Emerging markets could be the next big frontier for crypto. A slew of politicians want to follow El Salvador and adopt bitcoin as legal tender.

  • Emerging markets are pioneering digital and crypto currency usage, trading and mining.
  • Since El Salvador voted to adopt bitcoin as legal tender, a slew of politicians have said they want to follow suit.
  • Many showed their support through tweets or by adding the symbolic laser eyes to their Twitter pictures.
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Cryptocurrencies can often stir up concern among conservative investors and few are as conservative as central banks, and regulators are definitely skeptical. But this does not appear to be the case in emerging markets.

Politicians, central bankers and regulators across the developed world might be a little wary, but those in the emerging world are pushing the boundaries of crypto adoption, by pioneering how digital tokens are used, traded and mined.

In fact, they could become crypto’s next big frontier, as a slew of politicians from Brazil, and Argentina and even Tonga have publicly stated that they want their countries to follow the example of El Salvador in making cryptocurrencies legal tender.

El Salvador’s Congress approved a law last week that made the small Central American country the first to accept bitcoin as legal tender, giving it equal status to the US dollar in El Salvador.

“Other countries will follow El Salvador’s lead for two main reasons, making bitcoin legal tender will attract Bitcoin entrepreneurs and ease the burden of sending money internationally.” Edward Moya, senior market analyst at OANDA told Insider.

Indeed, since El Salvador’s president Nayib Bukele first announced the bitcoin bill, a slew of other emerging markets politicians have said that their own countries should follow suit.

Paraguayan congressman Carlitos Rejala tweeted “This week we start with an important project to innovate Paraguay in front of the world! The real one to the moon #btc & #paypal”.

Gabriel Silva, a congressman from Panama said his country could not afford to be left behind and a broader adoption of crypto was necessary for the country to attract technological innovation and entrepreneurship.

Brazilian politician Gilson Marques and the Argentinian Francisco Sánchez were among those who added laser eyes, a symbol used by bitcoin bulls, to their public profile pictures.

Central banks around the world are considering launching their own digital currencies that would be centrally managed and regulated – a key difference to existing cryptocurrencies like bitcoin.

The Federal Reserve and European Central Bank are still in the very early stages of looking into a digital currencies, while many emerging-market central banks are making fast progress in the area.

“Their use in small-scale trading and remittance transfers from workers abroad are among the main reasons for the popularity of crypto currencies in EM. Central bank digital currencies (CBDC) could also facilitate getting social transfers to the poor and improve transparency of the large informal economy. These channels could be positive for economic growth in EM.” a recent Bank of America research note said.

The popularity and value of crypto currencies like bitcoin and ether has boomed over the past year. They’re both an asset class in their own right, as well as a means of payment for goods and services. Various sports teams like the Dallas Mavericks or Oakland A’s for example accept cryptocurrencies as payments for tickets or merchandise.

In El Salvador, a whole town was already running on crypto – El Zonte, also known as ‘Bitcoin Beach’. Soon the whole country could now be working in similar ways and, if some politicians get their will, other emerging markets countries could as well.

El Salvador’s decision has however been received cautiously by regulators and politicians in developed markets. Bank of England Governor Andrew Bailey said just this week that cryptocurrencies are too volatile to be used as a payment form.

And the World Bank rejected El Salvador’s request to help with the implementation of bitcoin over environmental concerns linked to crypto mining. Further, regulators have shown concern about the use of crypto to fund illicit activities.

Bitcoin is already up by 300% in the last 12 months and, if more countries adopt it, it should stand to gain even more, even though regulators are tightening their scrutiny of the market, analysts said.

“Bitcoin becoming legal tender in other countries should support the bull case for bitcoin,” OANDA’s Moya said.

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‘Britcoin’ may soon be a reality after the Bank of England says it is looking more deeply into a digital pound

A close-up of a replica bitcion is seen with a British flag
A close-up of a replica bitcoin is seen with a British flag

  • The Bank of England said it would look more closely at launching its own digital currency.
  • There no decision yet on “Britcoin,” but a digital currency would complement, not replace, banknotes, it said.
  • One possible scenario is one-fifth of all UK retail bank deposits are in a new form of digital money.
  • See more stories on Insider’s business page.

