Month: October 2020

Kiffmeister’s #Fintech Daily Digest (10/12/2020)

~ kiffmeister

The international dimension of a central bank digital currency

This article by three ECB economists argues that central bank digital currency (CBDC) would not only have domestic macroeconomic and financial implications for the issuing economy, they would also have implications for the rest of the world. In particular, the unique characteristics of a CBDC, if used internationally, would create a new “super charged” uncovered interest parity condition which would induce stronger international linkages in a quantitatively relevant way. This suggests that introducing a CBDC sooner, rather than later, could give rise to a significant first-mover advantage. 

ECB changes the geography of central bank money

The ECB has offered nothing less than changing the geography of central bank money. It has importantly served as a reminder that existing practices for conducting international payments need to change if they were to improve materially. A digital euro will offer broader access with needed controls to reduce frictions between domestic and international markets, facilitate access to safe and liquid settlement mediums, ease balance of payments adjustments and thus improve international monetary relations. Those advantages may shift relative preferences of holding monies towards greater diversification in international payments. 

The Digital Dollar Project Publishes Nine Pilot Scenarios to Test Elements of a US CBDC 

The Digital Dollar Project published for comment initial proposals for nine distinct pilot programs to identify practical opportunities to test and evaluate key features of a U.S. central bank digital currency (CBDC) or “digital dollar.” The pilot programs are designed to explore how a U.S. CBDC could serve important public policy goals while addressing specific challenges faced by different economic stakeholders, including consumers, businesses, financial institutions, and fintechs. Some of the most compelling opportunities available with a U.S. CBDC include development of low-cost digital wallets as on-ramps to bank-lite products for un- and underbanked populations.

Regulators battle over US fintech charters

The U.S. Office of the Comptroller of the Currency (OCC) is proposing to make a special purpose national bank charter available to fintech companies that provide banking products and services. The idea behind these fintech charters is that banking is made up of three separable activities, payments, lending, and deposit taking, and the most burdensome bank regulations stem from deposit taking. Because the Federal Reserve regulates deposit-taking banks, it would not directly supervise banks with fintech charters, but as national banks, they would have access to the Fed’s real-time payment system, and be entitled to use its emergency liquidity facilities. 

Professor Saule Omarova of Cornell Law School and several of her colleagues argue that the charters are “a dangerous power grab” based on an ambiguity in the National Banking Act of 1863. That law allowed the OCC to give charters to companies engaged “in the business of banking” but did not define exactly what that was. So the OCC is playing “an interpretive trick,” she says: “just because Congress never specified what banking is, [they] think they can decide.” State regulators tcould also lose power if the fintech charters are widely adopted. The New York Department of Financial Services, has sued the OCC to block the fintech charters; the case is on appeal.

China’s central bank urges faster digital yuan roll-out as other countries begin tests

Chen Yulu, deputy governor of the People’s Bank of China (PBOC), reportedly said that China should quicken the pace of research and development of the central bank digital currency, while ensuring that it is controllable and safeguards the security of payments. 

Kuroda says BOJ will start experiments on CBDC next spring

Bank of Japan Governor Haruhiko Kuroda reportedly said the central bank will start experiments next spring on a digital yen to consider various requirements and fundamental principles for doing so in the future. 

FSB report considers financial stability implications of BigTech in finance in emerging market and developing economies

A Financial Stability Board (FSB) report found that the expansion of BigTech firms in financial services in emerging market and developing economies (EMDEs) has generally been more rapid and broad-based than that in advanced economies. Lower levels of financial inclusion in EMDEs create a source of demand for BigTech firms’ services, particularly amongst low-income populations and in rural areas where populations are under-served by traditional financial institutions. This has been supported by the increasing availability of mobile phones and internet access. 

Kiffmeister’s #Fintech Daily Digest (10/11/2020)

~ kiffmeister

Uganda’s banks have been plunged into chaos by a mobile money fraud hack

A major hack that compromised Uganda’s mobile money network has plunged the country’s telecoms and banking sectors into crisis. The October 3 hack was a result of a security breach on a consumer finance aggregator, Pegasus Technologies, which mainly affected bank to mobile wallet transfers. At least $3.2 million is estimated to have been stolen. The hackers used around 2,000 mobile SIM cards to gain access to the mobile money payment system. They then instructed the banks to transfer millions of dollars to telecommunication companies who then paid out mobile money to these different SIM cards across the country. 

$1.5 billion in Bitcoin now locked up in Ethereum

There’s 131,455 Bitcoin on Ethereum, or $1.497 billion, as of October 11, equivalent to 3.6% of Ethereum’s market cap. These are Bitcoin that’s been converted into Ethereum-based tokens that represent Bitcoin. The most popular is Wrapped Bitcoin, or wBTC, which holds 73% of the market share. Next up is renBTC, with 20% of the market share. People are moving lots of Bitcoin to Ethereum to make the most of this summer’s decentralized finance boom. Such products as decentralized lending protocols, non-custodial exchanges and synthetic derivatives—like wBTC—were all the rage this summer. But you have to use Ethereum-based tokens to use them. 

Bringing Celo wallets to feature phones

Celo.Works is a non-custodial mobile wallet, enabling feature phone users to send and receive remittances at a fraction of the cost compared to traditional methods. Celo.Works is built on the Celo blockchain. Celo.Works is accessible, enabling users to send/receive cUSD on feature phones that cost as little as $15. 

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

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

~ kiffmeister

Are central banks constrained by AML regulations in designing CBDCs?

Central banks, in itemizing the various central bank digital currency (CBDC) design choices available, often explain that any design will be constrained by the necessity to “comply with AML law.” However, according to Jerry Brito, no such constraint exists in reality and the various central bank papers that bring this up do no cite any specific law or regulation. It seems to be a tic on the part of the paper authors who seem to be assuming there must be such a law and are thus artificially limiting their design choices.

The ECB’s digital euro: anonymous or not?

The European Central Bank (ECB) recently published a report that explores the idea of introducing a digital euro for use by the general public.  The report says that anonymity may have to be “ruled out.” It says that regulations do not allow anonymity in electronic payments, and the ECB must comply with regulations. However, JP Koning points out that the Fifth EU Anti-Money Laundering Directive (AML5) exempts issuers of e-money/prepaid cards from collecting customer information as long as long as fixed monetary (very small) thresholds aren’t exceeded. 

On the other hand, according to the Bank of Finland’s Aleksi Grym, a digital euro might not fall under e-money laws – could also fall under bank deposits, or it might require an entirely new legal category. Also, 5AMLD is just one directive, but payments are regulated by many directives, regulations, and national legislation, different in each country. Legislation is not uniform across the EU. Also. a key point is that even if something (anonymity in this case) would be really beneficial to have, it doesn’t necessarily mean it should be the central bank who provides it. 

Do we need programmable money?

Even if these problems for the various forms of programmable money can be overcome, it still leaves the question of what is programmable money for? Robert Sams points to the general potential for innovation, “More likely are the use-cases that don’t even exist today and can’t exist without programmable money. Use-cases where the contractual form of the deal is changed due to the capabilities of programmable money.” Aleksi Grym has a less optimistic view. “Generally, I’m not a fan of new words for old concepts, so in this case I’m asking myself, what would a normal person call ‘programmable money’? I think the answer is ‘conditional payment’.” 

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (10/09/2020)

~ kiffmeister

Central bank digital currencies: foundational principles and core features

The Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve and Bank for International Settlements have collaborated on a report setting out common foundational principles and core features of a central bank digital currency (CBDC). These principles emphasise that, in order for any jurisdiction to consider proceeding with a CBDC, certain criteria would have to be satisfied. Specifically, authorities would first need to be confident that issuance would not compromise monetary or financial stability and that a CBDC could coexist with and complement existing forms of money, promoting innovation and efficiency. 

