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The Bank of Japan (BoJ) has highlighted its commitment to closely collaborate with the private sector on its Central Bank Digital Currency (CBDC) pilot program. (Read more about Central Bank Digital Currencies (CBDCs here). This development is part of the global trend of central banks, such as the BoJ, investigating the potential benefits of the rapidly expanding digital assets sector. The consensus among these banks is that digital assets should not be prohibited but instead regulated for secure growth.
As part of an international race to challenge the U.S. dollar’s status as the global reserve currency, several countries, including China, are deploying their own CBDCs. Japan, under Prime Minister Fumio Kishida, has been exploring ways to launch a digital Yen via the BoJ. This initiative has led to several successful Proof of Concept (PoC) stages run by the bank’s Payment and Settlement Systems Department. These phases examined the processing performance and technical feasibility of different designs for a CBDC ledger system and explored potential use cases for the digital yen.
The BoJ has now announced a pilot program for its digital yen, intended to test the entire process flow and highlight potential challenges related to external system integration. This program will involve the participation of private businesses. The BoJ has also expressed plans to establish a CBDC forum to encourage institutional arrangements for CBDC and draw upon private business insights related to retail payments. The bank anticipates that it may launch a functional CBDC as early as 2026. Read more here.
As covered in previous articles, more and more governments around the world are looking to embrace Central Bank Digital Currencies (CBDCs). Cryptocurrencies like Zucoins are aimed to offer complementary solutions. Zucoins, with global accessibility, could be well suited for international transactions, whereas CBDCs might prove ideal for domestic transactions due to their higher per-region regulatory safeguards and price conversion stability.
Some have considered that CBDCs may replace current crypto stablecoins like Circle’s USDC and Tether’s USDT, potentially becoming a better suited regional on-ramp to the world of crypto.
The inception of CBDCs could foster further digital first-literacy and increase the general-public’s acceptance of digital currencies and assets.
With Hong Kong set to open its retail sector to licensed Virtual Asset Service Providers (VASPs) on 1 June 2023, numerous cryptocurrency firms are keen to gain entry into the market. The Hong Kong Securities and Futures Commission (SFC) has stated that VASPs compliant with its security standards, safe asset custody, and other guidelines can apply for a license.
Crypto firms CoinEx and Huobi are among those vying for licenses. CoinEx plans to launch a local platform, BitHK, intending to offer secure and reliable crypto trading services to Hong Kong users. The firm will submit its VASP license application on June 1. Meanwhile, Huobi HK has already submitted its application notice to the SFC and plans to work with independent auditors to ensure compliance with the commission’s requirements over the next six months.
Other crypto companies, including BitMEX and Gate.io, launched their virtual asset trading platforms in Hong Kong last week. The SFC has reassured that it will protect retail investors by implementing measures such as stability assessments at the onboarding phase and ensuring effective governance.
The Hong Kong Licensed Virtual Assets Association (HKLVAA) and Web3 Harbour also announced their launches on May 29. Web3 Harbour’s founding chair, Gary Liu, stated that their shared principles would establish Hong Kong as a leading hub for Web3 innovation and virtual assets globally. Read more here.
Rick Rieder, a top strategist at BlackRock, the world’s largest asset manager, has indicated that the US dollar’s position as the world reserve currency is weakening. Other currencies, including cryptocurrencies and the Chinese yuan, are starting to challenge its dominance. Rieder, who manages more than $2.4 trillion in BlackRock’s Global Fixed Income sector, made his remarks in a recent interview with Semafor Business.
He pointed to recent geopolitical events, such as US sanctions on Russia, as factors that might drive investors to diversify away from the US dollar. He noted that if the US were ever to default on its debt, it would damage the dollar and US bonds significantly.
Rieder also commented on the impact of the US’s previous long-term period of near-zero interest rates, saying that they have created artificial prices for many assets and a readjustment is now necessary. He expects interest rates to decrease next year, but not to the extreme lows seen over the past decade. This, Rieder suggests, could cause quick readjustments in several financial markets, including leveraged loans and commercial real estate. Read more here.
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