be an opportunity hidden in chaos and despair — the light at the end of the tunnel. How can we successfully use a cryptocurrency as the national currency? Decentralize.

Unlike the petro, Venezuela’s ideal stablecoin would need no collateral and certainly no central bank. The gold and petroleum reserves could serve as strategic insurance to buy back the currency if demand falls. The issuance of the stablecoin would expand and contract based on an “algorithmic central bank” responding to the economy’s health (e.g. nominal GDP targeting), and the shareholders, the citizens, would receive sustained revenues accruing from the interest from savings and bonds of a healthy economy. Most importantly, the wallets of public officials would be subject to public scrutiny.

If the regime abandons power tomorrow, there is an opportunity for Venezuela’s government to be radical and embrace decentralized information networks. Venezuela can be the first country to separate state and finance, but if a similar attempt to the petro is implemented (a centralized stablecoin) then we would be back to square one and nothing would change.

The day after the communist regime is gone, Venezuela will implore for decentralization of power to unite and empower the people, get investments flowing in, and bring transparency to governance and monetary policy. It can evolve from a nation known for its petroleum and gold, to one know for its digital gold and energy.

The petro is a horrible idea, but people in Venezuela have woken to the power of blockchain. There is an ever-growing community of engineers and miners locally – and millions more looking from abroad.

Very soon the chains of communism will break, and the crypto-space must be ready to defend the advocates of a decentralized national stablecoin when the day after comes.

Venezuela is ready; are you?

Bitcoin on map via Shutterstock

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India Eyes State Digital Currency to Cut $90 Million Banknote Bill

India’s central bank is researching how to introduce a rupee-backed central bank digital currency (CBDC) into its monetary policy in a bid to reduce its hefty annual bill for minting physical cash.

The news was revealed in the Reserve Bank of India’s (RBI) annual report, published Wednesday, which indicated an inter-departmental unit has already been formed within the organization to study the “desirability and feasibility to introduce a central bank digital currency.”

The effort apparently comes in response to a rapidly changing landscape of digital payments and the “rising costs of managing fiat paper/metallic money,” the bank said.

A news report from the Economic Times on Thursday further indicated the RBI also said that, for 2018, the cost of printing paper notes alone totaled nearly $90 million.

While the RBI did not reveal whether the potential CBDC may be blockchain-powered, it claimed the utilization of distributed ledger technology (DLT) in payment and settlement solutions “holds the promise of significant economic benefits in future.”

Meanwhile, in contrast to its support for adoption of DLT at a state level, the RBI again toughened its stance on crypto trading in the report, shifting its focus to transactions between individuals following its ban on bank accounts for exchanges announced in April.

“Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash,” the RBI warned in its yearly report, adding:

“Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on anti-money /CFT and taxation issues, require close watch.”

Since the RBI’s bank account ban went into effect in July, local exchanges have been adopting various methods to find new revenue models, including moving business focuses to peer-to-peer trading.

Indian rupees image via Shutterstock

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As Central Banks Go Digital, Crypto Competition Looms

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

With blockchain platforms being tested for various business processes, prospective enterprise users that are unwilling to accept a volatile cryptocurrency will often complain that a key piece is missing from the platform: a stable, digital medium of exchange.

Hence the race, currently underway, to create a viable “stablecoin.”

Many tech teams, such those at Basecoin, are developing decentralized algorithms intended to peg the value of a crypto-asset to an external reference price such as a fiat currency like the dollar. Others, such as Saga, are building collateralized reserve models, offering guaranteed, fixed-price convertibility into an alternative store of value – also, such as the dollar. Based on the controversy surrounding Tether, the biggest stablecoin, it’s fair to say that a widely trusted system does not yet exist.

Here’s an alternative vision: What if the race is won by a central bank? Digitizing fiat is arguably easier than pegging to fiat. What it needs is buy-in from officialdom.

The Bank of Thailand moved the world a small step closer to that solution last week. It announced that, in partnership with eight financial institutions, it is developing a digital currency based on R3’s Corda distributed ledger protocol.

We’ll see how the Thai project evolves, but the purpose for now appears quite narrowly focused on a specific use case: facilitating interbank transfers among institutions operating within the country’s capital markets. Although limited to Thailand, it would add in the monetary piece that’s been missing from other distributed ledger initiatives to streamline securities settlement, such as that at the U.S. settlement and clearing agency, the DTCC.

However, it’s not hard to imagine that if Thailand’s or another country’s “wholesale” central-bank digital currency experiment shows signs of success there will be pressure to expand these so-called CBDC models to a wider community of users.

Expanding access to CBDC

With blockchain-based solutions for supply chains now moving from proofs of concept to implementation, with a lot of that activity in Thailand’s neighborhood, businesses could start to seek digital fiat solutions to these new models of automated trade. This will, of course, be limited to in-country transactions, but if prospective decentralized, smart contract tools such as atomic swaps , currently being explored for blockchain assets, can also be applied to digital fiat currencies, instantaneous cross-border CBDC exchanges might become a reality.

And despite concerns about financial instability expressed by the Bank of International Settlements, a central bank-owned body that coordinates activity among its members, I think it’s fair to assume a fully retail CBDC will one day exist somewhere.

The BIS’ concerns primarily lie with the potential threat to the banking system from money fleeing short-term deposits into CBDC wallets. But that position presupposes banks should continue to play a central role in our payments systems. Many central bankers, who were blindsided by the problems caused by too-big-to-fail banks during the financial crisis, take a different view: that our dependence on for-profit private institutions to manage our monetary system is the very cause of the systemic risks to which our society has long been subject.

No lesser figure than former Bank of England Governor Mervyn King has argued forcefully about the need to reform the bank-centric financial system. And although his successor, Mark Carney, has soured on the idea of a digital pound, it’s noteworthy that BOE researchers, among the first to explore CBDC ideas, initially explored the potential benefits of removing banks from payments by ending their privileged access to central bank reserves.

A world of competing currencies

If this future does come to pass, it will be a long way from that envisaged by crypto developers who want to remove central banks from the equation. It’s even further from the vision of bitcoin enthusiasts, who see the need for a fully censorship-resistant currency with a monetary policy that cannot be altered by policymakers.

But all will not be lost for monetary innovators. The act of digitizing currencies – whether by central banks or by crypto developers – is likely to lead to increased global competition across currencies, as access and the cost of trading them becomes more efficient. That will put central banks themselves under pressure to develop currencies that people want to use.

The competition won’t only be among different countries’ currencies. With the help of Lightning and/or other Layer 2 solutions, cryptocurrencies will become more scalable and can present themselves as one of a number of options.

I see the scenario eventually evolving into something like the vision of Austrian economist Friedrich Hayek, a favorite of libertarians, who foresaw a world of competing private currencies emerging. It’s just that this one would entail competition between crypto- and government-run digital currencies.

Hopefully out of that competitive soup something that best serves humanity will arise.

Of course, this isn’t happening tomorrow. It’s premature to place all-out bets on any kind of currency solution becoming the standard.

But to assume that the world of money won’t change at all is also foolhardy. These forces will come to bear in ways that will be difficult for any actors, public or private, to control.

Protecting people’s interests

When that change starts to happen, it’s critical that we, the people, provide input into how these systems evolve. A world of competing digital currencies isn’t necessarily a utopia.

As I argued in a previous column, crypto tokens have in some cases worsened society’s problems with truth in social media, prompting tribes of specific token holders to fiercely defend their coin against valid criticism. Imagine the same thing happening with fiat digital currencies promoted as investments by dictatorships.

We might just be getting a test of that with Venezuela’s move to peg the bolivar to its new digital currency, the Petro. The government of President Nicolas Maduro has long employed an aggressive propaganda campaign in favor its tragically failed policies. Imagine if he gets a team of Petro-holding trolls to amp up that campaign.

Digital fiat currency could also become an alarming surveillance tool. Already, the concept of China’s “social score” system is raising concerns in that country. Add traceable digital payments to that kind of model and something even more invasive emerges.

Still, competitive pressures might also help us here. As I’ve previously argued, privacy is vital to good, functioning, fungible currency systems. So too, naturally, is broad adoption.

If we can create a world of genuine choices across currencies, it’s reasonable to assume that people will gravitate toward those that don’t entail surveillance and aren’t used as propaganda tools.

Will cryptocurrencies do a better job of achieving these standards? Possibly. But it depends on their design. There are plenty of bad altcoins out there.

Still, if a cryptocurrency, whether bitcoin or an alternative with a different monetary policy, attains scalability and includes robust privacy protections, there’s still a very decent chance it could eventually outcompete government currencies.

Either way, let’s bring on the competition. May the best coin win.

Image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Thailand's Central Bank Is Developing a Digital Currency Based on R3 Tech

The Bank of Thailand (BoT) has announced it expects to complete the first phase of a proof-of-concept trial for a central bank digital currency (CBDC) by March 2019.

The Thai central bank said in a release on Tuesday that it has partnered with eight financial institutions in the country in a bid to create a CBDC based on Corda, a distributed ledger technology (DLT) platform developed by the enterprise-focused consortium startup R3.

The ultimate goal of the effort is to use the digital currency to facilitate interbank transactions and to “enhance efficiency of the Thai financial market infrastructure,” according to the announcement.

To assist with the so-called Project Inthanon, the BoT has signed up R3 as technological partner and eight other participating institutions, including Bangkok Bank Public, Krung Thai, Siam Commercial Bank, Standard Chartered Bank (Thailand) and HSBC.

“Project Inthanon Phase 1 is expected to be completed by the first quarter of 2019 after which the BoT will publish a project summary accordingly,” the bank said in the announcement.

It continued:

“Building upon the findings and outcomes from Phase 1, the project participants aim to further develop the capabilities of the prototype for broader functions including third party funds transfer and cross-border funds transfer.”

The central bank’s governor first revealed the initial concept for the project in a speech in June, commenting at the time that the aim is to explore the potential of blockchain in facilitating cross-bank transactions before it can be formally launched at a larger scale.

With the launch of Project Inthanon, the BoT joins a growing group of central banking authorities to have started trialing DLT systems to facilitate interbank and cross-border transactions, including the Hong Kong Monetary Authority and the Bank of Canada.

The BoT also said in the release that it is currently conducting another DLT proof-of-concept designed to boost the efficiency of government bond sales.

Thai baht image via Shutterstock

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Bitt Inks Blockchain Deal With Another Caribbean Central Bank

Barbados-based blockchain startup Bitt is partnering with the Centrale Bank van Curaçao en Sint Maarten (CBCS) to look into issuing a central bank-backed digital currency for the two nations.

Bitt, a portfolio company of Overstock’s Medici Ventures, said Monday that it has signed a memorandum of understanding (MOU) with the central bank for the Dutch Caribbean island Curaçao and Netherlands constituent country Sint Maarten earlier this month. The goal of the deal is to jointly examine the possibility of issuing a digital Curaçao and Sint Maarten guilder to replace the current Netherlands Antillean guilder.

The project will focus in part on testing know-your-customer/anti-money laundering (KYC/AML) technology, according to statements.

CBCS acting president Leila Matroos-Lasten said the bank signed the MOU with Bitt “due to this company’s regional experience in digital payments and its macroeconomic views.”

She added:

“The central bank is determined to address its challenges proactively by exploring the latest technology available, for example, to reduce the level of cash usage within the monetary union, and to facilitate more secure, more AML and KYC compliant and more efficient financial transactions within and between Curaçao and Sint Maarten.”

The MOU signifies that the bank recognizes the potential improvements that technology can bring, she added.

“The CBCS … is committed to exploring solutions regarding the efficiency of cross-jurisdictional transactions and digital payments whilst ensuring compliance and security assurances obtained by these state of the art [fintech] solutions,” Matroos-Lasten was quoted as saying. “This would be beneficial to everyone.”

The news comes a few months after Bitt signed a similar MOU with the Eastern Caribbean Central Bank, a central banking institution that covers Anguilla, Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia and St. Vincent and the Grenadines.

That trial may be used to develop new digital payment and settlement systems, and if successful, could ultimately help the bank issue a cryptocurrency of its own, as previously reported by CoinDesk.

Image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Central Bank Crypto Could Bring Economic Gains: Bank of Canada Paper

Central bank-issued cryptocurrency can potentially bring economic welfare gains for Canada and the U.S., according to a central bank researcher.

In a working paper published Thursday, the Bank of Canada’s S. Mohammad R. Davoodalhosseini states that introducing a central bank digital currency (CBDC) “can lead to an increase of up to 0.64 percent in consumption for Canada and up to 1.6 percent for the US, compared with their respective economies if only cash is used.”

At the moment, Davoodalhosseini says, a key question to the “many” central banks currently mulling the option of issuing a CBDC is whether cash and a digital form of fiat currency should co-exist, and if so, how to maintain an “optimal” monetary policy.

Based on detailed modeling and mathematical calculations, the researcher argues in the paper that a country’s economic welfare – at least for Canada and the U.S. – might be better off by substituting cash with a CBDC, provided implementation is not extremely costly.

He wrote:

“Having both cash and CBDC available to agents (consumers) sometimes results in lower welfare than in cases where only cash or only CBDC is available. This fact suggests that removing cash from circulation may be a welfare-enhancing policy if the motivation to introduce CBDC is to improve monetary policy effectiveness.”

The paper further states that, by introducing a CBDC, central banks could have a higher level of flexibility in adjusting current monetary policy.

“This is because the central bank can monitor agents’ portfolios of CBDC and can cross-subsidize between different types of agents, but these actions are not possible if agents use cash,” it says.

The paper’s quantitative approach follows a previous December 2017 effort by other researchers from Canada’s central bank to gauge the value of offering a CBDC over cash – work that took a more qualitative look at the pros and cons.

CoinDesk reported at the time that the researchers argued that the potential benefits of a CBDC may vary between developed and developing economies.

Bank of Canada image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.