Kiffmeister’s FinTech Daily Digest (07/31/2020)

San Francisco-based Varo Money has become the first U.S. consumer fintech firm to be granted a national bank charter, enabling the digital challenger to offer a full suite of FDIC-insured services. It was granted the charter by the Office of the Comptroller of the Currency and has secured regulatory approvals from the FDIC and Federal Reserve to open Varo Bank N.A. Varo Money currently provides a range of savings, loans and account-based services through a relationship with The Bancorp Bank. Varo Bank will enable it to expand its services to target a broader set of customer needs including credit cards, loans, and other savings products. 
The CEOs of Apple, Amazon, Facebook and Google were grilled in front of a U.S. House of Representatives Judiciary Committee antitrust subcommittee. Meanwhile, all four reported stronger than expected first quarter financial results demonstrating the resilience of their business models to the impact of the COVID-19 crisis. And PayPal topped earnings and revenue expectations amid booming growth in online transactions. The firm’s CEO said that the COVID-19 crisis has meant a “tipping point” for digital payments that, over the past three to five months, drove an acceleration in e-commerce penetration that could have otherwise taken three to five years to accomplish.  

Kiffmeister’s FinTech Daily Digest (07/30/2020)

The Group of Thirty (G30) published a report on digital currency. The report highlight the key issues that policymakers have to consider in responding to these developments. Among its recommendations are that national authorities must play an active leadership role in setting standards and providing public infrastructure for payments, which cannot be left to market forces alone. Also, because new technologies may require a sufficiently long phase-in period in order to be tested fully, multiple payment alternatives should be introduced so that the payments system gains a measure of resilience and includes adequate competition. Also, existing technologies that allow faster retail payments, which drastically increase competition and lower costs to businesses and consumers, should be implemented more widely. 
Stanford University’s Future of Digital Currency Program joined forces with the International Telecommunications Union (ITU), a United Nations agency headed by China, to launch the Digital Currency Global Initiative (DGCI). The purpose is to conduct research on central bank digital currency (CBDC) and other digital currencies, aiming to identify areas for standardization to facilitate interoperability. This research will focus on technical architectures, security, technical implications and challenges in deployment caused by regulatory and policy requirements. It will also construct a set of metrics by which to evaluate the robustness of various digital currency technologies against the requirements set by various stakeholders.
More than anything else, the debate over whether to issue a so-called central bank digital currency, or CBDC, is driving the debate on payments and privacy. A privacy-friendly CBDC is a complex and ambitious project. But designing something from scratch is forcing central banks to ask themselves whether they have an obligation to provide the public with digital privacy and, if so, how private dare they make the stuff. It’s difficult to know for sure whether a central banker’s “balanced” approach to privacy will meet the bar that is being set by an emerging group of privacy consumers. 
Fidelity Digital Assets published a paper explaining why Bitcoin has all the makings to become a store of value, its scarcity being one of the key factors. It claims that Bitcoin is capable of becoming an “insurance policy” that may provide protection against various consequences of contemporary monetary practices. They also argued that Bitcoin’s volatility actually has a positive impact on its adoption as it helps bring it attention, development and innovation—at least in its early years. It also claimed that a longer-term driver was the great wealth transfer to a millennial demographic that has a favorable opinion on digital assets.  
Real time gross settlement (RTGS) is a critical piece of national infrastructure and the backbone of UK payments. It settles an average of £685billlion each working day.  Following extensive industry engagement, the vision for the renewed RTGS service is to increase resilience and access, offer wider interoperability, improve user functionality and strengthen the end-to-end risk management of the UK high value payment system.  The renewed system will start to be delivered in 2022. The Bank of England will work with Accenture to develop and build this new world class payments service. 

Kiffmeister’s FinTech Daily Digest (07/29/2020)

