Kiffmeister’s #Fintech Daily Digest (20221128)

Envisioning the Future of Payments

There’s not much that’s new on the Bank of Japan’s (BoJ’s) central bank digital currency (CBDC) plans in this speech by Executive Director Uchida Shinichi, but I’m posting it anyways to debunk continuing stories about the BoJ abandoning its CBDC project. The fake news seems to go back to an article in The Paypers that misinterprets the BoJ May progress report, which opened with “the BOJ currently has no plans to issue CBDC” but made it clear that it would continue to undertake technical experiments to be prepared if plans change. Mr. Shinichi reiterated this stance: Whether or not a CBDC should be issued would be a judgment by the people [and] considering the lead time for investment, the day will come when a decision needs to be made… [so] the Bank will proceed with its technical experiments to test the feasibility of CBDCs and explorations into institutional arrangements so as to support such decision making.” [Read the speech at the BoJ]

TCH White Paper Outlines Legal Authority for US Insured Depository Institutions to Issue and Provide Stablecoin-related Activities, including Digitized Deposits

The Clearing House (TCH) published a paper that analyzes US insured depository institutions legal authority to issue stablecoins and engage in stablecoin-related activities. It finds that, in 2020 and 2021, Office of the Comptroller of the Currency (OCC) gave national banks the clear legal authority to issue and exchange stablecoins, based on language in the National Bank Act, and consistent with numerous legal decisions and regulatory determinations regarding a bank’s authority to issue payments and deposit instruments. National banks have always been permitted to develop innovative deposit and payment mechanisms, as receiving deposits and acting as financial intermediaries are core functions of banks. [Read more at the TCH]

Custodia Bank Wins Important Digital Asset Decision

US Law firm Davis Wright Tremaine LLP (DWT) published a report on Wyoming’s Custodia Bank’s successful complaint regarding the Federal Reserve’s tardy response to the bank’s application for a Master Account. DWT represented Custodia in the legal action, and they believe We believe this is the first case in which claims seeking to compel the grant of a master account have proceeded beyond the motion to dismiss stage. I reported on this some weeks ago but with little of the detail included here. I am quite surprised at the crypto press hasn’t picked up on this important news, but I guess they prefer their stories spoon fed to them. [Read more at DWT]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy tomorrow. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221127)

Hedging sanctions risk: Cryptocurrency in central bank reserves

A paper by the Harvard University’s Matthew Ferranti explores the potential for Bitcoin to serve as an alternative central bank reserve currency asset to ex-ante hedge against the risk of financial sanctions. It uses a dynamic Bayesian copula model to simulate the joint returns of Bitcoin and other reserve assets under a wide range of plausible sanctions probabilities. Assuming mean-variance preferences, a modest risk of sanctions significantly increases optimal gold and Bitcoin allocations. If a central bank cannot acquire sufficient physical gold to hedge its sanctions risk, the optimal Bitcoin share rises further, suggesting that gold and Bitcoin are imperfect substitutes. It concludes that sanctions risk may diminish the appeal of US Treasuries, propel broader diversification in central bank reserves, and bolster the long-run fundamental value of both cryptocurrency and gold. [Download the paper on Matthew Ferranti’s website]

How crypto goes to zero

A recent Economist article goes through the most likely path towards zero crypto – basically ending at the point where no one is using it. It rejects the attack-and-shut-down the major crypto-assets because that would essentially involve gaining 51% control of the computational power or value of tokens staked to verify transactions, which would be extraordinarily expensive, even at today’s depressed prices. The more likely scenario, according to the article, is the collapse and generally a massive loss in faith in the exchanges and decentralized finance (DeFi) lending protocols. This could lead to further collapses of crypto prices, making 51% attacks more feasible, triggering a self-reinforcing crash as confidence in the protocols tanks. [Read more at the Economist]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221126)

An examination of first-mover advantage for a CBDC

The US Fed published a paper that explores whether there could be a first-mover advantage for a jurisdiction issuing a central bank digital currency (CBDC) compared to other jurisdictions that subsequently issue their own CBDC. The academic literature provides a framework by which one can assess a CBDC in the domestic payments market, the international payments market, and the technology markets that support payments. However, a CBDC may be more than just a means of payment and thus first-mover advantage is examined for both the asset component of reserve currency and a future financial system built on CBDCs. Overall, the first mover literature does not suggest that there is a compelling first-mover advantage for issuing a CBDC. [Read more at the Fed]

