Is the US financial sector ready for a secure central bank digital currency?

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A “Buy Bitcoin Here” sign is displayed at a 7-Eleven store on November 10, 2021 in Los Angeles. (Photo by Mario Tama/Getty Images)

Over the past few months, cryptocurrencies have rapidly evolved from an edgy alternative payment with a dubious following, to becoming a credible national vehicle backed by a national bank for legitimate transactions, a so-called “bank digital currency”. Center” (CBDC) in China, Sweden and various countries in Central and South America and Africa.

However, in the United States, where interest in cryptocurrency is high but banking is highly regulated and security issues are commonplace, there is tremendous push and pull in efforts to move to a U.S. CBDC system, according to a Tuesday report by OneSpan.

In fact, the Financial Crimes Enforcement Network (FinCEN), a unit of the U.S. Treasury Department, updated its regulations late last year, with an eye on cryptocurrencies, according to Michael Magrath, vice-president. Chairman of Global Standards and Regulations. to OneSpan and author of the report. “While the movement [among regulators] had defaulted, we are seeing more traction now,” Magrath said, adding that the Federal Reserve Bank promised in September that it would soon deliver a report on its cryptocurrency plans. And in July [2021]FinCEN has appointed its first “Chief Digital Currency Advisor”, Michele Korver.

And more developments are underway, including a collaboration between the Federal Reserve Bank of Boston and MIT to assess the cryptocurrency’s viability as a CBDC, Magrath added.

“Cybersecurity concerns often go hand in hand with cryptocurrency, which – due to its anonymity and a general lack of regulation on exchanges – is frequently demanded as payment in the event of ransomware attacks,” according to OneSpan’s second annual Global Financial Regulation Report.

“Central banks issue warnings, institute licensing regimes, prohibit banks and other financial institutions from trading or facilitating crypto transactions, and enforce know-your-customer and other anti-money laundering rules of money and the financing of terrorism to crypto exchanges,” the report underlined. “Still, crypto investors are undeterred as interest levels hit record highs in 2021.”

The OneSpan report is based on a survey this fall of 172 bank executives in the US, France, Mexico and the UK (68 of them were US ISP executives), representing institutions with assets of $5 billion or more. The report found that despite potential privacy, audit trail, regulatory and security issues, there are approximately 81 global “jurisdictions” exploring the CBDC through their financial sector and backed by the reserves and settlement system. of their central bank.

These central bank digital currencies aim to “revolutionize the existing financial system by making payments cheaper, faster and more accessible [to] foster financial inclusion and reduce friction points in cross-border transactions. Magrath points out that the push for CBDCs was largely born out of “central banks wanting control over cryptocurrencies in their countries…as more and more of their citizens migrate digital.”

Six in 10 banks globally believe their countries are “well positioned” to develop and support a CBDC over the next two years – rapid adoption, given the change this heralds, according to the report. Worldwide, 84% of ISPs are already embracing CBDCs, according to OneSpan. However, interestingly, US banks have made the least effort to prepare for the advent of these more legitimate digital currencies.

Overall, two-thirds of bankers (67%) agree that cryptocurrency regulations will make their involvement in supporting these payment systems and a CBDC much more attractive.

“Banks need to get it right…as they set policies and conduct pilots, there is an intoxicating digital currency structure to the retail model, with banks acting as intermediaries,” Magrath said. , adding that he expects the focus to be on strong authentication and security. regulators. In July, Federal Reserve Chairman Jerome Powell said the creation of a CBDC could even help mitigate the growing influence of untracked cryptocurrencies.

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