Blockchain, which we know as a technology that provides distributed ledger functions and was seen as a solution for everything that requires a contract, was systematically limited to cryptocurrency, a word that has come to mean anything technology can do on the world wide web. the dark web.
Today, the world seems to be moving away from the cryptocurrency used for money laundering to a Crypto 2.0 that will help strong anti-money laundering rules. Experts are increasingly of the opinion that blockchain and crypto can potentially create a fairer and more inclusive financial system, these must be built in cooperation with banks and linked to a sovereign currency.
Given this background, let’s examine some of the changes at the policy level that took place over the past twelve months around the world. Of course, the effort here is to bring out the changes and not elaborate on them or even analyze the pros and cons, which we believe can be set aside for another post in the not-too-distant future.
Europe’s DLTR law
The EU Parliament adopted a regulation on 30 May 2022 to establish and regulate a temporary pilot for marketing infrastructures operating on distributed ledger technology (DLT). It forms part of the EU’s digital finance package, which includes two further pieces of legislation – Market in Crypto-Assets Regulation and Digital Operational Resilience for Financial Sector Regulation. These are likely to follow soon.
The first of these pieces of legislation establishes a regulatory framework that allows DLT testing as well as the development of cryptoassets through tokenization. These instruments currently fall outside the EU’s existing laws on financial services. The new law addresses issues such as investor protection, market integrity, energy consumption and financial stability.
Stablecoin and the unstable reactions
President Biden issued an executive order on March 9, 2022 to ensure the responsible development of digital assets, containing policy goals related and directing agencies and other branches of the executive branch to act in concert to develop a coordinated government approach to meet those goals .
Its purpose was to reign in Stablecoins, which had a market value of $127 billion as of October 2021. The US Congress came together to ensure that Stablecoin was brought under federal law, and on April 6, a discussion draft of a law was released. , with the aim of establishing a set of regulations for its issuers.
The bill exempts stablecoins from the definition of “securities” and provides a framework with three licensing options, namely (a) money transfer business (b) limited payment national stablecoin issuer and (c) insured depository institution. Pursuant to previous executive orders, the Fed will also continue its CBDC research against a Treasury-led interagency task force.
Singapore is taking the plunge
On 15 September 2022, the Monetary Authority of Singapore (MAS) launched the Financial Services Industry Transformation Map 2025 which provides a framework of strategies to develop the country as a leading global financial center through improved payment connectivity to build a responsible digital asset ecosystem.
It also laid out clear strategies for exploring DLT in use cases such as cross-border payments, trade finance and capital markets, in addition to supporting tokenization of financial assets. The policy supports a central bank digital currency (CBDC) and public-private collaboration to develop the infrastructure required to deliver such a currency.
However, the first of the blocks in 2022 was the Securities and Futures Commission of Hong Kong issuing a joint circular with the HK Monetary Authority on intermediaries that can carry out virtual asset-related activities. According to the statement, intermediaries distributing virtual assets must comply with the SFC’s requirements for the sale of the products.
India is setting the ball rolling with its CBDC
RBI launched its first retail CBDC pilot on December 1, 2022 with eight banks in tow. The pilot would cover 13 cities and follows the RBI’s pilot of the wholesale Digital Rupee that started a month earlier for government bond trading. The wholesale pilot will later be expanded to cover more use cases, including money market instruments.
RBI Deputy Governor T Rabi Sankar is confident that if there is something that a private crypto can do, the government will be able to create a product that can do it without the associated risks and in a safer format in fiat money backed by government and issued by the central bank. This is essentially what we are doing with the CBDC experiments, he says.
