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Government officials from several major G20 economies have signaled in recent weeks that they intend to advance research into central bank digital currencies (CBDCs) and are increasingly considering launching funds.
On March 1, US Treasury Undersecretary for Domestic Finance Nellie Liang gave a speech on the future of money and payments. There, she indicated that while the US government is still considering whether a digital dollar is necessary, the US Treasury Department is taking steps “to advance work on the policy issues presented by the US CBDC opportunity and to engage internationally to support the responsible development of global CBDCs.” -a”.
According to Liang, the Treasury is part of an interagency CBDC task force made up of senior U.S. officials examining whether the U.S. should engage in wholesale or retail CBDC. She added that the US government is taking steps to ensure it is “positioned to issue CBDC if it is determined to be in the national interest”.
While Liang was careful to emphasize that US policymakers have yet to reach a consensus on whether a US CBDC is necessary, her statements suggest that the prospect of a CBDC is rising on the US policy agenda. Her remarks come almost exactly one year after the release of an executive order signed by US President Joe Biden on March 9, 2022, titled “Ensuring the Responsible Development of Digital Assets.”
In that order, Biden said his administration is placing “the highest urgency on research and development efforts into potential United States CBDC design and implementation options” — an indication that the U.S. is feeling increasing pressure to respond to China’s CBDC launch.
On March 2, the Reserve Bank of Australia announced its efforts to advance CBDC research. According to its statement, the Reserve Bank is working with public and private sector stakeholders to explore potential use cases for Australia’s CBDC.
As part of the research project, the Reserve Bank will explore the potential utility of CBDCs in facilitating 14 identified use cases, from enabling offline payments to facilitating tokenized FX settlement to corporate bond settlement. As with the US, Australia has yet to make a decision on whether to issue a CBDC, but the project is a strong signal that it is taking the prospect of CBDC very seriously.
In the UK – where a consultation on the prospects for a digital pound was launched in early February – Bank of England Deputy Governor Jon Cunliffe told a hearing before the UK Parliament’s Treasury Committee that it was “more likely than not” that the UK would eventually pursue CBDC development .
These statements reflect a changing view among policymakers globally on the importance of ensuring that payment systems remain innovative and competitive in a financial services environment that now features cryptoassets and stablecoins.
EU seeks to bring NFT markets within AML requirements
The European Union is reportedly planning to bring markets for non-fungible tokens (NFTs) under its anti-money laundering and countering the financing of terrorism (AML/CFT) requirements.
Currently, NFT markets are not covered by the anti-money laundering and counter-terrorism financing measures imposed across the EU under the Fifth Anti-Money Laundering Directive (5AMLD), and have also been kept out of the scope of the upcoming Markets in Cryptoactive Block (MiCA) regulations.
The inclusion of NFT platforms in the draft update of the EU AML/CFT regulation appears to be a response to perceptions by global policymakers, such as the Financial Action Task Force (FATF), that NFT markets require greater oversight to mitigate potential financial crime risks.
To learn more about fraud, scams and money laundering activities involving NFTs, read Elliptic’s report on NFTs and financial crime.
OFAC penalizes fentanyl dealers
The US Treasury’s Office of Foreign Assets Control (OFAC) took steps last week to target financial sanctions against sellers of deadly opioids. On February 28, the agency updated its sanctions list to include a Bitcoin address belonging to Hebei Atun Trading Co. Ltd., a Chinese company that was sanctioned by the US back in December 2021 for its involvement in importing precursors used to manufacture fentanyl.
OFAC has previously targeted other entities involved in the use of crypto-assets to facilitate fentanyl trafficking. In November 2022, it sanctioned a network of individuals and entities in the UK and the Netherlands involved in the dark web trade of fentanyl. In August 2019, OFAC sanctioned three Chinese nationals – Xiaobing Yan, Fujing Zheng and Guanghua Zheng – for their involvement in fentanyl trafficking.
These actions show that the US government is increasingly focused on targeting fentanyl trafficking networks that use cryptocurrencies to facilitate their activities. Elliptic’s research shows that crypto wallets controlled by entities and individuals sanctioned by OFAC for fentanyl trafficking received more than $14 million.
France arrests DeFi protocol exploiters
French authorities have arrested individuals involved in exploiting the decentralized finance (DeFi) protocol, alleging that the exploitation amounted to theft that harmed other users. On February 24, the French police stated on social networks that earlier in February they made arrests related to the exploitation of the Platypus DeFi protocol.
The incident resulted in a loss of more than $9 million from the Platypus protocol following a flash loan exploit, which involved an attacker taking an uncollateralized loan from the DeFi lending protocol and using the funds they received to manipulate market prices.
The case follows a similar incident late last year, in which the Mango Markets DeFi protocol suffered a loss of $110 million due to loan exploitation, which resulted in the arrest of the alleged perpetrator: Avraham Eisenberg.
These cases clearly show that enforcement agencies are intent on cracking down on manipulative activities in DeFi markets. You can learn more about DeFi market exploits and hacks in the Elliptic DeFi report.
US regulators are doubling down on enforcement as industry warns of exodus
Speaking of enforcement, US regulatory agencies show no signs of slowing down in the recent flurry of enforcement measures targeting the crypto space. The US Securities and Exchange Commission (SEC) is reportedly looking to add additional staff to its dedicated cryptocurrency unit, while the US Commodity Futures Trading Commission (CFTC) announced that it has hired a new head of its enforcement unit, Ian McGinley, who is a former prosecutor for cybercrime with experience in cryptocurrency cases.
All signs point to a continued aggressive stance by US regulators. The SEC specifically took a series of enforcement actions in the first quarter of 2023, targeting cryptocurrency lending programs and other products and services for failing to properly register under securities laws.
The continued focus on enforcement has drawn criticism from the crypto industry, which has warned that regulation pending enforcement could force innovators to flee the US market. Brad Garlinghouse, CEO of Ripple – who has been involved in a long-running lawsuit with the SEC – expressed his opinion on March 3 that crypto companies are already leaving the US. Meanwhile, Coinbase CEO Brian Armstrong argued in a March 1 interview that the US needs to prioritize developing a clearer regulatory framework for cryptocurrencies or risk falling behind other countries.
Illinois is proposing a regulatory framework modeled after the New York BitLicense
While the crypto industry has expressed frustration with the perceived lack of regulatory clarity at the federal level, at least at the state level in the US, there is more movement toward clarifying regulatory requirements for cryptocurrencies. The state of Illinois is moving forward with legislation that would provide a licensing framework for cryptoasset service providers and strengthen consumer protections for crypto users in the state.
If passed, crypto exchanges and other platforms would have to obtain a license from the Illinois Department of Professional and Financial Regulation (IDFPR). The approach proposed there resembles many aspects of the BitLicense framework that has been in place in New York State since 2015.
The New York Department of Financial Services (NYDFS) – which administers the Bitlicense regime – recently introduced a number of regulatory guidelines related to cryptocurrencies, including guidelines related to stablecoins, safekeeping of cryptocurrencies, and the use of blockchain analytics by regulated businesses. By adopting a similar approach, Illinois hopes to both provide a regulatory framework that can protect investors while also providing clear guardrails for crypto businesses offering them a path to licensing.
Regulation of CBDCs Articles