Central should banks consider backing stablecoins instead of launching CBDCs

According to the New York Fed’s Antoine Martin, “instead of issuing a retail CBDC, central banks could support stablecoins by allowing them to be backed one-for-one with balances in a central bank account. They could also facilitate a bankruptcy remote legal structure to ensure that end-users are paid in full even if the issuer becomes bankrupt. Such stablecoins could be a close substitute for central bank digital money, while balances in a central bank account are risk free and could earn interest. Though stablecoin issuers should be subject to some oversight in exchange for access to a central bank account.” [Read more at Finance Feeds]

Crunchfish Digital Cash in CBDC evaluation with the Central Bank of Nigeria

Crunchfish and the Central Bank of Nigeria (CBN) have entered into a Development and Demonstration Agreement for a proof-of-concept of Crunchfish Digital Cash. Crunchfish will deliver Digital Cash for iOS and Android and support CBN throughout this process. The proof-of-concept will integrate Digital Cash into the eNaira wallet and backend to fully evaluate the user experience in a potential commercial deployment. [Read more at Crunchfish]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221124)

Central bank digital currencies in Africa

The Bank for International Settlements (BIS) published a paper that analyses the development, motivations and concerns of central bank digital currencies (CBDCs) in Africa. While all of those surveyed are analyzing CBDCs, only few have projects at advanced stages (pilot or live). Some countries, in particular in East and West Africa, stand out as promoting fast payment systems through mobile money, but half of the surveyed central banks think that CBDCs can provide a superior solution. A key motivation for African central banks is achieving greater payment system efficiency. In addition, a higher proportion than in other regions see potential benefits for monetary policy, an important consideration for a region where the transmission mechanism is weak. Central banks in Africa also place more emphasis on financial inclusion. At the same time, they are more worried than other regions about cyber security risks and cross-border spillovers and are also concerned about high operational burdens.

And speaking of high operational burdens,  only just over 40% of respondents favored a two-tier business model, with the central bank at the core, but private agents (banks and payment service providers) interacting with users (e.g., performing customer onboarding, including KYC/AML functions). Almost all central bank CBDC explorers I follow have dismissed the direct model in which the central bank does all of the “donkey work”. However, it should be noted that almost all of the other 60% or so of respondents were simply undecided about the business model at this point. The preference for a two-tier model is strongest among central banks for which financial disintermediation is a top concern. Bringing banks – and other PSPs – on board would encourage them to accept CBDCs. A two-tier model would facilitate collaboration and potentially draw on synergies with the private sector. [Read more at the BIS]

OXT Research provides proof of reserves for Grayscale

OXT Research has taken steps to confirm Grayscale’s self-reported Bitcoin (BTC) holdings that back its GBTC closed-end fund, based on public data and blockchain forensics. It confirmed that the approximate balance of 633,000 BTC held was held at Coinbase Custody, to conclude that Grayscale’s self-reporting is credible. OXT Research speculates that Grayscale might not want to disclose their addresses is that they want to avoid providing information about who their most used counterparties are, which could be its parent (DCG) and Genesis Trading, which is teetering on the edge of bankruptcy. [Read more at Bitcoinist]

Africa’s growing crypto market needs better regulations

The IMF published a blog on African countries’ approaches to regulating crypto-assets, finding that only one-quarter of countries in sub-Saharan Africa formally regulate crypto. However, two-thirds have implemented some restrictions and six countries—Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo—have banned crypto. Zimbabwe has ordered all banks to stop processing transactions and Liberia directed a local crypto startup to cease operations (implicit bans). The blog also warned that public finances could be put at risk if crypto-assets are adopted as legal tender, as the Central African Republic recently did. [Read more at the IMF]

Here’s how far Fintech funding has fallen

According to Crunchbase, last year, financial services was the leading sector for venture investment, with at least $131 billion globally going into startups in the space. This year, the industry still ranks among the largest recipients of venture capital funding. However, investment to startups in the space has been dropping every quarter this year, with Q4 likely to be the lowest yet. Even with the steep year-over-year decline, financial services funding is still high by historical standards, and 2022 is on track to deliver the second-highest funding total of the past five years. [Read more at Crunchbase]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221123)

