Kiffmeister’s FinTech Daily Digest (07/16/2020)

The comfort of cash in a time of coronavirus
Americans are using less cash but they are holding more, which presents a challenge for the Federal Reserve and other central banks around the world. They have to maintain a vast network of secure printers and depots to deliver cash to where it is needed. As people use less cash, each piece of this infrastructure becomes more expensive to operate. But central banks will not be able to wind it down completely, for two reasons. First, the poor are more likely to still use cash, exacerbating the “digital divide”. And second, in a crisis, everyone wants a fistful of dollars.

Retail Central Bank Digital Currencies: means of payment vs store of value
This paper discusses how different CBDC attributes (anonymity, remuneration, value-added services or caps on the holdings) can limit the substitutability between bank deposits and CBDCs in different situations. CBDC holding caps seem the most obvious solution but this may face practical difficulties such as how to impose the limits when an individual holds CBDCs in wallets offered by different providers or what to do with payments to accounts that exceed the caps. Another possibility is to set different tiers of CBDCs holdings, with a penalizing interest rate above a certain threshold. This may function in normal times, but would probably require extremely penalizing (negative) rates in a crisis or a bank run, which may create problems from the point of view of the central bank objective of preserving the value of money. Even if the CBDC is non-interest bearing, the substitutability between deposits and CBDCs will still depend on the extent to which regulation and competition dynamics allow banks and other financial intermediaries to compete with CBDCs, and in a crisis situation their value-added services may become irrelevant as compared to the safety of central bank money.

GSMA mobile money regulatory response to COVID-19 tracker and analysis
The Global System for Mobile Communications (GSMA) released a COVID-19 response tracker that monitors mobile money-specific regulatory policy, government and provider interventions globally, collated using both primary and secondary sources and updated weekly. The tracker is intended to support mobile money providers and regulators with a mobile money-specific policy response database and learnings from other markets, in order to effectively tailor policy responses for their market. The tracker collates data from 32 countries, spread across Sub-Saharan Africa (17), East Asia & Pacific (7), South Asia (4), Middle East & North Africa (3), and Latin America & Caribbean (1). An interim analysis of the data collated in the tracker showed preferred policy response instrument, regional variations, and the validity period of these instruments.

Swiss Crypto Bank SEBA to Offer Token Securitization on Corda Network
Switzerland’s licensed crypto-first bank SEBA is partnering with Corda-based Digital Asset Shared Ledger (DASL) to let the bank offer asset securitization services on Corda’s public network. It will complement SEBA’s Custody, Asset Management and Trading product. SEBA will create a wallet for onboarded custody customers, issue digital securities and distribute them to wealth management and other investor networks.

South Africa takes steps to regulate Bitcoin and other cryptocurrencies
South Africa’s Ministry of Finance proposed amendments to the Financial Intelligence Centre Act (FICA) for public comment. They aim to align FICA with the current International Standards of the Financial Action Task Force (FATF) as well as with recent legislative amendments. This will include new rules around virtual asset service providers (VASPs) including further responsibilities around which information they have to maintain and conducting due diligence on customers.

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