Month: March 2021

Kiffmeister’s #Fintech Daily Digest (03/31/2021)*

~ kiffmeister

The Eastern Caribbean Central Bank (ECCB) hosted a regional media event to mark the public roll-out of the ECCB’s DCash central bank digital currency (CBDC).

Bank Negara Malaysia to Evaluate Merits of Digital Currencies Through POCs

Bank Negara Malaysia is “actively building internal capacity to support informed decisions” on central bank digital currency (CBDC) including conducting proofs of concepts (POCs). Though they do not have any immediate plans to issue CBDC they will “actively assess the potential value proposition of CBDC”. The central bank said that policy decisions around CBDCs will be guided by whether it is able to demonstrate clear benefits to Malaysia as a whole while ensuring that risks from CBDCs are effectively managed, in particular, the financial stability risks.

Facebook messaging service gets delayed Brazil nod for payments

Banco Central do Brasil cleared the way for Facebook’s WhatsApp messaging service to let its users send each other funds using the Visa and Mastercard card networks, months after vetoing WhatsApp’s initial attempt. However, WhatsApp is only allowed to do peer-to-peer payments, not involving merchants, unlike the free Pix service, which can be used to pay businesses and individuals. Facebook is still seeking approval to operate with merchants.  

Bakkt Launches Digital Wallet to Manage All Forms of Digital Assets

Bakkt announced the launch of the Bakkt App, a digital wallet that brings together bitcoin and other forms of digital assets into one platform. The Bakkt App gives consumers the power to convert participating rewards points to cash or using bitcoin as payment, for example – all within one user-friendly application. Bakkt estimates that there are over $1.2 trillion in digital assets currently held in cryptocurrencies, loyalty and rewards points, and gift cards. Bakkt’s goal is to make all digital assets as liquid as any fiat currency. 

U.K. FCA Consults on Special Purpose Acquisition Companies (SPACs)

The U.K. Financial Conduct Authority (FCA) will be consulting on amendments to its Listing Rules and related guidance to strengthen protections for investors in Special Purpose Acquisition Companies (SPACs). The consultation will consider the structural features and enhanced disclosure, including a minimum market capitalisation and a redemption option for investors, required to provide appropriate investor protection. Our proposals will help to ensure that SPACs operate within a framework of high regulatory standards and oversight. Where such protections are in place, we consider that the existing presumption of suspension of the listing for such companies at the point of announcement of an acquisition target is no longer required and we therefore intend to consult on this basis, aligning this element of our rules more closely with other major jurisdictions.  

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/30/2021)*

~ kiffmeister

PayPal Launches “Checkout with Crypto“

PayPal launched Checkout with Crypto that US PayPal customers with certain crypto-assets (Bitcoin, Litecoin, Ethereum or Bitcoin Cash) will be able to choose to check out with crypto seamlessly within PayPal at millions of global online businesses. Customers pay no transaction fees but a spread will be built into the conversion from crypto to USD. There are no additional integrations or fees required by the business. All transactions are settled in USD and converted to the applicable currency for the business at the standard PayPal conversion rates. 

CME Announces Launch of Micro Bitcoin Futures in May

The Chicago Mercantile Exchange (CME) will launch smaller-sized bitcoin futures contracts in May. The new contracts sized at one-tenth of one bitcoin will be cash-settled based on the CME CF Bitcoin Reference Rate.  

Assurance Opinion Confirms Tether’s Reserves Fully Backed

Tether released an attestation dated February 28, 2021 and delivered by accounting firm Moore Cayman that shows that its stablecoins are fully backed. However, the report doesn’t describe how Tether’s reserves are held.  

BNY Mellon Weighs Controversial Bitcoin Valuation Model

BNY Mellon published a paper that evaluates different methods of valuing Bitcoin, that spotlighted the controversial stock-to-flow model that—if correct—would see Bitcoin’s price hit $100,000 to $288,000 this year.  

