Crypto experts in demand as countries launch digital currencies

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Monetary authorities around the world are rushing to design digital currencies, and many are wondering: who knows how to do this?

Some of the first governments to go digital have found an answer among cryptocurrency enthusiasts. For those rebels to traditional approaches to finance, the digital trend presents an opportunity to create virtual money for an entire nation.

Israeli crypto consultant Barak Ben-Ezer had never visited the Marshall Islands before 2018 when he toured the world to suggest that the Pacific Ocean archipelago adopt a national currency he designed like bitcoin.

The Marshall Islands represented a clean slate for financial innovation: a US-backed nation of 59,000 people spread over more than a thousand islands, with no currency of its own and no central bank. A bank in Honolulu was his only link to the global banking system and access to US dollars used as currency on the islands.

Mr Ben-Ezer told local authorities the country could create and sell its own digital currency. It would be like bitcoin. People everywhere could invest in it, but with one important difference: it would be issued by a national government.

Barak Ben-Ezer, left, testifying in front of the Parliament of the Marshall Islands.


Photo:

Barak Ben-Ezer

“We told them bitcoin is amazing, but it’s not a sovereign currency,” he recalls. “You are sitting on a pile of virtual gold.”

David Paul, who was then a cabinet member of the Marshall Islands, had previously studied cryptocurrency technology on his iPad. “I didn’t need a lot of conviction,” he says.

The government quickly gave Mr. Ben-Ezer responsibilities more generally reserved for treasurers and legislators. Within months, the Parliament of the Marshall Islands overwhelmingly passed a law adopting its creation – which it dubbed the SOV, for sovereign – as legal tender, a crucial step towards its effective issuance.

Demand for digital currency strategies in other countries has been supercharged by signals from China that it may be on the verge of launching a digital version of the yuan. Beijing on Friday said its e-CNY has been tested in more than 70 million transactions worth more than $ 5 billion.

Large central banks often have teams modeling digitization scenarios, although many are also quietly turning to engineers with experience in cryptocurrencies and blockchain, according to advisers. Even the US Federal Reserve has teamed up with such experts – at the Massachusetts Institute of Technology – to create a possible digital dollar.

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Small economies may have more to gain and less to lose by taking a risk on a new kind of money system, according to a book to be published in the fall by Professor Cornell Eswar Prasad, “The Future of Money: How the Digital Revolution Is Transforming Currency And Finance Some smaller countries have been more public by tapping into the expertise of the crypto world.

At the end of 2018, a text message from a financial technology associate alerted Canadian Jay Joe that the Bahamian central bank was issuing a tender to help create a digital version of the Bahamian dollar.

The digital security and blockchain specialist, whose only experience in the Bahamas had been a cruise stopover, assembled a team that had worked on tokenized electronic payments, ethereum cryptocurrency, and financial system technology based on blockchain, the electronic ledger technology that underpins bitcoin and other cryptocurrencies.

“There was no game manual,” Mr. Joe said. “We were building on our experience with blockchain. “

The central bank of the Bahamas had set general parameters. Mr Joe’s team focused their proposal on how a digital currency could benefit island residents away from bank branches, as the money would now be tied to their cell phones. The team won the job for an undisclosed amount.

The central bank of the Bahamas last year launched the “sand dollar,” the world’s first central bank digital currency.


Photo:

Latin America News Age / Reuters

When the Bahamian Sand Dollar was launched last year as the world’s first central bank digital currency, Mr. Joe’s company, NZIA Ltd., secured joint credit for its development.

Suddenly, this kind of expertise is increasingly in demand. “We have had discussions with a number of [central banks] and it’s only getting worse, ”Joe said.

When Cambodia looked for a way to allow its citizens to pay their bills or make other wire transfers for free, it turned to the Tokyo-based company Soramitsu, which is developing funding approaches that can be at odds with traditional government-run systems. Yet it is increasingly called upon by government authorities to help them navigate towards a digital future.

Bakong, the Cambodian network, is technically not a digital currency, but shares some features of it as it is run by the central bank instead of commercial banks or credit card companies. Bakong works as an exchange between an array of payment apps, so users can send and receive money to anyone with a mobile phone number.

Chea Serey, Managing Director of the National Bank of Cambodia, speaking at a ceremony marking the launch of the country’s digital currency “Bakong” in Phnom Penh last October.


Photo:

Kyodo / associated press

“A lot of central banks are carefully reviewing this technology,” said Makoto Takemiya, co-founder of Soramitsu, who said he has advised central banks on blockchain and digital currencies in some of the world’s largest countries.

Soramitsu has around 100 employees trained in engineering and macroeconomics who have created cryptocurrencies and exchanges to trade them, based on a proprietary blockchain called Hyperledger Iroha. Mr Takemiya once produced an experimental cryptocurrency for the Wall Street Journal dubbed WSJCoin for a story that showed how easy it has become to issue money.

Serey Chea, managing director of the National Bank of Cambodia, declined to discuss Soramitsu’s role, but said the digital network he has built aims to boost the use of the country’s local currency, the riel, a long-term goal in a country where the dollar is used. in about 90% of transactions. She cited surveys that found that many Cambodians said they would transact in riel if it was more convenient to use.

The Federal Reserve is trying to figure out how to keep liquidity relevant in a cashless world. It plans to digitize the U.S. dollar, give people cash they can access on their phones, and bypass electronic payments that can be slow and expensive for businesses. Illustration: Jacob Reynolds / WSJ

Mr. Ben-Ezer’s vision for the Marshall Islands was to make it the first nation to issue an exchangeable cryptocurrency, using it to attract new financial flows, much like little Panama used its canal to attract the maritime traffic, he said.

Bitcoin had fascinated him for a long time and he wanted to see a nation adopt something similar. With American degrees in computer science and economics, he had done technological work for the Israeli military and Microsoft. Corp.

Under the approved plan, most of the foreign exchange stock would be issued free of charge to the Marshallese government and its investment funds, with 10% of the total to be shared equally by the general population.

Mr. Ben-Ezer’s team would also get 10% of the show, as payment for years of work.

To make it work, he recruited veterans from the US Treasury and the Bank for International Settlements, as well as a digital law expert from Malta.

But putting private advisers like Mr. Ben-Ezer in the driver’s seat can raise questions about potential conflicts of interest and liability that are less evident when bureaucrats design systems.

The Marshall Islands plan then ran into a problem in the form of First Hawaiian Bank,

which threatened to sever its correspondent bank link with the country if issuance of the currency continued.

Letters from First Hawaiian and between Marshallese officials seen by the Journal show the bank has expressed fears that the currency could be used for nefarious purposes. The bank did not respond to requests for comment.

The International Monetary Fund echoed this concern, saying in a March report that the currency “could disrupt foreign aid and other important financial flows, causing a major drag on the economy.”

The currency has yet to be issued due to concerns. Marshallese politician Mr Paul said the concerns were misplaced. He said that the currency’s use of blockchain ledgers will make it secure and transparent. To him, the blockchain resembles a monetary system used on the Pacific island of Yap under which massive limestone disks are transported between households to represent changes in wealth, for all to see.

It is an old principle, Mr. Paul said, and “the world has awakened to it.”

Write to James T. Areddy at [email protected]

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