The global race towards central bank digital currencies (CBDCs) is gaining momentum, according to a recent survey by the Bank for International Settlements (BIS). A staggering 94% of central banks surveyed are actively exploring the development of CBDCs, a significant increase from the 90% reported in a 2021 survey.
While countries like China, Nigeria, and the Bahamas have already launched their own CBDCs, the majority are still in the exploratory phase. The BIS survey highlights various design features under consideration for retail CBDCs, including transaction limits, interoperability with existing payment systems, offline functionality, and zero remuneration (no interest payments).
Another noteworthy finding is the limited use of stablecoins, cryptocurrencies pegged to assets like the dollar or gold, for payments outside the crypto ecosystem. This indicates that while stablecoins are gaining traction within the crypto world, they have yet to make significant inroads into mainstream payment systems.
Taiwan's cryptocurrency sector has reached an important milestone with the formal establishment of the Taiwan Virtual Asset Service Provider Association (VASPA). 24 cryptocurrency-related entities came together to form the association, marking a new era of collaboration and self-regulation within the industry.
VASPA's primary goal is to act as a bridge between the private sector and the government, fostering cooperation in supervising the rapidly evolving crypto landscape. The association's first order of business is to develop a comprehensive self-regulation code that addresses key aspects of the industry, including classification, listing and delisting procedures, consumer protection measures, risk management protocols, transaction monitoring, and advertising guidelines.
With the approval of Taiwan's Interior Ministry in March 2024, the association was formally inaugurated with a founding meeting, appointing BitoPro founder and CEO Titan Cheng as chair and XREX Chief Revenue Officer Winston Hsiao as vice chair.
After the FTX scandal Taiwan engaged in a proactive approach to regulating the crypto sector, shifting from its previous laissez-faire to the current and more regulated mindset. The formation of VASPA signifies a concerted effort by industry stakeholders to establish a framework for responsible growth and innovation within Taiwan's cryptocurrency ecosystem.
The Bank for International Settlements (BIS) and the Bank of Canada have joined forces to establish a new innovation hub in Toronto. This collaborative effort aims to drive the development of cutting-edge technologies that will enhance the financial system's efficiency and inclusivity in Canada, Latin America, and the Caribbean.
The Toronto hub will concentrate on three key areas: open finance, regulatory and supervisory innovation, and next-generation financial market infrastructures. These focus areas align with the broader goals of the BIS Innovation Hub, which also prioritizes central bank digital currencies (CBDCs), green finance, and cybersecurity.
The BIS has a strong track record in exploring innovative financial solutions, including CBDCs and asset tokenization. The organization's work program for 2024 includes ongoing research into CBDC privacy and the launch of a blockchain-based tokenization project. Additionally, the BIS is collaborating with several other central banks on Project Agora, an initiative focused on asset tokenization in the financial system and private institutions.
But it's not all good news in the crypto regulation week. FlowBank, an online Swiss bank known for its crypto trading services, has been shut down and declared bankrupt by the Swiss financial regulator, FINMA.
The regulator found that the bank had seriously violated capital requirements and was no longer financially viable.
FINMA's investigation revealed multiple compliance failures, including inadequate due diligence on high-risk business relationships and large transactions. Despite being placed on a watchlist and subjected to increased scrutiny, FlowBank was unable to rectify these issues, ultimately leading to the revocation of its banking license.
The closure of FlowBank highlights the challenges faced by crypto-friendly banks in navigating the regulatory landscape. The bank, launched in 2020, had established partnerships with notable players in the crypto industry, including TrueUSD stablecoin issuer Techteryx and crypto asset manager CoinShares. It reportedly also provided banking services to Binance, the world's largest crypto exchange.
While customers with deposits up to 100,000 Swiss francs will be prioritised for reimbursement, the bankruptcy proceedings will likely be complex due to the bank's substantial assets and numerous client accounts. This incident serves as a cautionary tale for the crypto banking sector, emphasizing the importance of robust risk management and regulatory compliance to ensure long-term sustainability.
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