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Law Decoded: When central banks seek public discussion, Jan. 17–24

Last week, two central banks dropped public reports that can have a sizable impact on the crypto landscape in their respective countries and beyond. The U.S. Federal Reserve published a discussion paper entitled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” which summarizes years of the Fed’s research on CBDCs. Meanwhile, the Central Bank of Russia released a report that called for a blanket ban on domestic cryptocurrency operations and mining. Both documents are framed as an invitation for public discussion, but the kinds of discussions that they will trigger are likely to be very different.Below is the concise version of the latest “Law Decoded” newsletter. For the full breakdown of policy developments over the last week, register for the full newsletter below.The Fed: Not advancing particular policyThe authors of the Fed’s much-anticipated report make a point to note on several occasions that the paper “is not intended to advance any specific policy outcome.” Indeed, the report gives off a vibe of open-endedness and covers both risks and benefits of a potential U.S. CBDC. Specifically, it acknowledges user privacy concerns that some crypto advocates have previously voiced in the context of the potential digital dollar’s design.On Twitter, crypto-friendly members of the U.S. Senate sounded content with the document’s findings and framing. Senator Cynthia Lummis welcomed the report’s concession that the ultimate fate of the U.S. CBDC project rests with Congress:I’m pleased the Federal Reserve released their long-awaited report on central bank digital currencies this afternoon. Here’s a quick thread of my thoughts.https://t.co/UAJFIPwiqG— Senator Cynthia Lummis (@SenLummis) January 20, 2022Senator Pat Toomey called the paper a constructive contribution to the public discussion around the issuance of a CBDC.Cryptocurrencies, digital assets, and their underlying technologies offer tremendous potential benefits. As such, I’m glad the @federalreserve has constructively contributed to the necessary ongoing public discussion regarding the issuance of a CBDC. https://t.co/10ld3lfXt6— Senator Pat Toomey (@SenToomey) January 20, 2022

CBR: Ban domestic operationsIn contrast to their U.S. counterparts, Russian central bankers are very much advocating for a particular policy. They’ve suggested that investor safety and financial stability risks that cryptocurrencies pose warrant a complete ban of domestic crypto operations and mining activity, as well as introducing punishments for individuals breaching these rules. Notably, the proposed ban specifically concerns the usage of domestic financial infrastructure for crypto transactions, and during a press conference that followed the report’s publication, a Central Bank of Russia official suggested that Russian citizens would still be allowed to engage with crypto using overseas rails.The report is remarkable for making some candid points as to why the ban is needed. For one, the authors recognize that emerging economies, including Russia’s, are more susceptible to the adverse effects of crypto compared to those of developed nations. Furthermore, it states that wide adoption of crypto could undermine Russia’s monetary sovereignty and be at odds with a potential sovereign CBDC that the report passingly praises.Crypto ads: Second phase of regulation?In a series of moves that almost looked coordinated, regulators in the United Kingdom, Spain and Singapore took on cryptocurrency promotions and ads last week. While the first two mainly focused on ensuring appropriate risk disclosures, Singapore opted for a stricter stance of outlawing any and all crypto-related advertisements in public spaces. Binance CEO Changpeng Zhao questioned the capacity of these measures to limit crypto demand because of the prevalence of word-of-mouth marketing in the digital asset space.Such a shift of focus could mark the next step in the evolution of crypto regulation. Jurisdictions that have put comprehensive AML and CFT rules in place are now turning to consumer protection measures as the rapid mainstreaming of digital assets gives rise to marketing strategies that target mass audiences far beyond the tech-savvy core of early crypto adopters.

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Industry experts reveal a possible method for Bank of Russia to block crypto

Amid the ongoing uncertainty about the future of cryptocurrencies in Russia, one local industry executive has disclosed a potential method for the Bank of Russia to block crypto transactions.Andrey Mikhaylishin, CEO of the local crypto payment startup Joys, said that the Russian central bank is now considering several potential options to make its crypto ban possible, Forbes Russia reported Friday.One of the possible restriction methods includes blocking debit card payments to crypto exchanges or wallets using merchant category codes (MCC), Mikhaylishin said. The report notes that the executive became aware of this blocking method from Bank of Russia employees.MCC codes are four-digit numbers used by credit card processors like Visa or Mastercard to describe a merchant’s primary business activities. For example, crypto transactions are usually identified with the 6051 MCC code, while payments at grocery stores have the 5411 MCC code. According to the report, the Bank of Russia could oblige local banks to simply ban transactions with the 6051 MCC code.While the potential plan is apparently still being discussed in Russia, some industry figures have questioned the effectiveness of such a strategy.Maria Stankevich, a member of the Russian Committee on Blockchain Technologies and Cryptoeconomics, told Cointelegraph that potential MCC-based restrictions would trigger transparent businesses to leave the country while not affecting illegal crypto exchanges:“I am 100% sure if they prohibit transfers to cryptocurrency with the right MCC, then honest exchanges will leave the market in the first place. There will remain grey crypto exchanges, which will do so-called miscoding, using other codes for transactions.”Stankevich suggested that miscoding penalties at providers like Visa are insufficient for illegal crypto exchanges to stop their operations. As previously reported, there are several grey crypto businesses in Russia, with at least 50 of them located in Moscow City, a financial district in Russia’s capital.The exec also expressed optimism about the cryptocurrency industry in Russia, pointing out that the Bank of Russia is essentially the only regulator that is against crypto adoption in the country:“We have always known that the central bank is against crypto and wants it to be banned, but I still don’t think that this will be the way for Russia, because the central bank is in the minority there.”Related: Bank of Russia governor: Banning crypto in Russia is ‘quite doable’“I personally know many high-ranking officials in Russia that understand the importance of crypto,” Stankevich added.The news comes after Bank of Russia governor Elvira Nabiullina announced the Bank’s intention to prevent the local financial system from using crypto. Another exec at the bank subsequently claimed that Russians will only be able to invest in cryptocurrencies like Bitcoin (BTC) through foreign companies.

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Bank of Russia governor: Banning crypto in Russia is 'quite doable'

In a Friday press conference, Central Bank of Russia governor Elvira Nabiullina further escalated the fear, uncertainty, and doubt (FUD) surrounding the state of crypto regulation in the country. When asked about the rise of digital assets, Nabiullina gave the following remarks, as reported by local news outlet finmarket.ru and translated by Cointelegraph:You know that our attitude towards cryptocurrencies is of, to put it mildly, skepticism. Related to this are the significant risks for retail investors and the substantial volatility for this type of asset. In addition, cryptocurrencies are opaque in that they are frequently used for illegal operations or criminal nature. Therefore, we cannot welcome investments in them. We seek to prevent the Russian financial infrastructure from using crypto transactions. This is quite doable.Nabiullina’s remarks came one day after conflicting reports pointed to the possibility of a blanket ban on cryptocurrency exchanges in Russia. As Cointelegraph recently reported, concerns about crypto have even made their way to the presidential office, with Vladimir Putin issuing a warning about digital assets. Related: Bank of Russia to ban mutual funds from investing in BitcoinIn context, countries of the former Soviet Union remain far more susceptible to financial crimes such as money laundering or tax evasion than their Western counterparts. This is because privatization of state enterprises from the breakup of the USSR concentrated power in the hands of individuals who possessed enough “capital” to purchase shares at that time — mafias, gangs, and black-market participants. Relatively speaking, the anonymous, borderless, instantaneous, and regulatory-lacking nature of crypto would therefore be a greater enabler of criminal activities in the region. Partly to combat the problem, Russia is prioritizing the development of a regulatory-compliant digital Ruble as a sizable competitor to cryptos developed in the private sector.

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