European Central Bank chooses Amazon and 4 other firms to prototype digital euro app

September 16, 2022 Coin Telegraph

Amazon

The five fintech, payments and e-commerce firms will create front-end prototypes for the digital euro, which will not be used in later phases of the CBDC project.

The European Central Bank, or ECB, has announced it will be collaborating with five companies for the development of potential digital euro user interfaces.

In a Friday announcement, the ECB said it had chosen "Big Four" tech company Amazon, fintech firm Nexi, Spanish digital bank CaixaBank, French payments platform Worldline and the European Payments Initiative, or EPI, to each focus on developing a prototype based on specific use cases of the digital euro. According to the central bank, the firms will create front-end prototypes, which will not be used in later phases of the digital currency project.

The ECB chose the five companies based on their fulfilling “specific capabilities” when compared to 50 other front-end developers that responded to the central bank’s call in April. Officials planned the project to be completed in the first quarter of 2023 as part of a two-year investigation phase into the digital euro, expected to end in October 2023.

As interest in central bank digital currencies seems to be growing globally, ECB officials have been exploring the potential impact of a digital euro on Europe while being vague about if or when the bank could release a CBDC. The central bank commissioned a series of focus groups on digital payment methods in September 2021, which suggested that using digital currency at online and physical stores could be a key feature of a digital euro. An earlier public consultation also suggested that privacy was considered “the most important feature of a digital euro by both citizens and professionals.”

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"An economy dominated by digital payments but without a strong monetary anchor would be inherently unstable," claimed Rehn.

In a novel address at the University of California Berkley published on Wednesday, Olli Rehn, governor of the Bank of Finland, touted the possibility of a digital euro centralized bank digital currency (CBDC) functioning in tandem with private fintech solutions to facilitate the cross-border payment of services across Europe.

The European Central Bank's (ECB) investigation into the plausibility of the digital euro began in late 2021 and is scheduled to conclude in October 2023. Rehn outlined the utility of the experimental digital euro, stating:

"A digital euro would give people an additional choice about how to pay and would make it easier to do so in an increasingly digital economy. It would expand the availability of digital central bank money beyond transactions between banks to include everyday peer-to-peer payments between people, covering online shopping as well as bricks and mortar businesses."

Rehn argued out that privately developed cryptocurrencies are inherently unstable due to the lack of a monetary anchor. "Digitalization is making financial services more efficient but leaving them more vulnerable to cyber-attacks and other forms of cyber risks," he said, pointing out that such vulnerabilities to money laundering, financial crime, and other illicit activities represent solid reasons for "safe and legal means of payment in the digital age via CBDCs."

Earlier this month, the ECB identified CBDCs as the best method for cross-border payments over stablecoins and other cryptos. In the report, the ECB criticized the settlement times present in networks such as Bitcoin, saying that differences in value between transfer initiation and finalization make it suitable for large sum transactions.

Fed teases master accounts for crypto banks: Law Decoded, Aug. 15-22

August 22, 2022 Coin Telegraph

Coin Telegraph

The new guidelines from the Federal Reserve hold a prospect of “the most stringent review” for non-federally insured institutions.

Last week, the United States Federal Reserve Board turned its eye to banks and crypto, making (or promising to make) several clarifications, one of them pretty long-awaited. It announced that the final version of guidelines for reserve banks to access Reserve Bank master accounts and services is ready.

For crypto, these guidelines hold a prospect of “the most stringent review,” to which non-federally insured institutions that do not have a holding company subject to Fed oversight would be exposed. It is still unclear whether the crypto banks will finally get access to master accounts under the new guidelines and how long they shall wait for it.

At the same time, the Fed made itself clear that the traditional banks that intend to deal with crypto assets couldn’t do it without a closer consultation with regulators. Before taking such a decision, it is recommended to check state and federal laws and notify the Fed supervisory contacts in advance.

European Central Bank steps up to crypto licensing discussion

It was not only the U.S. financial regulator that had a busy last week. The ECB laid the foundation for the criteria it would be considering when harmonizing the licensing requirements for crypto in Europe. Specifically, it will consider crypto firms’ business models, internal governance and “fit and proper” assessments which apply to licensing other companies. In addition, it will rely on national Anti-Money Laundering (AML) authorities and the financial intelligence units of respective countries to provide data necessary to assess potential risks.

A cease and desist letter for FTX

The Federal Deposit Insurance Corporation has issued cease and desist letters to five companies — FTX US, SmartAssets, FDICCrypto, Cryptonews and Cryptosec — for allegedly making false representations about deposit insurance related to cryptocurrencies. The agency alleges that these organizations misled the public about certain cryptocurrency-related products being insured by FDIC and urges them to “take immediate corrective action to address these false or misleading statements.”

