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September 11, 2022
💥BIS SPEECH: Olli Rehn: Beyond crypto-mania - digital euro as monetary anchor💥

Dear Colleagues and Friends,

It is a great pleasure to be with you here at Berkeley today. Many thanks to Professor Emeritus John Zysman for the invitation to this discussion, the themes of which – cyber resilience, financial stability and central bank digital currencies – are highly pertinent and topical.

We live in unusual and precarious times. Russia's illegal, brutal war has created terrible human suffering in Ukraine. Regrettably, we need to be prepared for a protracted confrontation, and it is essential that we maintain Western unity in our continued support of Ukraine.

Russia's war has also destroyed the long-established European security order and badly damaged the economic landscape of our continent. One significant consequence is that Finland and Sweden have applied for NATO membership, and the ratification of their accession to NATO is currently advancing. This will produce a new 'Nordic fortress' in the region, with strongly integrated defence forces. For the European economy, Russia's war has caused a serious energy crisis and sharply rising inflation and has thus hit Europeans' purchasing power and dampened growth.

While these current crises are occupying our thoughts, we should not lose sight of the longer-term structural trends shaping our economies. In many cases these trends are being driven by the digitalisation of the economy, which is progressing quickly and bringing about major transformations which are already highly visible in the payments landscape.

Some have joked that a central bank digital currency (CBDC) is "a solution looking for a problem". While I may not be an outright fan of CBDCs, I think the detractors unfairly downplay the potential merits.

The trend towards digital money is welcome for creating opportunities for innovation and financial inclusion. However, it also poses risks. Public authorities need to strike a careful balance in promoting innovation that benefits society while also limiting harmful activities. The proliferation of private digital monies in the last five years is a case in point.

Since taking off in 2017–2018, the market for private digital monies, or crypto-assets as we central bankers like to call them, has been highly volatile with exceptionally large price movements. Contrary to the initial objective, high volatility and low processing capacity has made them difficult to use as means of payment. Even stablecoins, a more recent breed of private digital money, have turned out to be not so stable after all.

Regulators have been warning private investors about the risks involved, but strong returns tempted more and more of them to jump on the bandwagon during the upswing phase. The total market cap of crypto-assets reached a peak of close to USD 3 trillion in late 2021. It has since declined to less than USD 1 trillion during the market turmoil this year. As was to be expected, the sharp revaluations of crypto-assets have led to a number of casualties and heavy losses for many investors.

Some commentators have pinpointed the large-scale quantitative easing of central banks as the root cause for excesses in the crypto market. QE was a necessary response to the economic situation prevailing in the wake of the 2008 global financial crisis in most advanced economies. Central banks quickly reduced interest rates to near zero to help the economy recover. But as the policy rates reached the effective lower bound, more had to be done to boost the economy and meet the inflation target. That's where central bank purchases of longer-term financial assets, or QE, came in, together with other unconventional policies including forward guidance, negative interest rates, and funding for lending programmes.

While there may still be no consensus on how QE works in theory, I think we can all agree that, in practice, it has proved an effective tool for easing financial conditions and providing economic stimulus when short interest rates are at their lower bound.

Since both the overall easing of financial conditions and the role of QE as a portfolio rebalancing channel have served to push up the demand for risky assets, it is no surprise that asset prices have developed favourably during the QE period. This applies to crypto-assets in particular, where price formation is highly speculative and fanned by popular misunderstanding of monetary economics and even conspiracy theories. However, given the high volatility of crypto-assets, it is apparent that monetary policy can only explain a small part of the overall movement in their value, while the bulk of this has to be attributed to other factors.

Overall, I am sure that the economic benefits of QE outweigh the costs. As Martin Wolf noted in his recent FT piece on the battle over monetary policy, occasional asset bubbles are preferable to mass unemployment!

In terms of macroeconomic policy, the tide has now turned. After a decade of low inflation, we moved last year very quickly to a period of high inflation. The inflation surge was driven by multiple factors: quicker than anticipated recovery from the COVID-19 pandemic, global supply chain bottlenecks exacerbated by renewed China lockdowns and, in the case of energy and food, Russia's illegal war in Ukraine. The ongoing monetary policy normalisation is a response to the dramatically changed inflation outlook.

In the United States, the tightening of monetary policy began in March. So far, the Fed has conducted two 75 basis-point hikes, placing the Fed funds target range between 2.25% and 2.5%. It has also started to reduce its balance sheet. The ECB, in turn, announced in June its intention to raise interest rates in two instalments, first in July and again in September. In July, we raised the key ECB interest rates by 50 basis points. This was more than had previously been signalled, because the June inflation figures showed an even greater increase than we had anticipated, and so we determined that it was appropriate to take a bigger first step on the normalisation path. Going forward, the ECB's interest rate decisions will be data driven, aiming for 2% inflation in the medium term, in line with our strategy.

