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How Ant’s Suspended IPO Is Related to China’s Digital Yuan

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Ant Group’s suspended initial public offering (IPO) has shed further light on a possible motivation behind China’s digital yuan. The Chinese government appears to view the payments giant as a destabilizing force to China’s economy, and the digital yuan is a way to keep companies like this in check. 

Industry watchers say the People’s Bank of China (PBoC) might use the digital yuan as part of a broader effort to curb the growth of Alipay and WeChat Pay. The central bank digital currency (CBDC) could stunt Alipay’s micro-lending business and provide the unbanked with financial services, while also drawing back deposits for commercial banks.

Ant’s IPO exposes fault lines in the digital payment industry, and China’s central bank is motivated to launch the digital yuan and give itself more power to keep third-party payment platforms in check, Tanvi Ratna, CEO of fintech think tank Policy 4.0, said. Policy 4.0 has been working on an extensive research report on China’s national digital currency that will be released on Nov 18.  

The Shanghai and Hong Kong stock exchanges halted Ant’s $35 billion dual IPO last week after China’s financial regulators raised concerns over Ant’s booming micro-lending business, which could add more debt to the country’s highly leveraged economy. 

Ant’s co-lending subsidiary Huabei, which is a built-in virtual credit card in Alipay, facilitates loans between commercial banks and borrowers, while Jiabei is the short-term consumer loan provider. Though it enjoys as much as a 40% cut of loan interest, Alipay bears far less in credit risk than the banks. Only 2% of the loans Ant had facilitated as of June were on its balance sheet, according to its IPO prospectus. 

One way for the central bank to control Alipay’s lending business is to require the company to convert cash into the digital yuan to underwrite consumer loans. 

“The bank can make it more costly for digital payment platforms to use the digital yuan to lend money, and this might be something the government might want to force,” Ratna said. 

One day before Ant’s IPO, China’s top financial regulators published a consultation paper to require online lenders to provide at least 30% of any loan they fund jointly with banks, making it more difficult for Ant to lend money. 

Ant’s booming lending business has struck a nerve with China’s top financial regulators at a time when the country is already battling increasing default risks and weak banks. To curb fintech giants’ growing influence over the country’s economy, Beijing’s authorities proposed a new set of anti-monopolistic practices on fintech companies on Wednesday.  

“China is very conscious about its debt problem. A lot of businesses do not have cash flows, especially after the coronavirus pandemic,” Ratna said. “Ant is pushing out personal loans, a lot of which could go bad.” 

Alipay has not always been forthcoming in reporting its consumer lending data to Chinese banks. While Huabei and Jiebei were launched in January 2018, they did not share data with the central bank until the end of July this year, at the central bank’s request. 

The digital yuan can increase financial transparency and efficiency by helping banks better track and analyze non-performing assets, Ratna said. 

“For the central bank, it is very important that the underlying asset becomes the digital yuan,” she said. “It can help the bank to solve many chronic problems in the financial system, including shadow banking, non-performing loans and too much informal financing.” 

Deposits leak

China’s payment giants pose other threats as well. Commercial banks in China have been losing cash deposits to non-banking payment platforms. The Chinese mobile banking market saw about $8 trillion worth of transactions in the last three months of 2019, with Alipay taking 55% of the market and WeChat Pay having 39%. 

Alipay has one of the world’s largest money market funds called Yu’e Bao, which essentially is a mutual fund that usually invests in safe asset classes such as treasury bonds to earn interest that is higher than many of the saving accounts in commercial banks. Its users tend to put their in-app cash into the fund. With other similar funds on its distribution platform, Alipay had nearly $600 billion in total assets as of June. 

“Loan-to-deposit ratio determines how much money a commercial bank can lend,” Aurora Wong, vice president of crypto firm ZB Group, said. “More cash deposits enable the banks to lend more, which is one of the most lucrative businesses by earning interest.” 

China’s commercial banks need to maintain or raise their deposit base to keep up with lending,  especially when the economic slowdown deepens. 

Some of the commercial banks in China hope retail depositors will use the digital yuan in their payment transactions. When the users convert the virtual currency back to fiat, the cash will remain in the bank accounts instead of on mobile payment apps. 

The latest attempt to encourage mass adoption of the digital yuan was a $1.5 million giveaway by PBOC in October for Shenzhen citizens, Wong said.

Each of the 50,000 participants, who downloaded the digital wallet, would be selected in a lottery to receive about $30 during the week-long campaign. Stores in Shenzhen posted the QR code for the wallet users to scan and pay for their purchases. 