The Bank of Japan’s Approach to Central Bank Digital Currency

The Bank of Japan (BoJ) published its approach to retail central bank digital currency (CBDC). Although it currently has no plans to issue CBDC, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the Bank considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner. 

Shenzhen to give out 10 million yuan ‘gift money’ in digital RMB

The People’s Bank of China and are reportedly going to hand out 10 million digital yuan as “red envelope” gifts to citizens. Red envelopes are a traditional way of gifting cash in China on holidays or for special occasions such as weddings. The money will be distributed equally to 50,000 recipients through lottery. Residents can use the money at 3,389 designated merchants, including restaurants, supermarkets, gas stations, metro stations, department stores, and other businesses in Luohu District within next week. 

DOJ states it has jurisdiction over foreign crypto companies that touch US servers

The U.S. Department of Justice (DoJ) released a report examining the dangers posed by cryptocurrencies and its framework for how to mitigate these risks. It stipulates a number of cases where it will exert its authority over foreign actors, such as “where virtual asset transactions touch financial, data storage, or other computer systems within the United States”, if they use cryptocurrency to import illegal products into the U.S. and if they “provide illicit services to defraud or steal from U.S. residents”. This also applies to foreign entities that engage in money transmission in the country even if they are incorporated abroad. Additionally, the DoJ claims to have the authority to prosecute any foreign actors who use cryptocurrency to support terrorist activities. 

Fund Instant Cross-Border Payments With a Line of Credit From RippleNet

Ripple launched Line of Credit on RippleNet that allows customers using On-Demand Liquidity (ODL) to source capital on demand to initiate cross-border payments at scale using the digital asset XRP. Those using ODL on RippleNet can purchase XRP from Ripple on credit. Customers are charged one fee on the amount borrowed, with no hidden fees, and can receive approvals faster than through traditional means. RippleNet customers simply take advantage of one simple XRP-based arrangement everywhere that ODL is available, regardless of sending destination or fiat currency and costs a lot less than most other available credit options. 

Dutch central bank approves first crypto service under AMLD5 regulations

De Nederlandsche Bank has granted AMDAX BV, an Amsterdam-based digital asset service company, the ability to operate under its jurisdiction. This marks the first time a digital asset company has been approved in the country following the introduction of the EU’s 5th Anti-Money Laundering Directive (AMLD5) that saw many crypto related businesses close or leave the Netherlands.   

State of the Market: European alternative lending near-doubled in 2019

European originations among peer-to-peer (P2P) and marketplace lending platforms soared by 80% in 2019 to €6.6bn, up from €3.6bn the previous year. The data paints the stark difference between the U.K.’s mature lending platforms, which grew a moderate 10.7% to £6.2bn in 2019, and Europe where the market remains in high-growth territory. It also means that Europe appears on the verge of overtaking the UK’s P2P and marketplace lending, possibly as soon as 2020, with the combined value of the U.K. and EU figures being worth more than £12bn last year. Unlike the UK market however, nearly half of the European lending volume is dominated by a single player, with Latvian lending marketplace Mintos originating 45% of P2P loans in 2019 worth a combined €3bn. The caveat is that Mintos operates as a kind of “P2P of P2Ps” which inflates its figures. 

FSB report highlights increased use of RegTech and SupTech

The Financial Stability Board (FSB) published a report on the use of supervisory (SupTech) and regulatory (RegTech) technology by FSB members and regulated institutions. The report finds that technology and innovation are transforming the global financial landscape, presenting opportunities, risks and challenges for regulated institutions and authorities alike. The report includes 28 case studies giving practical examples on how SupTech and RegTech tools are being used. 

Accounting for and Auditing of Digital Assets

The Association of International Certified Professional Accountants (AICPA) Digital Assets Working Group added 13 questions and answers to its Accounting for and Auditing of Digital Assets Practice Aid. The Aid includes vital information for professionals on how to account for and audit digital assets. It is intended for those with a fundamental knowledge of blockchain technology, is based on existing professional literature and the experience of members of the Digital Assets Working Group and is specific to U.S. GAAP (for non-governmental entities) and GAAS. 