For those interested in following the details of the trials and tribulations around the FTX exchange collapse, I’m collecting my favorite articles here on my Diigo social bookmarking page

BOJ eyes pilot experiments next year to issue digital yen

The Bank of Japan (BOJ) will reportedly begin preparations to conduct a retail central bank digital currency (CBDC) pilot next Spring (2023) year. According to Nikkei Asia, “after spending two years verifying whether there are any problems with bank account deposits and withdrawals, the BOJ will decide whether to go ahead with a digital yen in 2026.” However, it’s not clear yet whether this is a “pilot” (testing in the “wild” with real live users) or a proof of concept (tested among financial institutions in a “laboratory” setting). [Read more on Reuters]

Let’s Stop Regulating Crypto Exchanges Like Western Union

US-based cryptocurrency exchanges including Coinbase, FTX US, and Binance.US are overseen on a state-by-state basis as money transmitters. MoneyGram, PayPal and Western are regulated as money transmitters, and starting in the 2010s, crypto exchanges were subsumed under it.  Money transmitter laws are known for lax security requirements, slim capital requirements, an insufficient “ring fencing” of customer funds in the case of bankruptcy and an overly permissive list of investments to which transmitters can deploy their customers’ funds. Isn’t it about time that crypto exchanges were put under SEC or CFTC oversight? [Read more on Coin Desk]

An assessment of the volatility spillover from crypto to traditional financial assets: the role of asset-backed stablecoins

The Hong Kong Monetary Authority (HKMA) published a paper on volatility spillover from asset-backed stablecoins to money market instruments. Stablecoins bear liquidity mismatch risks similar to money market funds, which may expose them to a fire-sale of reserve assets in times of crypto ecosystem instability and in turn increase the volatility of these reserve assets. It finds that, in extreme circumstances, these fire-sales could have material impacts on the traditional financial system such as the money market. The paper proposes regulations that require stablecoin issuers to provide standardized and regular disclosures of their reserve assets holdings, and possibly imposing restrictions on the composition of reserve assets and requiring well- defined redemption rights. [Read more at the HKMA]

Bank of America To Partner With Ripple for ODL Services After XRP Lawsuit Finishes: Report

Bank of America is reportedly waiting for the end of the U.S. Securities and Exchange Commission (SEC) court case against Ripple to use the firm’s on-demand liquidity (ODL) products. Ripple’s ODL solution uses the XRP to enable faster and cheaper cross-border payments without the need for pre-funded destination accounts. [Read more at the Daily Hodler]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221122)

For those interested in following the details of the trials and tribulations around the FTX exchange collapse, I’m collecting my favorite articles here on my Diigo social bookmarking page. Meanwhile, here are a couple that surfaced today.

Crypto brokerage Genesis Is said to warn of bankruptcy without funding

Digital-asset brokerage Genesis is struggling to raise fresh cash for its lending unit, and it’s warning potential investors that it may need to file for bankruptcy if its efforts fail. The rush for funding was precipitated by a liquidity crunch at the lender after the sudden collapse of FTX, Genesis halted redemptions shortly after revealing on November 10 that it had $175 million locked in an FTX trading account. [Read more at Bloomberg]

CoinMarketCap launches proof-of-reserve tracker for crypto exchanges

CoinMarketCap launched a proof of reserves (PoR) tracker that details the total assets of the most active crypto-asset exchanges, and their affiliated public wallet addresses, along with the balances, current price and values of the wallets, updated every 5 minutes. [Read more on Coin Telegraph]

Central Bank Digital Currency: Assessing the Risks and Dispelling the Myths

For fans of “straw man” arguments, the Cato Institute published a digital dollar takedown. Most of the report is actually quite good, and I agree with most of the things the authors say about the dubious case for a US Fed-issued central bank digital currency (CBDC). But starting on page 7, they go down the privacy/control rabbit hole by assuming that a digital dollar will be designed as a control/surveillance coin, completely ignoring the possibility that it could be designed to offer the same privacy and user control as physical cash (see my IMF F&D article here). Rather than completely diss CBDC, they could have made their paper a call for action to insist that at least one layer of the digital dollar offer complete offline usability and privacy, or lend support to the ECash Act. [Anyways, you can download the paper at the Cato Institute]

How is the “world’s most advanced central bank digital currency” progressing?

