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China to expand digital yuan testing – Industry roundup: 2 February

China to extend its digital yuan trial

China plans to expand the pilot testing of its central bank digital currency (CBDC). A digital yuan (e-CNY) is already being trialled in 17 provinces, which includes 26 major cities and 5.6 million merchants.

An update released by the People’s Bank of China (PBoC) indicates that the bank plans to continue expanding the programme to allow for additional testing and exploration of the potential applications of an e-CNY across the country.

The stated goal of the PBoC is to “continue to carry out innovative applications of digital yuan to realise the interconnection between the digital yuan system and traditional electronic payment tools.”

Ultimately, PBoC wants to develop a system where users can “scan with one code” while merchants can support as many types of transactions as possible while minimising the increase in costs to customers.

As part of the drive to increase adoption, the central bank has hosted 30 “red envelope activities” in pilot areas where citizens are airdropped small amounts of the e-CNY that can be used to make online and offline purchases. The PBoC plans to continue hosting such events to promote the digital yuan and encourage its use.

Authorities in the Hainan province posted a public notice last week in which they vowed to increase their oversight of non-fungible tokens (NFTs) due to the inherent risks of fraud, money laundering and illegal fundraising that the sector poses.

The memo, released by the Hainan market regulator and nine other agencies, called on the relevant city and county departments to “increase their supervision of the digital collection industry and guide market entities to operate legally and in full compliance.” This will help local authorities monitor and prevent financial risks related to digital collectible trading platforms in their respective regions.

Measures recommended to help mitigate the risks of digital collectibles include regulating market access and administrative licencing management, eliminating false propaganda, investigating and adjudicating incidents of consumer fraud, the comprehensive prevention of copyright infringement and ideological security risks, supporting data security, preventing financial risks, and strengthening public education.

According to the notice, digital collectible firms are required to register with relevant authorities or conduct a review and approval process that assesses their artwork and internet and blockchain information management rules.

The stated goal in helping to guide the growth of the NFT industry in Hainan is to empower its tourism and culture sectors as the region develops its free trade port, which was originally announced by the State Council of China in 2018. Ultimately, China hopes to turn the region into a free-trade zone, making it a commercial gateway to the Pacific and Indian Oceans.

UK issues plans to regulate crypto activity

The UK government has issued proposals to regulate the cryptocurrency industry, seeking to rein in the reckless business practices that emerged last year and contributed to the demise of FTX.

In its widely anticipated industry consultation, the government proposed several measures aimed at bringing regulation of crypto asset businesses in line with that of traditional financial firms. Among them are tougherr rules targeting financial intermediaries and custodians that store crypto on behalf of clients.

A major theme to emerge in 2022 was the rise of risky loans made between multiple crypto firms and a lack of due diligence done on the counterparties involved in the transactions.

The UK proposals would crack down on such activities, seeking to establish a “robust world-first regime strengthening rules around the lending of cryptoassets, whilst enhancing consumer protection and the operational resilience of firms,” according to a government statement.

“We remain steadfast in our commitment to grow the economy and enable technological change and innovation — and this includes cryptoasset technology,” said Andrew Griffith, economic secretary to the Treasury.

“But we must also protect consumers who are embracing this new technology — ensuring robust, transparent, and fair standards.”

FTX’s collapse has added urgency to global regulators’ attempts to govern the regulation-averse crypto space. The European Union and the US have already issued their own proposals for improving consumer protections in crypto. In a 2 December speech, Griffith said that “recent events in the crypto market reinforce the case for timely, clear and effective regulation.”

The implosion of FTX, which allegedly used customer money to make risky loans and trades, triggered a series of bankruptcies for digital asset lending firms with exposure to the crypto giant, including BlockFi and Digital Currency Group’s Genesis lending arm.

The UK proposals unveiled Tuesday would also enforce tougher transparency requirements on crypto exchanges to ensure they publish relevant disclosure documents and set out clear admission requirements for trading digital tokens.

Bradley Duke, co-CEO of distribution and logistics group ETC commented: “If the government is indeed serious about making the UK a global crypto hub, then bringing certain cryptoasset activities into the fold of mainstream financial services regulation is exactly the right place to start.

“A company operating in crypto and behaving like a bank or a broker, should naturally be regulated to help boost investor confidence in the sector. As always, any regulation should be sensible and measured - we don’t want to kill the incredible innovation that comes with crypto – but we do want to see regulatory oversight in areas that matter, including segregation of assets and capital adequacy rules.”

