Today I published my May Monthly Monitor which I’ve narrowed down to focus on just central bank and sovereign digital currencies, and stablecoins. The idea remains to summarize all of the month’s key events in these spaces. Comments welcome!
The Reserve Bank of India (RBI) clarified its position concerning the previous ban on cryptocurrency-related activities in the country and the adherence of financial institutions to the rule. The regulator told banks not to cite a 2018 central bank circular as a reason to hinder crypto trades. The 2018 note forbade banks from facilitating such transactions, but has since been struck down by the Supreme Court. Banks must continue with other routine due diligence measures on the deals, but the 2018 circular is no longer valid.
This is a great summary of the potential systemic risks around Tether by Timothy Massad, ex-Chairman of the US Commodity Futures Trading Commission. He calls for a strengthening of the regulation of crypto-assets generally and in particular stablecoins. He seems supportive of the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, introduced in Congress last December, that would require that stablecoins be issued by a bank and would impose certain standards.
According to Coinmetrics, none of the major stablecoins became seriously unpegged during the May 19 crypto flash crash. As prices drop, investors often rush to trade their crypto-assets into stablecoins, while the liquidations can cause stablecoins being used as collateral to be sold. This sudden shift in supply and demand can potentially knock stablecoin prices from their $1 peg, and threaten their stability. Although I and some others observed some USD stablecoins below 90 cents on some trading screens, apparently none actually traded there (see figure below).
UK digital bank Starling has barred its customers from sending money to crypto-asset exchanges, after having observed high levels of illegal activity. However, this suspension only applied to the “faster payments” option, which allows low-cost bank transfers at any time. Also, withdrawals aren’t affected, and no other UK banks have followed suit. Starling plans to lift its restriction on June 23 after testing a new financial crime prevention system.
*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech