Kiffmeister’s #Fintech Daily Digest (11/30/2020)

Beijing preps for digital yuan trial expansion for trade

Beijing municipality, which was not one of the five regions that were part of the first round of trials for China’s central bank digital currency (CBDC), is reportedly preparing to create a digital yuan pilot program and explore cross border data flow. One of the first five initial test regions, Xiong’an New Area, reportedly already has plans to use the digital renminbi for cross-border trade. The Ministry of Commerce had previously outlined such an expansion as part of a three-year plan, but the timing was unclear. Also, the digital currency is the responsibility of the central bank rather than the Commerce Ministry.  

Singapore’s Non-Bank Financial Institutions to have Access to FAST and PayNow

The Monetary Authority of Singapore opened up direct access to the banking system’s retail payments infrastructure to eligible non-bank financial institutions (NFIs) from February 2021. NFIs that are licenced as major payment institutions under the Payment Services Act will be allowed to connect directly to Fast and Secure Transfers (FAST) and PayNow. This will enable users of NFI e-wallets to make real-time funds transfers between bank accounts and e-wallets as well as across different e-wallets. Currently, most e-wallets require the use of debit or credit cards to top-up funds, and funds transfers between e-wallets are not possible. 

TransferWise wins restricted banking licence in Australia

Australia’s Prudential Regulatory Authority granted UK-based currency transfer company TransferWise a “limited authorised deposit-taking institution” licence to gain direct access to Australia’s real-time payment system. They are the second nonbank to obtain such a license, after PayPal. TransferWise now intends to apply for a settlement account with the Reserve Bank of Australia. 

Russia to Recognize Bitcoin as Property With Legal Protection

The Russian prime minister outlined the government’s plans to amend existing laws to recognize crypto-assets as property so hodlers will have the legal rights to defend and recoup their crypto-assets in court. A new crypto bill passed into law in August but Russian lawmakers are still trying to add to the bill. For example, the Ministry of Finance recently introduced new rules and penalties for unreported and underreported crypto-assets. 

Basis Cash’ Launch Brings Defunct Stablecoin Into the DeFi Era

Basis Cash (BAC) is based on the stablecoin Basis that had $133 million in funding before U.S. securities regulators stepped in and the team behind it returned everything in late 2018. Like most stablecoins, BAC is pegged to the U.S. dollar, so one BAC should be equal to the crypto equivalent of one USD. Basis Cash’s price will be managed by two other crypto assets: Basis Bonds and Basis Shares. 50,000 BAC will be distributed over a five-day period (10,000 per day) to folks that deposit DAI, yCRV, USDT, SUSD and/or USD into its smart contract. 

Delaying the inevitable by regulating self-custody wallets

Coinbase CEO Tim Armstrong claimed that the U.S. Treasury is rumored to be working on a law to regulate self-hosted crypto wallets. The proposed law will require exchanges to verify the identity of users who use self-hosted wallets, before a withdrawal could be sent to their self-hosted wallet.  

The Blockchain Association published a report for policymakers that explains the fundamental role of self-hosted wallets in the cryptocurrency ecosystem and why they are important to the future of free societies. The report is divided into two sections: The first section describes what self-hosted wallets are, their role in the digital asset ecosystem, and the current regulatory framework for managing digital asset transactions involving self-hosted wallets. The second section argues that imposing restrictions on individuals’ ability to use self-hosted wallets would be misguided. 

Saudi, UAE central banks share cross border digital currency trial results

BTW the Aber pilot benefits greatly from the fact that both the Saudi Riyal and UAE Dirham are pegged to the U.S. dollar at the same exchange rate, so there’s no need to make the CBDC basket currency-based. 

Kiffmeister’s #Fintech Daily Digest (11/29/2020)

SAMA and CBUAE Issue Report on Results of Joint Wholesale CBDC Project Aber

The Saudi Central Bank (SAMA) and the Central Bank of the United Arab Emirates (CBUAE) published the results of their joint “Aber” wholesale central bank digital currency (wCBDC) pilot project. The distributed ledger technology (DLT) based wCBDC was issued by SAMA and the CBUAE, and used only by them and participating banks, to settle domestic and cross-border commercial bank transactions between Saudi Arabia and the UAE. It was run on the Hyperledger Fabric platform. R3 Corda and JPMC Quorum were also considered but rejected.

