US central bank’s plan for cryptocurrencies

Context

The US Federal Reserve is working on a paper s that will focus on the benefits and risks of a central bank digital currency, which it issued recently.

Reasons behind the move

• The paper is significant as cryptocurrency market has suffered its worst crash in over 12 months, with leading cryptocurrencies sliding over 25 per cent in 24 hours.
• US central bank comes in the wake of China joining multiple countriesthat have ended the central bank digital currency (CBDC) space, stoking concerns that this could undermine the US dollar’s position as the reserve currency of the world.

How are other jurisdictions looking at cryptocurrencies and digital currencies?

• China: China barred financial institutions and payment companies from providing any services related to cryptocurrency transactions. This means that banks and online payments channels, must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement.
  • The announcement of a crackdown by Chinese authorities led to major cryptocurrencies seeing a crash in their pricesby as much as 40% in a 24-hour period.
• India: In India, the government has floated The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”.
  • It was to be introduced in Parliament’s Budget session earlier this year, but was held up as the government continues discussions with stakeholders.