Circle: China leading digital currency push as US falls behind

Ben Ng September 26, 2019 11:00

In June, social media giant Facebook unveiled its plan to launch a cryptocurrency called Libra, allowing money transfers over its messaging infrastructure – WhatsApp, Instagram, and Facebook Messenger, targeting the cross-border payments market.

Threatened by Libra’s potential role in the global payments space, as well as its impact on monetary policy, central banks around the world have stepped up efforts at creating their own digital currencies.

China is the first major economy to explore launching its own digital currency. It established a research institute, backed by the People’s Bank of China (PBoC), to study the field in 2016, which is expected to launch a digital version of the Chinese yuan to boost its use internationally.

Joao Reginatto, head of product for USD Coin at US-based blockchain payments startup Circle, recently sat down with EJ Insight to share his thoughts on the central bank digital currency.

The firm has launched its own “stablecoin” called USD Coin – USDC for short – which is pegged to the US dollar, i.e., each token is always worth US$1 and redeemable at US$1.

Q: When Facebook announced plans for a private digital payment token called Libra in June, the market has seen multiple central banks, such as China's PBoC, working on creating their own digital currencies. A director of the PBoC said in July that it was “almost ready” to issue a sovereign electronic currency. What’s your take on that?

A: China is far ahead of any other country from a research and development perspective and now appears to be the most significant central bank to be launching this commercially. I don't think anyone else in the world is anywhere close. For Circle, we've been working on USD Coin for multiple years, that's been growing very fast, and we're excited to see how things like the Chinese central bank's digital currency could eventually interact and be traded with things like USD Coin.

Q: We can see that the US government and the Federal Reserve, as well as G7 governments and their central banks, have raised concerns over Facebook's Libra crypto project. What would be your concerns about Libra?

A: There are a lot of things we still have to learn about Libra but one thing we do know is that it represents a massive inflection point for the crypto industry. It's an extremely positive development toward decentralized platforms and open finance. It marks the point where people start to realize that crypto and blockchain technologies are going to reshape the global economic system.

Q: On the cryptocurrency regulations, we know that Circle completed a hard slog towards regulatory compliance, becoming the first company to win a BitLicense from New York state’s Department of Financial Services. And recently the firm has been calling on governments to adopt a forward-looking regulatory approach on crypto. Would you elaborate on that?

A: The heart of our argument for a clear, forward-looking regulatory framework for crypto has long been that digital assets represent a fundamentally new class of financial assets, which defy simple classification as security, commodity, or currency. Many digital assets occupy several classifications at the same time, depending on their context and use. For example, imagine a token created for a game. The initial sale could fund development of the game. Then the token may be distributed to users as a reward in a game (utility), traded on an exchange (commodity), used to purchase virtual goods in an online store (currency), and used to confer holder voting rights in the project (security). Because digital assets defy simple classification, we have also urged lawmakers to stop applying laws written in the 20th century to technologies created in the 21st.

Q: We can see that regulation has been struggling to keep up with crypto in the past few years. As one of the most regulated crypto companies, do you agree that governments and regulators should shift to a relatively laissez-faire approach to crypto?

A: We need a clear, forward-looking regulatory framework for crypto and, as our CEO Jeremy Allaire said to the US Senate recently, without a sound, pragmatic, and agile national policy framework for digital assets, there is a concern that the United States will not be the world's leader in this critical new technology, that it will continue to fall behind, and that it will not fully reap the benefits of the economic transformation that digital assets will bring.

Q: As one of the long-established players in the crypto field, Circle, founded in 2013 in Boston, has recently moved some of the business away from the US and into Bermuda, would you mind explaining more about the decision? Do you think the Bermuda move is a "no-confidence vote" for the crypto sector and regulatory environment in the US?

A: Many governments around the world – including the US – have not kept pace with the regulatory requirements driven by rapid innovation in digital asset businesses and crypto. But Bermuda has leapt forward with an exceptionally well-designed and comprehensive regulatory framework: the Digital Assets Business Act of 2018 (DABA).

The DABA provides a comprehensive framework for the regulation and oversight of crypto financial services including digital asset issuance, sale and redemption, exchange operations, and custodial services, and Circle is the first major crypto finance company to receive a Class F ("Full") DABA license that covers the operation of payment services, custody, exchange, trading and other financial services that use digital assets. We will continue to advocate for changes to US policy.

Q: Circle has reportedly laid off 30 people or about 10 percent of its staff recently, citing regulatory uncertainty and market conditions. Do you think this tough regulatory climate in America, as well as other developed markets, would persist in the short term?

A: It's hard to predict the future but Facebook's Libra has made crypto and blockchain technologies a national conversation and I'm confident that the more governments learn about crypto, the better, the brighter the outlook will be. We will continue to educate lawmakers globally about the need for clear rules of the road so they can reap the full economic benefits of digital assets and blockchain technology.

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CG

Ben Ng

EJ Insight writer