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (10/08/2020)

~ kiffmeister

LendingClub Files 8-K Indicating It Will Cease Offering and Selling Retail Notes

Lending Club will cease offering Retail Notes as of the end of 2020, signalling a dramatic shift entirely away from the peer to peer (P2P) lending model under which the company was launched. Over the years, the online lender has utilized a marketplace model as more institutional money funded loans originated on the platform with the retail investor becoming a smaller segment of overall lending. The company said “unfortunately, under a prospective banking framework, it is not economically practical for LendingClub to continue to offer Notes.”  

Smart Banknotes Defined: Features and Criteria

A smart banknote (SBN) is a physical banknote on a paper or polymer substrate that can communicate with an electronic network. An SBN is denominated and has the physical properties of a traditional banknote in size, feel, appearance, and etc. It is not a rigid, plastic card such as may be used in present credit or debit transactions. The purpose of an SBN is to act as a hybrid that can function either as a definitive or an electronic instrument, depending upon the immediate need. Such functionality will allow an SBN to act as a transitional device between traditional payment systems and electronic and crypto-based payment systems.  

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (10/07/2020)

~ kiffmeister

BOK to virtually test distribution of digital currency next year

The Bank of Korea (BOK) is reportedly planning to start testing the distribution of blockchain-based central bank digital currency (CBDC) next year. It announced in April that it had launched a 22-month pilot program that would run through December 2021. The distribution and circulation test is the final part of the three-step pilot program. Phase 2, which focuses on analyzing related processes and seeking outside consulting, started recently. Phase 1, designing and checking the technology, ended in July. Blockchain technology will be used to keep track of digital currency transactions. 

Sibos 2020: What percentage of cross-border payments could be made in CBDCs?

43% of delegates at SWIFT’s Sibos 2020 conference think that central bank digital currency (CBDC) will see widespread adoption in the next five years. Another 43% said they would take off within ten years and 14% said they would do so within the next year. However, only 5% thought that cross-border payments would be conducted using CBDCs in five years’ time, the vast majority citing limitations of FX and non-harmonised financial integrity regulations, which would remain even when using CBDCs. (Sibos was previously known as SWIFT International Banking Operations Seminar and is organized by the Society for Worldwide Interbank Financial Telecommunication (SWIFT)). 

SWIFT gpi: driving a payments revolution

Using “unique end-to-end tracking reference” (UETR) data from Q2 this year, SWIFT demonstrates how its “global payments initiative” (gpi) payments are fast: 92% of cross-border payments are credited to the beneficiary’s account within 24 hours and 40% within just 30 minutes. But for payments between mature markets without currency controls, compliance stops or legacy systems, performance is comparable to many domestic payment systems: for example, 72% of payments from the UK to the US arrive within 30 minutes and 95% within six hours. There are fewer intermediaries in a payments chain than expected and that the number of agents has little or no impact on transaction speed.  Speed is largely driven by other factors, such as regulatory barriers, capital controls, legacy systems and time zones.   

Ripple scores big win over weekend

A major ruling in the class-action suit against Ripple came out and it was a clear victory for the San Francisco-based blockchain payments firm, a clean win on two of the three issues before the judge, plus a near-win on the third. The class action suit made several claims, all based on two main allegations. First, that XRP is an unregistered security. And second that the company and its CEO, Brad Garlinghouse, had used unfair or fraudulent business practices, including false advertising. In late March, with it looking increasingly like courts were going to rule that XRP was not a security, the plaintiffs amended their claim to add an additional claim “under the alternative theory that XRP is not a security.” 

Inside the Marshall Islands’ New Cryptocurrency: The SOV

If the Republic of the Marshall Islands’ state-sponsored SOV cryptocurrency takes off SFB Technologies, the software company building the coin, would become incredibly wealthy. SFB Technologies would receive 7.5% of the coin’s supply, which it could use after five years of its launch—which could be at any point after the 18-month-long presale begins, if the government implements the idea. The SOV Foundation, the non-profit overseeing the development of the project, will hold its presale for SOV in the next couple of months, just in case the Marshall Islands’ government, which is still deliberating whether to issue the coin, goes ahead with the project. The SOV will be built on the Algorand blockchain. 