The Bank of England is going to look more closely at launching its own digital currency, although it is still to make a decision on whether to introduce one.

The BoE on Monday released a discussion paper seeking response to its thoughts on a central-bank digital currency, which it put forward last year, as it believes it should “at the very least, be carefully studying CBDCs,” it said.

“The Bank of England has not made a decision on whether to introduce CBDC, but is committed to engaging widely on the benefits, risks and practicalities of doing so,” it said in a statement. “The Bank now intends to deepen its exploration of CBDC.”

CBDCs are effectively cryptocurrencies that are pegged to a national currency and controlled by the central bank. They operate as “stablecoins” – a digital token whose value is pegged to an underlying asset. The key difference between a stablecoin and a CBDC is the former is controlled by a private-sector entity.

Interest in digital currencies among central banks is picking up, as investors big and small jump onto the cryptocurrency bandwagon. Virtually every cryptocurrency, from bitcoin to ether, has hit record highs this year.

China is already running trials of its digital yuan, while the Federal Reserve plans to release a discussion paper in the coming weeks about its thoughts on digital payments. Jon Cunliffe, the BoE’s deputy governor, said last month it was “probable” the central bank would launch its own digital currency, which market watchers have nicknamed “Britcoin”.

“A CBDC could contribute to a more resilient, innovative and competitive payment system, but it would also raise significant questions for the economy and financial system,” Cunliffe said in Monday’s statement.

“The Bank has not yet made a decision on whether to introduce a CBDC. Were it to do so, any CBDC would complement, rather than replace, banknotes,” he added.

In its paper, the BoE laid out a scenario to illustrate what might be the demand for alternative means of payment. Under its model, it estimates 20% of all UK retail deposits will be in new forms of digital money.

“In the illustrative example, a fifth of all UK retail deposits transfer to new forms of digital money. Factors such as convenience, trust, and perceived safety are assumed to play a key role in determining demand for new forms of digital money,” it said.

The central bank plans to join forces with the UK’s finance ministry, the Treasury, to explore the public-policy issues around a CBDC, in order to look more closely into the potential launch of a digital currency. Any CBDC could only be harnessed if it is widely used and easily accessible to a broad range of groups in society, it said.

In addition to respecting users’ privacy, any CBDC would comply with the rules around money laundering or financing crime that exist for current digital payment systems.

Crucially, any CBDC should not interfere with the BoE’s ability to manage monetary policy and ensure financial stability. “For example, the Bank will carefully consider any risks associated with the outflow of deposits from the commercial banking sector,” the BoE said in the paper.

The central bank stressed in the paper that it supports efforts to improve payments in the UK, where these are safe, viable and well understood.

“A CBDC should only be introduced if it adds sufficient value and delivers net benefits, and if launched, should be designed to co-exist with other payments innovations. When exploring CBDC, the Bank will also give full recognition to the potential of private sector alternatives to deliver the outcomes sought,” it said.

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China is giving away digital yuan worth $6.2 million in a Beijing lottery as it tests out its CBDC, reports say

Digital yuan red envelope
A consumer uses a digital yuan red envelope in a mobile phone to buy goods at a digital yuan cashier’s desk

China is handing out free “red packets” of its digital yuan, worth a total of $6.2 million, in a Beijing lottery designed to test the central bank digital currency, according to reports.

Residents in China’s capital city can apply to win one of the 200,000 packets, which each contain 200 digital yuan ($31.33), Reuters reported. The digital cash, delivered via apps, can be spent at selected local retailers. The e-wallet is inspired by the Chinese tradition of giving red envelopes of money at milestone events or celebrations.

The lottery is part of the People’s Bank of China’s ongoing CBDC trials, in which the digital yuan is being tested and evaluated locally before being rolled out across the country. China is the first major economy to progress its CBDC initiative to the trial stage, with the US and the EU central banks still in the research stages of their respective digital currencies.

China is currently pursuing a two-tier approach to distributing its digital currency, in which the central bank disseminates its CBDC to the population via commercial banks.