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/29/2021)*

~ kiffmeister

Visa moves to allow payment settlements using cryptocurrency

Visa will allow the use of USD Coin to settle transactions on its payment network. USD Coin (USDC) is a USD-pegged stablecoin. Visa has launched the pilot program with payment and crypto platform Crypto.com and plans to offer the option to more partners later this year. It uses the Ethereum blockchain, and strips out the need to convert digital coin into traditional money in order for the transaction to be settled. In the pilot, Crypto.com sent USDC to Visa’s Ethereum address at Anchorage.  

Consumer-Centric Aspects of the Proposed Regulations for the Bahamian Digital Currency

The Central Bank of the Bahamas circulated draft Sand Dollar regulations for public consultation on February 15. They are intended to enhance the existing legislative framework governing payment services providers, specific to their provision of central bank digital currency (CBDC) linked services. The consultation period closes on March 31 and the regulations will be finalized for issuance by May 1, 2021. Also, all wallet providers are expected to achieve full interoperability by March 31. 

The State Bank of Pakistan prepares Digital Bank Regulatory Framework

The State Bank of Pakistan (SBP) published a draft of the Digital Bank Regulatory Framework for public consultation. The initiative is part of the SBP’s comprehensive efforts to promote digital financial services, and the framework proposes guidelines for licensing and supplementary regulations for digital banks.  

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/27/2021)*

~ kiffmeister

Bank of Japan Establishes CBDC Liaison and Coordination Committee

The Bank of Japan (BoJ) will engage in experiments on general-purpose central bank digital currency (CBDC) from fiscal year 2021. The BoJ will first test the technical feasibility of the core functions and features required for CBDC through proof of concepts (PoC). It has has established a “Liaison and Coordination Committee on Central Bank Digital Currency” through which it will share details of and provide updates on the PoC with the private sector and the government and will seek consultation on future steps to facilitate smooth implementation of the PoC. 

Mobile Money Accounts Grow to 1.2 Billion in 2020

The GSMA has published its annual State of the Industry Report on Mobile Money. It revealed a dramatic acceleration in mobile transactions during the COVID-19 pandemic as lockdown restrictions limited access to cash and financial institutions. The report found that the number of registered accounts grew by 13% globally in 2020 to more than 1.2 billion. The fastest growth was in markets where governments provided significant pandemic relief to their citizens. To minimise the economic toll of COVID-19, many national governments distributed monetary support to individuals and businesses, and the value of government-to-person payments quadrupled during the pandemic. 

Thailand, Vietnam banks deploy joint QR code-based payment service

The Bank of Thailand (BOT) and the State Bank of Vietnam (SBV) have deployed a retail payment connectivity system that makes use of an interoperable QR Code in order to simplify cross-border payments between the two countries. In the first phase of the project, Thai tourists can use the BOT mobile app to scan VietQR for payment at TPBank’s and BIDV’s payment sites in Vietnam. Meanwhile, Vietnamese visitors can also use the mobile apps of TPBank and Sacombank to scan ThaiQR for payment in Thailand.  

US Monetary Policy Implementation Considerations of Global Stablecoins

This US Federal Reserve note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, it maps out cash flows of GSC transactions among financial sector entities using a stylized set of ‘t-accounts’. By analyzing these individual transactions, it infers aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, the note also considers how these balance sheet changes could affect monetary policy implementation, the demand for central bank reserves, and the market for US dollar safe assets. 

Digital Currencies and Bank Competition

This article examines how the issuance of a digital currency by a non-bank operator impacts competition between banks in a cashless society. Unlike banks, the digital currency provider is not allowed to engage in maturity transformation. The article analyzes how the fee charged for the digital currency impacts the interest rates on loans and the fees charged by banks to depositors for paying from their bank account and opening an account in a bank. It derives the conditions under which consumers use the digital currency to pay. It also discusses how the distribution mode of the digital currency may impact its use for payments. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/26/2021)*

~ kiffmeister

PBOC and SWIFT to offer cross-border payments services

The People’s Bank of China (PBOC) announced that its joint venture with SWIFT will start offering cross-border transaction services. The Finance Gateway Information Services Company will set up a Chinese network for financial messaging services. The firm will also set up a localized data warehouse to monitor and analyse cross-border payment messaging. The Finance Gateway Information Services Company was set up in mid-January, as a joint venture between SWIFT and the China National Clearing Centre, a PBOC subsidiary. Minority shareholders include China’s Cross-border Interbank Payment System (CIPS), the Payment & Clearing Association of China and the PBoC Digital Currency Research Institute.

