The Central Bank will launch a CBDC
The President of the Central Reserve Bank of Peru (BCRP), Julio Velarde, announced that they are working on the development of a CBDC in collaboration with other central banks around the world. As the country experiences instability and inflation in goods and services, the central bank is discussing financial models to tackle the looming crisis.
Velarde shared at the CADE 2021 business conference that the BCRP had “been working on a digital coin” and other projects with the cooperation of central banks from India, Singapore and other countries.
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The president of the BCRP believes that “the payment system that we will have in eight to ten years in the world will be completely different from the current one” and Peru’s digital coin will pave the way for the country to the future.
He declined to comment further on other projects the central bank is working on due to uncertainty around the topics at the moment.
The panorama around cryptocurrencies in Peru is not clear. There have been government warnings and different authorities have said cryptocurrencies are ‘at risk’ and have announced that strict regulations are coming, but no official decision has been made.
Velarde commented that since there are a lot of innovations around cryptocurrencies, the idea of the Peruvian central bank is to “give them kind of a sandbox and let them move forward.” Later, there will be more concrete regulations.
The envy of CBDC in the world
The Bank for International Settlements (BIS), a financial institution which aims to coordinate central banks on an international scale for the “search for monetary and financial stability”, naturally got involved in the development aid of the CBDCs. They would have “six proofs of concept and prototypes related to the CBDC” and work on others.
Benedict Coeuré, head of the BRI Innovation Hub, said during a speech that central bank money has important advantages such as “security, purpose, liquidity and integrity”, and stressed its need for adapt and adapt to digital economies and not lose these “advantages”. He also said that the money “must continue to be issued and controlled by reliable and accountable institutions”.
Coeuré said that the technological future of finance that we are approaching raises many difficult questions that global entities must answer. Blockchain, stablecoins, DeFi, the era of the digital economy in general, have allowed rapid evolution of financial concepts and new possibilities.
This has shaken many areas, especially for private banks. Benedict Coeuré sees CBDCs as “part of the answer,” but further said that “global stablecoins, DeFi platforms and big tech companies will challenge banking models regardless. “
A well-designed CBDC will be a secure and neutral means of payment and settlement, serving as a common interoperable platform around which the new payments ecosystem can be organized. It will enable an open financial architecture that is integrated while welcoming competition and innovation. And this will preserve democratic control of the currency.
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Peru’s acceptance of crypto
The Central Bank of Peru (BCRP) describes cryptocurrencies as “unregulated financial assets which are not legal tender and which are not backed by central banks. The website shows a decline in the price of Bitcoin in 2018, but has not updated the chart to represent its growth in subsequent years as well.
However, as Peruvians expect their national currency to undergo devaluation in the near future, cryptocurrencies represent an alternative and have increased their popularity.
Peru saw an 18.3% growth in Blockchain crypto wallet transactions from June to July 2020. Then, in May 2021, the trade volume jumped by around 24.36% due to the uncertainty surrounding presidential elections.
The decentralized nature of cryptocurrencies offered a landscape of refuge of freedom and a shift in economic struggle alongside the likelihood of a huge downturn in the Peruvian economy, as many of the policies proposed by the current president, Pedro Castillo , resemble those taken by Argentina and Venezuelan governments, where they have been shown to greatly affect the economy and the national currency.