CBDC, KSICash and our Partnership with the Estonian Central Bank

Digital Currencies have always been on Guardtime’s agenda. Indeed, our first conversations about building a digital cash system with Central Banks started in the early 2000s. Although there was no clear market opportunity then, we continued to do fundamental research. Over the last 5 years our research efforts intensified, leading to the invention of KSICash, a full stack infrastructure for CBDC built on KSI Blockchain. Over the weeks and months ahead we will have a lot to say about KSICash, its properties and why we think it can be a strong candidate for a CBDC, meeting the scalability, performance, security and resilience requirements that central banks will demand. 

Capgemini 2020 World Payments Report 

Before the pandemic started, payment volumes reached new heights, which are predicted to continue but at a pace reflecting both the increased reliance on non-cash transactions and the effect of a dampened global economy. Global non-cash transactions surged nearly 14% from 2018-2019 to reach 708.5 billion transactions, the highest growth rate recorded in the past decade. Asia-Pacific surpassed Europe and North America to become the 2019 non-cash transactions volume leader at 243.6 billion. The increase was driven by increasing smartphone usage, booming e-commerce, digital wallet adoption and mobile/QR-code payments innovations, led by China, India and other SE Asian markets (31.1% growth). 

75 crypto exchanges have closed down so far in 2020

As least 75 crypto exchanges have closed down due hacks, scams or simply disappeared for unknown reasons so far this year. According to the Crypto Wisser Exchange Graveyard five of the exchanges were labelled as scams, and four including Altsbit, and Nerae, were flagged as being hacked. In total 31 were shut down voluntarily while 34 were labeled as ‘MIA’ for disappearing with no explanation. The growth of DeFi and the rise of decentralized exchanges in 2020, increasing regulatory pressures, and hacks and scams were cited as factors. 

Colombian fintechs fill Latin American banking gaps

A 2019 Ernst & Young report found Colombia has the highest “fintech adoption” rate in Latin America, with 76% of its population using fintech services and the industry growing at about 120% a year. Investors have poured more than $1 billion into the industry in the past three years, $300 million of which came during the first five months of the pandemic, according to Fintech Colombia. Investors find Colombia attractive because it is a large market with a history of stable macroeconomic policy. Also, national authorities focused on boosting start-ups for at least 10 years, including Colombia setting up Latin America’s first regulatory sandbox. 

Ethereum browser and wallet app MetaMask now offers token swap functionality

Ethereum toolkit MetaMask now allows users to swap tokens from within the app itself. MetaMask owner ConsenSys said saying that the new feature would request token prices from decentralized exchanges and aggregators so that users can get the best prices. MetaMask will support Uniswap, Airswap, Kyber, 0x API, 1inch.exchange, dex.ag, Paraswap, Totle, and private market makers for the feature. This approach means that users won’t need to navigate these platforms individually to find the optimal price. The feature is initially available to users of the MetaMask extension on the Firefox browser and will be rolled out soon to other browsers and MetaMask Mobile. 

From Beta to Beyond: Trade Finance Blockchain Platform ‘Contour’ Is Live

Contour, the blockchain trade finance initiative owned by eight major banks: Bangkok Bank, BNP Paribas, CTBC, HSBC, ING, Standard Chartered, SEB and Citi, has officially left its beta phase. Contour, formerly called Voltron, has an initial focus on Letters of Credit, which historically have involved a very paper based process. Pilots on the platform have demonstrated it reduces the average processing time from ten days to 14 hours. 