To enter the Beijing lottery, people must apply through one of two banking apps required to participate in the trial. It will run until June 6, CNBC reported, and winners will be notified soon after and be able to spend the digital cash until June 20.

Other Chinese cities, Shenzhen and Chengdu, have held similar CBDC lotteries, and the central bank expects to carry out further local trials before rolling out the currency across the country. It is planning to trial the digital yuan for international visitors at the 2022 Beijing Winter Olympics.

Earlier this week, Yao Qian, the former chief of China’s CBDC efforts, said that digital currencies could eventually run on blockchain networks like ethereum. Commercial banks would then no longer have to function as an intermediary and financial inclusion would be improved, as users would not need a bank account to use the digital yuan, Yao said.

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Central bank digital currencies could use networks like ethereum, China’s former digital yuan chief says

Digital yuan red envelope
A consumer uses a digital yuan red envelope in a mobile phone to buy goods at a digital yuan cashier’s desk

Yao Qian, the former head of China’s digital yuan team said central bank digital currencies could use blockchain networks like ethereum in the future, Sina Finance reported on Monday.

At the International Finance Forum 2021 Spring Conference in Beijing, Yao said CBDCs would likely become more “smart” and could include functionalities and attributes that extend beyond those of physical currencies.

This could take the form of smart contracts, which are programs that document, control and execute agreements or transactions, Yao, who is currently the director of the Science and Technology Supervision Bureau of China’s Securities Regulatory Commission, said. Terms and conditions are written onto blockchain ledgers and contracts are self-executing, trackable and irreversible. They also cut out third parties and allow any two parties to enter agreements, even anonymously, which is one of the things that makes them popular in the crypto sphere.

Smart contracts require blockchain networks like ethereum, which could be used by central banks as an additional layer to their digital currencies. This would allow users to access CBDCs without having a bank account for example, Yao said. This would improve financial inclusion, which is widely regarded as one of the main goals of CBDCs.

So far, the digital yuan has been developed in collaboration with banks and other financial institutions. In the two-tiered system the e-yuan follows, the central bank disseminates the digital currency to commercial banks, which are then responsible for passing it on to consumers. This however means that users need an account, or to be registered with an existing bank or authority to gain access to the new digital currency.

Trials of the digital yuan began earlier this year across China and are set to roll out more widely in the future. By 2022, China hopes to trial its CBDC with international visitors and athletes at the Beijing Winter Olympics.

Yao however also urged caution. Smart contracts may be vulnerable to security issues and their legality is still questionable as the technology is new and has not been used by the wider public yet, he said. Under his approach, central banks would therefore start with simple contracts and make sure any kinks in the system are resolved before using blockchain technology for more complex transactions, Yao said.

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Central banks aren’t running scared of bitcoin but they want to keep control, says former Bank of England digital guru

The Bank of England is looking into launching a “Britcoin.”

  • Central banks are increasingly interested in creating digital currencies as the use of cash falls.
  • But central banks aren’t threatened by bitcoin, says former Bank of England advisor Huw van Steenis.
  • The top banker spoke to Insider and punctured some central bank digital currency myths.
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In some ways, central bankers are like the “bitcoin bros” who have sent cryptocurrencies soaring in 2021, although they might not like to think it.

While crypto fans have taken to Twitter to shout about their gains, there’s been a quieter – but no less important – surge in interest in digital currencies in the hushed offices of the world’s central banks.

The Bank of England is weighing up launching a “Britcoin”; China is racing ahead with trials of its digital yuan; and European Central Bankers are giving speech after speech on central bank digital currencies, or CBDCs. The Federal Reserve is taking things more slowly but has enlisted MIT researchers to explore the issue.

Huw van Steenis was formerly a top advisor to the governor of the Bank of England and is now senior advisor to the CEO of Swiss banking giant UBS.

A well-known figure in the City of London, he wrote the Bank of England’s 2019 future of finance report, which looked hard at the outlook for payments and the pros and cons of central bank digital currencies.

Van Steenis is clear-eyed about CBDCs, arguing that they sometimes seem like “a solution in search of a problem.” But he told Insider they are definitely about central banks keeping control of money.