The pilot confirmed that a cross-border dual-issued currency was technically viable and that it was possible to design a distributed payment system that offers the two countries significant improvement over centralized payment systems in terms of architectural resilience. The key requirements that were all met, including those around privacy and decentralization, and all of the performance objectives were exceeded, proving that DLT technologies could offer high levels of performance whilst not compromising safety or privacy. 

Guggenheim Fund Files to Be Able to Invest Up to Almost $500M in Bitcoin Through GBTC

Guggenheim Funds Trust filed an amendment with the U.S. Securities and Exchange Commission to allow its $5 billion Macro Opportunities Fund gain exposure to bitcoin by investing up to 10% of the fund’s net asset value in the Grayscale Bitcoin Trust (GBTC). The Macro Opportunities Fund is part of Guggenheim Investments, the global asset management and investment advisory division of Guggenheim Partners, and has more than $233 billion in total assets across fixed income, equity and alternative strategies. 

PayPal suspends user for crypto trading using PayPal’s own service

According to U.S.-based Reddit user u/TheCoolDoc, PayPal sent them a message stating it had permanently limited their account “due to potential risk.” The user said they had made at least 10 crypto transactions within a week, purchasing during dips and selling when the price was high, and PayPal had asked for an explanation for each transaction. The maximum dollar amount for weekly crypto purchases is $20,000, but there doesn’t appear to be any limit on numbers of trades per week.  

Kiffmeister’s #Fintech Daily Digest (11/28/2020)

ECB warns the future of money is at stake as Facebook preps January crypto launch

European Central Bank Executive Board member Fabio Panetta is not keen to allow stablecoin issuers to invest their reserve assets in the form of risk-free deposits at the central bank. “It would be tantamount to outsourcing the provision of central bank money, and could endanger monetary sovereignty if, as a result, the stablecoin were to largely displace sovereign money as a means of payment. Money would then be reduced to a ‘club good’ offered in return for the payment of a fee or membership of a platform.” 

What happens to your Bitcoin when you die?

Millions of dollars in crypto is being lost each year through the deaths of its owners. Crypto insurance firm Coincover estimates that around 4 million Bitcoin is out of circulation after access was lost, with a large portion likely caused by death. But this doesn’t mean that cryptocurrencies like Bitcoin can’t be bequeathed and will inevitably be buried forever with the deceased owner. In fact, there are a number of ways for investors to bequeath their crypto to the next generation… 

Kiffmeister’s #Fintech Daily Digest (11/27/2020)

Facebook’s Libra currency to launch next year in limited format

Facebook-led digital currency Libra is reportedly preparing to launch as early as January, in a single coin backed one-for-one by the dollar. The other currencies and the composite would be rolled out at a later point. Libra’s exact launch date would depend on when the project receives approval to operate as a payments service from the Swiss Financial Market Supervisory Authority. The Novi wallet was ready from a product perspective, but would not be rolled out everywhere initially, with the company prioritising half a dozen high-volume remittance corridors including the United States and some Latin American countries. Novi needed its own licence in each U.S. state, sand is till waiting on up to 10, including a New York Bitlicense. 

Quick Bitcoin Price Recovery Looks in Doubt as Whales Move Coins Onto Exchanges

Bitcoin may have a tough time charting a V-shaped recovery to recent highs in the short term, with on-chain activity showing increased selling pressure in the market. Blockchain analytics firm CryptoQuant’s exchange inflow indicator – which measures the 144-block (roughly 24-hour) average of mean bitcoin deposits across major cryptocurrency exchanges – has risen to 2.5 bitcoin, the highest level since March 20. Meanwhile, Bitcoin has been languishing just under $17,000 for most of the day.

Iceland goes live with new RTGS and instant payments platform

The Central Bank of Iceland (CBI) has gone live with a new real-time gross settlement system (RTGS) and instant payment platform. Developed by Italy’s SIA, the new payments infrastructure has been implemented as a single platform capable of processing bank-to-bank, P2P, P2B and B2B transactions in a consolidated operating model.  

Philippines Is The Latest to Approve a Digital Banking Framework

The Bangko Sentral ng Pilipinas approved the recognition of digital bank as a new bank category that is separate and distinct from the existing bank classifications.  A digital bank is defined as a bank that offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branches. Digital banks would be subject to the same prudential requirements applicable to other types of banks with recalibration to be commensurate to their business model and risk profile. 

