CBDC (Central Bank Digital Currencies) vs Cryptocurrencies Regulation Under New UCC Guidelines

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Among the changes to the guidelines are the clarification of terms for crypto assets lending and the specification of CBDC status.

American Law Institute (ALI) and Uniform Law Commission (ULC) jointly amended the Uniform Commercial Code (UCC) to regulate digital asset transactions and crypto-as-collateral secured financings. 

The amendments are “recommended for enactment in all the States,” although each case of final implementation may vary depending on the State. 

A final draft of the ULC-ALI Emerging Technologies Committee’s amendments to the UCC was approved during a meeting on July 8–13. The key updates for the crypto industry appeared in Articles 3 and 9, and the new Article 12 contains a set of relevant details as well.

The amendments introduce a concept of “controllable electronic records,” which would cover not only the existing blockchain-backed asset but all future kinds of digital assets as well. Being defined as a “record stored in an electronic medium,” the controllable electronic records incorporate cryptocurrencies and nonfungible tokens (NFTs), but are separated from the category of “electronic money”.

Related: Optimism fading? Regulatory discussion on stablecoins postponed until fall

“Electronic money” is included in the revised category of “money” and signifies fiat digital currencies. Thus, central bank digital currencies (CBDCs) could be considered “electronic money” under the new guidelines, while cryptocurrencies could not.

As analysts at JD Supra emphasized, in a practical sense this differentiation means that “perfection of a security interest in CBDC can only be achieved via the lender’s “control” of the CBDC.” The amendments also specify that in order to be first-priority perfected in cryptocurrency collateral, a lender will have to acquire its borrower’s private key and transfer the crypto to a wallet the lender (or custodian) solely controls.

The ETC was formed within the framework of the ULC in 2019 to address legal questions of cryptocurrencies, NFTs and other emerging digital assets. The UCC is a set of model laws adopted in their entirety by nearly all U.S. states to facilitate interstate trade. Therefore, the changes are likely to be accepted throughout the country eventually.

In March 2022, the New Hampshire House of Representatives passed a bill to adopt the new version of Chapter 12 of the UCC, which will govern the transfer of digital assets.

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