Government officials from the G20 economies have shown interest in exploring the benefits of launching central bank digital currencies (CBDCs), with several countries taking steps towards CBDC development. In the US, the Treasury Under Secretary for Domestic Finance, Nellie Liang, stated that the government is taking steps towards advancing work on policy issues associated with a US CBDC. The Reserve Bank of Australia also announced its efforts to advance CBDC exploration, exploring the potential utility of CBDCs in facilitating 14 use cases. Meanwhile, in the UK, Deputy Governor for the Bank of England Jon Cunliffe stated that it is “more likely than not” that the UK will pursue CBDC development. These statements from policymakers indicate a shift in their views on the importance of maintaining innovative and competitive payment systems in the face of the financial services landscape that now includes stablecoins and cryptoassets.
On the other hand, the European Union (EU) plans to bring non-fungible token (NFT) markets within the scope of its anti-money laundering and countering financing terrorism (AML/CFT) requirements. Currently, NFT marketplaces are not covered by AML/CFT measures imposed by the EU, but they will be included in draft updates to the bloc’s AML/CFT regulation in response to the potential financial crime risks of NFT markets.
Meanwhile, the US Treasury’s Office of Foreign Assets Control (OFAC) has directed financial sanctions towards peddlers of opioids, including the Hebei Atun Trading Co. Ltd. which was sanctioned back in December 2021 for importing precursors used to manufacture fentanyl. OFAC has previously targeted other entities that have used cryptoassets to facilitate the trade of fentanyl. In November 2022, it sanctioned a network of individuals and entities in the UK and the Netherlands involved in trafficking fentanyl through the dark web.
Lastly, French authorities have arrested individuals involved in exploiting the Platypus DeFi protocol, alleging that the exploit amounted to theft that harmed other users. The incident led to the loss of more than $9 million from the Platypus protocol following a flash loan exploit, where an attacker takes out an uncollateralized loan from a DeFi lending protocol and uses the funds to manipulate market prices.
The prospect of CBDCs is gaining traction among policymakers globally, as they seek to ensure that payments systems remain innovative and competitive. China is leading the race, having already launched its digital yuan, which is in use in several major Chinese cities. The US, UK, and Australia are among the countries exploring the benefits of launching a CBDC.
In the US, the government has not yet reached a consensus on whether a digital dollar is necessary, but the Treasury is taking steps to “advance work on policy issues posed by the prospect of a US CBDC”. A cross-agency CBDC working group, consisting of senior US officials, is examining whether the US should pursue a wholesale or retail CBDC, with the government taking steps to ensure it is “positioned to issue a CBDC if it were determined to be in the national interest”.
Australia has also not yet made a decision on whether to issue a CBDC, but the Reserve Bank of Australia is collaborating with public and private sector stakeholders to explore potential use cases for an Australian CBDC. Under the research project, the Reserve Bank is exploring the potential utility of a CBDC in facilitating 14 identified use cases, from enabling offline payments to facilitating tokenized FX settlement to corporate bond settlement.
In the UK, a consultation was launched in early February on the prospects for a digital pound, with the Deputy Governor for the Bank of England stating that it is “more likely than not” that the UK will pursue the development of a CBDC.
Moreover, the move by the EU to bring NFT marketplaces under its AML/CFT regulations is a response to the growing concerns of policymakers around the world regarding potential financial crime risks in these markets. As per Elliptic’s report on NFTs and financial crime, it has become crucial to prevent frauds, scams, and money laundering activities involving NFTs. Therefore, policymakers are focusing on increasing oversight to mitigate such risks.
Similarly, the US Treasury’s Office of Foreign Assets Control (OFAC) has taken a significant step by directing financial sanctions at drug traffickers dealing in fentanyl. The agency updated its sanctions list on February 28th to include a Bitcoin address belonging to a Chinese company sanctioned earlier for importing precursors used to manufacture fentanyl. In the past, OFAC has also sanctioned individuals and entities involved in trafficking fentanyl using cryptoassets.
The actions by OFAC demonstrate that the US government is becoming increasingly focused on targeting fentanyl trafficking networks that use cryptoassets to facilitate their activities. Elliptic’s research shows that crypto wallets controlled by entities and individuals that OFAC has sanctioned for trafficking fentanyl have received over $14 million.
The latest incident involving the arrest of individuals involved in exploiting a DeFi protocol in France highlights the growing concerns around the safety and security of decentralized finance. The DeFi sector has seen exponential growth in recent years, and the increased attention has led to a rise in hacks and exploits.
The exploit of the Platypus DeFi protocol resulted in the loss of more than $9 million, and French authorities have arrested individuals alleging that the exploit amounted to theft that harmed other users. Such incidents call for more stringent measures to ensure the safety and security of DeFi protocols.
In conclusion, the recent developments in crypto regulatory affairs indicate that policymakers are taking steps to ensure that digital currencies and assets remain innovative and competitive while minimizing potential financial crime risks. The prospect of launching CBDCs has gained traction globally, with several major economies exploring the potential utility of digital currencies.
Moreover, the move by the EU to bring NFT marketplaces within its AML/CFT regulations and OFAC’s efforts to target fentanyl dealers with sanctions demonstrate that policymakers are becoming increasingly focused on mitigating potential financial crime risks in the crypto industry. As the crypto industry continues to evolve, it is crucial for policymakers to maintain a balance between innovation and security. The recent developments indicate that policymakers are taking steps in the right direction to ensure a safe and secure crypto industry.