Kiffmeister’s #Fintech Daily Digest (11/26/2020)

3 Reasons Bitcoin Crashed by $3,000 – And Why It’s Still Bullish

Bitcoin fell from over $19,300 to $16,327 during the early European trading hours of November 26. It later recovered to $17,200, before drifting lower to trade around $16,500 for the rest of the day. Nearly $2 billion-worth of derivative positions have been liquidated in the 24 hours prior to the plummet, according to Bybit, although this had been expected as the cost of holding long positions in the perpetual futures market had risen sharply to a multi-month high. Also, Coinbase CEO Brian Armstrong’s tweets about the U.S. Treasury Department’s rumored plans to track owners of self-hosted crypto wallets may have been another trigger, as was OKEX’s announcement that it would resume withdrawals. 

Swiss Digital Asset Bank Sygnum Launches Blockchain Alternative to Stock Exchanges

Sygnum, a digital asset finance firm with a Swiss banking license, has launched what it says is a blockchain-based alternative to listing shares on a stock exchange. The end-to-end tokenization solution is comprised of Desygnate, a primary market issuance platform, and SygnEx, a secondary market trading venue. Sygnum claims 24/7 instant settlement, as well as reduced counterparty risks with the platform powered by its own Swiss franc-linked stablecoin, Digital CHF (DCHF).  

Prolonged AWS outage takes down a big chunk of the internet

Amazon Web Services (AWS), Amazon’s internet infrastructure service that is the backbone of many websites and apps, experienced a multi-hour outage on November 25 (2020) that affected a large portion of the internet. Many apps, services, and websites were affected, including 1Password, Coinbase, Glassdoor, Flickr, Pocket, RadioLab, Roku, and The Washington Post. also showed spikes in user reports of problems with many Amazon services throughout the day. 

Kiffmeister’s #Fintech Daily Digest (11/25/2020)

Coinbase Pro disables margin trading

In response to new guidance from the U.S. Commodity Futures Trading Commission, Coinbase Pro disabled its margin trading product. 

Stellar Lumens doubles in price following upgrade

The price of Stellar Lumens (XLM) shot up 60% 24 hours following an announcement by the project’s developers that a new version of the Stellar public network protocol had been implemented by validators. Initially forked from Ripple Labs protocol by Jed McCaleb and launched in July 2014, Stellar seeks to lessen the cost of cross-border payments using blockchain. The project is particularly focused on serving unbanked or underbanked regions of the world where access to traditional financial services is either nonexistent or prohibitively costly. 

Shoppers Who Shun Credit Cards Will Still Borrow $20 for Candy

Consumers are flocking to buy-now, pay-later offers, that let consumers split up their purchases into smaller payments, as online shopping surges in response to the pandemic. Afterpay, Klarna, Sezzle and Quadpay are now featured across thousands of merchants’ websites, with small ads popping up as consumers check out, encouraging them to pay off their purchases in installments. In most cases, Afterpay and Klarna don’t charge interest or fees as long as users keep up with their payments. Instead, merchants give the apps a cut of each sale, which can amount to 6%. But if customers fail to make their payments within a grace period, they are charged a late fee amounting to as much as 25% of the order value. 

Colombian Stock Exchange to use blockchain for OTC derivatives trading

The Colombian Stock Exchange is joining the Consorcio Colibrí, a private initiative that promotes the adoption of blockchain technology within the finance industry. Consorcio Colibrí was formed by major financial institutions such as Bancolombia, BBVA, Santander Caceis Colombia, Deceval, Contrato Marco, Porvenir and Skandia. Via a partnership with member firm Contrato Marco, the CSE will use the Colibrí platform’s blockchain tech to improve operational efficiency in the over-the-counter derivatives market. 

Bank Applications Get a Coronavirus Boost

Ten U.S. companies filed applications for a new national bank charter in the fiscal year through September 30, according to the Office of the Comptroller of the Currency (OCC). That is the most in a single fiscal year since 2010. Consumer lender Oportun Financial filed paperwork to start a bank in California, the second in the OCC’s current fiscal year. A national-bank charter will allow Oportun to offer checking and savings accounts, and certificates of deposits to its customers which it can then use as a cheaper source of funding for loans. Specialty lenders that aren’t banks often sell their loans to money managers or package them into bonds, a type of funding that can become costlier or dry up in a crisis. Other recent applicants for a national-bank charter include fintech startup Social Finance, and HR software-maker Ceridian. 

