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‘Bitcoin threat’ spurs central bank digital currencies

On July 6, the head of Turkey’s central bank Murat Cetinkaya — who in 2017 publicly stated that he felt threatened by Bitcoin — was unexpectedly removed from his job by President Recep Tayyip Erdogan. Three days later, on July 9 the 11th Development Plan of the Central Bank of the Republic of Turkey was approved by the President and submitted to the Parliament. 

The Development Plan includes issuing a Central Bank Digital Currency (CBDC) along with establishing a number of blockchain-based infrastructural initiatives to bolster Istanbul’s goal of becoming an attractive digital global financial center under the supervision of the Banking Regulation and Supervision Agency to attract foreign funds for capital market and non-bank (cryptocurrency) financial institutions. 

Already Huobi — the world’s leading cryptocurrency exchange and blockchain company — is expanding its operations to Turkey, planning to have a crypto-to-fiat on ramp for Turkish users by the end of 2019, overseen by Huobi-MENA, headquartered in Dubai according to a press release. And Turkey, along with China and Russia, intends to join a cryptocurrency based trade finance mechanism INSTEX (Instrument in Support of Trade Exchanges) to bolster Istanbul’s digital financial center status.

The concept of CBCD or national cryptocurrencies has attracted many governments across the world according to a report issued by the International Monetary Fund. This now also includes Turkey which is a member of China’s Belt and Road initiative (BRI).

China’s BRI is a massive free-trade plan involving more than 100 other countries spread across Asia, Europe, Africa, and South America.  It involves the  pursuit of innovation-driven development and cooperation with the partner countries in frontier areas — such as the digital economy and artificial intelligence — to create a space based digital silk road of the 21st century.

Chinese President Xi Jinping has publicly endorsed cross-border blockchain technology and included it as part of state-level policy. As a result, China is at the forefront of efforts to revolutionize a new digital blockchain based mobile cross-border payment system among BRI countries — many of which have plans for a CBDC such as Turkey, China,  Iran, Saudi Arabia and UAE.

Engin Caglar, a member of Switzerland’s Crypto Valley Association pointed out that “Turkey has a great potential for digital currencies with 80 million population, 8 million university students and 660 thousand crypto-traders.”  Statista’s Global Consumer Survey for 2019 suggests that Turkey has the highest per capita rate of cryptocurrency ownership with around 20 percent of Turkish cryptocurrency investors since the Turkish Lira’s severe devaluation in 2018.

Turkey is a member of the Financial Action Task Force (FATF) which regulates cryptocurrencies for Anti-Money Laundering and Countering Financing of Terrorism purposes. The FATF is currently conducting the fourth round of a mutual evaluation of Turkey. The report is expected to be released in October. In the interim the Istanbul Institute of Finance has joined forces with the Association of Certified Anti-Money Laundering Specialists to offer its flagship Certified Anti-Money Laundering Specialist certification in Turkey beginning in 2019.

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Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.

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