The digital yuan’s benefits for China’s commercial banks go beyond increasing cash deposits. With a larger user base, the banks will have more transaction data to profile consumers, analyze their online behavior and experiment with different ways to monetize the data. 

“Commercial banks in China are becoming more similar to fintech companies,” Wong said. “I think this won’t be the last virtual currency giveaway and there will be even more programs to incentivize consumers to use the wallets from commercial banks.”

Mass adoption

Still, Alipay and WeChat Pay are standing in the way of the digital yuan’s mass adoption. During last month’s trial giveaway, some shoppers preferred to use these two mobile payment apps because they are more convenient. 

“The question of adoption is a difficult one for central banks,” Ratna said. “This is the bread and butter for a startup but it is not something that the central banks have experienced.” 

Favorable regulatory policies for the digital yuan, unique technical features that enable the unbanked to access basic financial services and improving user experience for native digital wallets are among the most likely ways to increase mass adoption for the digital yuan. 

One technical feature that sets the digital yuan apart from Alipay in terms of payment is that users do not need a bank account to be linked to a mobile app in order to do cash transactions. 

China has more than 225 million people without a bank account, which is one of the largest unbanked populations in the world, according to a 2017 report from Global Findex. 

The digital yuan account has a sliding scale of Know-Your-Customer (KYC) requirements corresponding to the amount of digital yuan you want to own and use, said Chuanwei Zou, chief economist of blockchain infrastructure firm PlatOn, said.  

“The more identity information you register with the digital yuan wallet, the more digital yuan you can have in the wallet,” Zou said.  

For Alipay and WeChat Pay, their users have to register with their bank accounts, which requires a government-issued ID. The app will also use facial recognition and cell phone numbers to verify identities. 

Users only with an equivalent of a few thousand dollars in their digital yuan wallets could remain fully anonymous, which would be beneficial to many small retail depositors in China, Zou said.

The decoupling from a bank account also helps foreigners in China and those who have the demand for renminbi transactions outside the country. The central bank plans to launch a trial during the Beijing Winter Olympic Games in 2022, where foreigners in China can directly exchange other fiat currencies for the digital yuan without carrying cash or opening a bank account.   

The digital yuan enables foreigners to buy goods and services in China, and allows anyone outside China to transfer funds across borders, without using a bank account since the virtual currency will be part of a closed system managed by PBOC, Zou said. 

“The digital yuan will definitely change the market structure of digital payment in terms of the last-mile adoption,” Zou said. “We already have commercial banks’ mobile apps, Alipay and WeChat Pay and there would probably be a native app for the virtual currency, which can be a standalone app but can also be integrated into third-party payment apps.” 

China’s four major commercial banks have included the digital yuan account in their mobile apps, while the central bank has yet to let Alipay and WeChat Pay integrate the digital yuan as a payment option in their apps. 

Like many other significant policy changes, the Chinese government has been approaching its national virtual currency initiative in a trial-and-error fashion, Ratna said. 

“The central bank has not really played all its cards yet,” she said.  



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Monex Believes Digital Yen Will Revolutionize Crypto Trading

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The Bank of Japan noted last month that initiatives to test its digital yen currency are underway.

As the Bank of Japan (BOJ) plans to issue its digital yen in the near future, Oki Matsumoto, head of Japan’s Monex Group, believes it will significantly revolutionize the crypto industry by making it more interoperable with legal tenders.

“Central bank digital currencies will help boost trading of cryptocurrencies by providing a more convenient platform for converting cryptocurrencies into legal tenders,” Matsumoto noted. 

According to Matsumoto, the issuance of central bank digital currency (CBDC) is not a threat to the crypto industry but a major boost to the whole sector. Primarily due to the fact that it will not only make the ecosystem more efficient but also a digitized economy.

Speaking to news outlet Reuters on Tuesday, Matsumoto noted that “CBDCs will significantly enhance the interoperability of cryptocurrencies.” Moreover, the central bank digital currency would make the crypto market more lively. The lively atmosphere in the crypto market would reciprocate to an increased volatility, particularly to the upward trend.

Currently, changing crypto assets to legal tender has several challenges as the existing exchanges and brokers do not hold bank accounts. According to Matsumoto, if the bank of Japan issues a digital yen, then it would make the crypto conversion to legal tenders much easier and faster.

Monex Opinion on Digital Yen

Apparently, the Bank of Japan noted last month that plans are underway to experiment its digital yen currency. Hereby joining other global central banks in the development of a viable digital currency. 