The LSE Business Review published an article by the Center for Evidence-Based Management’s Martin C. W. Walker that reviews the Central Bank of the Bahama’s Sand Dollar CBDC experience. He documents the Sand Dollar’s very low take-up and opines that it was aimed at solving a financial exclusion problem that was not really a major problem, and it didn’t do it very well. Also there did not seem to be an objective evaluation of alternatives solutions, such as encouraging greater use of bank issued debit cards and more efforts to educate the older generation in the use of electronic payments. [Read more on the LSE Business Review]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221121)

Grayscale refuses to share proof of reserves due to ‘security concerns’ as shares trade at a 45% discount to bitcoin

As I mentioned yesterday, the market value of Grayscale’s $10.5 billion Bitcoin Trust (GBTC) is trading at record low discounts to the price of Bitcoin (BTC). Grayscale has now said that it won’t share its proof of reserves with customers “due to security concerns.” Grayscale said each of its digital asset products is set up as a “separate legal entity” and reiterated that those digital asset products are “stored under the custody of Coinbase Custody Trust Company that the “laws, regulations, and documents that define Grayscale’s digital asset products prohibit the digital assets underlying the products from being lent, borrowed, or otherwise encumbered.”

Digital Currency Group (DGC) is the parent company of Grayscale, and Genesis. Last week, the lending arm of Genesis Global Trading paused new loan originations and redemptions. The lending arm of the bank serves an institutional client base and is known as Genesis Global Capital. At the end of its third quarter, it had more than $2.8 billion in total active loans. Peter Tchir speculates that some unwinding of the GBTC trusts could be worth exploring, but James Seyffart poured through the GBTC documentation and found language that makes it very difficult, plus it generates good fees for DGC which likely needs it badly. [Read more at CNBC]

Thailand and Vietnam launch QR payment linkage

The State Bank of Vietnam (SBV) and the Bank of Thailand (BOT) have launched a joint QR payment service as an alternative means of cross-border payments between the two countries, first announced in March 2021. The central banks in ASEAN have been actively working towards achieving true payment connectivity in the region. Most recently, Bank Indonesia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore, and BOT had inked a MoU for cross border payments. [Read more at the SBV]

Easier said than done: why Italians pay in cash while preferring cashless

The Banca d’Italia published a paper that, based on data from a 2019 ECB survey of consumers, studies the determinants of Italian consumers’ payment choices at the physical point of sale (POS). The study also assesses the reasons why consumers mainly use cash for their payments although they would prefer to use other instruments, such as cards. The acceptance of cashless instruments at the point of sale and the value of the transaction are the main factors influencing payment choice. Men and residents in Northern and Central Italy pay with cards more than women and residents in Southern Italy, but these gaps narrow among people with digital skills. Consumers pay in cash, even though they would prefer to use a different payment instrument, due to a lack of acceptance of cashless instruments by merchants. [Read more at the Banca d’Italia]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221120)

Grayscale’s Bitcoin Trust hits record-Low 45% discount

The market value of Grayscale’s $10.5 billion Bitcoin Trust (GBTC) is trading at record low discounts to the price of Bitcoin (BTC). Launched in 2013, GBTC pools money from institutional investors and uses it to buy BTC, which is then held in a Grayscale fund. GBT usually traded at a premium above its net asset value (NAV) but it has traded at a discount below NAV after several other alternative Bitcoin exchange-traded funds (ETFs) launched, like the Canadian Exchange-Traded Funds (ETFs) and several BTC futures ETFs. GBTC is currently trading at a discount of about 45% according to data from YCharts. [Read more at Decrypt]

Grayscale has been trying to convert the fund into an exchange-traded fund (ETF) which would enable investors to redeem their shares, which would result in GBTX market valuations tracking its NAV more closely. When ETFs trade at a premium (or discount) to NAV, authorized participants (APs) step in to arbitrage the gap away. APs are designated by the ETF issuer to acquire the securities that the ETF wants to hold, in exchange for ETF shares priced at their NAV (not the ETF’s market value). Also, APs can remove ETF shares from the market by purchasing and delivering them to the ETF issuer, in exchange, for the same value in the underlying securities.