Let me next turn to central bank digital currencies. At the ECB, as in a number of other central banks across the world, we are looking into the possibility of introducing a CBDC, a digital euro. The investigation phase started in late 2021 and is expected to be concluded in October 2023. Once the investigation phase is completed, we will decide whether to embark on actually building a digital euro.

It is important to note that a digital euro would complement cash – not replace it – by allowing central bank money to be used in digital form also for retail purposes. We will continue to safeguard citizens' access to and the usability of cash across the euro area, even though its role as a medium of exchange has been diminishing rapidly, at least in some countries. A digital euro would give people an additional choice about how to pay and would make it easier to do so in an increasingly digital economy. It would expand the availability of digital central bank money beyond transactions between banks to include everyday peer-to-peer payments between people, covering online shopping as well as bricks and mortar businesses.

We have laid down several basic requirements for a digital euro, such as easy accessibility, robustness, safety, efficiency, privacy and compliance with the law. These will help us define what a digital euro might eventually look like. Importantly, a digital euro would be designed to work together with private payment solutions, facilitating the provision of pan-European solutions and services to consumers. With global cooperation it could eventually also solve many of the issues plaguing cross-border payments.

So why should we introduce a digital euro alongside cash? Would it not be enough to rely on the private sector to provide us with efficient payment means for the digital age?

Recent market developments have highlighted the fact that crypto-assets are fundamentally different from central bank money. Their prices are volatile, which makes them hard to use as means of payment or units of account. Even stablecoins attempting to piggyback on the credibility provided by central bank money have failed to guarantee one-to-one convertibility with it. As the BIS meticulously pointed out in their recent Annual Economic Report, crypto-assets' limitations are structural. An economy dominated by digital payments but without a strong monetary anchor would be inherently unstable.

Federal Reserve Vice Chair Lael Brainard also recently noted that, given the foundational role of fiat currency, a digital native form of safe central bank money could enhance stability by providing the neutral trusted settlement layer in the future financial system. People using a digital euro, or a digital dollar, should have the same level of confidence as they would when using cash, since both fiat and digital forms of currency would be backed by a central bank. A digital payment landscape without a monetary anchor provided by the central bank would simply confuse people's understanding of what qualifies as money.

The transformation of the payments landscape also raises important questions about the security of a monetary system in the digital age. Digitalisation is making financial services more efficient but leaving them more vulnerable to cyber-attacks and other forms of cyber risks. These risks and hybrid forms of influence have increased in the current environment of heightened geopolitical tensions, not least as a result of Russia's invasion of Ukraine. The vulnerability of the crypto ecosystem to hacks and theft as well as its capacity to facilitate financial crime, money laundering and other illegal activities is another reason to offer safe and legal means of payment in the digital age via CBDCs.

The normal functioning of societies can be threatened not only through damage and disruption to critical infrastructure, but also by influencing people's minds and eroding trust. Since the financial system is based on trust, these threats must be taken very seriously. With cyber threats becoming increasingly complex, we must continuously adapt and strengthen our cyber resilience. Preparedness must be part of the cost-benefit analysis and the overall planning of systems – that is, resilience by design. In severe disruptions, years of efficiency gains may be wiped out if recovery is delayed.

Regulation plays an important role in safeguarding against risks in the cyber universe. Regulatory action is needed to address the immediate risks in the crypto-assets market and to support public policy goals. The EU is taking important steps forward with the forthcoming Regulation of Markets in Crypto-Assets (MiCA). It is the first attempt at creating comprehensive regulations for digital assets and is expected to come into force in 2024. MiCA will set a new standard, providing legal certainty for crypto-asset issuers, guaranteeing equal rights for service providers, and ensuring high standards for investors.

Dear Colleagues and Friends,

Safety and stability are the key characteristics of a sound monetary system that serves society. Central bank money provides the reference value for all other forms of money in the economy. It plays a crucial role in sustaining confidence in the currency, in the smooth functioning of the payment system, and in safeguarding the transmission of monetary policy.

Central banks must prepare for a digital future in which demand for cash as a medium of exchange may decrease, requiring the convertibility of private money into cash to be complemented by convertibility into central bank digital money. And we should recall that solid and safe access to central bank money is the foundation for price and financial stability. Convertibility into legal tender would also be the key for guaranteeing the value of digital euros provided by commercial banks.

The bottom line is that the central bank should always provide the monetary anchor for the economy – and this would be the primary reason if the ECB were to decide to issue a digital euro.

Thank you very much for your kind attention.

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Custom AI assistants that print money in your sleep? 🔜

The future of Crypto x AI is about to go crazy.