When looking at potential technologies to support this central bank digital currency (CBDC) model, the Bank of Canada is considering a universal access device. It is a device which would store and transfer CBDC without consumers having to have a smartphone, so it could look very much like a prepaid card. But the key feature is that it would have to be available to everyone and be low cost. It would also have to be designed to satisfy the needs of people with motor, sensory and cognitive impairments, which is another reason why people use cash. The universal access is kind of a core desirable feature of CBDC but having some kind of device that would deliver that is something we’ve been exploring pretty aggressively. 
The Bangko Sentral ng Pilipinas has reportedly created a committee to look at the feasibility and policy implications of issuing its own digital currency. The initial results of study is expected next month. 
Analytics firm Coin Metrics has a new way to weed out fake data from crypto volume metrics. Only 13 crypto exchanges can be trusted to provide accurate volume figures, according to the firm’s new Trusted Volume Framework. The framework more accurately measures trading volumes across crypto markets. Many exchanges, particularly those which list illiquid altcoins, have a reputation of falsifying volumes in a bid to attract traders. 
This literature survey focuses on the microeconomics of cryptocurrencies; What drives their supply, demand, trading price and competition amongst them. This literature has been emerging over the past decade and the purpose of this paper is to summarize its main findings so as to establish a base upon which future research can be conducted. 
This IMF working paper finds that digital technologies have the potential to boost small and medium sized enterprise (SME) productivity and growth in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region. Economies are rapidly digitalizing, so SMEs need to embrace digital solutions to compete and survive. Therefore, for SMEs to be effective engines of inclusive growth, a rethinking of MENAP SME development strategies is needed, including making SME digital transformation a priority. 
The International Swaps and Derivatives Association (ISDA) and the International Securities Lending Association (ISLA) have agreed to closely collaborate on two key initiatives to deliver digital solutions to their respective memberships in a consistent and cost-effective way. As part of the agreement, ISLA will also work to model and code specific securities financing transaction (SFT) components for inclusion in the common domain model (CDM), creating greater alignment between derivatives and securities lending markets. The CDM establishes a single, common digital representation of events and processes that occur during the lifecycle of a trade, and is aimed at enhancing consistency and facilitating interoperability across firms and platforms.  

Kiffmeister’s FinTech Daily Digest (07/28/2020)

Bank of Canada Deputy Governor Tim Lane said that CBDC should have limits on how much anonymity it gives users, there would need to be a trade-off in terms of privacy were a CBDC to act as a replacement or complement to cash. A central bank should not issue CBDC that would increase the scope for illicit transactions to take place. The Bank of Canada has been exploring different CBDC infrastructure models to find an optimal balance between regulation and privacy, but CBDC would not be able to offer the same cash-like degree of anonymity on an unlimited scale. 
This paper finds that central bank digital currency (CBDC) may not be widely accepted in the presence of a sizeable informal economy. Based on a two-sector monetary model, it shows an L-shaped relationship between the informal economy and CBDC. The CBDC can formalize
the informal economy but this effect becomes marginally significant in countries with significantly large informal economies. In order to promote CBDC adoption and improve its effectiveness, tax incentives and positive CBDC interest rates can be useful tools. It further finds that adjustments to the CBDC interest rate can trigger a reallocation effect between formal and informal sectors, that improves the effectiveness of both conventional monetary policy and fiscal policy. 
The Tel Aviv Stock Exchange is launching a Central Blockchain Securities Lending Platform to provide a single national market where Israeli institutions can lend securities directly to one another. This replaces a complicated and disjointed lending system and will allow the securities lending market to reach its full potential. It has been in the testing phase since March 2020 and is set to go live in November. 
Investments into insurtech funding rounds rebounded to reach $1.56 billion in the second quarter of 2020, a more than 71% increase on the first-quarter of the year, according to Willis Re. Global investments into insurtech start-ups fell at the start of the year, as the impacts of the Covid-19 pandemics in capital markets put some investors attention elsewhere. However, the second-quarter rebound was driven in part by later-stage investments, including four large investment rounds of US $100 million or greater.  
Mastercard expanded its crypto-asset Accelerate program, making it simpler and faster for partners to bring secure, compliant payment cards to market. The move comes as Wirex becomes the first native crypto-asset platform to be granted a Mastercard principal membership, allowing it to directly issue payment cards. Consumers can instantly convert their crypto-assets into fiat currency, which can be spent everywhere Mastercard is accepted, although currency will always enter Mastercard’s network as traditional fiat currency.  
The U.K. Financial Conduct Authority and the City of London will collaborate on the pilot of a digital sandbox to support innovative firms tackling COVID-19 challenges. It will supply relevant high-quality data sets and expertise in the areas of detecting and preventing fraud and scams, supporting vulnerable customers, and improving access to finance for SMEs financially affected by the pandemic. The Review’s main objectives are to ensure U.K. fintechs have the resources to grow, and to create the right conditions for continued widespread adoption of fintech solutions. 
The U.K. Treasury relaunched its independent Fintech Strategic Review. Originally announced in March but delayed due to Covid-19), it will aim to identify key priority areas for focus by the industry, policymakers and regulators in order to support the continued growth and mainstream adoption of fintech solutions in the UK. 