Notably, the Chinese government through the Bank of China has made tremendous progress in rolling out its digital yuan in the Chinese market.n It is expected that the first successful digital currency would have a vented vantage point to act as the global reserve currency. China is rushing to implement its digital yuan in a bid to dethrone the United States dollar from the global reserve currency.

Japan is considered a crypto friendly market, whereby it has a huge portion of the top digital assets. It’s worth mentioning that Ripple has named it as one of the options to move into if the United States does not reorganize its crypto regulations.

Being a major Asian economic hub, Japan’s continued venture into the crypto and digital currency market will significantly shift other regions in adopting the technology.

This is because the blockchain technology has many use cases including in the supply chain where shipping industry collaborate with respective parties to make a seamless trading process.

As the cryptocurrency industry led by Bitcoin enjoys a new bull wave, wealth creation is expected to be taken on the next level by the digital assets investors.

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A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies.
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In India, a Clash of Digital Innovation and Internet Censorship

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Earlier this month, reacting to a decision by India’s highest court, prominent comedian Kunal Kamra tweeted that India’s Supreme Court is the “most Supreme joke of this country.” 

The following day, local media reported that Attorney General K. K. Venugopal greenlighted court proceedings against the comedian, based on a few tweets criticizing the Supreme Court. The charge levied against him: contempt of court. Kamra has refused to apologize for his tweets and local reports indicate proceedings have yet to begin. 

This should be shocking, but unfortunately it’s not. In India, speaking out on the Internet can be dangerous. Kamra told CoinDesk that public figures can receive threats on social media, noting that users leaked his phone number on Twitter multiple times. “They dox people, they release information sometimes. … That’s very normal,” Kamra said.

With over 700 million internet users, India’s booming digital market collides with internet censorship or outright bans.

A similar dynamic plays out in India’s crypto market. Trade on Indian crypto exchanges exploded earlier this year after the Supreme Court ruled to reverse the decision by the country’s central bank (RBI) to ban local financial institutions from providing services to crypto firms. Now, just a few months later, the federal cabinet is reportedly discussing another potential ban. 

While regulators haven’t clarified their stance on digital assets, they have expressed concern over the fiscal and monetary policy implications of fintech applications, including distributed ledger technology (DLT). Regulators have continued to push for local control over fintech payment platforms like WhatsApp Pay, which received approval from the Indian government only after owner Facebook agreed to store user data locally in India and not offshore.

This is part of a much broader trend. Kamra’s case is the latest in a series of targeted attacks on internet users in the country. In a 2019 report, Freedom House warned internet freedom in India had declined “for the fourth year in a row” due to increasing arrests for online activity and frequent internet shutdowns.

Localized internet shutdowns, restrictions on certain content (like pornography) and wholesale bans on select mobile applications are some of the more visible ways in which the Indian government has sought to control the internet. According to a report by local media outlet Mint, in 2017 and 2018 at least 50 individuals were arrested for comments made on social media, largely for posts considered offensive to politicians. 

Digital India

India’s digital ecosystems, from cloud computing to digital payments, are expanding. According to a report by consulting firm McKinsey, core sectors of the digital economy could double their contribution to India’s GDP by 2025, adding up to $435 billion.

On Nov. 19, in his inaugural address at the Bengaluru Tech Summit, India’s Prime Minister Narendra Modi said his administration’s governance model is “technology first” citing his Digital India initiative that launched five years ago. 

“Digital India has become a way of life, particularly for the poor, marginalized and for those in government,” Prime Minister Modi said.

Yet, since 2014, government authorities have enforced about 450 regional internet shutdowns, with 134 in 2018 alone, according to a local internet shutdown tracker. 

Reasons for the crackdowns range from anticipated public unrest to curbing malpractice in school examinations. This blunt-force approach can also lead to monetary loss for businesses and the disruption of web-based services.  

If there is no internet, there is no cryptocurrency, there is no blockchain, there is no technology. The internet is the crux.

The longest internet shutdown ever recorded in a democracy was implemented by the Indian government in the disputed Kashmir region after the Modi government revoked the state’s semi-autonomous status in August 2019. 

Indian officials justified the extended ban by calling it a necessary move to curb anticipated unrest that might have followed the administrative decision. While services were gradually restored, the blackout lasted over seven months and disrupted some 12 million people’s access to the internet. 

