Nikhilesh De


The idea of a U.S. digital dollar is no longer a fringe novelty. Now, it may be a means to an end.

The U.S. Senate Banking, Housing and Urban Affairs Subcommittee on Economic Policy conducted a hearing on “Winning the Economic Competition” between China and the U.S. on Wednesday. Once again, the idea of a Federal Reserve-administered central bank digital currency reared its head.

Much of the hearing was about America’s economic relationship with China, and both nations’ economic relationships with the rest of the world. Four of the five speakers had no close ties to the crypto space, and discussed issues like supply chain dependence and technologies like 5G.

Rather than focus a major part of the hearing on crypto, as two previous hearings did, crypto was brought up as one of many possible tools to maintain U.S. economic supremacy. This could be interpreted as crypto’s increasing acceptance as a mainstream idea.

Former Commodity Futures Trading Commission Chairman Christopher Giancarlo, a longtime advocate for a digital dollar and one of Wednesday’s witnesses, once again called for the U.S. to begin conducting pilot programs to test out different facets of a tokenized dollar.

The idea is not just academic, said Senator Tom Cotton (R-Ark.), who chairs the subcommittee. During a previous hearing, Cotton also advocated for modernizing the dollar, saying it would need to be better than bitcoin.

“For us, maintaining the dollar’s supremacy is not only an economic matter, it is a critical strategic matter as well. It is what allows us to have such effective sanction regimes around the world as well as other benefits,” he said, before asking Giancarlo about the next steps in rolling out a digital dollar.

Giancarlo, as he has in the past, emphasized the issue of which nation’s values would define the global reserve currency. At the moment, the U.S. dollar fills that role, but he noted that China has been preparing to roll out a digital yuan, which could give the world’s most populous nation an edge.

Walter Russell Mead, the James Clarke Chace Professor of Foreign Affairs and Humanities at Bard College and a member of the Hudson Institute, agreed. A strong financial system “has been a foundation of prosperity and power for hundreds of years,” he said. He believes this is unlikely to change in the future, and agreed with Cotton that global dependence on the U.S. banking system is “one of our most effective tools of power.”

“We can’t just take an asset like that for granted,” he said. “We have to assume that as the nature of finance changes, the nature of currencies change, we have to stay at the leading edge of that … innovation, so we do need to be thinking actively about how the dollar can be a fundamental building block for economic activity in this time of the information revolution.”

Author: Nikhilesh De

Source: Coin Desk: Senate Hearing Sees Digital Dollar as a Tool for Economic Supremacy

The Office of the Comptroller of the Currency (OCC) is letting all nationally chartered banks in the U.S. provide custody services for cryptocurrencies.

In a public letter dated July 22, Senior Deputy Comptroller and Senior Counsel Jonathan Gould wrote that any national bank can hold onto the unique cryptographic keys for a cryptocurrency wallet, clearing the way for national banks to hold digital assets for their clients.

The letter marks a major development for the crypto industry. Previously, custody was the province of specialist firms, such as Coinbase, which typically needed a state license, such as a trust charter, to offer the service to large investors. Now, large, regulated financial companies that already provide similar safekeeping services for stock certificates and the like could enter the fray.

The letter, which appears to be addressed to an unidentified bank or similar entity, notes that banks “may offer more secure storage services compared to existing options,” and that both consumers and investment advisors may wish to use regulated custodians to ensure they don’t lose their private keys, and therefore, access to their funds.

“Providing custody for cryptocurrencies would differ in several respects from other custody activities,” the letter said.

It pointed to the need for digital wallets, adding that because they exist on a blockchain, there is no physical possession for cryptos.

“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers,” the letter said.

Banks can provide both fiduciary and non-fiduciary custodian services, the letter said.

It also specified that banks entering the space “should develop and implement those activities consistent with sound risk management practices and align them with the bank’s overall business plans and strategies.”

The OCC is currently headed up by Brian Brooks, a former Coinbase exec who joined the regulator earlier this year. He’s filled in as Acting Comptroller since the beginning of the summer, and has already proposed a number of reforms that would benefit crypto companies, including a national payments charter which would let crypto startups bypass the state-by-state approach in terms of acquiring money transmission licenses if they provide payment services.

