Katherine Ross

The Bank of Italy and the Bank of Korea signed a Memorandum of Understanding on Tuesday.



The MOU will allow for the two central banks to share “knowledge and information on the topics of ICT technologies in support of real time settlement systems and the central bank digital currency (CBDC),” according to a <a href="https://www.bancaditalia.it/media/notizia/protocollo-d-intesa-tra-la-banca-d-italia-e-la-bank-of-korea-in-materia-di-it-e-sistemi-di-pagamento/?dotcache=refresh">press release</a> from the Bank of Italy.&nbsp;



This isn’t the first time that the two have collaborated with each other on CBDCs. Back in June, both the banks of Korea and Italy partnered with the Monetary Authority of Singapore and the International Monetary Fund on a <a href="https://blockworks.co/news/singapore-imf-cbdc-banks">paper focused on purpose-bound money</a>. PBM allows money to be programmed to be used for a specific purpose.&nbsp;



The central banks sought to ensure that PBM wouldn’t come “at the expense of digital money’s ability to serve as a medium of exchange.”



Read more: <a href="https://blockworks.co/news/singapore-live-cbdc-soon">Singapore plots ‘live’ wholesale CBDC pilot for next year</a>



The Bank of Korea announced in October that it would test a wholesale <a href="https://blockworks.co/tag/cbdc">CBDC</a> in partnership with the Bank of International Settlements. The goal, the Bank of Korea said at the time, is to see if wholesale CBDCs are suitable to be used as a settlement asset for tokenized bank deposits.&nbsp;



“This test is expected to lay the foundation for implementing a variety of innovative payment and financial services that are differentiated from existing services by presenting a pilot model of future currency infrastructure that reflects the development of IT technology,” a translated version of the <a href="https://www.bok.or.kr/portal/bbs/P0000559/view.do?nttId=10079835&amp;menuNo=200690&amp;pageIndex=">press release</a> said.



The pilot program does not signify that Korea plans to implement a CBDC, however. The purpose is just to explore CBDC design models to find one that’s possibly suitable, the Bank of Korea added.



Korea wrapped its first phase of a <a href="https://blockworks.co/news/koreas-central-bank-completes-first-phase-of-cbdc-simulation-test-run">CBDC research simulation project</a> back in January 2022.&nbsp;



The Bank of Italy published a <a href="https://www.bancaditalia.it/pubblicazioni/temi-discussione/2023/2023-1416/index.html?com.dotmarketing.htmlpage.language=1">paper</a> back in July focusing on the impacts that a CBDC could have on “choices of residents in a small open economy.”



It sought to “analyze the consequences on the banking system and on economic activity of an increase in the preference for the foreign CBDC, to the detriment of that for domestic currency and deposits.”



The central bank also launched an <a href="https://www.bancaditalia.it/focus/milano-hub/index.html?com.dotmarketing.htmlpage.language=1">initiative</a> to help financial institutions explore tokenized assets, tapping Polygon Labs and Fireblocks back in July. The project will help institutions experiment with security tokens through transactions using DeFi in a regulated environment.



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CBDC

Banks of Italy, Korea will share CBDC knowledge under new memorandum

The Bank of Italy on Wednesday said the aftereffects of crypto winter made a “clearer case for policy interventions.”&nbsp;



Italy’s top bank in a research report also emphasized the need to balance regulation with innovation.&nbsp;



“Not all crypto activities and not all forms of crypto-assets need to be covered or should be covered by financial sector regulation, in particular where their issuance, trading and holding do not serve customers’ financial needs through a payment or investment function,” the bank said.&nbsp;



Decentralization, which bank officials called “indeed elusive” and “often an illusion but sometimes a reality” may serve as “alternatives to long-established forms of entrepreneurship,” the report said.&nbsp;



The 40-page <a href="https://www.bancaditalia.it/pubblicazioni/mercati-infrastrutture-e-sistemi-di-pagamento/approfondimenti/2023-038/N.38-MISP.pdf?language_id=1">paper</a> not only looked into the broader crypto winter, but also the macro events that have happened since crypto took a downturn. 



Both <a href="https://blockworks.co/tag/terra">Terra</a> and FTX <a href="https://blockworks.co/news/one-year-since-terra">left long-lasting scars on the crypto industry</a>, with the Terra collapse leading to the crypto market losing 30% of its value. Between <a href="https://blockworks.co/news/ftx-not-worst-bad-thing-in-crypto-this-year">Celsius, Three Arrows Capital and Terra, roughly $53 billion</a> was wiped from crypto portfolios.



Officials overseeing FTX’s bankruptcy are still struggling to locate assets to pay back creditors, with $7 billion of liquid assets located. The <a href="https://blockworks.co/news/ftx-debtors-recovered-7b">defunct exchange owes around $8.7 billion</a> to customers, according to a Monday court filing.