Colombia hopes to prevent tax evasion with national digital currency

The head of the Colombian Tax and Customs National Authority, Luis Carlos Reyes, claimed that the government would seek to create a digital currency to prevent illicit financial activity like tax evasion. However, the official did not specify what kind of digital currency exactly the Colombian government will be looking to launch, a central bank digital currency (CBDC) or rather an asset-backed national currency similar to Venezuela’s Petro digital currency project.

CBDCs are “the only solution”

The introduction of digital cash in the form of CBDCs appears to be the “only solution” that will guarantee a “smooth continuation” of the current monetary system. At least, that is what the ECB experts believe, gathering insights from 150 academic papers on the subject. The importance of central banks achieving the right level of CBDC “take-up” is stressed, and the authors also looked at potential regulatory action that could help CBDCs achieve their goals. Previously, the central bank compared the cross-border payment potential of CBDC, Bitcoin and stablecoin, coming out in favor of CBDC.

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CBDC

The European Central Bank working paper sought to identify issues and consensus regarding CBDCs, as well as to identify gaps in the research — such as what users want.

The European Central Bank (ECB) says the introduction of digital cash in the form of central bank digital currenc ies (CBDCs) appears to be the "only solution" that will guarantee a "smooth continuation" of the current monetary system.

The comments were made as part of an ECB Working Paper Series, which was published in August, discussing monetary policy and financial stability as it relates to CBDCs — gathering insights from 150 academic papers on the subject.

The paper began with the observation that interest in “the economics of money and payments” has increased dramatically in the past 15 years and expanded beyond a narrow academic circle.

After an examination of that process, the paper introduces motives for the creation of a CBDC and the thorny privacy issues related to it. The authors observed:

“While consumers tend to attribute high importance to privacy in surveys, they tend to give away their data for free, or in exchange for very small rewards in practice […]. Analyzing the roots for this apparent dichotomy, researchers point to various contributing factors.”

Nonetheless, the paper concludes that the introduction of CBDCs is “the only solution to guarantee a smooth continuation of the current monetary system” as physical money loses its economic “fitness” and cryptocurrencies and BigTech (large digital platforms) continue to make inroads into the financial system, noting:

"There is no regulatory alternative that promises to eliminate the threat to the two‐layer monetary system. Since cash is only available in physical form, it is by construction not “fit” for the digital age."

The importance of central banks achieving the right level of CBDC “take-up” was stressed, and the authors also looked at potential regulatory action that could help CBDCs achieve their goals.

The paper also dismisses concerns that CBDCs could cause shrinkage of the credit supply, noting claims that CBDCs could be a potentially disruptive force were unfounded. Privacy was identified as an area where more research is needed, as was end-user preferences for CBDC functions.

This is the second paper devoted to crypto issues released by the ECB this month. Earlier, it compared the cross-border payment potential of CBDC, Bitcoin (BTC), and stablecoin, coming out in favor of CBDC.

The paper is authored by Toni Ahnert a Research Economist within the ECB, Katrin Assenmacher, head of the Monetary Policy Strategy Division at ECB, and Financial Research Division economist Peter Hoffmann, among others.

European Central Bank addresses guidance on licensing of digital assets

August 17, 2022 Coin Telegraph

Coin Telegraph

Specifically, the ECB will consider crypto firms’ business models, internal governance, and “fit and proper” assessments which apply to licensing other companies.

The European Central Bank, or ECB, laid the foundation for the criteria it would be considering when harmonizing the licensing requirements for crypto in Europe.

In a Wednesday statement, the ECB’s banking supervision division said it would be taking steps to regulate digital assets given “national frameworks governing crypto-assets diverge quite extensively” and seemingly differing approaches to harmonization following the passage of the Markets in Crypto-Assets, or MiCA, and the Basel Committee on Banking Supervision issuing guidelines for banks’ exposure to crypto. The ECB said it would apply criteria from the Capital Requirements Directive — in effect since 2013 — to assess licensing requests for crypto-related activities and services.

Specifically, the central bank will consider crypto firms’ business models, internal governance, and “fit and proper” assessments which apply to licensing other companies. In addition, the ECB said it will rely on national anti-money laundering, or AML, authorities and Financial Intelligence Units of respective countries to provide data necessary to assess potential risks.

“The higher the complexity or relevance of the crypto business, the higher the level of knowledge and experience in the field of crypto should be,” said the ECB. “Senior managers or board members with relevant IT knowledge and chief risk officers with robust experience in this area are important safeguards.”

According to the ECB, there is “work ongoing” to analyze the role crypto may play in Europe, which will “remain an area of focus for European banking supervision in years to come.” With the passage of MiCA, global regulators may begin to standardize rules for crypto service providers within the European Union.

On Aug. 2, the ECB released the results of a study which identified a central bank digital currency as the top choice for cross-border payments over Bitcoin (BTC) and other options. Officials previously pointed to the crash of Terra as a possible example of a stablecoin threatening the financial system, recommending supervisory and regulatory measures to reduce risk.

ECB

European Central Bank steps up to crypto licensing discussion

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CBDCs are “the only solution”

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