Wednesday’s letter also “reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.”

JPMorgan Chase is one such national bank that provides banking services to crypto companies, having provided support to Gemini and Coinbase earlier this year. Like their counterparts abroad, however, banks in the U.S. have generally been skittish about serving the industry, perceiving exchanges and other startups as a reputational and compliance risk.

UPDATE (July 22, 17:45 UTC): Added context to third paragraph and at the end.

Author: Nikhilesh De

Source: Coin Desk: Banks in US Can Now Offer Crypto Custody Services, Regulator Says

The concept of a digital dollar that can be used to provide U.S. taxpayers with stimulus payments to weather the economic recession caused by the COVID-19 pandemic has once again been floated by lawmakers.

Congresswomen Rashida Tlaib (D-Mich.) and Pramila Jayapal (D-Wash.) introduced a new proposal to have the federal government issue $2,000 per month to residents by minting a pair of $1 trillion coins and using these to back the payments. The Automatic BOOST to Communities Act (ABC Act) also brings back the idea of a digital dollar, describing the concept using similar language to a series of bills introduced last month.

Under the ABC Act, Congress would authorize the Federal Reserve to create “FedAccounts,” meaning “Digital Dollar Account Wallets,” which would allow U.S. residents, citizens and businesses located in the country to access financial services.

“No later than January 1, 2021, the Secretary shall offer all recipients of BOOST payments the option to receive their payments in digital dollar wallets,” Thursday’s bill read.

The bill was introduced in the wake of ongoing issues with issuing $1,200 stimulus payments authorized under the CARES Act. The Internal Revenue Service has been sending payments to taxpayers, but glitches have prevented numerous individuals from receiving their funds – or even from being able to verify their payment status, the Washington Post reported Thursday.

Multiple mentions

The digital dollar idea first appeared in the original form of the “Take Responsibility for Workers and Families Act” introduced by House Speaker Nancy Pelosi (D-Calif.) and the “Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act” introduced by House Financial Services Committee Chair Maxine Waters (D-Calif.), envisioning a “FedAccount” system wherein the Federal Reserve – the U.S. central bank – would manage bank accounts for every resident, allowing it to directly deposit these payments.

Notably, these digital dollars are not stablecoins and do not appear to be based on a blockchain infrastructure of any sort.

The digital dollar mentions were removed from the subsequent version of the “Take Responsibility” act, and it is unclear whether Waters’ bill made much progress.

The idea was also brought up in an independent Senate bill introduced by Senator Sherrod Brown (D-Ohio), the ranking member on the Committee for Banking, Housing and Urban Affairs. While the Senate is in recess, an individual familiar with the senator’s thinking said his office still intended to pursue the legislation.

Beyond payments

Thursday’s bill goes beyond just stimulus payments, however. The bill notes that FedAccount holders should have access to a variety of other services if it is passed, including “debit cards, online account access, automatic bill-pay, mobile banking and automatic teller machines maintained in conjunction with the United States Postal Services at its physical locations.”

Thursday’s bill was co-sponsored by Reps. Jesús García (D-Ill.), Alcee Hastings (D-Fla.), Alexandria Ocasio-Cortez (D-NY), Ilhan Omar (D-Minn.), Ayanna Pressley (D-Mass.), Bobby Rush (D-Ill.), Jan Schakowsky (D-Ill.), Nydia Velázquez (D-NY) and Delegate Eleanor Holmes Norton (D-D.C.).

The news comes just hours after the Libra Association announced it was modifying its white paper and plan for the libra stablecoin. The entity, spawned by Facebook last year, now envisions launching a series of fiat-pegged stablecoins rather than just one multi-currency-backed token.

The libra project was originally intended to help facilitate financial services for unbanked and underbanked individuals through the use of a digital transfer mechanism.

Morgan Ricks, an associate professor at Vanderbilt University who helped provide input on the original digital dollar proposals, told CoinDesk that he and his associates have “given advice at the staff level” to both House and Senate offices over the past few weeks.