A CBDC would be a digital version of banknotes and coins, letting people hold and make payments in central bank money. At the moment, the digital money people use every day is created by commercial banks and held in accounts or on pre-paid cards.

Central bankers are watching cryptocurrencies closely

Some analysts have argued that central banks have been spurred to action by the crypto boom, and fears that bitcoin could become a global payments system. Bank of America researchers posited in March that CBDCs could be “kryptonite for crypto.”

Van Steenis thinks differently. “Approximately 95% of the money in most Western markets is not actually central bank money, but it’s money held in the bank in deposits in electronic format,” he says. “The world is already one in which [central banks] play a pivotal role, but they don’t dominate.”

The real issue is ensuring the stability of the financial system, van Steenis says, and that means keeping an eye on cryptocurrencies.

Yet the crypto world is still tiny relative to the amount of money in bank deposits, he says. “So I don’t think they’re running scared on bitcoin. But what they want to know is, is there an innovation they need to adapt and borrow from.”

The key concerns are dwindling cash use and tech-firm dominance

A major worry for central bankers is that, as the use of cash dwindles, private payment systems are becoming increasingly crucial and could shake the global financial system if they fail.

“If you think about the pandemic, it’s probably fast-forwarded the shift away from cash to digital by about three to five years,” van Steenis says. “No central banker ever wants to feel they might lose control of their currency.”

A CBDC would ensure everyone has access to a risk-free payment system, proponents argue, and would make transactions safer and more efficient. Just like going directly to the airline for your plane tickets online is faster and easier than going to see a travel agent.

Many central banks around the world are also asking themselves whether they want huge US technology companies like Visa, Mastercard and PayPal to dominate their national payments systems, van Steenis says.

Another common argument is that Western central banks are racing to keep up with China’s advanced CBDC project, which they say could threaten the dollar’s dominance.

But van Steenis is skeptical. “I just don’t see the geopolitical angle is what’s driving it,” he says. “If you ask the Swedes what’s driving the e-krona, it’s much more about a reduction in cash and inclusion and their responsibility to provide to society, than it is because they’re trying to keep up with friends around the world.”

2007 11 06T120000Z_1281859648_GM1DWNPSOXAA_RTRMADP_3_BRITAIN.JPG
Huw van Steenis, pictured here in 2007, has worked at the top of investment and central banks.

CBDCs could eat the banking sector’s lunch

Whatever’s pushing it forward, the creation of central bank digital currencies looks set to throw up a number of problems to accompany the benefits.

One concern for bankers is that the technology might eat the financial sector’s lunch. The technical term is “disintermediation” – the idea that giving people access to CBDCs could stop them from needing banks at all.

Van Steenis, who knows Wall Street and the City well, says CBDCs must be created with a two-tier system in which people continue to hold accounts at banks and payment firms.

Yet, he says there are other risks. “What happens when we think about money being moved from country A to country B? Do you then allow your monetary base to be sent to a foreign bank? In which case, how do you regulate them? Do you lose control of your monetary policy?”

Crypto community can innovate while central banks are cautious

These sorts of issues mean central banks and the governments that ultimately control them will be very cautious about building CBDCs, says van Steenis. Countries will need to debate their pros and cons in a process that might take years, he added.

Fed Chair Jerome Powell said in March that the central bank would “move with great care and transparency” and wouldn’t proceed without support from Congress.

That opens the door for others to innovate, van Steenis says, not least those in the crypto world who are developing stablecoins and attractive financial networks.

He says: “Actually, I think the crypto community does have a real window of opportunity to help define a future whilst the central banks are cautiously, but studiously, trying to progress what they do.”

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Mark Cuban explains why crypto is the future, especially as the world recovers from a generational pandemic

Mark Cuban.
Mark Cuban.

  • Mark Cuban said cryptocurrencies are the future, especially as the world recovers from a pandemic.
  • The billionaire outlined the two reasons why he thinks the country should shift to digital currencies.
  • Cuban is among the high-profile crypto bulls, and is a particularly vocal backer of meme-based dogecoin.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

As the cryptocurrency market continues to skyrocket – hitting a $1 trillion in February to double its market capitalization in just three months – enthusiasts such as Mark Cuban are increasing calls for the world to embrace digital and decentralized money.