Hence, for example, if GBTC were an ETF trading at a premium to NAV the APs would buy Bitcoin on the open market, and deliver them to Grayscale (the ETF issuer) in return for overpriced ETF shares, which the APs then sell on the market. This should drive the premium toward zero, while the AP earns a risk-free arbitrage profit. If the ETF were trading at a discount, the APs buy the underpriced ETF shares on the market and delivers them to Grayscale in return for the underlying Bitcoin, which can then be sold at a risk-free profit. However, GBTC is a close-ended fund, meaning the underlying BTC deposits are locked in, and GBTC shares can only be sold on the market after a six-month lockup imposed by the US Securities and Exchange Commission SEC Rule 144). Grayscale has applied to the SEC to convert GBTC into an ETF, but the SEC has rejected it and all such “spot” ETF applications, allowing only futures-based BTC ETFs. 

Years ago, when GBTC was trading at a massive premium to NAV, some pointed to a scheme by which the premium could be arbitraged. It involved buying GBTC from Grayscale at NAV and shorting free-trading GBTC. Six months later, the investor close the two positions out for a risk-free profit, although this glosses over risks like not being able to borrow and fund GBTC for up to six months. There’s no equivalent “risk-free” arbitrage trade for when GBTC is trading at a discount to NAV because it would have to involve redeeming the shares for the underlying BTC, which is impossible because GBTC is a closed-end investment fund.

Meanwhile,  with crypto firms being pressed to show more information about their reserves after FTX filed for bankruptcy protection, Grayscale won’t be showing any proof of reserves. “Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure.” [Read more on Grayscale’s Twitter feed]

Is Silvergate Capital facing a bank run?

Crypto bank Silvergate Capital’s stock is down about 47% since the news about FTX started to break, and there is chatter that Silvergate could be facing a run. Its Silvergate Exchange Network (SEN) operates as a real-time dollar and euro payments network for crypto exchanges and institutions (see graphic below). At the end of the third quarter, Silvergate had 1,677 customers, including all of the major crypto exchanges and more than 1,000 institutional investors, using SEN and about $12 billion of non-interest-bearing deposits. Silvergate doesn’t charge clients fees to use the SEN network so its main source of revenue is the carry on those deposits.

What’s probably driving the stock decline are investor concerns about deposit outflows from its exchange clients, as the crypto market slows down, including roughly $1.2 billion from FTX. However, Silvergate has a highly liquid balance sheet. At the end of the third quarter, the bank had nearly $1.9 billion of cash and cash equivalents and another $8.3 billion of available-for-sale securities that can be quickly converted into cash. Also, as a federally regulated bank, Silvergate could also tap the Federal Home Loan Bank or the Federal Reserve. Nevertheless, the situation bears watching. [Read more at the Motley Fool]

Silvergate Capital clients.

Intellectual property rights and DLT with a focus on art NFTs and tokenized art

The European Parliament’s Policy Department for Citizens’ Rights and Constitutional Affairs published a study that aims to provide an overview over intellectual property (IP) rights and distributed ledger technology (DLT) with a focus on IP issues relating to art non-fungible tokens NFTs and tokenized physical art works. [Read more on the European Parliament website]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221119)

FSB outlines framework for monitoring progress toward the G20 cross-border payments targets

The Financial Stability Board (FSB) published its report to the G20 on the framework for monitoring progress toward meeting the targets for the G20 Roadmap for Enhancing Cross-border Payments, to achieve cheaper, faster, more transparent, and more accessible payments. The framework includes key performance indicators defined across the 11 targets for the three market segments – wholesale, retail, and remittances. Notably, the definitions of the wholesale and retail market segments have been adjusted to more clearly separate the differing use cases and end-user experiences and better align the definitions with those most typically used by the payments industry and end-users.