Kiffmeister’s FinTech Daily Digest (07/27/2020)

Private Sector Could Bring Value to Future CBDC Launches, Says IMF Official
The IMF’s Tobias Adrian gave a keynote address at the “Building CBDC: A Race To Reality” conference. Adrian offered two models for the provision of a CBDC, varying in how they would pair the private sector with central banks. The first model looked at synthetic CBDCs (sCBDC), which are backed by the liabilities of a central bank but issued with the aid of a private entity, such as a commercial bank. The second, “two-tiered,” model puts central banks in charge of CBDC issuance and transaction settlement, which would spur private sector-led innovation at a more fundamental level.

Taiwan’s stimulus voucher scheme kicked in July
Stimulus vouchers aimed to boost Taiwan’s economy amid fallout from COVID-19 became available in July. Residents were able to select from four types of vouchers — hard copies, credit card payments, contactless smartcards, or mobile payments. The vouchers must be spent by December 31, 2020. Those favoring hard copies can “purchase” vouchers with a total value of NT$3,000 for NT$1,000. Individuals who prefer one of the three digital forms of vouchers will earn NT$2,000 back by spending NT$3,000.

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Kiffmeister’s FinTech Daily Digest (07/26/2020)

Design choices for central bank digital currency: Policy and technical considerations
This Brookings paper enumerates the fundamental technical design challenges facing CBDC designers, with a particular focus on performance, privacy, and security. Through a survey of relevant academic and industry research and deployed systems, it discusses the state of the art in technologies that can address the challenges involved in successful CBDC deployment. It also presents a vision of the range of functionalities and use cases that a well-designed CBDC platform could ultimately offer users.

Digital Dollar Project In Light Of Recent Congressional Hearings
Recent U.S. House Finance Committee hearings expose the views of some of the principal players on retail central bank digital currency (CBDC) in the United States. In particular, it was evident from Fed Chair Jay Powell’s remarks that the Fed would not be open to private operators creating the digital dollar infrastructure. He said he believed private entities should not have a role in designing a digital dollar: “The private sector is not involved in creating the money supply, that’s something the central bank does.”

It is notable that the Digital Dollar Project (DDP) whitepaper doesn’t touch on digital identity. Without a firm notion of digital identity and its anonymous expression, a digital wallet functioning in multiple capacities is impossible to construct. However, in the United States, there is a perception that a national identity scheme would be antithetical to privacy and anonymity. This has led to the creation of an ad-hoc system of digital identity patched together from social security numbers, tax id numbers, biometrics, drivers licenses, utility bills, passports, and birth certificates. There is a lack of a national privacy law with teeth. This will present a major challenge for retail CBDC and secure digital wallets.

Prime Brokerage Enters Crypto Market, Sort Of
Ultimately, for all of the crypto prime brokers’ valiant efforts, the Tower of Babel of state regulations and the lack of oversight under longstanding traditional securities laws could stymie cryptofund managers, particularly registered investment advisers from using a third-party service provider. The maze of state laws that apply to trust companies and money service companies is a major impediment to the development of a coherent model for trading and custody of digital assets. For now cryptofund managers will likely have to balance their operational and liquidity needs with asset safety and legal uncertainty.

GNU Taler — ‘Digital Cash’ that is socially responsible
GNU Taler is a privacy-preserving payment system. Customers can stay anonymous, but merchants can not hide their income through payments with GNU Taler. This helps to avoid tax evasion and money laundering. Payments are always backed by an existing currency. Payments are made after exchanging existing money into electronic money with the help of an Exchange service, that is, a payment service provider for Taler. When making a payment, customers only need a charged wallet. A merchant can accept payments without making their customers register on the merchant’s Website. Taler is based on blind signatures.

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Kiffmeister’s FinTech Daily Digest (07/25/2020)

ECB takes steps to ensure pan-European reach of instant payments
“The ECB’s Governing Council has taken significant steps to support the full deployment of instant payments across the euro area, in line with objectives shared with the European Commission. Pan-European instant payments can be ensured by the end of 2021. All Payment Service Providers (PSPs) which have adhered to the SCT Inst scheme and are reachable in TARGET2 should also become reachable in a TIPS central bank money liquidity account, either as a participant or as reachable party (i.e. through the account of another PSP which is a participant). At the same time, all Automated Clearing Houses (ACHs) offering instant payment services should migrate their technical accounts from TARGET2 to TIPS. The Eurosystem will discuss with ACHs and PSPs whether a migration window is needed for this purpose. The ultimate goal is to enable European citizens to make electronic payments in euro from and to any country in real time, both in physical shops and online.”