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (10/06/2020)

~ kiffmeister

People’s Bank of China’s digital currency already used for pilot transactions worth 1.1 billion yuan

China’s Digital Currency Electronic Payment (DC/EP) central bank digital currency (CBDC) has been used for more than 1.1 billion yuan worth of transactions as part a series of ongoing pilot programs, according to People‘s Bank of China Deputy Governor Fan Yifei. 3.13 million transactions were processed using the currency, which has been undergoing tests for much of the past year in major cities, such as Shenzhen and Xiongan. Pilots also will be conducted at the coming Winter Olympics in 2022. The pilot programs made “positive progress”, with more than 6,700 use cases implemented as of late August for transactions ranging from bill payments and transport to government services, Fan said. 

What CBDC Is (Not) About – Part I

There is no reason at all why distributed ledger technology (DLT) should be any more suited than other technologies. In fact, there’s is little reason why a CBDC should run on DLT at all, as shown in early implementations which took place long before the blockchain hype, like the Bank of Finland’s Avanti smart card payment system in the 1990s). Irrespective of the exact design and implementation details, CBDC is about a power shift from the private sector (financial institutions) to the public sector (central banks). If implemented, it has the potential to fundamentally reshape our current monetary and financial systems, with implications not yet fully understood. 

FCA bans the sale of crypto-derivatives to retail consumers

The U.K Financial Conduct Authority (FCA) will ban the sale of derivatives and exchange traded notes that reference crypto-assets to retail consumers. The FCA considers these products to be ill-suited for retail consumers due to the harm they pose. These products cannot be reliably valued by retail consumers because there is no reliable basis for valuing the underlying assets, the prevalence of market abuse and financial crime in the secondary market, extreme volatility in crypto-asset prices, inadequate understanding of crypto-assets by retail consumers, and lack of legitimate investment need for retail consumers to invest in these products. 

ISDA and Digital Asset Launch CDM Clearing Pilot Using DAML

The International Swaps and Derivatives Association (ISDA) announced a pilot implementation of the Common Domain Model (CDM) for the clearing of interest rate derivatives using DAML, an open-source smart contract language created by Digital Asset. Using the CDM for clearing and deploying it on a distributed ledger with DAML will remove the burden of setting up connections to incongruous systems and services, facilitating interoperability, automation and straight-through processing. This pilot takes the CDM model for clearing and adds new features for the signing of state transitions, data ownership and privacy elements, which are necessary to put the CDM clearing model into production. 

BIS Innovation Hub and Saudi G20 Presidency announce TechSprint winners

The Bank for International Settlements (BIS) announced the three winners of the G20 TechSprint challenge. The hackathon-style competition was launched in April 2020 to highlight the potential for technology to resolve regulatory compliance (regtech) and supervisory (suptech) challenges. The winners, chosen by an independent panel of experts, addressed one or more of its three problem topics. FNA won the dynamic information-sharing category for their solution FNA Platform for Dynamic Information Sharing and Real-Time Analytics, Tookitaki won in the monitoring and surveillance category for their solution Crypto-currency AML Typology Repository Management and ISDA-REGnosys won the regulatory reporting challenge for their solution Consistent Regulatory Reporting via the Common Domain Model. 

DBS and Standard Chartered to launch blockchain platform to curb trade finance fraud

The Singapore-based DBS and Standard Chartered have completed the proof-of-concept (PoC) of their “Trade Finance Registry” blockchain trade finance platform, developed the PoC in collaboration with 12 other banks on top of the blockchain platform of DBS’s dltledgers. They plan to launch the platform for commercial use by central banks around the globe, starting with the Monetary Authority of Singapore. The platform uses the dltledger’s blockchain-based TradeDoc Validation Registry to help banks detect fraud in real-time and help reduce the chances of duplicate financing from different bank lenders for the same trade inventory. 

ECB to explore cross-currency instant payments

The European Central Bank (ECB) will investigate whether and how TARGET Instant Payment Settlement (TIPS) could support payment transactions across different currencies. The investigation will begin as of October 2020 in collaboration with Sveriges Riksbank.. TIPS is a service that settles payments in central bank money in real time and around the clock. It currently supports the settlement of instant payments in euro, but also has the functional capability to support other currencies. TIPS will start to settle instant payments in Swedish kronor as of May 2022. The ECB and Sveriges Riksbank will explore possible ways of enabling the TIPS platform to process cross-currency instant payments between euro and Swedish kronor. 

