Kiffmeister’s #Fintech Daily Digest (12/13/2020)

Understanding China’s Central Bank Digital Currency

In this paper, former Peoples Bank of China (PBOC) Governor Zhou Xiaochuan explains what China’s DC/EP is, the respective responsibilities of the central bank and second-tier institutions in the system, and the technological path. Interestingly, he says the idea behind DC/EP is not completely the same with that underlying central bank digital currency (CBDC) because the second-tier institutions actually own the e-CNY and offer guarantee of payment. This arrangement borrowed ideas from the three note-issuing commercial banks in Hong Kong. These banks are required to give the Hong Kong Monetary Authority 1 U.S. dollar for every 7.8 Hong Kong dollars issued, and in exchange receive a 100% reserve certificate. From the balance sheet’s perspective, the banknotes issued by the banks are their liabilities, their assets are reserves, and the liabilities of the central bank are the reserve certificates issued. 

Digital Asset Market 2021: The Year of the Institutional Investor?

According to Avanti Financial Group CEO Caitlin Long, three factors will contribute to a meaningful increase in institutional investment in cryptoassets- especially Bitcoin and US dollar stablecoins –in 2021.  The first is the post-“halving” Bitcoin bull market, which happens every four years after Bitcoin’s inflation rate is cut in half, according to its pre-set algorithms. Another factor is the continued significant investment in institutional custody infrastructure to digital assets of all types. The industry is ready to service institutional investors that are subject to the strictest fiduciary standards not just those (such as hedge funds and family offices) that can take higher legal and operational risks. The third factor has to do with stablecoins, such as the explosion of velocity of US dollar stablecoins as financial transactions went increasingly digital around the world. The verifiable on-chain velocity of US dollar stablecoins is averaging 109x meaning that each stablecoin trades on its blockchain on average 109 times annually. Reported velocity — including off-blockchain crosses of stablecoins at exchanges — is now at a US$16 trillion rate while B2B payments in the US are US$25 trillion. This trend will continue in 2021 when I believe bank-issued versions will come into the market. When that happens mainstream payment users can start to enjoy the benefits of a programmable US dollar in a better, faster, and cheaper way relative to traditional US dollar payment systems. 

Publicly recanted! Luminaries who came to terms with crypto in 2020

Bitcoin may never be a widely used medium of exchange, but it has become a useful store of value, eight notable former critics conceded in 2020… 

Crypto Remittances Prove Their Worth in Latin America

According to the World Bank, Latin America’s formal remittance market is around $96 billion. But traditional services like Moneygram or Western Union can come with high commissions, unfavorable exchange rates, limited office hours, long transmission times and daily exchange limits. Crypto remittances are a different story. For example, money can be sent from Venezuela to family members in Colombia and Spain using the peer-to-peer platform LocalBitcoins. These transactions are often faster and cheaper than their traditional finance counterparts, with fewer steps to send money. Crypto remittances organized on messaging platforms like Whatsapp, Telegram and WeChat can be even more competitive. 

Central Bank Money: Liability, Asset or Equity of the Nation?

Based on comparisons across a number of legal characteristics of financial instruments, this paper suggests that an appropriate characterization of “central bank money” (CBM) is as ‘social equity’ that confers rights of participation in the economy’s payment system and thereby its economy. This interpretation is important for macroeconomic policy in light of quantitative easing and potential future issuance of central bank digital currency (CBDC). It suggests that in robust economies with credible monetary institutions, and where demand for CBM is sufficiently and sustainably high, large-scale issuance such as under CBDC is not inflationary, and it does not weaken public sector finances.