Not Like Before: Digital Currencies Debut Amid COVID-19
Famed currency speculator George Soros, who in 1992 broke the Bank of England to emerge a billionaire overnight by forcing the pound out of the European Exchange Rate Mechanism, believes:
“We will not go back to where we were when the pandemic started. That is pretty certain. But that is the only thing that is certain. Everything else is up for grabs.”
Giles Coghlan, the chief currency analyst at HYCM, had the following to say: “The volatile market conditions that have come about as a result of COVID-19 has investors looking for safe haven assets to protect their capital. The price of gold has risen, as has the value of the USD [which currently accounts for about 60% of all central bank foreign exchange reserves, while the next closest currency is the euro with 20%] and JPY — some of the leading safe haven currencies. And interestingly, it looks as though market interest towards digital currencies are changing. As part of social distancing measures, there is now a preference for digital payments over traditional cash. One could argue that eventually we will become a cashless society, and COVID-19 has simply accelerated this awareness.”
Elon Musk — who co-founded and leads Tesla, SpaceX and Neuralink — pointed out that “massive currency issuance by govt central banks is making Bitcoin Internet money look solid by comparison,” adding, “I still only own 0.25 Bitcoins btw.”
COVID-19 has led to an increased interest in digital currencies around the world
A growing number of nations, cities and companies are looking to develop digital coins, with regional initiatives taking shape to target the United States dollar’s supremacy on the global stage. The Federal Reserve Bank of Philadelphia warned in a paper that with the introduction of central bank digital currencies, central banks may arise as “deposit monopolist[s],” replacing commercial banks and disrupting the existing banking system. JPMorgan Chase has also expressed agreement with the idea that the dollar is under threat due to the continued growth in CBDC traction.
According to a survey by the London-based journal Central Banking — a specialized publication supported by the Bank for International Settlements and the European Central Bank, among others — 65% of central banks in the 46 countries surveyed were researching CBDCs, with 71% of respondents indicating their preference for a constrained form of distributed ledger technology. Yves Mersch, an ECB board member, pointed out that the number of central banks already working on a CBDC may be a bit higher, with about 80% of the 66 central banks surveyed by the BIS indicating that they were doing so.
Venezuela issued the first state-backed digital stablecoin, the Petro, which is now mandatory for gas stations in the country to support. Other nations sanctioned by the U.S., such as North Korea, Iran and Cuba, are devoting significant technical resources to develop CBDCs.
Related: Petro Couldn’t Save the Cartel of the Suns Conspiracy From the Sting of Sanctions
The Bank of Lithuania is slated to issue a batch of digital blockchain-based collector coins from a purpose-built e-shop that can be redeemed for physical coins. While in Senegal, Grammy-nominated singer Akon is expected to launch Akoin, a cryptocurrency that will be the local currency in Akon City, a 2,000-acre development project. Both projects are expected to launch next month.
Related: Journeys in Blockchain: Akon of Akoin and Akon City
On the corporate stablecoin development side, Facebook’s Libra stablecoin is expected to be pegged to the dollar and the euro to function within the existing global financial system. At the same time, 19 companies in China including local chains of U.S.-based companies Starbucks, Subway and McDonald’s are trying out stablecoins through a pilot program launched by the People’s Bank of China based on its mobile payment system instead of the SWIFT system.
By the end of this year, the People’s Bank of China is expected to launch a digital yuan, likely distributed person to person via a mobile payment system utilizing Huawei’s 5G technology. China’s vast Belt and Road initiative and the yuan’s inclusion into the Special Drawing Rights currency basket — which is based on five currencies: the dollar, the euro, the yuan, the Japanese yen and the British pound — signifies the internationalization of the yuan, which has officially become one of the world’s reserve currencies.
Accordingly, China has been collaborating with many countries to develop mobile blockchain-based “cross-border payment networks.” The East Asia digital currency initiative is expected to consist of the yuan, the yen, the Hong Kong dollar and the South Korean won, with the yuan and yen accounting for about 60% and 20% of the digital currency’s value, respectively. China is also collaborating with Singapore’s central bank and financial regulatory authority to develop a CBDC.
