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Industry roundup: 28 March

Massachusetts Institute of Technology collaborates with Bank of England on central bank digital currency

The Bank of England (BoE) and the Massachusetts Institute of Technology (MIT) agreed to collaborate on a 12-month research project to review the potential of a digital pound or central bank digital currency (CBDC). The BoE is partnering with MIT’s Media Lab Digital Currency Initiative (DCI) team to investigate potential technical challenges, trade-offs, opportunities and risks associated with the development of a CBDC system.

According to the press release, the collaboration is part of the BoE’s broader CBDC research, exploration and testing on potential technology approaches. In addition, the BoE expressed that this work focuses on exploratory technology research and is not intended to develop an operational CBDC. It has not yet been decided whether to launch the CBDC in the UK, a major national infrastructure project. The BoE expects to provide the findings and up-to-date information about the findings at the end of the research study period.

Israeli Bank works with Paxos to accept BTC and ETH transactions

Recent developments in digital finance have become important, representing a paradigm shift in the global financial sector's attitude towards digital assets. Bank Leumi, one of Israel's largest lenders, has reported they will accept Bitcoin (BTC) and Ethereum (ETH) transactions pending regulatory approval, but no start date has been determined. According to a Reuters report, Leumi's digital platform, Pepper Invest, has partnered with blockchain infrastructure provider Paxos to launch crypto trading. Pepper Invest should apparently enable clients to buy, sell and retain cryptocurrencies with the new service.

The report stated that only BTC and ETH will be supported before adding other crypto assets, and the minimum transaction value for cryptocurrencies is set at around US$ 15.50 (50 shekels). The guidelines of the Israeli Tax Department highlighted that Pepper will collect taxes, eliminating the need for customers to manage complex taxes.

Banks in many countries were previously reluctant to accept BTC and other cryptocurrencies, but this has transformed as demand from businesses and consumers has increased. Regulators have also moved their attention from a total ban to the development of a regulatory framework.

Decentralized finance poses new risks to investors

According to Reuters, decentralized finance (DeFi), a fast-growing industry, poses new risks to investors as it evolves to reflect traditional markets. The report explained that DeFi platforms enable users to lend, borrow and save digital assets such as cryptocurrencies, bypassing traditional banks and exchanges. Additionally, it is said to enable consumers and businesses that have difficulty accessing credit and other products. During the pandemic, DeFi sites became popular as reduced interest rates urged investors to seek yields.

The International Organization of Securities Commissions (IOSCO), comprised of securities regulators from Africa, the Middle East, South, Central, and North America, Europe, and the Asia-Pacific region, indicated that most DeFi services replicate more traditional financial services and activities, but with weaker regulations and increased investor risk. Some of the risks associated with DeFi include the lack of products and system disclosures, irregular reliability of DeFi sites, and potential large-scale operational issues. IOSCO further commented that “DeFi sites claim to be decentralized with no single entity exerting control but investors and venture capitalists typically have a strong say on governance or retain ultimate control”, and there may be conflicts of interest with centralized trading platforms offering DeFi services such as trading, lending and borrowing.

As data stated in the DeFi Pulse, the value of crypto on the DeFi platform exceeded a record US $111 billion in November 2021, reflecting Bitcoin's record highs, and is currently approximately $80 billion. Like crypto, DeFi regulations are still sporadic, but the sector continues to grow. Reports have also shown DeFi has been used for fraud and other crimes. The Financial Stability Board, the G20 economic risk watcher, stated last month that without regulation and oversight, DeFi could pose a risk to financial stability.

IMF states US dollar’s global position as a major reserve currency is losing its position against the yuan and others

According to a new report from the International Monetary Fund (IMF), the US dollar's share of international reserves has declined over the last two decades as central banks seek to diversify their holdings into the yuan and other currencies. However, the weakening of the dollar's dominance may be attributed to the movements of central banks in other countries, not to the consequences of exchange rate and interest rate fluctuations.

The IMF explained that the dollar has been steadily levelling off as reserve managers move primarily in two alternative directions, yuan or non-traditional currencies. The report further added that the development of the international reserve system over the last two decades has shown a movement away from the dollar, such as the recent modest growth in the role of the yuan, changes in market liquidity, and attractive non-traditional reserve currencies.

Economist Aleksandar Tomic stated that China is striving for more yuan adoption across Africa, and recent negotiations with Saudi Arabia over a yuan-based oil deal have motioned countries to consider at least a US dollar alternative or offset. Countries’ need for the US dollar exposes them to the US financial sector, resulting in political leverage for the United States. Tomic also said that China needs to demonstrate the long-term stability of the yuan to win the trust of other countries in order to boost the yuan and continue to increase its share of the world's reserve currencies.

Apple closes loophole for Apple Pay's Russian Mir card

Apple, US tech giant, terminated Apple Pay services for Russia's Mir card payment system, Russia's largest lender and payment system (initially released in Russia in 2016), closing a loophole that allowed Russians to continue using the service. Apple restricted the use of Apple Pay on March 1, subsequent to Russia’s decision to send troops to Ukraine on February 24, preventing Russian Mastercard and Visa cardholders from using its services. However, according to Russia's National Card Payment System (NSPK), Russia's native system, Mir, remained connected to Apple Pay until access was removed last Thursday.

Apple notified NSPK that it has suspended support for Mir cards in the Apple Pay payment services. After March 24th, users are not able to add new Mir cards to the service, and Apple will suspend all operations with previously added cards within the next few days. Sberbank, a major Russian lender, was notified by Apple of its decision to further restrict access to Apple Pay services, and further use of Mir cards in Apple Pay will not be available.

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By Carlta Vitzthum on 29th Mar 2022:

Please note that the members of the International Organization of Securities Commissions regulate more than 95% of the world´s securities markets. They come from Africa, the Middle East, South, Central, and North America, Europe, and the Asia-Pacific region. They are not just from the US.

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