Cryptocurrencies, the billionaire said, are the future, especially as the world recovers from once-in-a-generation pandemic.

On a podcast hosted by Actor Rob Lowe, Cuban outlined the two big reasons why he thinks the country should shift to digital currencies:

More access

The billionaire investor discussed the hurdles involving receiving and cashing stimulus checks faced by many Americans during the pandemic, whether the came via direct deposit or by mail. He also touched on the number of days banks need to clear the checks, pointing to the friction points still encountered when dealing with traditional financial institutions.

“The people who needed the money the most got it to slowest,” he told Lowe. “If everybody had a digital bank account, with or without digital coins, the money would just go just like that, right into your account from the Treasury, whenever there was a stimulus.”

Lower costs

The billionaire also added that transaction costs would drop significantly with digital assets.

While the cost of producing pennies, nickels, and dimes, is less than their actual value, the US Mint allocates billions of dollars yearly to produce these coins.

For the fiscal year last year, the bureau responsible for producing coinage for the US spent roughly $618 billion to produce all the coins combined, according to a Coin News report.

“Then there’s just the physical dealing with it for retailers, which is expensive, and for banks, which is expensive,” he said. “Then there’s the sanitary side.”

There are no cons to moving to digital currency, he said. The only problem is that people are resistant to change.

“Who wants to know what a digital wallet is, or wants to deal with setting up a new type of account?”

Read more: Fundstrat’s head of digital assets research walks us through his $100,000 and $10,500 year-end price targets for bitcoin and ether – and shares the 8 tokens he’s bullish on

The billionaire has long been an advocate of digital currencies. The Dallas Mavericks, which Cuban owns, began accepting the cryptocurrency as payment for tickets and merchandise earlier this year. He also suggested to TV host Ellen DeGeneres that she should allow the use of dogecoin as payment for her show’s merchandise.

Cryptocurrencies have soared in 2021 – with bitcoin rising 95% year to date, ether surging 380%, and dogecoin skyrocketing an astounding 13,000%.

This month, a non-profit called Digital Dollar Project announced that it will launch at least five pilot programs to test the viability of a US central bank digital currency over the next 12 months.

CBDCs, digital versions of banknotes, are meant to be more instantaneous and seamless thanks to digital processing. To date, a number of central banks have been exploring CBDCs spurred by a rapidly growing crypto space and competition from central banks around the world.

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A non-profit will launch 5 pilot programs over the next year to test the viability of a central bank digital currency in the US

Federal Reserve
Photo taken on Nov. 5, 2020 shows the U.S. Federal Reserve in Washington, D.C., the United States.

  • The non-profit Digital Dollar Project will launch five pilot programs to test the viability of central bank digital currencies in the next 12 months.
  • The initiative is backed by a partnership between Accenture and the Digital Dollar Foundation.
  • CBDCs are digital versions of a banknote.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The non-profit Digital Dollar Project will launch at least five pilot programs to test the viability of a US central bank digital currency, or “digital dollar”, in the next 12 months, the organization announced Monday.

The initiative – backed by a partnership between Accenture and the Digital Dollar Foundation – was created last year to look into the potential advantages of CBDCs in the US.

CBDCs, digital versions of banknotes, are meant to be more instantaneous and seamless thanks to digital processing. Americans at this point can currently only hold central-bank-issued money in physical coins and notes.

Among others goals, the Digital Dollar Project aims to explore, analyze and identify technical and functional requirements of CBDC, assess benefits and challenges, and consider potential use cases for both retail and wholesale commercial utilization.

It will release its findings for use in academic study, as well as policy consideration by Congress.

“The US doesn’t need to be first to the central bank digital currency, but it does need to be a leader in setting standards for the digital future of money,” J. Christopher Giancarlo, former chairman of the US Commodity Futures Trading Commission and co-founder of the Digital Dollar Foundation, said in a statement.

The Federal Reserve in 2020 partnered with the Massachusetts Institute of Technology to research CBDCs. The US central bank is still being cautious, though, with Fed chair Jerome Powell saying last week that it is “far more important” to get it right than to do it quickly.