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Kiffmeister’s FinTech Daily Digest (07/24/2020)

Covid-19: Boon and bane for digital payments and financial inclusion
Authorities around the world have moved to encourage the use of digital payments in response to Covid-19. Some of these measures facilitate the use of digital payments during lockdown, while others provide longer-term support for fintech players and financial innovation more broadly. For emerging market and developing economies, the measures respond to the unexpected opportunity to further promote financial inclusion objectives through the use of technology. To increase their effect, these moves should include measures to combat financial crime and protect consumers.

Avanti Financial Group Announces Accelerated Charter Application
The Wyoming Division of Banking accepted crypto-centric Avanti Financial Group’s application for a bank charter, paving the way to a chartering decision in October. The U.S. Office of the Comptroller of the Currency recently allowed national banks to provide crypto custody services. However, according to Avanti’s Caitlin Long the 49 other states do not have Wyoming’s comprehensive legal structure for enabling digital asset custody without significant legal risk.

Avanti also announced the Avit stablecoin, which supposedly offers more legal certainty than existing stablecoins because it will be issued under existing U.S. commercial laws. Avit will be programmable via Avanti’s application programming interface (API). It is designed for use by institutional traders and corporate treasurers U.S. dollar payment settlement solutions do not suffer from the delayed settlement and chargeback issues of traditional payment solutions, or the legal, accounting and tax issues of stablecoins.

Kiffmeister’s FinTech Daily Digest (07/23/2020)

The IMF’s @Kiffmeister charted a technology path for central bank digital currencies in a recent webinar hosted by The Block.

Senate Hearing Sees Digital Dollar as a Tool for Economic Supremacy
The U.S. Senate Banking, Housing and Urban Affairs Subcommittee on Economic Policy conducted a hearing on “Winning the Economic Competition” with China. Former CFTC Chairman Christopher Giancarlo, a longtime advocate for a digital dollar and one of the witnesses, once again called for the U.S. to begin conducting tokenized dollar pilots. He said that maintaining the dollar’s supremacy is an economic and critical strategic matter, for example, in allowing the U.S. to enforce sanction regimes around the world.

Bank of Lithuania issues LBCOIN – the world’s first digital collector coin
The Bank of Lithuania issued its blockchain-based digital collector coin LBCOIN, each of the 4,000 LBCOINs equaling six digital tokens and one physical collector coin. One of the points of the excercise is to test new payment technologies in a safe environment, e.g., go through all authentication procedures remotely, open an e-wallet, swap digital tokens with other collectors or transfer them to the public NEM network. It also allows the Bank to get the know‑how to potentially issue central bank digital currency.

Could the Poor Bank on Stablecoins?
This Gates Foundation note explores five open questions about whether stablecoins could promote financial inclusion in lower- and middle-income countries. The questions cover two practical issues concerning processing speed and technology available to the poor; costs to users; regulatory issues, especially compliance with existing customer funds protection rules; and implications for financial systems with limited foreign exchange reserves.

Kenya is doubling down on regulating mobile loan apps to combat predatory lending
Kenya’s central bank is reportedly proposing new laws to regulate monthly interest rates levied on loans by digital lenders in a bid to stamp out what it deems predatory practices. If approved, digital lenders will require approval from the central bank to increase lending rates or launch new products. /

South Korean COVID-19 relief payouts 92 percent complete
Gesell money! “More than 92 percent of South Korean households have received their emergency disaster relief funds from the government, three weeks after the payouts began. Households were able to choose to receive their share in the form of credit or debit card points, prepaid cards, cash points or gift certificates. The card points, gift certificates and prepaid cards cannot be used online, at large supermarkets or at entertainment venues. Any relief funds not claimed or spent by the Aug. 31 deadline will be regarded as donations to the state.”

The Reserve Bank of Zimbabwe Designates Zimswitch As National Payment System
The Reserve Bank of Zimbabwe directed all mobile money service providers to cross over to Zimswitch Technologies as their national payments switch by August 15. It remains to be seen whether Econet, which enjoys a lion’s share of the mobile money market and is locked in endless tussles with the authorities, will abide by the directive or challenge it in court.