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

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

~ kiffmeister

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%.  

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (10/04/2020)

~ kiffmeister ~ 3 Comments

The ECB’s digital euro: anonymous or not?

The European Central Bank’s recent report exploring the idea of issuing a retail central bank digital currency (CBDC) claims that “regulations do not allow anonymity in electronic payments and the digital euro must in principle comply with such regulations”. In fact, the Fifth EU Anti-Money Laundering Directive (AML5) exempts issuers of e-money/prepaid cards from collecting customer information if user holdings do not exceed EUR50 (EUR150 for non-rechargeable stored value cards). Why did the EU build an anonymity exemption into payments law but now chooses to avoid exploiting it in potential CBDC designs? 

The 2020 State of Mobile Internet Connectivity Report

The GSMA published a comprehensive overview of the trends in global connectivity to inform progress towards closing the coverage and usage gaps and the key challenges. The report accompanies the fifth annual update of the GSMA Mobile Connectivity Index, a tool which measures the performance of 170 countries, representing 99% of the global population, against the key enablers of mobile internet adoption: infrastructure; affordability; consumer readiness; and content and services. The Index was developed as part of the mobile industry’s commitment to drive mobile internet connectivity and accelerate digital inclusion. Some of the key take-aways are:

  • The coverage gap is now 7% (down from 10% in 2018) and stands at just under 600 million people, compared to 750 million in 2018. This reduction was driven primarily by South Asia – particularly India, where almost 99% of the population is covered by 4G, and by upgrades of 2G sites to 3G and 4G across Sub-Saharan Africa. 
  • Approximately 3.4 billion people who live in areas covered by a mobile broadband network do not use mobile internet. This usage gap is now six times larger than the coverage gap.
  • A lack of literacy and digital skills persists as the main barrier to use among mobile users who are aware of mobile internet in low- and middle-income countries (LMICs) surveyed. 
  • Smartphones have become more affordable, but handset affordability remains the main barrier to mobile ownership in many LMICs. 
  • Mobile data is becoming increasingly affordable but is still a significant challenge for the poorest in society. 

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

Kiffmeister’s #Fintech Daily Digest (10/03/2020)

~ kiffmeister

KuCoin CEO Says Suspects in $281M Hack Identified; Authorities on the Case

KuCoin CEO Johnny Lyu tweeted that the South Korean crypto exchange has found what he described as “suspects” of last September’s hack that resulted in the theft of $281 million in cryptocurrencies. Also, another $64 million of stolen assets have been recovered from “suspicious addresses,” bringing the total value of recovered assets to $204 million since the October 1 hack.  

Cryptocurrency Tax Guidance Leaves Big Holes Worldwide, PwC Says

Cryptocurrency investors face a tricky and fast-changing tax landscape worldwide with sparse guidance in many areas, according to a new report from PwC. The report also contains the new PwC Crypto Tax Index, which ranks jurisdictions based on how comprehensive their guidance is for holders. Liechtenstein came out on top this year, with Malta, Australia, Switzerland, Singapore and Hong Kong rounding out the highest rankings. Still, very few jurisdictions have issued guidance on topics like crypto borrowing and lending, DeFi, non-fungible tokens, tokenized assets and staking income.

Mobile Internet Connectivity 2020 Sub-Saharan Africa Factsheet

Mobile internet adoption stood at only 26% in Sub-Saharan Africa at the end of 2019. The region accounts for almost half of the global population not covered by a mobile broadband network. However, there has been a continued acceleration in mobile broadband coverage, as operators upgrade existing 2G sites to 3G and 4G (with 4G networks now covering almost half the regional population). 2019 marked the first year that there were more mobile broadband connections than 2G, as consumers benefitted from more affordable smartphones and smart-feature phones. A large gender gap and rural-urban gap in mobile internet use persist, standing at 37% and 60%, respectively.  

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech