Kiffmeister’s FinTech Daily Digest (07/15/2020)

The Block Presents: Central Bank Digital Currencies – Design, Policy & Implementation
On July 17th at 11:30am ET The Block will host a panel with leading Central Bank Digital Currency (CBDC) experts to discuss The Block’s soon-to-be-launched report exploring CBDC history, motivations, policy designs and technological implementations. The panelists will be Carmelle Cadet (Emtech), @Kiffmeister (International Monetary Fund), and Sheila Warren (World Economic Forum).

Using CBDC and other instruments to get funds to those in need and enabling access to money during COVID-19
Through CBDC, governments could send direct payments much more rapidly than through checks or tax refunds and could provide geographically and temporally targeted relief. The CBDC supporting infrastructure would also enable fund receivers to make payments and transfers seamlessly to other CBDC holders and/or non-CBDC holders, anywhere and anytime across the economy. CBDC could reinforce the resilience of a country’s retail payment services, especially in those cases where private sector infrastructures are disrupted, due to technical problems, personnel unavailability, or inability of service providers to operate. The ‘programmability’ of CBDC could be used to monitor and control how, when, and where recipients utilise the funds. Finally, CBDC could enable people to substitute for cash and in-person payment methods when social distancing is required, or if the use of cash plummets as people worry about germs. Still, CBDC projects will take time to materialise, and meanwhile existing infrastructures could be improved to facilitate transfers and payments.

UK’s Revolut bank brings cryptocurrency offering to the US
U.K. digital bank Revolut expanded its cryptocurrency services to the United States, where it launched fiat banking services in March 2020. Customers in 49 states can now purchase, store, and sell Bitcoin and Ethereum through the Revolut app. It is using Paxos’ plug and play brokerage service (see below) with Paxos handling all the regulatory matters, since the U.S. trust company also acts as Revolut’s crypto-asset custodian.

Paxos Presents Paxos Crypto Brokerage Service, Revolut as First Customer
Paxos Trust Company launched Paxos Crypto Brokerage that will enable companies to integrate crypto-asset buying, selling, holding and sending capabilities into their own applications. Paxos Crypto Brokerage is an API-based solution that provides access to the crypto-asset market while managing the underlying regulatory and technological complexity. Revolut US is the first partner to leverage Paxos Crypto Brokerage for US customers of its consumer banking application (see above).

Hong Kong Citizens Turn to Stablecoins to Resist National Security Law
Trading volume between Hong Kong dollars and the U.S.-dollar pegged stablecoin USDT saw a surge in early June on the fiat-crypto trading platform TideBit. The surge followed the decision to strengthen Hong Kong’s national security law, which was unveiled by Chinese legislators during the Two Sessions, the largest annual political gathering in mainland China. The second trading surge on the exchange followed the enactment  of the new law on June 30.

NYDFS Chief Calls Industry Reaction to BitLicense Changes ‘Beyond Positive
Linda Lacewell, superintendent of the New York Department of Financial Services (NYDFS) reported that the crypto space has reacted positively to the new changes made to the BitLicense. These included the creation of a conditional license designed not to burden startups with the heavy costs of applying for a full BitLicense. Instead, they can partner with existing licensed entities to legally operate in New York.

Grayscale sees $900 million in Bitcoin, Ethereum flow into its trust
Greyscale investments inflows reach a record-breaking $900 million in Q2, 85% of inflows coming from institutional buyers. $135.2 million was committed to the Grayscale Ethereum Trust.

Bond Veteran Harnesses Blockchain to Digitize Credit Trading
LedgerEdge, which is planning to launch in 2021, aims to use blockchain technology to further digitize the bond market, where electronic trading has yet to breach much more than 30% of total volume. Traders have grown fairly comfortable doing small, routine transactions via platforms like MarketAxess, Tradeweb and Trumid, but they still hit the phones when trying to buy or sell bonds in large quantities. On the new platform, banks and investors would share their bond inventories and what they’re looking to buy or sell. R3’s Corda blockchain will be used to limit information leakage to the wider market. A main target is the vast majority of corporate debt that doesn’t trade much beyond the first few days after being issued.

Spanish banks complete tests of programmable payments for smart contracts
Banco Sabadell, Banco Santander, Bankia, BBVA and CaixaBank have successfully completed a proof-of-concept test to enable the execution of payments triggered by smart contracts in blockchain networks. The initiative, coordinated by Iberpay, the company that manages the Spanish Payment System (SNCE), confirmed the viability of employing blockchain technology to the payments sector. The first business case tested deployed a smart contract for the management of bank guarantees to automate the issuing, registering, executing and cancelling customer bank guarantees. Additionally, the case incorporated a ‘notary participant’ that simulates a State or Court injunction that may approve the execution of the guarantee when the established conditions are met, automatically triggering its associated payment.

Shariah-Compliant P2P SME Lending Platform Qardus Launches in the UK
UK-based Qardus has launched a Shariah-compliant P2P SME lending platform, offering unsecured loans of up to £100,000 in the form of a “murabahah,” which is a commodity and a type of Islamic financing structure through which buyers and sellers both agree to the cost and mark-up of a particular asset. Qardus charges borrowers a 2 to 5% fee, and borrowers are required to have been operating a business for three years or more, and they must have a turnover or assets worth £100,000. Also, borrowers must operate in “recession-proof” industries including food and beverages, food manufacturing and pharmaceuticals.

The evolving role of central bank money in payments
Changes in technology and user preferences during the last 20 years have led to fewer ‘areas of exclusivity’ and more ‘areas of overlap’ between central and commercial bank money settlement as well as with new entrants. However, the ‘multiple-issuer-/one-currency’ paradigm underpinning the current monetary system should, and will, remain. The reluctance of central banks to compete with commercial banks makes it likely that new forms of co-operation will emerge. Much has been written on potential substitution effects in the event of a CBDC being offered and ways to contain them. But there has not been enough on possible co-operation models to offer CBDC or on how central banks will preserve the value of payment data privacy in the 21st century.

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