Qazi Zaid, chief editor of Free Press Kashmir (FPK), a local media outlet, said his newsroom had to be shuttered during the blackout. The primarily online publication halted all coverage and risked losing its online readership of over 300,000 people, Zaid told CoinDesk.  

When phone lines were restored, reporters called each other and dictated stories in an attempt to type and publish them, he added. 

“But then we also realized that our audience is not there,” Zaid said.

While FPK managed to gradually come back online in May this year, the blackout had hit local businesses and dried up advertising revenue, Zaid said. He stressed that media censorship in Kashmir hasn’t changed so much after last year’s decision to revoke the region’s special status but it may have been further formalized under recent amendments to digital media policy, giving the government regulatory control over digital news and content providers. 

Loopholes

When the Indian government wants to shut the internet down, it sometimes invokes a 135-year-old law: the Indian Telegraph Act of 1885. The act was created by the British rulers in colonial India to curb uprisings, Indian journalist Sonia Faleiro said in a recent MIT Technology Review podcast. The law gives the government authority over all forms of electronic communications (in 1885 that meant telegrams) in the event of a public emergency. 

“In 2017, the law was amended to specify that it allowed the temporary suspension of telecom services,” Faleiro said. 

One of the many problems with the law, Faleiro added, was it did not specify or define “public emergency,” thus allowing the government to label any incident as such and shut down communications. 

Additionally, a controversial 2008 amendment to The Information Technology Act of 2000, Section 66A, allowed the government to imprison any person sending messages deemed “offensive,” “menacing,” “false” or “causing annoyance” through any electronic communications device. Using this law, in 2012 the government arrested two women for Facebook posts critical of the government. 

In 2015, the Supreme Court of India shot down Section 66A, calling it unconstitutional. However, arrests over social media activity continued: In 2016, a Kashmiri man was charged with sedition for liking and sharing anti-India posts on Facebook.

The security argument

Amid a tense border standoff with China earlier this year, India’s government banned 60 China-based apps, including the popular social media platform Tik Tok. 

When border tensions continued, leading to an Indian soldier reportedly being killed by a Chinese landmine, the Indian government restricted 118 more mobile applications from Chinese tech companies in September 2020. 

The government’s statement alleged it had received “several reports” of these applications misusing user data and “surreptitiously transmitting” it to servers located outside India. 

Described as a move to ensure “safety, security and sovereignty of Indian cyberspace” in the government’s September statement, the restrictions took aim at apps from WeChat, Baidu, Alipay and the popular mobile game PlayerUnknown’s Battlegrounds (PUBG), which had over 33 million active users in India at the time. 

While the restrictions could have been a knee-jerk reaction to a geopolitical situation that has since cooled down, concerns about the integrity of user data and government surveillance on the internet have persisted as India works on the proposed Personal Data Protection Bill (2019). 

According to Anirudh Burman, associate fellow at Carnegie India, the draft law, introduced in December 2019, deploys an approach quite similar to the European Union’s General Data Protection Regulation (GDPR). 

Burman explained that although both frameworks are based on a user-consent model, the Indian bill limits data storage outside the country’s borders and also creates compliance requirements that could burden small enterprises. 

“If there is a medium or small enterprise firm going to get a data protection officer or get an annual data protection audit, it’s a significant cost,” Burman said. 

The draft law’s requirement to store certain types of data locally or always have a copy of it available on local servers has also stoked fears of increased state surveillance, according to a report by DW. Requiring platforms to store data locally could also afford easier access to local law enforcement which, if stored off-shore, would be subject to a different set of laws. 

“U.S. law permits the disclosure only of non-content data. So if you want detailed subscriber information or content data, then you have to go through the due process,” said Burman. Content data here refers to data, processed or unprocessed, that can convey the substance of a communication. 

The draft bill also provides for the creation of a dedicated body, the Data Protection Authority of India, to ensure compliance with the law. A portion of the legislation also grants the federal government the power to “exempt any agency of Government from application of the Act,” thereby creating broad loopholes for the state to duck requirements levied on private enterprises.

The draft law, India’s first attempt at creating a digital privacy and data management framework at the national level, is currently before a joint parliamentary committee. The committee also recently held discussions on law with representatives from companies including Amazon, Twitter, Mastercard, Visa and PayPal. 

Reported to be in the final stages of discussion, the committee is expected to file its recommendations on the bill before the next session of parliament begins. 

Sisyphus’ boulder

Despite the Indian government’s efforts to exercise control over cyberspace, internet policing can only go so far. 

