Kiffmeister’s #Fintech Daily Digest (03/13/2021)*

Bitcoin hit an all-time-high of $60,323 and hovered just below that level for most of the day. 

Valkyrie files for ETF aimed at investing in publicly-traded, bitcoin-holding companies

Valkyrie Digital Assets filed with the US Securities and Exchange Commission (SEC) for a new exchange-traded fund (ETF) that would invest in companies that hold bitcoin on their balance sheets. The Valkyrie Innovative Balance Sheet ETF will invest in companies that directly or indirectly invest in, transact in, or otherwise have exposure to bitcoin or operate in the bitcoin ecosystem.  

China’s blockchain ambitions set in stone after mention in national five-year plan

The word “blockchain” was reportedly mentioned for the first time in a draft of the 14th of China’s regular five-year development plans, which lay out the country’s economic priorities for the period from 2021 to 2025.  

Monetary Policy Pass-Through with Central Bank Digital Currency

This Bank of Canada paper investigates how interest-bearing central bank digital currency (CBDC) would interact with traditional monetary policy tools, such as the interest on central bank reserves. The analysis is based on a model in which CBDC and bank deposits are perfect substitutes as electronic payment methods. It finds that CBDC tends to weaken the pass-through of the interest on reserves to deposit rates when banks have market power, but the reverse holds when the market is competitive. However, a high (low) interest rate on reserves may weaken (strengthen) the pass-through of the interest on CBDC. 

Quantum Computing and the Financial System: Spooky Action at a Distance?

This IMF paper discusses the benefits and risks of quantum computing. On the risk side, they would crack many of the current encryption algorithms and threaten financial stability by compromising the security of mobile banking, e-commerce, fintech, digital currencies, and Internet information exchange. While the work on quantum-safe encryption is still in progress, the paper recommends that financial institutions take steps now to prepare for the cryptographic transition, by assessing future and retroactive risks from quantum computers, taking an inventory of their cryptographic algorithms (especially public keys), and building cryptographic agility to improve the overall cybersecurity resilience. 

* 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.