Cryptocurrency a threat to traditional banking

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Cryptocurrencies Pose National Security Threat, Mnuchin Says

WASHINGTON — Treasury Secretary Steven Mnuchin said on Monday that he had “very serious concerns” about cryptocurrencies, including the one being developed by Facebook, the latest indication that Washington is preparing to exert its power over digital currencies.

In a briefing at the White House, Mr. Mnuchin said cryptocurrencies posed a national security threat because they can be used to fund illicit activities. He also said that the Trump administration was “not comfortable” with Facebook’s plans to begin a digital payment system, called Libra.

The warnings come after similar comments by President Trump, who said in a series of Twitter posts last week that he was “not a fan” of cryptocurrencies and that their value was volatile and “based on thin air.” Mr. Trump warned Facebook that it must seek a banking charter and follow all bank regulations if it wants to be in the digital currency business.

The Trump administration has said little about cryptocurrencies in the past two years, despite their growing popularity. Mr. Mnuchin has largely described the new technology for creating, moving and storing money as a potential consumer protection issue rather than a threat to the financial system. Regulators have long focused on how to minimize crime in the cryptocurrency industry, but it has tended to be a wonky issue that has not attracted much public attention.

But Facebook’s announcement of Libra has spurred Washington’s interest in cryptocurrencies.

The chair of the Federal Reserve, Jerome H. Powell, said last week that the central bank had “serious concerns” about Libra and had been in contact with Facebook regarding its project.

This week, the House and Senate will hold hearings to examine Libra, and lawmakers plan to grill David Marcus, the Facebook executive who is overseeing the project. Facebook was asked to cease work on the project until it addresses lawmakers’ concerns.

Facebook’s crypto foray has renewed attention on the thousands of cryptocurrencies that flourished after the original digital currency, Bitcoin, which was released in 2009 and envisioned as a new kind of money that would not be controlled by any government or central authority.

Bitcoin was presented by its mysterious creator, Satoshi Nakamoto, as a largely political project, aimed at challenging central banks and governments.

But from the early days, Bitcoin gained traction among people looking to make illegal transactions online. The Silk Road, an online market for illegal drugs, was started in 2020 and became a booming business, with every payment sent in Bitcoin.

In recent years, there have been many legitimate businesses set up around cryptocurrencies. Most of these businesses are focused on using Bitcoin and other cryptocurrencies as investment products, similar to gold.

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Several large financial institutions, including Goldman Sachs and Fidelity, have begun to offer products related to Bitcoin to their customers.

This mainstream validation has helped give Bitcoin a sheen of legitimacy and pushed up the price of the digital token. But it has also led to increased volatility in the price of Bitcoin and other cryptocurrencies.

The price of a single Bitcoin soared to nearly $20,000 in early 2020. Since then, it crashed to $3,000, but has risen swiftly again in recent months to around $12,000.

Bitcoin has also become the standard currency for ransomware operations in which victims lose control of their computer to remote hackers. Victims are able to get back their files only if they send a Bitcoin payment. Many cities have lost control of their computer networks in these kinds of attacks.

On Monday, Mr. Mnuchin cited the use of Bitcoin in terrorist financing, tax evasion and human trafficking, though so far, law enforcement officials have brought few cases in those areas.

“The Treasury Department has expressed very serious concerns that Libra could be misused by money launderers and terrorist financiers,” he said, adding that “we will not tolerate the use of the cryptocurrencies in support of illicit activities.”

Facebook does not intend to release the currency until next year, but the company has big ambitions for the project, which it hopes will become a new global currency and the foundation for an alternative global financial system.

Those ambitions — and Facebook’s broader reputational problems — have made the project such a lightning rod for controversy.

“We know we need to take the time to get this right,” Mr. Marcus, the Facebook executive, said in testimony released ahead of the Senate Banking Committee hearing. “And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”

Facebook has designed Libra so that it will be run by a Swiss association governed by at least a hundred companies and other partners, rather than just Facebook itself.

When Facebook announced Libra, it said it already had 27 partners, including big players like Uber, Mastercard, Visa and Spotify. But so far those partners have largely remained silent and Facebook has borne the brunt of the scrutiny facing Libra.

It is clear that Facebook will be facing a raft of new regulations and public scrutiny as it proceeds.

Mr. Mnuchin said that cryptocurrencies must comply with the Bank Secrecy Act and register with the Financial Crimes Enforcement Network. They must also meet the same anti-money laundering and counterfeiting standards as traditional financial firms.

The Treasury secretary also expressed concerns about the speculative nature of Bitcoin and about Facebook’s problems protecting the privacy of its users.

“Our overriding goal is to maintain the integrity of our financial system and protect it from abuse,” Mr. Mnuchin said.

The Trump administration’s concerns about Libra appear to be bound up in the president’s broader distrust of the social networking giant. Mr. Trump tweeted about Libra soon after a social media summit meeting in which he criticized Facebook and other big tech companies, accusing them of silencing conservative voices, including his.

Mr. Mnuchin insisted the administration was not trying to retaliate against Facebook. “No, we’re not going to target any one entity,” he said. “Everybody is playing by the same rules.”

Mr. Powell, the Fed chair, expressed similar concerns about Libra last week, telling lawmakers it could not go forward “without their being broad satisfaction with the way the company has addressed money laundering, all those things.” He also raised data privacy and consumer protection concerns, saying, “All of those things will need to be addressed very thoroughly, and carefully, in a deliberate process that will not be a sprint to implementation.”