Kiffmeister’s #Fintech Daily Digest (11/24/2020)

Dissecting a Bitcoin Bull Market

CoinMetrics analysis of miner behavior coupled with custody data on Huobi showed no evidence to suggest this rally is being predominantly driven by a regulatory crackdown in China. The downward trend in assets under custody (AuC) by retail exchanges may be an indication that this rally is being driven by increased institutional adoption. Given the use of over-the counter (OTC) on-ramps, an increase in institutional participation would result in positive price action, but limited on-chain footprint, which is what we might be witnessing in this bull market. 

Bitcoin finally finds a rationale in doomsday scenarios

“For some, government responses to the Covid-19 pandemic have provoked nightmarish imaginings of a future in which the world slips towards authoritarianism and civil liberties cannot be taken for granted. For those of such bent, bitcoin’s anonymous security acts as a hedge against the worst of dystopian realities. It might be an extremely expensive and energy-intensive solution, but at least it provides a rationale for bitcoin’s existence. As a doomsday contingency system, I am glad someone created bitcoin just in case.” 

Ethereum 2.0 Deposit Contract Secures Enough Funds to Launch

The smart contract required for triggering the first phase of Ethereum 2.0 has enough funds to begin activation of Ethereum’s most ambitious upgrade yet, which will radically shift Ethereum’s economic model, resource usage and governance. To be clear, the network itself isn’t launching just yet. The launch of Ethereum 2.0 will activate a parallel proof-of-stake blockchain dubbed “the beacon chain” to run in parallel alongside the existing Ethereum network. The initial phases of its development will not impact existing users and decentralized applications on Ethereum. 

Ethereum ‘Killer’ Avalanche Is Building an ETH Bridge to Liquidity

Avalanche, one of the many blockchain networks that claim to be faster, cheaper and more capable than Ethereum, announced the “Avalanche-Ethereum Bridge,” a way to transfer Ethereum tokens to the Avalanche blockchain and vice versa. Avalanche’s bridge is powered by ChainSafe, a blockchain interoperability protocol produced by ChainBridge. ChainBridge built Avalanche’s bridge using funds from the Avalanche-X grants program. Avalanche’s mainnet launched in September after raising $60 million, $42.5 million of which came from a public token sale.  

Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics

This paper analyzes policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. It maps the framework into a baseline business cycle model with “pseudo wedges” and derives optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. It generalizes the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but shows that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017. 

CBDC: Can central banks succeed in the marketplace for digital monies?

This paper provides an overview of the existing payment ecosystem and derives a systemic taxonomy of CBDCs that distinguishes between new payment objects and new payment systems. Using this systemic taxonomy, it is able to categorize different CBDC proposals. In order to discuss and evaluate the different CBDC design options, it develops two criteria: allocative efficiency, i.e. whether a market failure can be diagnosed that justifies a government intervention, and attractiveness for users, i.e. whether CBDC proposals constitute attractive alternatives for users compared to existing payment objects and payment systems. The analysis shows that there is no justification for digital cash substitutes from the point of view of allocative efficiency and the user perspective. Instead, the analysis opens the perspective for a retail payment system organized or orchestrated by the central bank without a new, independent payment object. 

Kiffmeister’s #Fintech Daily Digest (11/23/2020)

China to Hold Second Lottery Trial of the Digital Yuan

On December 12, a shopping festival known as “Double 12” in China, the city of Suzhou will reportedly hold a giveaway designed to gauge usability of the digital yuan. The trial will be similar to one held in Shenzhen in October, that allowed residents to apply for a 200 yuan share of 10 million units of the central bank digital currency (CBDC) in a kind of lottery, worth around $1.5 million in total. The Suzhou event will trial additional aspects of the technology not activated in Shenzhen, including the digital yuan’s offline feature that allows users to touch smart devices to make transfers. 

Monetizing Privacy with Central Bank Digital Currencies

This NY Fed blog post discusses the implications of introducing a CBDC that offers consumers a low-cost, privacy-preserving electronic means of payment—essentially, digital cash. Central banks are better positioned, relative to private intermediaries, to commit to safeguarding data from outside vendors, because a central bank has no profit motive to exploit payments data. By helping consumers to monetize privacy, central banks would not be proposing a radical transformation to the payments landscape. Rather, they would be preserving aspects of payments that existed prior to the digital revolution. However, this would require regulators and lawmakers to rethink how to adapt current anti-money laundering practices. 