India Mandates Public and Private Firms to Disclose Crypto Holdings

India’s Ministry of Corporate Affairs amended Schedule III of the Companies Act, 2013 to mandate all companies to disclose their crypto-asset holdings and other activities using digital currencies, starting on April 1.  

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/25/2021)*

~ kiffmeister

ECB on digital central bank money for Europeans – getting ready for the future

According to this European Central Bank (ECB) blog post… “There are three misconceptions about the digital euro. First, that the ECB intends to abolish cash and then, having done so, impose even lower interest rates on the digital euro for reasons related to how monetary policy is implemented. Second, that a digital euro would displace banking intermediation. And third, that the digital euro would not be based on a viable business model. First of all, it is not yet decided whether a digital euro will be introduced at all. We are still exploring the possibility and considering it conceptually. Later this year, the ECB’s Governing Council will decide whether or not the ECB should launch a project to get ready to issue a digital euro. Even if it decides to do so, it would simply mean that it want to be prepared. A decision to actually issue a digital euro would come at a later stage.” 

BIS Innovation Hub and SWIFT announce winners of ISO 20022 and API hackathon

The BIS Innovation Hub and SWIFT announced the three winners of the ISO 20022 hackathon, which invited teams to build and showcase solutions that enhance cross-border payments, using the ISO 20022 standard for payments messages and application programming interfaces (APIs):

  • Atomic Wire won for its highly scalable stream processing solution that performs real-time atomic settlement of FX transactions, eliminating settlement risk and removing barriers to adopting payment-versus-payment for cross-border payments. 
  • Mojaloop won for its solution for bridging the “last mile,” bringing cross-border payments to users in emerging market economies who rely on mobile money transfer systems. 
  • The Isonauts (Virtusa & AWS) won for their solution using machine learning to ensure completeness and correctness of data as a basis for smoothing international payments.  

Fidelity files for Bitcoin ETF

Fidelity Investments has filed with the US Securities and Exchange Commission (SEC) to list a new Bitcoin exchange-traded fund (ETF). The Wise Origin Bitocin Trust aims to track Bitcoin’s daily performance using the Fidelity Bitcoin Index PR, an index that’s derived from several price feeds. 

U.S. regulator reportedly opens inquiry into Wall Street’s blank check IPO frenzy

The U.S. Securities and Exchange Commission (SEC) has reportedly opened an inquiry into “blank check” special purpose acquisition companies (SPACs). SPACs are listed shell companies that raise funds to acquire a private company with the purpose of taking it public, allowing such targets to sidestep a traditional initial public offering. The SEC letters asked the banks to provide the information voluntarily and, as such, did not rise to the level of a formal investigative demand. The SEC wanted information on SPAC deal fees, volumes, and what controls banks have in place to police the deals internally. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/24/2021)*

~ kiffmeister

The Bank of Jamaica Prepares for Central Bank Digital Currency

The Bank of Jamaica (BoJ) announced that eCurrency Mint has been chosen as the technology provider to support the Bank of Jamaica in testing a retail central bank digital currency (CBDC) solution in the BoJ’s Fintech Regulatory Sandbox for a pilot in May to end December 2021. The issuance and distribution of the CBDC will be fully integrated with the BoJ’s financial market infrastructure, the JamClear Real Time Gross Settlement System (RTGS). The approach will not compete with deposits in deposit taking institutions, but  rather it will leverage the existing financial and telecommunications infrastructures of the country. The BoJ will issue CBDC to commercial banks and other deposit-taking institutions licensed or authorised by BoJ. These entities will distribute CBDCs to the retail market. Meanwhile, the legislative review to amend the Bank of Jamaica Act to concretize BoJ as sole issuer of CBDC is well underway.