Skepticism about Libra, and cryptocurrencies more broadly, represent a rare issue where the Trump administration and some Democrats are united. Last week, Senator Sherrod Brown, Democrat of Ohio, called on the Fed to protect consumers from Facebook’s “Monopoly money.”

“The largest banks and the largest tech companies do not act in the interest of working Americans, but in the interest of themselves and their investors,” Mr. Brown said. “The Fed must take a proactive role to ensure that the payments system remains accountable to the public.”

However, Republicans have tended to be more sympathetic to the cryptocurrency industry, and have positioned it as something that the government should be working to protect as a check against government and corporate power.

Just this week, Representative Kevin McCarthy, the House minority leader, argued in a New York Times op-ed article that cryptocurrencies and the networks they create could provide an answer to the privacy scandals facing the internet giants.

Mr. Trump’s acting chief of staff, Mick Mulvaney, has been a vocal advocate of Bitcoin in the past.

Davos 2020: Crypto is Not a Threat to Traditional Banks, Believe Bank of England’s Officials

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According to Huw van Steenis, senior adviser to Bank of England Governor Mark Carney, cryptos have no value and fail fundamental tests of financial services.

While crypto enthusiasts strongly believe in the potential of crypto assets to replace traditional units of exchange despite the market’s high volatility and lack of stability, supporters of traditional financial systems say that crypto assets have no chance.

Nevertheless, it doesn’t mean that Bitcoin and other cryptocurrencies do not attract the public’s attention anymore. Still, they are being widely discussed by a lot of prominent members of established institutions and Huw van Steenis, the senior adviser to Bank of England Governor Mark Carney, is one of them.

No Worries about Cryptocurrencies

Speaking about the prospects of the financial system on the sidelines of the 2020 World Economic Forum in Davos, Switzerland, Van Steenis noted that today many banking institutions are losing their heads trying to win the competition with the emerging technology, but in his opinion it’s absolutely senseless to worry even about the major cryptocurrencies without speaking about the smallest ones.

He explained that in his opinion digital assets could not compete with the traditional systems. He said:

“I’m not so worried about cryptocurrencies. They fail the basic tests of financial services. They’re not a great unit of exchange, they don’t hold value, and they’re slower. One of the biggest challenges for the BOE will be how to regulate new entrants to the banking system, particularly from technology firms.”

Nevertheless, according to Van Steenis, fintech companies have a real obsession with their customers, they listen to them and try to give them what they want. And as for services, it is quite obvious that customers want them to be cheaper, faster and more effective and digital services providers are actively working in this direction.

The task for traditional banks is to manage to innovate timely and to get their customers. Van Steenis also said that one of the main goals for the United Kingdom is to become “vibrant center” for fintech in the following 5-10 years.

No Threat to Financial Stability

In March 2020, Mark Carney, who is the governor of the Bank of England, stated that cryptocurrencies don’t pose a threat to global financial stability.

In his opinion, the innovative crypto technologies could be even used to boost the development of the global economy and to enhance the effectiveness of the financial system in case they are implemented in a proper way.

Carney’s assessment was based on the fact that despite the entire hype around crypto assets, in reality, they were very small relative to the financial system. Even when they were at their peak, their combining market value amounted to less than 1% of the world’s combining GDP.

UK and Crypto

But it’s also worth mentioning that while some prominent figures in the financial industry do not take cryptocurrencies seriously, some members of the UK government want to support the mass adoption of digital assets.

For example, Eddie Hughes proposed to allow UK residents to pay their local taxes and utility bills using Bitcoin.

Having obtained a diploma in Intercultural Communication, Julia continued her studies taking a Master’s degree in Economics and Management. Becoming captured by innovative technologies, Julia turned passionate about exploring emerging techs believing in their ability to transform all spheres of our life.

British Banking Association: Bitcoin is a Real Threat to Banks

Emily Spaven

British Banking Association: Bitcoin is a Real Threat to Banks

As cryptocurrencies grow in popularity, they will continue to threaten revenue streams of the traditional banking system, according to a new report from the British Banking Association (BBA).

A section of The Digital Disruption: UK Banking Report looks specifically at cryptocurrencies and the impact they have already had, and will continue to have, on people’s perceptions of monetary transfer.

“Cryptocurrencies increasingly look like becoming ubiquitous challengers to more familiar, established currencies. And, as they grow in popularity, so too will the risks for banks,” the report reads.

It goes on to emphasise issues presented and faced by bitcoin, including its volatility, its perception as a haven for illegal payments activity and its relatively low market cap ($3.4bn at press time).

However, the report concedes that the risks presented to the banking system by bitcoin should not be ignored:

“Bitcoin users can handle many of their daily payments needs themselves, without the need for interaction with banks, and avoiding the need to incur bank fees. In the same way, value stored in PayPal accounts moves outside of the bank’s payment systems, depriving banks of valuable payments revenue.”

The BBA believes it is important for banks to take action now, investing time and energy in understanding how best to use the technology behind bitcoin.

“Banks must accept that they are increasingly part of the broader ecosystems that customers are constructing around themselves. However, their place in these ecosystems is far from secure,” the report concludes.

Read more about.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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