Digitalization, retail payments and Central Bank Digital Currency

This Banco de España paper written by the  Banco Central del Uruguay’s Jorge Ponce provides a rationale for central banks to have a deeper involvement in retail payment systems by building and keeping control of core components of these systems, considering competition and financial stability arguments. Central bank digital currency (CBDC) and fast payment systems (FPS) are assessed as alternative tools serving central banks to foster efficiency, resilience and security in retail payments, as well as to preserve financial stability. It concludes that, while central banks should build and keep control of the core components of either a CBDC or a FPS, private sector involvement will be optimal in a tiered architecture where payment services providers compete for customers, innovate and offer overlay services. 

Stablecoin risks potential and regulation

This Banco de España paper written by a couple of Bank for International Settlements staff discusses the regulatory challenges around stablecoins, and in particular potential “global stablecoins” such as Facebook’s Libra proposal. It makes the point that any regulatory responses should take into account the potential of all stablecoin uses, including embedding a robust monetary instrument into digital environments, especially in the context of decentralised systems. Looking forward, in such cases, one possible option from a regulatory standpoint is to embed supervisory requirements into stablecoin systems themselves, allowing for “embedded supervision”. Yet it is an open question whether central bank digital currencies (CBDCs) and other initiatives could in fact provide more effective solutions to fulfil the functions that stablecoins are meant to address. 

Vanuatu pioneers digital cash as disaster relief

Vanuatu is pioneering Unblocked Cash, a mobile-based development project using blockchain technology, along with tap-and-pay cards, to provide direct assistance to families recovering from disasters or acute financial distress. The cards can be ‘loaded’ with money, to act like a debit card, allowing families to directly buy food, medicine, clothes, and other emergency supplies, even hardware to rebuild destroyed homes. Traditionally, it typically costs between $2 – $3 to deploy $1 worth of aid post-disaster. The digital model reduces aid distribution costs by up to 75%, and reduces sign-on time from over an hour with older approaches to only three minutes. 

Kiffmeister’s #Fintech Daily Digest (11/22/2020)

Are pixie fairies behind Bitcoin’s latest bubble?

Tethers are the main source of liquidity for unbanked crypto exchanges, which account for most of bitcoin’s trading volume. Currently, there are $18 billion (notional value) worth of tethers sloshing around in the crypto markets. And nobody is quite sure what’s backing them. Due to Tether’s lack of transparency, its failure to provide a promised audit, and the fact that the New York AG is currently probing the firm along with crypto exchange Bitfinex, its sister company, for fraud, a good guess is nothing. Tethers, many suspect, are being minted out of thin air. 

Bitcoin’s Rally Could Be Caused by a Supply Crunch in China

Bitcoin’s price surge may be driven as much by a drying up in supply as by an increase in demand. Miners mostly operate using cash and offload their bitcoin holdings onto the market almost daily to fund their expenses, mainly electricity costs, which are to be paid in the local currency. That makes miners constant sellers. However, Chinese miners, who control over 70% of bitcoin’s hashrate, have been facing challenges liquidating their crypto holdings for cash because many are finding their bank accounts and cards frozen as a part of the Chinese government’s nationwide crackdown on telecommunications fraud and money laundering via crypto deals. 

Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations

An IMF paper analyzes the legal foundations of central bank digital currency (CBDC) under central bank and monetary law. Absent strong legal foundations, the issuance of CBDC poses legal, financial and reputational risks for central banks. While the appropriate design of the legal framework will up to a degree depend on the design features of the CBDC, some general conclusions can be made. First, most central bank laws do not currently authorize the issuance of CBDC to the general public. Second, from a monetary law perspective, it is not evident that “currency” status can be attributed to CBDC. While the central bank law issue can be solved through rather straightforward law reform, the monetary law issue poses fundamental legal policy challenges. 

Analysis of Stablecoins during the Global COVID-19 Pandemic

This paper overviews stablecoin stability mechanisms, the current stablecoin market landscape, and the performance of major stablecoins during the 2020 financial market crisis due to the COVID-19 pandemic. Results from this analysis indicate that stablecoins’ performance during the financial crisis and, in particular, the market crash present a direct relation with their specific behavior attributed to different design aspects, including their popularity. 

