Crypto Industry Report #41
Balzers (LI), 23 July 2020
This week, our blockchain experts assessed the following headlines:
Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
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The Japanese government will include central bank digital currencies (CBDCs) in its official economic plan
It was announced that the Japanese government will include the consideration of a CBDC in the Honebuto Plan for Economic and Fiscal Revitalization. This plan is the basis for Japan’s economic and fiscal policy. It is mentioned that there is an important risk for the Japanese yen if most other countries launch CBDCs. The Japanese government wants to be ready with the upcoming launch of CBDCs in certain major countries like China.
Assessment
Apart from the interest of the Japanese government and the central bank in CBDCs, the Mitsubishi UFJ Financial Group, which is Japan’s largest financial entity is aiming to launch a stablecoin pegged to the Japanese yen before the end of 2020. Globally, the projects related to CBDCs and stablecoins seem to be accelerating ahead of the expected launch of Facebook’s Libra.
Japan is gradually becoming a leader in CBDCs. Both the government is establishing CBDCs as a priority and the central bank is beginning to test and research a potential digital yuan. It seems that Japan has identified the risk that those countries which are slow may encounter certain isolation and issues if most of the major central banks launch digital currencies.
Nevertheless, the central bank of Japan is collaborating with other countries. As previously announced, a partnership was created by the central bank of Japan with the central banks of Switzerland, Sweden, Canada, Britain, the European Central Bank and the Bank for International Settlements (BIS). However, to launch a digital yen the Japanese government would need to take the decision, therefore it seems that the central bank would not be able to directly launch a CBDC.
Another important development is the sudden change of attitude of the Japanese central bank. In contrast to the current interest, in 2019 the central bank of Japan claimed that there was no plan to launch a digital yen. Japan seems to think that there is a major risk that China could launch soon a digital yuan and then the US will also need to accelerate the launch of the digital dollar to ensure it stays as the world’s reserve currency.
While many countries are researching CBDCs there are three key events that would likely accelerate the issuance of CBDCs. Firstly, if either China or the US announce an upcoming launch of a digital dollar or yuan, then central banks globally may make launching their own CBDCs a major priority. In addition, if the Libra stablecoin is allowed to launch by regulators then this might also accelerate the developments of CBDCs.
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Blockchain payments project in Singapore ready for commercial rollout
As announced last week, authorities in Singapore informed that a blockchain network for payments has been developed and it will soon be ready for a commercial rollout. According to the announcement, this is related to the Project Ubin and the Monetary Authority of Singapore (MAS) partnered with Temasek and JP Morgan for this payment network project.
Assessment
Singapore seems to be among the leading countries in the blockchain industry. In addition, Temasek which is a large sovereign wealth fund in the country joined recently Facebook’s Libra Association. These developments seem to indicate that while in the European continent Switzerland is becoming the main blockchain hub, in Asia Singapore is taking also a leadership role.
Swiss-based Sygnum crypto bank obtained banking licences in both Switzerland and Singapore, indicating their preference in Asia for Singapore. The participation of Temasek in the Libra Association is significant since while previously US regulators warned other members such as Visa or Mastercard, it may be challenging to influence an entity such as Temasek.
The blockchain payments network developed is expected to provide several advantages such as more efficient and lower costs international settlements. In addition, the payments network is expected to support different currencies in cross-border transactions, settlement of securities or foreign currency exchange. According to the announcement, it seems that certain technical parts of the project will be made public to that the industry could grow faster.
Previously, the blockchain industry was developing in certain hubs like the Crypto valley for example. However, currently there is a growing number of governments, central banks, regulators or large corporation researching and following in detail all developments related to crypto and blockchain.
It seems that while previously certain major blockchain projects were unable to launch or achieve the desired results due to some limitations of the blockchain technology, it is likely that these issues could finally be solved this year. For example, thanks to interoperability, private and public blockchains will be able to interact and exchange not only tokens but other complex functions such as activating a smart contract in a different application-specific blockchain, thus enabling a significantly larger amount of use cases.
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The Bank of Thailand will test the digital baht with Hong Kong’s central bank
According to an announcement, following a pilot with a major corporation, the Bank of Thailand is planning now to test the digital baht with the central bank of Hong Kong from September. In addition, the assistant governor of the Bank of Thailand confirmed that there are plans to expand the use of the digital baht among major businesses. The digital baht is backed by the Bank of Thailand reserves and the advantages of the CBDC include lower costs but there was a risk identified related to how the project may impact the commercial banking sector.
Assessment
While a few years ago the main use case and focus of blockchain was around token sales, it seems clear that now stablecoins and CBDCs have become a main focus. The implications of this are significant since the integration of CBDCs and private stablecoins such as Libra are likely to have enormous implications in the global economy as well as the society.
Given the role of central banks and their impact on international financial markets and national economies, the launch of CBDCs are likely to get the interest and attention of governments and they may become a frequent topic of discussion and analysis. This would be positive for the blockchain industry and it would bring further trust which might then encourage major businesses or investors to enter the sector.
