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IMF lawyers argue that central banks need reform before they can issue CBDCs

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On Friday, the International Monetary Fund published a new working paper on central bank digital currencies, or CBDCs, and their legal ramifications. 

In the paper, researchers including IMF legal counsel Wouter Bossu and Catalina Margulis argue that current frameworks are inadequate for issuing public-facing CBDCs. The researchers are particularly concerned about how existing definitions of money can apply to such a new technology, but, optimistically, suggest the problem is simple enough to fix:

“The absence of an explicit and robust legal basis for the issuance of token-and/or account-based CBDC can be relatively easily remedied through targeted central bank law reform.”

The new paper also brings into question whether the monopoly that most central banks enjoy on the issuance of fiat currencies — which is reasonable enough, except that they seem to be suggesting rendering private fiat-pegged stablecoins illegal: 

The issuance of private digital tokens that resemble CBDC could give rise to very much the same problems, including a severely disrupted monetary system, caused in the 19th century by the issuance of banknotes by private banks that subsequently could not honor their obligations to convert those notes in real currency.

Ultimately, the paper suggests that re-configuring monetary law will be more challenging than reforming central bank law. The basic questions of whether you can consider a token legal tender, as well as how you make sure it’s accepted across a population with varying access to technology, remain unanswered. 

All of the central banks behind the five largest global currencies — the U.S. dollar, the euro, the Chinese yuan, the Japanese yen and the British pound — are looking into issuing CBDCs. A leader at the Bank of England recently talked them up as part of a “new monetary order.” 

Of the largest economies in the world, China seems to be closest to issuing a CBDC. Many suggest that this is because the Chinese government is willing to use a digital yuan as a surveillance tool, meaning that issues of cash-level privacy and bearer-bond status are irrelevant. The People’s Bank of China recently published a draft law that would, indeed, outlaw private stablecoins pegged to the yuan. 



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Regulation

PayPal CEO calls on crypto industry to work hand in hand with regulators

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There is no other way for the cryptocurrency industry to thrive without working hand in hand with regulators, PayPal CEO Dan Schulman believes.

On Dec. 2, Schulman joined the Web Summit online conference to discuss the cashless era of the global financial industry with Squawk Box host Andrew Ross Sorkin.

As part of the discussion, Schulman addressed issues related to cryptocurrency regulation, calling on the industry to closely collaborate with financial authorities to bring more utility to crypto. “There is only one way to approach this, and that is working hand in hand with regulators,” he argued.

Schulman went on to say that regulatory compliance is foundational for providing services in the crypto industry:

“Part of that foundational capabilities are regulatory compliance, full understanding of security, risk management, all of the financial controls, FinCEN controls, AML controls. Without that, you really have no way that you should be in this arena. […] You must have those.”

Schulman said that the company invested a “tremendous amount” in regulatory compliance, noting that PayPal became the first firm to get a conditional BitLicense from regulators in New York. “We’re doing this hand in hand with regulators, and it’s the only way to go about doing this,” Schulman argued.

“Strong regulatory oversight is extraordinarily important and I’ve got zero issue with that,” the exec said. Schulman stated that PayPal has strong relationships with regulators because it aims to prevent illicit practices like money laundering while providing some degree of financial health.

In October 2020, PayPal officially broke the news on the company’s plans to introduce the ability to buy, hold and sell a number of cryptos including Bitcoin, Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC) directly with the PayPal digital wallet. PayPal subsequently rolled out its crypto service in the United States, allowing clients to trade up to $20,000 per week.

Schulman has previously claimed that PayPal’s crypto services will eventually increase the utility of cryptocurrencies.