Gmail creator expects ChatGPT to displace Google

Gmail’s creator Paul Buccheit has been sharing his opinion on the artificial intelligence (AI) bot ChatGPT, created by Open AI, via Twitter and believes that it may swiftly replace search engine giant Google.

Buccheit said that Google may be destroyed by the new AI bot within two years. The most profitable application of Google, Search can soon get replaced by the tool of Open AI, he stated. ChatGPT was able to attract more than one million users within a week of its launch in November 2022,.

Early users have praised the AI tool for its ability to compose complex essays, jokes, poems marketing pitches and even for clearing the toughest exams.

Buccheit sees ChatGPT replacing the search engines in the same way that Google displaced the information diary Yellow Pages. “Google may be only a year or two away from total disruption,” he wrote in a series of tweets. “AI will eliminate the Search Engine Result Page, which is where they make most of their money. Even if they catch up on AI, they can't fully deploy it without destroying the most valuable part of their business.

“The way I imagine this happening is that the URL/Search bar of the browser gets replaced with AI that autocompletes my thought/question as I type it while also providing the best answer (which may be a link to a website or product).”

Separately, OpenAI has announced that it is launching a pilot subscription plan for the ChatGPT Plus AI-powered chatbot priced at US$20 per month.

Bank of England and European Central Bank confirm 0.50% rate hikes

The Bank of England  has increased the UK benchmark interest rate by 50 basis points (bps), from 3.5% to 4% as it tries to bring UK inflation down from its current rate of 10.5%. It was the 10th successive rise and brings the rate to its highest since October 2008 when the BoE began reducing rates in response to the global financial crisis.

Two members of the nine-strong monetary policy committee (MPC), who both voted for no increase at last month’s meeting, were again in favour of maintaining the previous rate. Howeverr, the minutes of the latest meeting show that most MPC members were concerned that wages and prices in the UK could keep climbing even as inflationary pressures ebbed.

The BoE wants to avoid pushing the British economy into a recession by raising borrowing costs but its mandate is to keep inflation at around 2%.

The International Monetary Fund (IMF) predicted this week that the UK will fall into recession this year due to a combination of high energy prices, rising mortgage costs and increased taxes, as well as labour shortages.

As anticipated, the European Central Bank (ECB) has matched the BoE’s 50 bps hike, taking its own key rate from 2% to 2.5% after figures showed core inflation in the eurozone remained at an all-time high of 5.2% in December. In a statement, it pledged to “stay the course in raising interest rates significantly at a steady pace” and, in unusually firm language, said it intends to hike by a furtther 50bps to 3% in March.

Both the BoE and ECB are now hiking rates morer aggressively than the US Federal Reserve, which yesterday announced a 25 bps rise in its benchmark interest rate to a range of 4.5% to 4.75%, the smallest increase since March 2022.

Economists said the US Fed was able to slow the rapid interest rate rise this month because recent figures showed American workers’ wages are not rising less rapidly than originally feared, while consumer spending has moderated and manufacturing output has weakened.

Austria’s RBI earns growing share of profit from Russia

Austria’s Raiffeisen Bank International, (RBI) one of the European banks most exposed to Russia, revealed that it earned more than half of its profit last year from Russia, a market it is considering exiting after the invasion of Ukraine.

That is a larger share than in 2021, when Russia contributed almost a third to the group's net profit. The division has been helped by a stronger rouble.

Profit from Russia was €2.058 billion (US$2.24 billion), while profit at the group was €3.797 billion, figures published by the bank showed.

RBI has been studying strategic options for the business, including a possible withdrawal, following Russia's invasion of Ukraine in February 2022, which Moscow calls a "special operation". RBI has warned that its effort may take some time.

“There are expressions of interest” for the Russia operations, CEO Johann Strobl told reporters at a news conference, adding that he was not able to elaborate. “We are still in the analysis phase,” he said.

RBI has operated in Russia since the collapse of the Soviet Union in the early 1990s and is Russia's 10th-largest bank by assets. While its Russian business has contributed heavily to the group's profit, due to sanctions what it earns in Russia stays with its subsidiary there.

The number of employees in the country rose last year by 2.3% to 9,537 people, although the number of customers dropped 27% to 3.2 million.

In Ukraine, where it also operates, RBI has been criticised for granting loan deferrals to Russian soldiers.

RBI has argued that it was legally obliged to do so, as are all Russian banks, and the Ukrainian subsidiary complies with all European Union legal requirements that recognise Ukraine's territorial, political and economic integrity.