“It’s great to see legislative attention to this . We think it’s a transformative idea,” he said.

Author: Nikhilesh De

Source: Coin Desk: ‘Digital Dollar’ Reintroduced by US Lawmakers in Latest Stimulus Bill

Mentions o a “digital dollar” in a coronavirus-related relief bill before the U.S. House of Representatives – one of the two chambers of Congress – have been scrubbed.

House Democrats’ latest version of the “Take Responsibility for Workers and Families Act,” revealed late Monday, does not contain any language around a “digital dollar” in its section on direct stimulus payments.

The lawmakers introduced the bill last week, envisioning a digital payment system organized by the Federal Reserve and its member banks to directly send these funds to U.S. residents to assist them with expenses during the COVID-19 mitigation measures, which have already resulted in massive unemployment and a potentially severe recession.

In the latest 1,404-page draft, U.S. residents would receive $1,500 per person, though individuals with an income greater than $75,000 and couples with an income greater than $150,000 would have to repay the funds.

The section detailing the payments, which starts on page 1,090, appears to be less specific on how these payments would be sent to individuals than previous versions have been.

While the draft bill introduced by Speaker of the House Nancy Pelosi (D-Calif.) on Monday no longer includes any language around a digital dollar, a separate bill introduced by Rep. Maxine Waters (D-Calif.), titled the “Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act,” still mentions the digital dollar.

The language is expected to be removed from that bill as well, according to a source familiar with the matter.

Author: Nikhilesh De

Source: Coin Desk: ‘Digital Dollar’ Stripped From Latest US Coronavirus Relief Bill

Proposed legislation meant to shore up the U.S. economy during the coronavirus pandemic includes a recommendation to create a digital dollar.

This virtual greenback would help individuals and families survive the shutdown of businesses and series of “shelter-in-place” orders which resulted in skyrocketing unemployment claims and a potential severe recession.

Under the draft bills shared last week, dubbed the “Take Responsibility for Workers and Families Act” and the “Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act,” the Federal Reserve – the nation’s central bank – could use a “digital dollar” and digital wallets to send payments to “qualified individuals,” consisting of $1,000 for minors and $2,000 to legal adults.

Both bills employ identical language around the digital dollar suggestion.

“The term ‘digital dollar’ shall mean a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve bank; or an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System),” the bills read.

The Fed would likewise be in charge of the digital wallets, maintaining them for recipients.

Neither bill indicates that the program would use a decentralized ledger or any sort of cryptocurrency project. However, digitizing the dollar in general is seen by many influential figures as a necessity for the U.S., with former Commodity Futures Trading Commission J. Christopher Giancarlo and economist Judy Shelton – who U.S. President Donald Trump has nominated to the Fed board – both claiming the nation may lose its financial hegemony if it fails to do so.

Fed member banks can also maintain something called a “pass-through digital dollar wallet,” according to the draft bills, and recipients would receive “a pro rata share of a pooled reserve balance” held by the member.

The bill follows Representative Rashida Tlaib’s (D-Mich.) unveiling of the “Automatic BOOST to Communities Act,” which would provide any individual in the nation a pre-loaded debit card. The card would initially hold $2,000 and be given an additional $1,000 until one year after the COVID-19 pandemic is contained.

Under Tlaib’s bill, the U.S. Mint would issue two $1 trillion platinum coins, which the Fed would purchase using credit.

“The Treasury Secretary would ‘sweep’ the newly created reserve funds from the Mint’s account to the regular Treasury General Account,” the bill reads. These funds would then be disbursed to U.S. residents through the program.

“In the long term, the card infrastructure should be converted into a permanent, Treasury-administered digital public currency wallet system, to serve as a privacy-respecting ‘eCash’ complement to universal Fed Accounts and/or Postal Bank Accounts for All,” the bill reads.

The Democratic bills come as the Republican-led Senate remains in limbo over its own bill to stimulate the economy. Democrats have now blocked the Republican spending bill twice, arguing a $500 billion program grants the Treasury Department too much discretion and little transparency over how the funds would be disbursed to corporations.

The U.S. stock market closed lower again Monday, with the Dow down nearly 600 points. According to The Street, the Dow is on track to see its worst month since 1931.

Author: Nikhilesh De

Source: Coin Desk: House Stimulus Bills Envision ‘Digital Dollar’ to Ease Coronavirus Recession

Presidential candidate Michael Bloomberg proposed creating a regulatory framework for cryptocurrencies in a new financial regulation plan.

Bloomberg’s campaign published a financial reform plan Tuesday, advocating for greater consumer protection measures and a stronger financial system. Specifically, the proposal suggests requiring financial institutions to monitor risk exposure, recording all financial transactions in a centralized database, strengthening the Consumer Financial Protection Bureau and a number of other recommendations. The proposal also recommends creating a regulatory sandbox for startups and “providing a clear regulatory framework for cryptocurrencies.”

“Cryptocurrencies have become an asset class worth hundreds of billions of dollars, yet regulatory oversight remains fragmented and undeveloped. For all the promise of the blockchain, bitcoin and initial coin offerings, there’s also plenty of hype, fraud and criminal activity,” the full proposal said.

Bloomberg’s plan recommends clarifying which agencies are responsible for overseeing the space, creating a framework to clarify when tokens are securities, “protecting consumers from cryptocurrency-related fraud,” clarifying the tax regime and defining the requirements for financial institutions in the space.

The campaign did not return a request for further comment.

Bloomberg became the latest of a small group of presidential contenders to address cryptocurrency during his campaign, following Rep. Eric Swalwell (D-Calif.) and Andrew Yang, both of whom have since dropped out of the race.

Swalwell accepted cryptocurrency donations briefly during his run, while Yang also called for a national regulatory framework to address questions around how the government would approach the space and supersede potentially contradictory state-level regulations.

Road to November

Bloomberg, the former New York City mayor and founder of Bloomberg L.P. (the company behind the Bloomberg Terminal), entered the presidential race in November 2019, and has missed the first primary and caucus (New Hampshire and Iowa, respectively) due to joining late in the primary process (in comparison, former contender Andrew Yang entered the race in November 2017).

Despite his late entry, Bloomberg has poured hundreds of millions of dollars into ad campaigns. As of press time, he is polling at roughly 16 percent, according to news site 538, enough to place second on the national stage.

However, his candidacy has recently been rocked by allegations of racism and sexism, including from his support of New York’s infamous “stop and frisk” practice during his time running the city.

The practice was later deemed unconstitutional, and while Bloomberg appealed the ruling, his successor, former presidential candidate and current New York City Mayor Bill de Blasio dropped the case.

Bloomberg has also reportedly settled a number of alleged sexual harassment cases and been accused of fostering a hostile work environment, according to The Washington Post.

Author: Nikhilesh De

Source: Coin Desk: US Presidential Contender Michael Bloomberg Proposes ‘Clear Regulatory Framework’ for Crypto

SEC Commissioner Hester Peirce wants to give legitimate crypto projects a shot at success without running afoul of U.S. securities laws.

The two-year official at the Securities and Exchange Commission – nicknamed “CryptoMom” by the blockchain community – has formally proposed a safe harbor for token projects. It would give them some breathing room to develop their networks and communities before having to worry about the regulatory regime.

Under Peirce’s proposal, unveiled during a speech at the International Blockchain Congress in Chicago Thursday, crypto startups would have a three-year grace period from their first token sale to achieve a level of decentralization sufficient to pass through the agency’s securities evaluations, including the Howey Test, the famous U.S. Supreme Court assessment.

To date, the SEC has brought enforcement actions against a number of companies that created and sold tokens, including Telegram and Kik, two major messaging platforms.

“The analysis of whether a token is offered or sold as a security is not static and does not strictly inhere to the digital asset,” according to notes detailing the proposal.

In other words, some tokens may appear to have the qualities of a security at launch but mature to the point where it no longer appears to be one.