Apart from Thailand, other countries in Asia like Japan, Singapore and notably China are also advanced regarding their own CBDCs. Given all these developments, it seems probable that the first official CBDC could be launched in the near future.
Previous technological breakthroughs such as Google, Amazon or Facebook, had a major impact on the way the general public communicate, relate with others, search information or share content. However, the current blockchain breakthrough seems to be of a much larger magnitude since its impact is reaching the way central banks function. Moreover, as the technology progresses it might even disrupt governments by creating a more decentralised form of governance.
In addition, China seems to be progressing also with the digital yuan. According to certain sources described by Bloomberg it is expected that the digital yuan will be tested within a food delivery platform with over 435 million users. Moreover, it was announced previously that the digital yuan is being tested as well in four Chinese cities: Shenzhen, Chengdu, Suzhou and Xiongan.
It seems that each country is developing internally CBDCs and some of them may be much more advanced than it is known. While certain central banks are collaborating and sharing information, other countries may prefer a more private approach in order to gain a competitive advantage from other countries. In particular, if China launches first a CBDC and the US is slower, there might be a certain risk to maintain the US dollar as the world’s reserve currency.
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Bank of England’s Governor confirms that a CBDC can be expected in a few years
Andrew Bailey, the governor of the Bank of England, claimed publicly last week as reported by Bloomberg that CBDCs are a major issue and that in a few years the direction will be towards a digital currency. The Bank of England is part of a group of several central banks that are collaborating and sharing information related to CBDCs. Bailey said that CBDCs could have huge implications for payments and society.
Assessment
Bailey mentioned that research is being done related to CBDCs given the major implications and although he did not confirm any potential dates for launching a CBDC, he said that within a few years it could be possible. While so far no CBDC has been launched, it seems that almost all central banks are researching the topic in detail.
The Bank for International Settlements (BIS) recently claimed that the developments related to CBDCs were not a response to Facebook’s Libra. However, before the announcement of Libra the BIS seemed not to take CBDCs as seriously and after the announcement. In fact, after Libra was announced, the work and research about CBDCs has been accelerating.
Since Facebook has a user base of billions and in addition major corporations have joined the Libra Association, central banks might have considered that this could have significant implications if CBDCs were not also developed.
As the UK was not part of the Eurozone, they had more independence to launch their own CBDC. However, following the Brexit it seems that they have further independence similar to other countries like Sweden. In the case of Eurozone countries, regardless of their national efforts and testing, the European Central Bank (ECB) would need to decide regarding the launch of a digital euro. Therefore, it seems possible that launching a digital euro might take more time than the e-krona in Sweden for example.
The fact that central bank governors are frequently discussing about CBDCs and blockchain is positive to show an important use case for the blockchain technology. Similarly, the interest of companies such as Facebook on the technology shows that there is indeed value beyond speculation.
Considering all these developments, the impact of this new technology in the global society and economy in the next few years might be significantly larger than what it is expected or anticipated. It is challenging to make predictions but if the growth becomes exponential then those central banks that start early and are well-prepared could become leaders in the future.
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PayPal selects partner to supply crypto for new upcoming service
As mentioned last week, several well-informed sources told the media that PayPal has chosen Paxos for the handling of the digital assets supply for the new upcoming service. Moreover, the sources also said that within a week it could be expected that the partnership may be formally announced.
Assessment
Previously this year, PayPal participated in a European Commission public consultation focused on a framework for crypto markets in the EU. According to the information provided by PayPal, it seems that extensive research and resources are being targeted to crypto assets and related services.
For example, PayPal claimed that a continuous global monitoring of crypto and blockchain was ongoing. Recently, the acceleration of CBDCs or Facebook’s Libra is likely to be bringing the attention of other major corporations, in particular those related to payments, fintech and other innovative sectors.
Further evidence of PayPal’s involvement in the crypto industry are several job openings which have a clear focus on blockchain and crypto engineering and related skills. An increasing number of companies are looking for blockchain talents, however since currently there are not many established degrees or courses focused on blockchain and crypto, there might be a shortage of talents in the near future which could lead to important competiton to attract top blockchain talent.
Initially, PayPal was part of the original members of the Libra Association. However, it seems that due to the pressure from regulators and also the preference to develop their own services, PayPal left the association and it seems that their crypto services might be announced soon.
Since PayPal is well-known and integrated with a significant number of services and partners, if the official announcement is done, then this would likely increase the awareness of crypto globally for all PayPal clients and users. In particular, CBDCs could have major implications so large payment companies are likely to be building tools and services also anticipating new developments such as CBDCs.
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Crypto Market Update
The overall crypto market capitalisation remained stable last week ranging from $275 billion to around $272 billion. Similarly, bitcoin’s volatility was significantly low with the price remaining close to $9.2k. Nevertheless, the bitcoin mining difficulty reached a new record last week which is positive indicating further security and integrity of the data for the network, following the halving event last May.
Regarding ethereum’s price, it decreased slightly from around $244 to $238. However, both the bitcoin and ethereum prices remain above the 200-day simple moving average (SMA).
Traditional markets are showing a recovery with the Cboe VIX index decreasing close to 26 and major indexes such as the S&P 500 increasing.
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Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
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