Vikram Subburaj and Arjun Vijay launched Indian crypto exchange Giottus in 2018, just a week after the central bank of India published a circular that banned crypto firms from having bank accounts. Confronted by the ban, they pivoted to setting up a peer-to-peer exchange. 

In March 2020, the Supreme Court of India overruled the central bank circular and, according to the two founders, Giottus has enjoyed record growth in the last six months. 

“We have been growing at a phenomenal rate of 400% YTD and have been clocking a monthly trade volume of $33 million,” Subburaj told CoinDesk via email. 

Vijay doesn’t believe internet censorship can stop web-based services from continuing to grow in India. 

“Censorship doesn’t work with respect to the internet. With VPN and sorts, it just makes it more difficult for you to access something, but it doesn’t prevent someone who wants to access it,” Vijay told CoinDesk. 

Even in Kashmir, where students had to make do with government-imposed low-speed internet for their online classes during the coronavirus pandemic, people found workarounds. According to an Al Jazeera report, two applications (Filo and Wise) created by educators Mubeen Masudi and Imbesat Ahmad helped students access the Internet. 

India’s government seems to understand the Internet is essential for the country’s growth. While authorities sometimes lean toward stringent controls, the government will not completely stamp out digital innovation. This is good news for the crypto industry.

As Neeraj Khandelwal, co-founder of local crypto exchange CoinDCX, told CoinDesk, “If there is no internet, there is no cryptocurrency, there is no blockchain, there is no technology. The internet is the crux.” 





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Nikola (NKLA) Shares Down 9% in Pre-market Due to Uncertainties on $2B Deal with GM

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Nikola investors are looking forward to the partnership deal with General Motors as it may cause a positive reflection on the company’s shares.

There have been a lot of speculations surrounding Nikola Corporation (NASDAQ: NKLA) partnership deals and uncertainties on the shares of the ousted founder in recent days. According to data, Nikola shares experienced a negative response in demand causing it to fall by more than 8% in the pre-market. At the time of writing, the stock was trading at $31.50 (-8.70%). However, yesterday, NKLA shares were in green, trading at $34.50 with a 17.31% rise.

This consistent pullback is contrary to the expected direction of price movement following its impressive truck designs and features earning it the nickname “the Tesla of Trucking”. The electric car startup has refused to clarify speculations and to assure investors on what will happen to the shares of the largest shareholder after the CEO Mark Russell kept them in the dark in a recent statement.

What Events Can Have Impact on Nikola (NKLA) Shares

Investors are very much looking forward to the said partnership deal with General Motors Company (NYSE: GM) as it may cause a positive reflection on its shares. The deal is said to be worth $2 billion and will be done in exchange for an 11% equity stake. The deal will see General Motors supplying Nikola with fuel cell and battery technology. Also, Nikola would be supplied with all-electric pickups and as well be able to reduce cost by $5 billion in the next 10 years when the deal falls through. 

Russell in his statement said he would not comment further than that. However, hinted that an agreement has not been reached as he stated that either side would walk away if no conclusion is made on the deal by Dec 3. Also, he revealed that the deal is still ongoing. Without any assurance that everything will go through, investors might have played safe by being reluctant with their investment, causing the drop in the share price. 

On the other hand, the stepped-down founder of the start-up, Trevor Milton who happens to be the largest shareholder has an option to either sell his shares or retain them. Currently, no announcement has been made on the decision, putting investors in a state of confusion. Milton had 91.6 million shares with 6 million of the total shares in “founder option” dispatched among the early employees. Interestingly, the company stock outstanding is 360.9 million shares which makes Milton a decisive figure in the share prices. Russel in his recent statement refused to comment on the decision of Milton In regards to what he plans on doing with his stake. 

Milton owned a separate company called T&M Residual and had 39.8 million shares in Nikola. Short-seller Hindenburg accused Milton of fraud causing the Department of Justice and Securities and Exchange Commission to investigate him.

Milton was accused of using false statements to get partnership deals with auto companies and to grow through fraud. A report published soon after Nikola came public in its partnership conversation with General Motors labeled the company as an “intricate fraud built on dozens of lies.”

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Excellent John K. Kumi is a cryptocurrency and fintech enthusiast, operations manager of a fintech platform, writer, researcher, and a huge fan of creative writing. With an Economics background, he finds much interest in the invisible factors that causes price change in anything measured with valuation. He has been in the crypto/blockchain space in the last five (5) years. He mostly watches football highlights and movies in his free time.



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