IMF staff say Marshall Islands digital currency would raise risks

International Monetary Fund (IMF) staff concluded that the issuance of the digital currency SOV by the Republic of the Marshall Islands (RMI) as a second legal tender would raise risks to macroeconomic and financial stability as well as financial integrity. The RMI’s legal, regulatory, and institutional framework is not yet ready to accommodate the SOV issuance and manage associated risks. SOV issuance could jeopardize the RMI’s last USD corresponding banking relationship (CBR). This combined with anti-money laundering and combatting the financing of terrorism (AML/CFT) risks (including those related to the SOV) could disrupt external aid and other important financial flows, resulting in a significant drag on the economy. Hence, the potential cost of the SOV issuance will likely outweigh the expected benefits.

Bundesbank successfully tested DLT-based securities settlement in central bank money

Deutsche Börse, Deutsche Bundesbank and Germany’s Finance Agency successfully tested a settlement interface for electronic securities, working with a range of other market participants. Securities settlement using distributed ledger technology (DLT) is performed with the aid of a “trigger” solution and a transaction coordinator in TARGET2, the Eurosystem’s large-value payment system. In doing so, the participants have demonstrated that it is possible to establish a technological bridge between blockchain technology and conventional payment systems to settle securities in central bank money with no need to create central bank digital currency.

Tesla now accepts Bitcoin from US customers

Elon Musk has announced that Tesla cars can now be purchased using Bitcoin, and Tesla would operate Bitcoin nodes directly, and would hold on to the Bitcoin it accumulates without converting it to fiat.

Real Life ‘The Matrix’ Project Uses Body Heat To Mine For Cryptocurrency

The Institution of Human Obsolescence (IoHO) has developed a way to use excess body heat from humans to mine for cryptocurrency. It requires humans to suit up to convert body heat into energy for cryptocurrency mining. IoHO has suited up 37 workers so far, all of whom are placed in a body suit that uses thermoelectric generators to capture excess body heat. That heat is converted to energy, which is then used to power mining efforts. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/23/2021)*

~ kiffmeister

Understanding China’s Central Bank Digital Currency

This paper explains how China’s DC/EP digital currency works and the respective responsibilities of the central bank and second-tier institutions in the system. Interestingly, it says that the DC/EP won’t be a central bank digital currency (CBDC) as it’s a liability of the intermediaries in the “two-tier” system. The second-tier institutions actually have the ownership of the DC/EP and guarantee payment and redemption rights. This arrangement has borrowed ideas from the three note-issuing banks in Hong Kong that are required to give the Hong Kong Monetary Authority one US dollar for every 7.8 Hong Kong dollars issued, and in exchange receive from 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. 

Regulatory Framework For Open Banking In Nigeria

The Central Bank of Nigeria (CBN) reportedly issued a Regulatory Framework for Open Banking in Nigeria on February 17. (I couldn’t find it on the CBN website, but numerous law firms are reporting on it.) Prior to the issuance of the Framework, banks operated in a closed ecosystem, with exclusivity of access to customer information, locking out innovators; and forcing customers to rely solely on the digital channel offerings of their respective banks. With the issuance of the Framework, the financial services space in Nigeria will experience the simplification and integration of multiple and complicated financial services. 

Revolut applies for US banking licence

UK-based challenger bank Revolut has reportedly filed a draft application for a banking licence with the Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation. Revolut currently offers financial services in the US through a relationship with FDIC-insured Metropolitan Commercial Bank. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/22/2021)*

~ kiffmeister

 PBoC official says ‘completely anonymous CBDC is not an option‘

The head of the People’s Bank of China (PBOC) Digital Currency Research Institute, Mu Changchun, reportedly said that “controllable anonymity” remains at the core of China’s digital yuan design. That is, privacy will only apply to end users when they transact among themselves while the details of those transactions remain visible to the central bank and regulators. He also has said a “completely anonymous central bank digital currency (CBDC) is not an option” based on international consensus. Any design that doesn’t satisfy anti-money laundering, anti-terrorism financing and anti-tax evasion purposes will be simply vetoed.  

What is “controllable anonymity“?

The wallet with the weakest know-your customer (KYC) strength is an anonymous wallet, which can be opened with only a mobile phone number. Such wallets, which can be opened with just a mobile phone numbers are completely anonymous to the PBOC and various operating agencies. However, this type of wallet will the lowest balance and daily transaction limit, which can only meet the daily needs of small payments. To make large payments , the wallet needs to be upgraded, and the wallet balance and payment limit will increase as the KYC intensity increases. 

