Rep. Don Beyer is proposing a new bill to regulate digital assets and provide the Fed with clear authority to issue a digital dollar

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  • Representative Don Beyer of Virgina introduced a bill in the House that aims to create a widespread framework for regulating digital assets.
  • One proposal in the bill is to provide the Federal Reserve with explicit authority to issue a digital version of the US dollar.
  • The bill would also clarify which assets are securities and therefore under the jurisdiction of the SEC.
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Representative Don Beyer introduced a bill in the House on Thursday that aims to create a widespread framework for regulating digital assets.

Through the Digital Asset Market Structure and Investor Protection Act, Beyer is seeking to provide a regulatory environment that both protects consumers and promotes innovation within the sector, the Democratic Representative from Virginia said in a statement.

One proposal in the bill is to provide the Federal Reserve with explicit authority to issue a digital version of the US dollar. It would also clarify that digital assets and fiat-based stablecoins are not US legal tender while providing the Treasury Secretary with authority to permit or prohibit US dollar and other fiat-based stablecoins.

The bill would also create statutory definitions for digital assets and clarify which assets are securities and therefore under the jurisdiction of the SEC, and which assets are under the jurisdiction of the CFTC.

The uncertainty over the roles of the two government agencies is at the heart of one of the most high-profile cryptocurrency lawsuits by the SEC against Ripple. Ripple claims XRP is a commodity and therefore out of the SEC’s reach, while the regulator says Ripple ran an unregistered securities offering.

Through a joint SEC/CFTC rulemaking session, the bill provide legal certainty to the regulatory status for every digital asset in the top 90% of the market, measured by market capitalization and trading volume.

“Digital asset holders have been subjected to rampant fraud, theft, and market manipulation for years, yet Congress has hitherto ignored the entreaties of industry experts and federal regulators to create a comprehensive legal framework,” Beyer said. “Our laws are behind the times, and my bill would start the long overdue process of updating them to give digital asset holders and investors basic protections.”

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Central bank digital currencies could be necessary for digital innovation and competition, Bank of Canada says

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  • Central bank digital currencies may be needed to maintain digital competition, Bank of Canada says.
  • CBDC adoption would also boost innovation and increase welfare, the bank said in a research note.
  • Central banks in the US, the EU, China and elsewhere are researching or trialling CBDCs.
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Central bank digital currencies (CBDCs) could be necessary to ensure innovation and competition in digital economies, the Bank of Canada said in a research paper published on Tuesday.

As the economy becomes more and more digital, several issues have emerged that could be addressed through CBDCs. These include problems linked to competition in sectors like payment options, a resulting lack of innovation and development or exploration of new technologies, and an increased risk of market power abuse by large financial bodies as cash becomes less relevant in society.

Introducing a CBDC could address these issues in a more effective way than regulations and policies would, according to the Bank of Canada.

“In general, a CBDC as a basic outside option for payments could discipline the market,” the paper said. “Further, as a competition tool, a CBDC might be simpler than developing new competition policies in the complex and changing environment of big tech, and simpler than attempting enforcement via lengthy and uncertain legal battles,” it continued.

CBDCs could also make the use and further development of technologies like smart contracts and programmable money easier as their framework could be made available for public use and therefore create common ground for innovation.

Finally, CBDCs could also protect and even boost welfare levels, according to the Bank of Canada. The potential emergence of new markets and applications could increase welfare, while the added protection of consumers against market power abuses would prevent welfare from declining, the report said.

The Bank of Canada has not yet decided whether to pursue the development of a CBDC, and is currently in the process of researching and assessing its options.

The US is at a similar point in the process of potentially creating a digital dollar. Earlier this year, Federal Reserve Chair Jerome Powell said the central bank was still exploring the potential of a CBDC and would publish a report this summer. Last week, the European Central Bank also said it was launching a two-year exploration into a possible digital euro.

Elsewhere, CBDCs are at more advanced stages – China for example has started trialling the digital yuan in various cities and is now using the collected data to make adjustments. The country has also said that international visitors might be able to use the CBDC during the 2022 Winter Olympic games in Beijing.

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

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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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Bitcoin won’t replace the dollar because it’s too volatile, Fed’s Powell says

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  • Cryptocurrencies like bitcoin are too volatile to replace the dollar, Fed Chair Jerome Powell said Monday.
  • Bitcoin has surged in price as companies including Tesla and Square invest in the token.
  • The Fed is still exploring use cases for a digital currency issued by the central bank, Powell said.
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Federal Reserve Chair Jerome Powell said Monday that, while the central bank is still exploring the potential for a central bank digital currency, cryptocurrencies like bitcoin can’t serve as an effective replacement to the US dollar.

Bitcoin has enjoyed new fame over the past year as large companies’ adoption of cryptocurrencies has sent prices surging. Companies including Tesla, MicroStrategy, and Square have all invested in the token. Meanwhile, players in the financial sector are warming to cryptocurrencies’ use as an alternative asset.

The positive developments helped bitcoin surge as high as $61,742 earlier this month as more investors looked to profit on the token’s growing popularity.

Powell has his doubts about cryptocurrencies and their supposed use cases. The tokens might be a substitute for gold, but their wild price swings make them unfit to replace the dollar, the central bank chief said during a teleconference hosted by the Bank of International Settlements.

“Crypto assets are highly volatile – see bitcoin – and therefore not really useful as a store of value,” Powell said, according to MarketWatch. “They’re not backed by anything. They’re more of an asset for speculation.”

Bitcoin fell slightly through the day following Powell’s remarks. The cryptocurrency traded just above $57,000 as of 2:30 p.m. ET, up roughly 98% year-to-date.

While cryptocurrencies aren’t likely to gain the Fed’s favor, the central bank has considered creating a digital currency of its own. The Fed partnered with MIT researchers in August to build and test a central bank digital currency. Officials sought to gain a better understanding of digital currencies and their potential implementation through the tests, Fed Governor Lael Brainard said at the time. Still, the token included in the study was merely “hypothetical,” she added.

Powell reiterated that, though the bank is still studying the potential for a digital dollar, serious vetting is necessary before such a currency is implemented.

“To move forward on this, we would need buy-in from Congress, from the administration, from broad elements of the public, and we haven’t really begun the job of that public engagement,” the Fed chair said. “Because we’re the world’s principal reserve currency, we don’t need to rush this project. We don’t [need] to be first to market.”

Somewhere between a central bank digital currency and cryptocurrencies exist stable coins. These tokens counter the volatility seen with cryptocurrencies by tying their value to more stable assets like government-issued currencies.

Stable coins are “an improvement” over cryptocurrencies and “may have a role to play” in digitizing the dollar, but they’re unlikely to form the foundation for a global payment system, Powell said. Any candidate for a global currency controlled by a private company deserves “the highest level of regulatory expectations,” he added.

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