👉 Here’s what you need to know:

💠 'Based Agent' enables creation of custom AI agents
💠 Users set up personalized agents in < 3 minutes
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👉 What this means for the future of Crypto:

1. Open Access: Democratized access to advanced trading
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🚨 I personally wouldn't bet against Brian Armstrong and Jesse Pollak.

👉 Coinbase just launched an AI agent for Crypto Trading

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Need help getting started? Check out our knowledge base to get the info you need: https://veridao.freshdesk.com/support/solutions/articles/51000487052-what-are-the-nft-activation-steps

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Brinc Launches Web3 Accelerator with Octopus, XDC & IDA

Brinc Launches Web3 Accelerator with Octopus, XDC & IDA to Transform Hong Kong’s Loyalty and Payment Systems.

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🔗 Startups can apply from July 10

📅 Launching Sept 8

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Musk Turns On Starlink to Save Iranians from Regime’s Internet Crackdown

Elon Musk, the world’s richest man and a visionary behind SpaceX, has flipped the switch on Starlink, delivering internet to Iranians amid a brutal regime crackdown.

This move comes on the heels of Israeli strikes targeting Iran’s nuclear facilities, as the Islamic Republic cuts off online access.

The former Department of Government Efficiency chief activated Starlink satellite internet service for Iranians on Saturday following the Islamic Republic's decision to impose nationwide internet restrictions.

As the Jerusalem Post reports, that the Islamic Republic’s Communications Ministry announced the move, stating, "In view of the special conditions of the country, temporary restrictions have been imposed on the country’s internet."

This action followed a series of Israeli attacks on Iranian targets.

Starlink, a SpaceX-developed satellite constellation, provides high-speed internet to regions with limited connectivity, such as remote areas or conflict zones.

Elizabeth MacDonald, a Fox News contributor, highlighted its impact, noting, "Elon Musk turning on Starlink for Iran in 2022 was a game changer. Starlink connects directly to SpaceX satellites, bypassing Iran’s ground infrastructure. That means even during government-imposed shutdowns or censorship, users can still get online, and reportedly more than 100,000 inside Iran are doing that."

During the 2022 "Woman, Life, Freedom" protests, Starlink enabled Iranians to communicate and share footage globally despite network blackouts," she added.

MacDonald also mentioned ongoing tests of "direct-to-cell" capabilities, which could allow smartphone connections without a dish, potentially expanding access and supporting free expression and protest coordination.

Musk confirmed the activation, noting on Saturday, "The beams are on."

This follows the regime’s internet shutdowns, which were triggered by Israeli military actions.

Adding to the tension, Israeli Prime Minister Benjamin Netanyahu addressed the Iranian people on Friday, urging resistance against the regime.

"Israel's fight is not against the Iranian people. Our fight is against the murderous Islamic regime that oppresses and impoverishes you,” he said.

Meanwhile, Reza Pahlavi, the exiled son of Iran’s last monarch, called on military and security forces to abandon the regime, accusing Supreme Leader Ayatollah Ali Khamenei in a Persian-language social media post of forcing Iranians into an unwanted war.

Starlink has been a beacon in other crises. Beyond Iran, Musk has leveraged Starlink to assist people during natural disasters and conflicts.

In the wake of hurricanes and earthquakes, Starlink has provided critical internet access to affected communities, enabling emergency communications and coordination.

Similarly, during the Ukraine-Russia conflict, Musk activated Starlink to support Ukrainian forces and civilians, ensuring they could maintain contact and access vital information under dire circumstances.

The genius entrepreneur, is throwing a lifeline to the oppressed in Iran, and the libs can’t stand it.

Conservative talk show host Mark Levin praised Musk’s action, reposting a message stating that Starlink would "reconnect the Iranian people with the internet and put the final nail in the coffin of the Iranian regime."

"God bless you, Elon. The Starlink beams are on in Iran!" Levin wrote.

Musk, who recently stepped down from leading the DOGE in the Trump administration, has apologized to President Trump for past criticisms, including his stance on the One Big Beautiful Bill.

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GENIUS Act lets State banks conduct some business nationwide. Regulators object

The Senate passed the GENIUS Act for stablecoins last week, but significant work remains before it becomes law. The House has a different bill, the STABLE Act, with notable differences that must be reconciled. State banking regulators have raised strong objections to a provision in the GENIUS Act that would allow state banks to operate nationwide without authorization from host states or a federal regulator.

The controversial clause permits a state bank with a regulated stablecoin subsidiary to provide money transmitter and custodial services in any other state. While host states can impose consumer protection laws, they cannot require the usual authorization and oversight typically needed for out-of-state banking operations.