“Central bank digital currencies will play an important role in how we modernize our financial systems,” David Treat, a senior managing director at Accenture, said in a statement. Treat leads the company’s blockchain and multi-party systems practice globally.

Accenture has made an initial investment to support the initiative’s operational requirements and intends to match the funds necessary to launch the first five pilot programs.

To date, a number of central banks have been exploring CBDCs spurred by the cryptocurrency momentum that has rapidly risen as of late.

China is leading the race, after developing its digital currency electronic payment CBDC in 2014 and testing a pilot in 2020.

Norway in April announced it will start testing various solutions for a CBDC as the world’s most cashless country moves to further decrease cash transactions. The UK in the same month said it is coordinating exploratory work on a potential CBDC, dubbed “britcoin.”

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Cryptocurrencies will survive the rise of central bank-backed digital coins, but their use will likely decline, Deutsche Bank says

  • Cryptocurrencies will survive, but their use may be limited by central bank digital currencies, Deutsche Bank said.
  • The report says cryptocurrencies will become stronger and more usable in everyday life the longer they exist.
  • Once CBDCs are commonplace, their advantages could outweigh those of cryptocurrencies, the report said.
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Cryptocurrencies aren’t going anywhere in the coming years, but their usage will probably decline when central bank digital currencies (CBDCs) are eventually rolled out, according to Deutsche Bank International Private Bank.

Currently, cryptocurrencies like bitcoin are not a mainstream asset class, but it will become more robust over time, Christian Nolting, Deutsche Bank’s global chief investment officer, wrote in an introduction to a special report.

“The longer cryptocurrencies survive, the more robust and credible they become due to network effects (Metcalfe’s law). Once we see some stability in terms of price fluctuations, the use of cryptocurrencies for the exchange of goods and services goods could increase,” the report said.

Whether this will become reality depends on the rollout of CBDCs and factors such as regulation, environmental impact, security issues and transaction speed, Deutsche Bank said.

Whilst most major central banks are examining the possibility of launching their own digital currencies, China and Sweden are two of the few who have started trials. The US Federal Reserve and the European Central Bank are yet to decide whether to launch their own digital coins.

Deutsche Bank argues the longer central banks take to deploy their own digital currencies, the more scope existing cryptocurrencies will have to establish themselves. As most CBDCs are still at the very early stages of development, this could be a long time coming, but will have a significant impact when their use does become mainstream.

“A widespread introduction of CBDCs accompanied by higher regulation of cryptocurrencies could create a more challenging environment for crypto assets as some (but not all) of their advantages compared to traditional financial assets would fade in the longer term,” the report concludes.

Key differences between cryptocurrencies and CBDCs include the levels of centralization, regulation, oversight, encryption and transparency, Deutsche Bank said.

CBDCs vs Crypto
The key differences between Central Bank Digital Currencies and Cryptocurrencies as outlined in the Deutsche Bank report.

“My belief is that governments and more digitally-aware populations may ultimately prefer to go with CBDC, at least for general use, at the possible expense of some cryptocurrencies,” Nolting said in the report. “If this happens, then the more successful cryptocurrencies are likely to become increasingly differentiated in terms of business models and utility,” he continued, highlighting a potential future path for crypto investments.

The report also urged caution against treating cryptocurrencies as an equivalent to gold in terms of diversification and risk management. Deutsche Bank said the high volatility and low liquidity of cryptocurrencies were key concerns.

Despite this, the incorporation of crypto assets into existing investment vehicles like ETFs may attract more retail and institutional funds into the sector as it makes investments easier, the bank said.

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The UK will explore a Bank of England-backed cryptocurrency called ‘Britcoin’

Bank of England
A general view shows The Bank of England in the City of London financial district, amid the outbreak of the coronavirus disease (COVID-19), in London, Britain, November 5, 2020.