Blockchain Application for Central Banks: A Systematic Mapping Study
This paper analyzed and mapped trends in peer-reviewed research contributions through thematic categorisation of academic literature on distributed ledger technology use-cases for central bank services, operations and functions. Furthermore, this paper provides summaries of opportunities and challenges for central banks arising from blockchain adaptation to each of those use-case. It found that the most research intensive use-cases are those for: 1) central bank digital currency, 2) regulatory compliance and 3) payment clearing and settlement systems.

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Kiffmeister’s FinTech Daily Digest (07/22/2020)

Banks in US Can Now Offer Crypto Custody Services, Regulator Says
According to the U.S. Office of the Comptroller of the Currency (OCC) national banks may provide cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency. The OCC also reaffirmed that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law. JP Morgan is one such national bank which provides banking services to crypto companies (eg Gemini and Coinbase).

Visa Blog Post Hints at Future Digital Currency Projects
Three key values will now steer Visa’s digital currency playbook: maintaining robust data protection standards; remaining network and currency agnostic; and partnering with projects that align with the payments firm’s existing expertise. Already a crypto bridge for tens of millions of merchants, Visa cast its digital currency partnerships as critical to preserving what it said was six decades of innovation. Visa is also working directly with policymakers and non-governmental organizations to help shape the dialogue around digital currencies, including central bank digital currency.

Hot Money Credits to Kick-Start a Stalled Economy?
A “hot money credit” (HMC) program is like a regular cash transfer program, except that the money comes with an expiration date. The idea is not new – Silvio Gesell proposed the idea in the 1890s – and it is closely related to negative interest rate policy (NIRP). The goal of both policies is to incent a coordinated private spending effort to kick-start a stalled economy. The resistance against NIRP stems in large part from the fact that it constitutes a tax on accumulated money balances which, whereas an HMC policy’s “threatened tax” applies only to newly created money distributed as a gift. As such, a well-designed HMC policy implemented through U.S. Treasury authority would eliminate the need for NIRP implemented through the Federal Reserve.

The WFE calls to address development of global stablecoins with a taxonomy
The World Federation of Exchanges encourages global standard-setting bodies to generate a taxonomy for all global stablecoins (GSCs) and crypto-assets. In adopting the use of a global taxonomy, a common understanding would develop of whether a GSC or crypto-asset fits a certain classification or definition (eg do the features of the crypto-asset meet the definition/classification of a security) which would, in turn, reduce the variance in application of regulation, to GSCs/crypto-assets, between jurisdictions. Whilst differences might remain across the globe in securities regulation itself, the fragmented approach to the type of GSC/crypto-asset which falls under that regulation would potentially be reduced. This results in a more universal application of regulation, especially if the principle of ‘same business, same risk, same rules’ is applied and is focused on regulatory objectives and outcomes.

Vitalik Buterin Warns High Fees Threaten Ethereum’s Security
Vitalik Buterin has called for reform to the Ethereum’s fee system, warning that rising transaction fees could undermine network security. The idea is based on a paper that suggests miners’ increasing reliance on transaction fees may incentivize selfish mining practices in a bid to extract greater profits, risking disruptions to how transactions are processed. Buterin is advocating for the implementation of Ethereum Improvement Proposal (EIP) 1599 to reform Ethereum’s fees. It involves burning base fees to reduce miners’ reliance on transaction tariffs.

Pennies as state failure
A society with a broad range of opinions about the monetary system (many of which are erroneous conspiracies and lies) is going to be much harder to change than a society that is neutral or uninterested about the monetary system. In the U.S., a fix as simple and smart as removing the penny will inevitably be misinterpreted (often willfully so) by crowds of monetary populists. And so any wise bureaucrat or legislator who wants to remove the penny will have to expend huge amounts of extra time combating misinformation. So maybe they won’t bother. And thus the state has failed Americans, and they are stuck with the penny. But we trusting (and perhaps naive) Canadians have been saved.

Korean Government Proposes Tough New 22% Tax on Crypto Trading
The Korean Ministry of Economy and Finance tabled a proposal to introduce a 22% tax –including the 2% local income tax – on crypto trading profits above KRW 2.5 million. If approved by Korea’s National Assembly, the tax rule will come into force in October 2021.
The new tax rule will also apply to non-residents and foreign companies who trade on Korean exchanges.

Russian Lawmakers Finally Pass Country’s Major Crypto Bill
Russia’s new crypto and digital asset legislation passed third and final reading. It is expected to be officially adopted in Russia on Jan. 1, 2021. The bill provides a legal definition to digital assets and legitimizes crypto-asset trading in Russia. However, the bill prohibits the use of crypto-assets as a payment method.

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