"Of course it's a moral issue, there's no question about that at all," said Heinrich Schaller, head of Raiffeisenlandesbank Oberoesterreich, an RBI shareholder.

FV Bank launches cross-border payments service

FV Bank, the US licenced global digital bank announced the launch of its cross-border foreign exchange (FX) payments service allowing customers to send payments to over 150 countries in seven different currencies.

The new service, available to both US and international account holders, allows users to send payments in euros (EUR), pounds (GBP), Canadian dollars (CAD), Hong Kong dollars (HKD), Singapore dollars (SGD), South African rand (ZAR) and yen (JPY). FV Bank promises competitive foreign exchange rates and secure, low-cost payments for both businesses and individuals.

“Our customers will benefit from increased efficiencies, convenience and cost-savings when it comes to executing international transactions,” said FV Bank CEO, Miles Paschini. “FV Bank continues to provide pivotal infrastructure to the marketplace, offering market-leading banking services while accelerating digital asset adoption globally through our integrated custody and settlement solutions.”

The service also opens up avenues for the company’s clients operating in the digital asset industry. Customers will receive USD Coin (USDC) directly into their FV Bank accounts and have it immediately converted into US dollars (USD) upon deposit. They will then be able to send foreign currency cross-border payments in the currently supported seven currencies via the FV Bank platform or API. The service is designed to streamline international payroll payments, corporate expenses and payment service provider (PSP) conversions.

The launch follows FV Bank’s recent roll-out of a digital asset custody and settlement solution, becoming the first US regulated depository and custodial bank to develop an in-house vertically integrated technology infrastructure that enables the seamless interoperability and safeguarding of both digital asset and fiat deposits.

Majority of institutional traders are crypto-sceptical this year, says JPMorgan

More than seven in 10 institutional e-traders says they have “no plans to trade crypto/digital coins” in 2023, according to a new survey conducted by JPMorgan.

The seventh edition of JPMorgan’s e-Trading Edit surveyed 835 traders from 60 different global locations about the technical developments and macroeconomic factors that will influence trading performance this year.

The survey revealed hesitation among traders around digital assets. Against the 72% who plan to steer clear, only 14% of respondents said they would either continue to trade in the digital asset market or begin trading in 2023. The remaining 14% of respondents said they didn’t plan on investing this year but may do so within the next five years.

In addition, 92% of institutional traders surveyed by JPMorgan said they had no exposure to the digital asset market in their investment portfolio at the time of the survey, which was conducted from 3 to 23 January.

This could be due to the fact that nearly half of the respondents cited volatile markets as the biggest challenge to perform well on a day-to-day basis. Last year’s quantitative tightening measures imposed by the US Federal Reserve may also have been a factor, with 22% citing liquidity availability concerns as the most influential factor impeding trading performance.

In another JPMorgan poll, 30% of respondents cited recession risk as the most influential macroeconomic factor to be alert for, while 26% believe inflation will most influence trading outcomes.

JPMorgan head Jamie Dimon has regularly expressed disdain for Bitcoin and other cryptocurrencies, although he distinguishes between them and the underlying blockchain technology, for which he has shown enthusiasm.

TransUnion makes strategic investment in open banking provider Bud

London-based open banking provider Bud has secured the backing of US credit bureau TransUnion, which has agreed to make a “strategic investment” in the business.

Financial details of the investment were not disclosed, which follows Bud’s US$80 million fund raising last June from investment funds managed by TDR Capital to enable it to grow internationally.

“TransUnion is committed to increasing financial inclusion by continuing to expand the information available to create an accurate and reliable picture of each consumer,” said Satrajit “Satty” Saha, TransUnion’s UK CEO.

Saha said the investment would help TransUnion to expand its open banking offering and “jointly develop the next generation of credit, affordability and fraud solutions”.

“This strategic investment marks the start of an exciting new partnership with Bud, combining our global infrastructure and insights expertise with Bud’s end-to-end Open Banking platform.”

Over several Bud has attracted several financial heavyweights as backers, including Australian banking group ANZ, Spain’s Banco Sabadell, US investment bank Goldman Sachs, and UK multinational bank HSBC.

Commenting on Bud’s latest backer Edward Maslaveckas, Bud’s CEO and co-founder, said: “By partnering with TransUnion, we’re able to combine advanced data intelligence capability with TransUnion’s expertise in financial services.

“This will drive improved return on investment for all of our customers, by connecting more people, through the banks they trust, to financial products that make their lives better.”

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