The paradox of banknotes: Understanding the demand for cash beyond transact

Recent payment surveys indicate that the share of cash transactions in the euro area has decreased. This, together with ongoing digitalisation in retail payments, might have been expected to lead to a decrease in the demand for cash. However, this reduction in demand has not occurred. In fact, the number of euro banknotes in circulation has increased since 2007. This seemingly counterintuitive “banknote paradox” can be explained by demand for banknotes as a store of value in the euro area coupled with demand for euro banknotes outside the euro area. 

Nigeria’s central bank not discouraging people from trading crypto, says deputy governor

Central Bank of Nigeria (CBN) Deputy Governor Adamu Lamtek reportedly said that the central bank had not banned Nigerian residents from buying, trading, or selling crypto-assets, but was trying to protect the banking sector from crypto-asset activities. The statement follows the CBN announcing last month that it had placed a ban on all regulated financial institutions from providing services to crypto exchanges in the country.  

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.

Kiffmeister’s #Fintech Daily Digest (03/21/2021)*

~ kiffmeister

The Financial Action Task Force (FATF) has DeFi in its sights

The Financial Action Task Force (FATF) looks to be going after decentralized finance (DeFi) applications in their recent draft guidance. When it comes to DeFi platforms, the FATF said its standards may not apply to the underlying software or technology, but entities involved with the decentralized application (DApp) such as owners or operators may now be considered virtual asset service providers (VASPs). Virtual asset (VA) escrow services, including services involving smart contract technology, brokerage services, order-book exchange services, advanced trading services, and custody providers will all considered VASPs.   

Here’s how paragraphs 47 and 49 define VASPs:

(47) A “virtual asset service provider” (VASP) is any natural or legal person who… conducts one or more of the following activities or operations for or on behalf of another natural or legal person:

  1. Exchange between virtual assets and fiat currencies;
  2. Exchange between one or more forms of virtual assets;
  3. Transfer of virtual assets;
  4. Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  5. Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset. 

(48) The definition of VASP should be read broadly. Countries should take a functional approach and apply the following concepts underlying the definition to determine whether an entity is undertaking the functions of a VASP. Countries should not apply their definition based on the nomenclature or terminology which the entity adopts to describe itself or the technology it employs for its activities. As set out above, the definitions do not depend on the technology employed by the service provider. The obligations in the FATF Standards stem from the underlying financial services offered without regard to an entity’s operational model, technological tools, ledger design, or any other operating feature. 

And…

(79) The determination of whether a service provider meets the definition of a VASP should take into account the lifecycle of products and services. Launching a service that will provide VASP services, for instance, does not relieve a provider of VASP obligations, even if those functions will proceed automatically in the future, especially but not exclusively if the provider will continue to collect fees or realize profits, regardless of whether the profits are direct gains or indirect. The use of an automated process such as a smart contract to carry out VASP functions does not relieve the controlling party of responsibility for VASP obligations. For purposes of determining VASP status, launching a self-propelling infrastructure to offer VASP services is the same as offering them, and similarly commissioning others to build the elements of an infrastructure, is the same as building them. 

And if you’re a shareholder of DeFi protocol, it looks like you might be a VASP, and, if so, you’re responsible for setting up anti-money laundering controls!

(57) A DApp itself (i.e. the software program) is not a VASP under the FATF standards, as the Standards do not apply to underlying software or technology. However, entities involved with the DApp may be VASPs under the FATF definition. For example, the owner/operator(s) of the DApp likely fall under the definition of a VASP, as they are conducting the exchange or transfer of VAs as a business on behalf of a customer. The owner/operator is likely to be a VASP, even if other parties play a role in the service or portions of the process are automated. Likewise, a person that conducts business development for a DApp may be a VASP when they engage as a business in facilitating or conducting the activities previously described on behalf of another natural or legal person. The decentralization of any individual element of operations does not eliminate VASP coverage if the elements of any part of the VASP definition remain in place.

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.