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US intelligence is looking at Chinese CBDC as a national security threat

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The United States national security apparatus is warning other agencies about China’s upcoming digital currency. 

On Wednesday, news outlet the Washington Examiner reported on a letter that National Intelligence Director John Ratcliffe had sent Securities and Exchange Commission Chairman Jay Clayton earlier in the month.

According to the report, Ratcliffe offered to have staff brief Clayton on the security issues that derive from China’s dominance in crypto mining as well as the country’s progress in digitizing the yuan. Ratcliffe’s letter also apparently pushed Clayton to ensure that U.S. crypto firms remain competitive.

Cointelegraph has reported extensively on the race for a central bank digital currency, or CBDC. Among major economies, China seems to be closest to launch. 

Since Bretton Woods in 1944, the U.S. has enjoyed a privileged status as the issuer of the world’s reserve currency, the U.S. dollar. To this day, almost all international trade is settled in dollars, though that is changing for countries like Russia and China, which are subject to extensive U.S. sanctions.

The dollar’s special status affords the Federal Reserve extra flexibility in printing more dollars without running into hyperinflation, as there is huge demand beyond U.S. shores. It is also this special status that allows U.S. sanctions to be such useful instruments of international influence.

A successful digital yuan could challenge the status of the dollar in international trade. The flip side, however, is that many see a digital yuan as a tool of surveillance for the Chinese Communist Party. While that might reduce demand, the upgraded access to information may be another factor that Ratcliffe is worried about. 



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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.