“Indeed, stablecoins – which are sometimes depicted as an efficient alternative in the market for cross-border payments – have not proved stable at all,” the paper noted, citing both the depegging of Terra’s stablecoin <a href="https://blockworks.co/news/the-historic-significance-of-tether-16b-bank-run">and the “run” on Tether</a>.



<h2 class="wp-block-heading">Consumer crypto interest remains</h2>



But despite the volatility and risks, there’s no denying that the consumer interest has remained, the bank found.&nbsp;



In April, a Morning Consult <a href="https://blockworks.co/news/crypto-holders-stayed-despite-collapses">report found that investors stayed in crypto</a> — though cold wallet usage jumped to 38%, a 58% increase from January 2022.



“We have also observed that these assets, from a market perspective, increasingly behave like traditional assets,” the central bank said in a statement.



The bank is pushing for the regulation of intermediaries to ensure financial conduct standards. 



Of persisting challenges, the paper said it’s necessary to debunk ”the ‘decentralization illusion’ by bringing to light that most protocols have core stakeholders…which may be anonymous but are able to steer the operations and potentially extract ownership benefits.”



The Bank of Italy called for a clear and comprehensive approach to crypto regulation, saying rules must also “define the role that traditional financial services institutions, such as banks, can have in the crypto space.”



It’s all designed to lead legislators to decide how to approach assets that do not fit into the existing regulatory classifications — of which the bank lists include “collateralized stablecoins” as well as “native tokens of programmable blockchains, utility tokens [and] protocols’ governance tokens.”



The bank pushed for cooperation between countries, saying crypto does not adhere to borders the way traditional finance does, and therefore requires “flexible and scalable” arrangements between countries. It does not give examples of those arrangements. 



The Bank of Italy is not the first bank to push for international cooperation. In May, the <a href="https://blockworks.co/news/norwegian-central-bank-crypto-regulation">Norwegian Central Bank advocated for an international</a> regulatory framework.



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Italy

Stablecoins ‘have not proved stable at all,’ Bank of Italy says

Ben Strack

<div id="highlights-block_62910d4425afa" class="highlights">
 <ul>
 <li>Regulation is “essential” for mainstream crypto adoption, Binance CEO says</li>
 <li>The exchange registered as a digital asset service provider in France earlier this month</li>
 </ul>
 
</div>



The world’s largest crypto exchange has gained regulatory approval in Italy as it continues its expansion to new regions.&nbsp;



Binance Italy has registered as a cryptocurrency service provider with the Organismo Agenti e Mediatori (OAM) — a requirement under the country’s legislation. The approval allows the company to offer crypto products to customers in Italy, as well as open offices and expand its team in the country.&nbsp;



“Clear and effective regulation is essential for mainstream adoption of cryptocurrencies,” Binance CEO Changpeng Zhao said in a statement. “Binance has always put its users first and, with actions such as the implementation of the register, they can be confident that our platform is among the safest and most trustworthy in the world.”



A Binance spokesperson did not immediately return a request for comment about specific products it could look to offer in Italy or other regions in which it is seeking regulatory approval.&nbsp;



The news follows Binance’s registration earlier this month as a digital asset service provider in France by the Autorité des marchés financiers (AMF).&nbsp;



Binance France CEO David Princay called the registration “a key milestone for crypto in Europe,” noting that the new levels of protection for anti-money laundering will help grow crypto adoption and liquidity across the continent.&nbsp;



The crypto exchange also <a href="https://cms.blockworks.co/binance-granted-license-to-operate-in-dubai/" target="_blank" rel="noreferrer noopener">gained a virtual asset license from Dubai’s regulator</a> in March, allowing it to offer limited exchange products and services to pre-qualified investors and professional financial service providers. 



Binance has previously ended up at odds with regulators over its alleged failure to apply or register for financial services licenses. Zhao said in <a href="https://www.binance.com/en/blog/from-cz/a-letter-from-our-ceo-reflecting-on-progress-and-the-road-ahead-421499824684902301" target="_blank" rel="noreferrer noopener">a July 2021 blog post</a> that compliance is a journey.



In addition to the company’s recent regulatory approvals, Binance’s focus on compliance has percolated to its hiring and partnerships. Binance.US <a href="https://cms.blockworks.co/latest-in-crypto-hiring-binance-us-doubles-down-on-compliance/" target="_blank" rel="noreferrer noopener">hired</a> Josh Wilsusen as its first chief policy officer this week and also <a href="https://cms.blockworks.co/latest-in-crypto-hiring-chainlink-labs-binance-us-3iq-make-key-additions/" target="_blank" rel="noreferrer noopener">recently added</a> former Uber Technologies executive Krishna Juvvadi as its head of legal. 



<a href="https://cms.blockworks.co/binance-to-tighten-kyc-and-sanctions-screening-to-address-exchanges-risk/" target="_blank" rel="noreferrer noopener">Binance also partnered</a> with data analytics firm Kharon and cloud-native screening provider Neterium this week to better detect illegal crypto activity on its platform.



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