First Deputy head of the National Bank of the country Ekaterina Rozhkova explained the NBU's position on cryptocurrencies. She said that the regulator considers cryptocurrencies only as virtual assets that are not money. The reason for this opinion is that digital currencies are not able to perform the main functions of money, namely calculations and accumulation. Rozhkova clarified that cryptocurrencies do not refer to money, nor to currencies by their definition, nor to payment methods or electronic money.
What are the risks of using cryptocurrencies?
The deputy noted that the asset is highly volatile, in particular, this applies to many coins and tokens, and therefore creates a significant risk for their holders. Additionally, there is a risk of fraudulent manipulations and financial pyramids. Rozhkova also mentioned the use of cryptocurrencies as a means of money laundering, tax evasion or violation of currency laws.
There is also a risk for the Central Bank itself - the popularization of cryptocurrencies can lead to the emergence of a parallel money circulation that is not controlled by the NBU, and this, in turn, will negatively affect the country's monetary policy. The National Bank fears a threat to its core function, such as the stable functioning of the hryvnia currency. The state is afraid of losing its monopoly to create money.
Among other risks, part of deposits will flow into cryptocurrencies and other virtual assets, which will threaten the financial stability of the banking system as a whole. It is reported that the regulator does not plan to prohibit the use of cryptocurrencies, but they need legislative regulation. It is supposed to set restrictions on the exchange of cryptocurrencies for other property and services. The National Bank also needs to think through restrictive measures to protect the economy in case of crises.
How is cryptocurrency regulated in Ukraine?
Work on the legislative regulation of cryptocurrency in Ukraine is still ongoing. The only known fact is that it will not become a means of payment. The National Bank of Ukraine has determined that digital assets can only be exchanged for other assets or fiat funds (hryvnia). The bill "On virtual assets" states that it is impossible to purchase goods for cryptocurrency. According to the Constitution, the hryvnia is the only legal tender. Exchange for “other currency values” is provided only in cases separately considered by the regulator.
What are the alternatives?
Instead, cryptocurrency users are offered to pay attention to digital national currencies - CBDC (Central Bank Digital Currency). On this issue, the NBU is in solidarity with the national banks of a number of other countries. The difference between a classic cryptocurrency and a national digital currency lies in the issuer. As Ekaterina Rozhkova explained, the issuer of CBDC is the Central Bank: it issues digital money in the same way as ordinary ones. Anyone can be an issuer of cryptocurrencies, and you can sell coins only as long as there is a demand for them.
86% of polled central banks from the Bank for International Settlements 2021 report are exploring the possibility of issuing their own digital currencies. 14% of central banks are already engaged in pilot projects.
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The development of the e-hryvnia began back in 2016, and the legislative basis for it was laid down in the draft law “On Legislative Services”. The new cryptocurrency in Ukraine will be available for use as a means of retail non-cash payments, for targeted social payments, settlements on securities and other financial instruments, corporate and cross-border payments, as well as income generation. Even the approximate dates for the entry into circulation of the digital hryvnia have not yet been announced.
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