  • British finance minister Rishi Sunak revealed the UK is exploring the feasibility of “britcoin,” Reuters reported.
  • It is a cryptocurrency backed by the Bank of England aimed to address the issues bitcoin has.
  • A new task force was launched on Monday to look into a central bank digital currency or CBDC.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

British finance minister Rishi Sunak on Monday revealed that he is exploring the feasibility of a cryptocurrency backed by the Bank of England dubbed “britcoin,” aimed addressing some of the issues posed by other cryptocurrencies.

“We’re launching a new task force between the Treasury and the Bank of England to coordinate exploratory work on a potential central bank digital currency (CBDC),” Sunak said during the UK FinTech Week conference, as reported by Reuters.

Shortly after the announcement, Sunak published to his nearly 500,000 followers a one-word tweet saying: “Britcoin?”

The new task force will explore opportunities and risks of a CBDC, as well as monitor international CBDC developments to “ensure the UK remains at the forefront of global innovation.”

“The Government and the Bank of England have not yet made a decision on whether to introduce a CBDC in the UK and will engage widely with stakeholders on the benefits, risks, and practicalities of doing so,” the BoE said in a statement Monday.

But, if plans go through, the CBDC will exist alongside cash and bank deposits instead of replacing them, the bank said.

Other central banks across the world are examining the possibility of a digital currency, with China leading the pack. The Asian superpower is already at the point of extensive pilot testing, according to a new Citi report this month entitled Future of Money.

China began developing its digital currency electronic payment CBDC in 2014 and tested a pilot in 2020. Citi said it expects China’s “sprint to a cashless society” within five years.

BoE Governor Andrew Bailey in the past has said that he sees little intrinsic value in bitcoin doubts its utility as a form of payment. Bailey shares this sentiment with US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde.

Still, bitcoin has skyrocketed 600% in the last 12 months. The market value of cryptocurrencies as a whole hit $2 trillion in April, doubling in value in a matter of months.

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Central bank digital currencies do not threaten the existence of cryptocurrencies, Morgan Stanley says

GettyImages 1229990041
Morgan Stanley said cryptocurrencies and central bank digital currencies would coexist.

  • Morgan Stanley said cryptocurrencies will still exist even if central banks issue their own digital currencies.
  • The bank said the uses and appeals of central bank digital currencies and cryptocurrencies are different.
  • It said cryptocurrencies can be seen as a store of value, similar to gold, and a speculative asset.
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Cryptocurrencies will continue to exist even if central banks start issuing their own digital currencies, because they serve different purposes and have different appeals, analysts at Morgan Stanley have said.

They said in a report on Monday government-backed digital currencies probably pose the biggest risk to stablecoins – that is, cryptocurrencies that reflect underlying assets, such as the one planned by Facebook.

But the analysts, including Morgan Stanley’s chief economist Chetan Ahya, said “Cryptocurrencies will still exist, as they continue to serve other use cases.

“For instance, some cryptocurrencies can function as a store of value… as some segments of the public do not place their full faith in fiat currencies.”

Some analysts have suggested CBDCs could cut the appeal of technologies such as bitcoin, with a Bank of America report saying they could be like “kryptonite” to crypto.

But Morgan Stanley’s report said the reasons for investing in cryptocurrencies appeared to have evolved, with buyers increasingly viewing digital coins like bitcoin as new institutional asset classes, rather than replacement payment systems.

“Investors’ interest in cryptocurrencies has risen alongside the unprecedented monetary and fiscal policy response to the pandemic,” the report said.

Central bankers are increasingly interested in launching digital currencies. Research and development efforts are underway at 86% of the world’s central banks, according to the Bank of International Settlements.

Morgan Stanley said central banks have been spurred to action by the rapid growth of digital payments and threats to their control over money by private companies.

A central bank digital currency, known as a CBDC, would let people access central bank money digitally to hold and make payments.

The public can currently only hold central-bank issued money in the form of physical coins and notes, and largely uses electronic representations of cash held at banks or on prepaid cards to make payments digitally or online.

Morgan Stanley’s major report into CBDCs showed they would probably be quite different from cryptocurrencies, as they would not use a decentralized security system, or blockchain.

The European Central Bank has made similar arguments to Morgan Stanley, saying CBDCs have little to do with cryptocurrencies, which it sees as speculative assets and not actual currencies.

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