Wholesale transactions were defined as those between financial institutions, and retail transactions as those that were neither between financial institution end-users nor in the third market segment – remittances. Going forward, the wholesale market segment will include all payments with a value equal to or exceeding a specified threshold regardless of whether the end-users are financial institutions. The threshold will be set at a level that captures the use cases in this market segment, such as high-value corporate business-to-business. Relatedly, retail payments will be payments with a value less than the specified threshold, not including remittances. [Read more at the FSB]

Instant Payments: Regulatory Innovation and Payment Substitution Across Countries

The IMF published a paper that makes the case for instant payment systems as an alternative to retail central bank digital currency (CBDC). Instant, or fast, payments are credit transfers completed and settled within seconds or minutes. They have low costs, reduce payment risk, and have significantly replaced the use of cash, cards, or check and direct debit payments. The authors of the report note the role played by regulators in promoting instant payments and identify instances of significant payment instrument substitution across 12 advanced and emerging market economies. This substitution reflects the realized demand for attributes offered by instant payments. As these attributes are quite similar to those for CBDC, the demand for retail CBDC (if issued) may be less compelling. [Read more at the IMF]

State of Instant and Inclusive Payment Systems in Africa

The State of Instant and Inclusive Payment Systems in Africa report is an AfricaNenda’s initiative together with the World Bank and the United Nations Economic Commission for Africa. The report aims to inform payment actors in Africa and beyond about the developments in the instant retail payment system ecosystem on the continent. This first edition highlights the current landscape of instant payment systems, including an assessment of the inclusivity of such systems, through their accessibility to all end-users, their capacity to ensure fair access and design input opportunities for all licensed payment providers. The report also dives into end users’ experiences pointing to the fact that IPS are still far from meeting all consumers’ payment needs. [Read more at AfricaNenda]

Crypto-assets: evolution and policy response

De Nederlandsche Bank (DNB) published a paper intended underpin the central bank’s crypto-asset policy position. The study aims to: (i) deepen understanding of the functioning of crypto-assets and their attractiveness; (ii) revisit their main opportunities and risks, and (iii) summarize views on ongoing efforts regarding regulation, supervision and enforcement. [Read more at the DNB]

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]

Kiffmeister’s #Fintech Daily Digest (20221118)

I’ve updated my tabulation of wholesale central bank digital currency (CBDC) explorers. There 17 central banks that have recently issued, piloted, experimented with and/or researched wholesale CBDC. [Check it out here]

Georgian central bank plans to roll out pilot scheme for digital currency

The National Bank of Georgia reportedly plans to roll out a CBDC pilot. The central bank first announced the digital lari project in 2021 and invited innovators for a public-private partnership for the purpose. [Read more at Agenda.de]

The Macroeconomic Implications of CBDC: A Review of the Literature

The US Federal Reserve Board (FRB) published a paper that provides an overview of the literature on how a CBDC would affect the banking sector, financial stability, and the implementation and transmission of monetary policy in a developed economy such as the United States. A CBDC has the potential to improve welfare by reducing financial frictions in deposit markets, by boosting financial inclusion, and by improving the transmission of monetary policy. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. A CBDC also raise questions regarding monetary policy implementation and the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, particularly remuneration. [Read more at the FRB]

eCurrency providing technology for National Rollout of CBDC in Jamaica

eCurrency has entered into a long-term partnership with Bank of Jamaica to provide technology services for the national rollout of its JAM-DEX CBDC. [Read more at PR Newswire]

New FTX chief says crypto group’s lack of control worse than Enron

The new chief executive of FTX, an insolvency professional who oversaw the liquidation of Enron, has said that the bankruptcy of the crypto group is the worst case of corporate failure he has seen in more than 40 years. John Ray III, who was appointed to run the FTX bankruptcy, said in a US court filing that he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information”. [Read the statement here]

FTX Bankruptcy Jurisdiction Fight: Bahamas Regulators Now Confirm They Directed SBF to Move Assets

At least some of the millions of dollars in FTX customer funds mysteriously moved off the exchange during the week of November 7, 2022 were moved at the direction of regulators in the Bahamas. That assertion was made in a new filing by the company, and confirmed later by the Securities Commission of the Bahamas. [Read more at Decrypt]

And for those interested in following the FTX trials and tribulations, I’m still collecting them on my Diigo social bookmarking page.

Digital Euro Association Digital Money Academy

I will be discussing global central bank digital currency (CBDC) developments at the Digital Euro Association’s Digital Money Academy on November 29. If you want to get into CBDCs, register for the Academy here!

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]