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Mastercard launches virtual testing environment for central bank currencies

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Mastercard announced on Wednesday the release of a proprietary tool targeted to central banks that wish to test their Central Bank Digital Currency, or CBDC.

Over 70% of central banks are entertaining the idea of a digital currency in some form, a Bank of International Settlements report noted. While few have moved into actual concept and experimentation, the tool released by Mastercard aims to make testing simpler.

The tool simulates various types of transaction environments to let central banks evaluate CBDC use cases. It mimics the issuance, distribution and exchange of CBDCs between banks, financial services companies and consumers. 

Mastercard called for partners to use the platform to evaluate the effectiveness of CBDC’s technological designs, proposed use cases and the interoperability with existing payment methods.

Curiously, one of the possibilities of the virtual sandbox is demonstrating “how a CBDC can be used by a consumer to pay for goods and services anywhere Mastercard is accepted around the world.”

CBDCs would allow central banks a direct bridge to consumers, avoiding the necessity to go through commercial banks for distributing and collecting money. Some designs are however focusing only on institutional money transfers. Mastercard’s platform appears to be geared for both.

Mastercard can often be seen engaging in various types of distributed ledger technology, including an initial commitment to the Libra consortium in 2019. Later that year the company left the association, primarily citing regulatory headwinds as motivation.

Mastercard’s CEO has also been somewhat critical of CBDCs due to their proposed siloed nature. One of the goals of this tool could be indeed to show central banks the benefits of interoperability, which could perhaps guarantee Mastercard’s continued relevance as payments evolve.

Mastercard’s research and development often involves blockchain or DLT, while its card division has gradually warmed up to crypto-based cards along with its chief rival Visa.



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Regulation

New York authorizes first Yen stablecoin operator in the US

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New York has given the first authorization to a stablecoin backed by the Japanese Yen to operate in the U.S.

Per a Dec. 29 announcement, the New York Department of Financial Services has granted Japanese firm GMO-Z.com a charter to handle U.S.D. and Yen-backed stablecoins in New York. 

Given New York’s status as a global center, the NYDFS is the most prominent state financial regulator in the U.S. It is also one of the most aggressive. A pass to operate in New York often opens up the rest of the country. 

GMO’s charter is as a limited liability trust company rather than a full bank, the principle difference being in authorization to handle deposits. While a stablecoin operator typically needs the ability to hold reserves of the pegged asset, GMO’s charter limits its rights to hold other kinds of deposits not central to its ability “to issue, administer, and redeem” its stablecoins. 

The right to issue such non-depository charters has been a bone of contention between state regulators like the NYDFS and national banking regulators in the U.S. 

GMO president and CEO Ken Nakamura said: “We’re breaking ground with our move to issue the first regulated JPY-pegged stablecoin, which many see as a safe haven asset.” 

The NYDFS recently made changes to its famous BitLicense, including a conditional format that buddies up newly licensed firms with existing licensees. The first conditional BitLicense went to PayPal, facilitating the launch of its new crypto services earlier this fall with the help of longstanding licensee Paxos.