Kiffmeister’s #Fintech Daily Digest (10/05/2020)

An Inside Look At Wyoming State Regulators Prepping For First Crypto Bank Examinations

Just over two weeks ago, Kraken Financial received the first Special Purpose Depository Institution (SPDI) charter from the Wyoming Banking Division. The foundation has now been established for Wyoming to be the most crypto-friendly jurisdiction in the United States. Now that the laws are passed and the charter is issued, it is up to the Wyoming Banking Division regulators to begin the first-ever crypto bank examinations. Here, Commissioner Albert L. Forkner of the Wyoming Banking Division and Chris Land, General Counsel, provide an inside view of this historic moment in bank examinations. 

CBDC remuneration in a world with low or negative nominal interest rates

The prospect of central bank digital currency (CBDC) has raised concerns over its potential to cause structural (i.e. permanent) or cyclical (i.e. crisis-related, temporary) bank disintermediation. Moreover, negative interest rate policy is incompatible with the unconstrained supply of zero-remunerated CBDC. This column argues that a two-tier remuneration system for CBDC would be an efficient solution to these issues. It would allow households to access the CBDC as a means of payment with non-negative remuneration and would also make it possible to overcome the perceived dichotomy between retail and wholesale CBDC. 

Security and convenience of a central bank digital currency

This Bank of Canada paper discusses how an anonymous central bank digital currency (CBDC) would pose certain security risks to users. These risks arise from how balances are aggregated, from their transactional use and from the competition between suppliers of aggregation solutions. The central bank could mitigate these risks in the design of the CBDC by limiting balances or transfers, modifying liability rules or imposing security protocols on storage providers. This paper is based on the following one published by two of the same authors out of the St. Louis Fed which is abstracted below: 

Eggs in One Basket: Security and Convenience of Digital Currencies

Digital currencies store balances in anonymous electronic addresses. We analyze the trade-offs between safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords of many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and tradeoffs on these dimensions; we analyze the welfare effects of differing industry structures and interdependencies, and in particular the consequences of “password aggregation” programs which in effect consolidate risks across accounts. 

Accelerating winds of change in global payments

Global payments revenue in the first six months of 2020 contracted 22%, or $220 billion, from a year ago due to the impact of the Covid-19 pandemic, according to McKinsey & Company. The management consultancy expects revenue for the entire year to be about $140bn lower than in 2019, a 7% decline from a year earlier. Consumers in certain geographies seem to be paying off credit-card balances in preparation for the challenging times seen ahead. The pandemic has also accelerated the move from physical to virtual banking, with banks in various countries closing branches and ATMs. Investments in instant payments have begun to reap greater benefits, both in point-of-sale and e-commerce. 

Thai central bank issues $1.6B in government bonds on IBM blockchain

The Bank of Thailand reportedly launched the world’s first blockchain-based government savings bond issuance platform using IBM’s blockchain technology. Within two weeks of the launch, the central bank sold more than $1.6 billion worth of savings bonds.  The use of blockchain technology is said to have reduced the bond issuance time from 15 days to just two days. The increased efficiency of the process has also reduced operational cost and redundant validation of documents involved in bond issuance. 

Uniswap’s monthly trade volume exceeded Coinbase’s in September

For the first time, monthly trade volume on decentralized exchange (DEX) Uniswap exceeded that of centralized exchange (CEX) Coinbase. During September, Uniswap saw approximately $15.4 billion in volume — making up 65% of the total reported by DEXs for that month, versus Coinbases’s $13.6 billion. The DEX-to-CEX ratio rose to 13.9% in September, a new high. In August, that ratio was 6.06%.  

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