Moreover, and from a very different angle, recent research1 has shown that the adoption of cell phone payment technology in African countries that had previously had relatively poor banking penetration has resulted in the velocity of money declining, or at the very least failing to rise. Adopting digital currencies is not the same as jumping from checks to electronic payments, but we think that this experience offers, at the very least, circumstantial evidence that we should not expect the digital shift to increase the velocity of money.
What prospects do the next one to two years hold for CBDC and cryptocurrency regulation? According to CBDC tracker website,2 only a handful of countries, including China, Canada, France, South Africa, Nigeria, Ghana, Uruguay and UAE, have reached the piloting stage for a CBDC program. A few other countries, such as Sweden, South Korea, Turkey, Japan, Ukraine and Thailand, have advanced proof-of-concept projects.
Meanwhile, the US, the UK, Australia, India, Brazil and other countries are still only at the research stage. The Bahamas is currently the only country that has officially deployed a CBDC. Most nations don’t have a firm timeline for CBDC launch and adoption but, according to press statements by the European Central Bank, Bank of England and Sveriges Riksbank, this is not expected to happen until at least 2025. It’s often pointed out that the US may have to pursue a CBDC because it wouldn’t want to cede a significant share of international payments to China. However, that motivation is unclear, because while China has capital controls, it’s not evident that a digital yuan could even take on such a role.
With respect to the regulation of crypto assets, 2022 is likely to bring more clarity. Securities and Exchange Commission (SEC) chair Gary Gensler has called for more regulation of cryptocurrencies and related financial products. Most recently, he noted at a meeting of the Investor Advisory Committee that crypto is an “asset class that belongs inside public policy frameworks of looking after investors, guarding against illicit activity, and protecting our financial stability.”3 He also noted significant gaps in investor protections in decentralized finance platforms, crypto lending and other related financial activities. According to Gensler, platforms offering securities fall under the SEC’s jurisdiction.
Dollar-backed stablecoins have been a regulatory concern in recent months. The President’s Working Group on Financial Markets, comprising the Secretary of the Treasury and heads of all key US financial regulatory bodies, noted that stablecoin issuers should become “insured depository institutions,” on par with banks that offer savings accounts for customers.4 Currently, only Bitcoin futures exchange traded funds (ETFs) can trade in the US market, and the SEC continues to reject proposals for ETFs backed by physical Bitcoin. In the past few months, the SEC has rejected VanEck’s and WisdomTree Investments’s applications for spot Bitcoin ETFs, arguing that the commission still lacked confidence that the Bitcoin market was free of manipulation and fraud.5