Russia is leading another multinational digital currency initiative with BRICS and Eurasian Economic Union countries. Askar Zhumagaliyev — the minister of digital development, innovation and aerospace industry for EEU member state Kazakhstan — recently stated that the country was expecting “another 300 billion tenge (US$738.4 million) in the next three years as digital investments and in general, the further development of digital mining.”
In the eurozone, the Banque de France has become the first to successfully trial a digital euro operational on a blockchain, according to an announcement.
The Saudi Arabian Monetary Authority, which is creating a binational digital currency with the United Arab Emirates called Aber to be used for cross-border transactions, announced that it recently injected liquidity into local banks via blockchain technology.
COVID-19 has led to an increase in digital financial crime
According to a report from the Financial Action Task Force, since the COVID-19 pandemic began, financial crimes have been on the rise. These findings are quantified by cybersecurity firm CipherTrace’s recent report stating that $1.4 billion in cryptocurrency has been stolen by malicious actors in the first five months of the year. And according to a research conducted by the Rand Corporation, a nonprofit U.S. think tank, Bitcoin (BTC) is the preferred digital coin for money laundering, trade in illicit goods and services, and terrorism financing.
As a result, U.S. government agencies such as the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Financial Crimes Enforcement Network and the Federal Bureau of Investigations have all recently issued alerts addressing a range of illicit activities, targeting the financial industry and playing on the fears of investors, and they have released educational materials that make people aware to help them avoid digital-currency-related scams. They have also continued engaging in multijurisdictional investigations, charging those who engage in complicated money laundering schemes involving cross-border cryptocurrency transactions.
“Through the use of digital currencies and trans-border organizational strategies, this criminal syndicate believed they were beyond the reach of law enforcement,” said Michael D’Ambrosio, the assistant director of the Secret Service’s Office of Investigations. He added:
“However, as this successful investigation clearly illustrates, with sustained, international cooperation, we can effectively hold cyber criminals accountable for their actions, no matter where they reside.”
“Today’s guilty pleas serve as a reminder that IRS-CI special agents will uncover illegal activity here and abroad, pierce the perceived veil of anonymity provided by cryptocurrencies, and bring those responsible for unlawful acts to justice,” said Jonathan Larsen, the special agent in charge of the IRS-Criminal Investigation New York Field Office. He further stated:
“We will continue to push the agency to the forefront of complex cyber investigations and work collaboratively with our law enforcement partners to ensure the United States financial system is protected.”
COVID-19 pandemic’s impact on the U.S. Treasury Department
The U.S. economic response to coronavirus pandemic — with the nation having the highest COVID-19 case and death tallies by a wide margin — has been overwhelming, with around $3 trillion in fiscal stimulus coupled with a massive injection of liquidity into the financial system by the Fed. The CARES Act, which has thus far been the most significant legislation passed in response to the pandemic, was the nation’s largest economic relief package ever and was praised by Treasury Secretary Steven Mnuchin, who claimed it saved millions of jobs.
Accordingly, the treasury secretary indicated in a recent letter to four European finance ministers that discussions on the Organization for Economic Cooperation and Development’s digital tax proposal had reached an “impasse.” He stated in the June 12 letter that “attempting to rush such difficult negotiations is a distraction from far more important matters,” adding:
“This is a time when governments around the world should focus their attention on dealing with the economic issues resulting from COVID-19.”
Following Mnuchin’s letter, Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, said:
“I agree with Secretary Mnuchin that this is not the time to be imposing a punitive new tax on mainly U.S. companies — which also erodes America’s tax base, making it more difficult to meet the long-term needs of our country as we recover from COVID-19. Members of Congress will continue working with the Administration to ensure that the OECD is realistic and open to our ideas on how to move forward. It would be a mistake for foreign governments to impose taxes unilaterally that target American companies.”
Quietly on May 12, the Internal Revenue Service issued a statement of work describing its need for “consulting services to support a taxpayer examination involving virtual currency” to ramp up audits of digital currency holders.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Selva Ozelli, Esq, CPA, is an international tax attorney and certified public accountant who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.