The OCC Wants to Ban Discrimination Against Crypto Firms

The Office of the Comptroller of the Currency (OCC) has proposed a rule preventing national banks from discriminating against businesses based on factors other than risk. This has ramifications for crypto-asset firms and money services businesses that have trouble accessing banking services. The OCC has compiled reports of independent ATM operators, family planning organizations, private prisons, gun sellers, and money services businesses being locked out of financial services. 

Regulating Fintech in Europe: Lessons from the collapse of Wirecard

The default of Wirecard highlights several problems in the regulation and supervision of Fintech companies, with regulatory holes in investor protection, customer protection, and financial stability. This column argues that since Fintech companies can be very complex, their oversight requires understanding their business model and combining regulation and supervision based on both entities and activities. The global reach of Fintechs also calls for better coordination at the European level and beyond, but the authors do not see the need for new regulatory body to oversee Fintechs in Europe. 

Kiffmeister’s #Fintech Daily Digest (11/21/2020)

Bitcoin Shortage?

According to analysis by crypto fund Pantera Capital, the recent crypto-asset rally has likely been driven by an influx of retail investors buying Bitcoin. The main trigger is the October launch of PayPal’s new service that enables customers to buy, sell, and hold crypto-assets directly from their PayPal accounts. According to Pantera’s projections, PayPal users alone may soon acquire more Bitcoin than there are being mined. Square launched similar capabilities in its cash app in June 2019, but it only gives access to Bitcoin, whereas PayPal’s offering supports Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.  

Bitcoin Is the Biggest Big Short

Bitcoin’s core value lies in its decentralized governance design being divorced from the political system, a feature no other asset of its size and liquidity can claim, perhaps with the exception of gold. If people lose confidence in their government’s capacity to sustain the trusted, social covenant on which fiat money is founded, the value of that money collapses, resulting in hyperinflation. Because of its depoliticized status, bitcoin gains in value in that environment. So if you’re long bitcoin, you are positioned to benefit if the system of governance on which the entire world depends for security and well-being collapses. 

US Government to Use USDC Stablecoin to Bypass Venezuela’s Maduro

Circle, which along with Coinbase issues the USDC stablecoin, is coordinating with the US government and Latin America crypto exchange Airtm to route aid for Venezuelan healthcare workers through the Latin American country’s government in exile. The US Treasury and Federal Reserve releases seized funds to the exiled government’s account at a US bank. The exiled government then uses those funds to mint USDC. The USDC is then sent to Airtm Once the USDC stablecoins hit Airtm wallets, they go to Venezuela healthcare workers in the form of AirUSD, Airtm’s own fiat-backed stablecoin. Recipients can then withdraw at banks, send the funds, or spend them online. 

Update: JP Koning wonders whether this is just hype as USDC wasn’t really necessary to execute this transaction.

Argentina and Brazil Get Their Own Stellar Stablecoins

Settle Network and Stellar are issuing two stablecoins in Latin America. The ARST is tied to the Argentine peso (ARS), while the BRLT is tied to the Brazilian real (BRL). The new stablecoins allow users to virtually send ARS and convert them to BRL in a matter of seconds, opening a new possibilities for international remittances and cross border payments. 

$3 billion blockchain bond sale delayed ‘until further notice

The listing of China Construction Bank’s blockchain-based debt issuance bonds, first reported on November 11, has been delayed “at the request of the issuer” until further notice, according to a Friday statement from Fusang Exchange where they were due to be traded.

Private Bank Money vs Central Bank Money: A Historical Lesson for CBDC Introduction

In this paper, a unique event is studied: the opening of Bank of Canada in 1935, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, Canadian chartered banks had to gradually withdraw their notes from circulation. In a difference-in-differences analysis, it shows that chartered banks constrained by new issuance limits experienced higher volatility of return-on-equity in the short run and lower Z-scores and return-on-assets in the longer horizon, suggesting that note issuance was an important source of revenue for private banks and allowed them to smooth the profits. The effect on lending is either non-significant or ambiguous. This study of central bank cash implementation can offer lessons for the current debates on a new form of central bank money – central bank digital currencies – and their potential impacts on commercial banks.