Ether, the native token of the ethereum blockchain, may be one such example: SEC Director of Corporation Finance William Hinman, speaking on his own behalf and not the agency’s in June 2018, said ether by that point did not appear to be a security. SEC Chairman Jay Clayton later appeared to endorse this view, writing that digital assets could at some point no longer be investment contracts (though he did not mention ether specifically).

Notably, Hinman suggested ether may have begun its life as a security but its network evolved in subsequent years.

A similar transition was also seen with EOS. The SEC settled charges with the company last year, saying the original ERC-20 EOS token was a security, but the project’s final EOS token was not (holders migrated from the ERC-20 token to a native version after the network was fully built out).

“The application of the federal securities laws to these transactions frustrates the network’s ability to achieve maturity and prevents the transformation of the token sold as a security to a non-security token functioning on the network,” Peirce said in notes detailing the proposal.

Safe harbor

Peirce has floated the idea of a safe harbor in the past, but Thursday’s proposal is the first formal attempt to make it a reality.

If adopted by the majority of the SEC’s other commissioners, it would create a strict set of requirements for crypto projects to raise funds through a token sale, including requiring personal disclosures, code disclosures, public notices and a number of other factors.

“The safe harbor is also designed to protect token purchasers by requiring disclosures tailored to the needs of the purchasers and preserving the application of the anti-fraud provisions of the federal securities laws,” according to Peirce’s notes.

Specifically, the proposal defines an “initial development team,” which will manage the network’s development over its first three years, and “network maturity,” referring to a network that is “not controlled and is not reasonably likely to be controlled” by a single entity or individual but is operational.

The development team should disclose “the names and relevant experience, qualifications, attributes or skills” of each member, as well as how many tokens each member holds and how many they may earn through founders’ rewards or similar programs.

“The definition of Network Maturity is intended to provide clarity as to when a token transaction should no longer be considered a security transaction but, as always, the analysis will require an evaluation of the particular facts and circumstances,” the proposal states.

At the end of the grace period, the initial development team will have to determine whether token transactions constitute securities transactions. The team should look to create liquidity for the token by securing secondary trading markets (which remain compliant with applicable money transmission and consumer protection laws) on top of their development efforts.

“Admittedly, the liquidity condition may surprise observers of SEC staff positions in which attempts to facilitate secondary trading have been viewed as indicia of a securities offering,” Peirce said during her speech. “In the context of the safe harbor, by contrast, secondary trading is recognized as necessary both to get tokens into the hands of people that will use them and offer developers and people who provide services on the network a way to exchange their tokens for fiat or cryptocurrency.”

Also in an effort to bolster consumer protection, Commissioner Peirce’s proposal would require a token project’s source code, transaction history (and a description of how an individual can independently search transaction history), token economics, roadmap and a history of past token sales all be disclosed on a free and publicly accessible website.

Good faith

The safe harbor proposal is dependent on development teams acting in good faith, Peirce said.

It would not be available to any teams with members who are already disqualified “as a bad actor under the securities laws” due to past actions.

Moreover, while the proposal would preempt any state securities laws, it would not protect projects from any enforcement actions taken due to fraud or other illicit activities.

“SEC enforcement has played an important role in combating fraud in connection with token sales,” she said. “The safe harbor would not provide immunity from such actions.”

Nor does Peirce’s proposal imply exclusivity; projects can still operate under existing federal securities laws such as Regulation D or S or other valid exemptions under the law.

The proposal would also not likely apply to projects that are already operational, Peirce said. Her goal is to focus on new projects in their initial stages of development so as to ensure they can move beyond their first steps in building a network or community.

“This bad actor provision is not directed at teams that set forth a plan for a network and work earnestly toward building it, but fail to bring it to fruition. Rather, it is designed to ensure that the SEC can bring suit against a team that sets out to defraud token purchasers by materially misrepresenting or omitting key information,” Peirce said. “We all know that there are plenty of those kinds of ‘projects’ polluting the crypto space.”

Author: Nikhilesh De

Source: Coin Desk: SEC Commissioner Hester Peirce Proposes 3-Year Safe Harbor Period for Crypto Token Sales

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