The Conference of State Bank Supervisors welcomed some changes in the GENIUS Act but remains adamantly opposed to this particular provision. In a statement, CSBS said:

“Critical changes must be made during House consideration of the legislation to prevent unintended consequences and further mitigate financial stability risks. CSBS remains concerned with the dramatic and unsupported expansion of the authority of uninsured banks to conduct money transmission or custody activities nationwide without the approval or oversight of host state supervisors (Sec. 16(d)).”

The National Conference of State Legislatures expressed similar concerns in early June, stating:

“We urge you to oppose Section 16(d) and support state authority to regulate financial services in a manner that reflects local conditions, priorities and risk tolerances. Preserving the dual banking system and respecting state autonomy is essential to the safety, soundness and diversity of our nation’s financial sector.”

Evolution of nationwide authorization

Section 16 addresses several issues beyond stablecoins, including preventing a recurrence of the SEC’s SAB 121, which forced crypto assets held in custody onto balance sheets. However, the nationwide authorization subsection was added after the legislation cleared the Senate Banking Committee, with two significant modifications since then.

Originally, the provision applied only to special bank charters like Wyoming’s Special Purpose Depository Institutions or Connecticut’s Innovation Banks. Examples include crypto-focused Custodia Bank and crypto exchange Kraken in Wyoming, plus traditional finance player Fnality US in Connecticut. Recently the scope was expanded to cover most state chartered banks with stablecoin subsidiaries, possibly due to concerns about competitive advantages.

Simultaneously, the clause was substantially tightened. The initial version allowed state chartered banks to provide money transmission and custody services nationwide for any type of asset, which would include cryptocurrencies. Now these activities can only be conducted by the stablecoin subsidiary, and while Section 16(d) doesn’t explicitly limit services to stablecoins, the GENIUS Act currently restricts issuers to stablecoin related activities.

However, the House STABLE Act takes a more permissive approach, allowing regulators to decide which non-stablecoin activities are permitted. If the House version prevails in reconciliation, it could result in a significant expansion of allowed nationwide banking activities beyond stablecoins.

Is it that bad?

As originally drafted, the clause seemed overly permissive.

The amended clause makes sense for stablecoin issuers. They want to have a single regulator and be able to provide the stablecoin services throughout the United States. But it also leans into the perception outside of crypto that this is just another form of regulatory arbitrage.

The controversy over Section 16(d) reflects concerns about creating a regulatory gap that allows banks to operate interstate without the oversight typically required from either federal or state authorities. As the two Congressional chambers work toward reconciliation, lawmakers must decide whether stablecoin legislation should include provisions that effectively reduce traditional banking oversight requirements.

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If you find value in my content, consider showing your support via:

💳 PayPal: 
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Dubai regulator VARA classifies RWA issuance as licensed activity
Virtual Asset Regulatory Authority (VARA) leads global regulatory framework - makes RWA issuance licensed activity in Dubai.

Real-world assets (RWAs) issuance is now licensed activity in Dubai.

~ Actual law.
~ Not a legal gray zone.
~ Not a whitepaper fantasy.

RWA issuance and listing on secondary markets is defined under binding crypto regulation.

It’s execution by Dubai.

Irina Heaver explained:

“RWA issuance is no longer theoretical. It’s now a regulatory reality.”

VARA defined:

- RWAs are classified as Asset-Referenced Virtual Assets (ARVAs)

- Secondary market trading is permitted under VARA license

- Issuers need capital, audits, and legal disclosures

- Regulated broker-dealers and exchanges can now onboard and trade them

This closes the gap that killed STOs in 2018.

No more tokenization without venues.
No more assets without liquidity.

UAE is doing what Switzerland, Singapore, and Europe still haven’t:

Creating enforceable frameworks for RWA tokenization that actually work.

Matthew White, CEO of VARA, said it perfectly:

“Tokenization will redefine global finance in 2025.”

He’s not exaggerating.

$500B+ market predicted next year.

And the UAE just gave it legal rails.

~Real estate.
~Private credit.
~Shariah-compliant products.

Everything is in play.

This is how you turn hype into infrastructure.

What Dubai is doing now is 3 years ahead of everyone else.

Founders, investors, ecosystem builders:

You want to build real-world assets onchain.

Don’t waste another year waiting for clarity.

Come to Dubai.

It’s already here.

 

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🙏 Donations Accepted 🙏

If you find value in my content, consider showing your support via:

💳 PayPal: 
1) Simply scan the QR code below 📲
2) or visit https://www.paypal.me/thedinarian

🔗 Crypto – Support via Coinbase Wallet to: [email protected]

Or Buy me a coffee: https://buymeacoffee.com/thedinarian

Your generosity keeps this mission alive, for all! Namasté 🙏 Crypto Michael ⚡  The Dinarian

 

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