Kiffmeister’s #Fintech Daily Digest (06/12/2021)*

Details about the digital yuan wallet officially disclosed

The People’s Bank of China (PBOC) revealed the holding and transaction limit structures being applied to the wallets currently being used in its eCNY central bank digital currency (CBDC) pilots. There are anonymous wallets that can be registered with only a mobile phone number, with maximum holding limits of 10,000 yuan, single transaction limits of 2,000 yuan, and daily cumulative payment limits of 5,000 yuan. And then there are less anonymous wallets with holding limits of 500,000 yuan, single transaction limits of 50,0000 yuan, and daily cumulative payment limits of 100,000 yuan, requiring that the users link the wallets to a bank account and meet full know-your-customer (KYC) requirements. Also users can open sub-wallets to limit payments, set up conditional payments, and control information sharing.  

El Salvador: Adopting the Bitcoin standard

On June 9 the El Salvador parliament passed President Nayib Bukele’s bill to make Bitcoin (BTC) legal tender in the country. The law will allow citizens to pay for goods and services in Bitcoin, and the government will guarantee the convertibility of Bitcoin into dollars at the time of any given transaction. This is made possible by a $150-million trust established by El Salvador’s Bandesal development bank. In essence, the government will buy BTC from locals if they wish to receive dollars instead of BTC.

Frances Coppola opines that adopting BTC potentially gives El Salvador the hard-currency peg and monetary discipline it needs, while breaking its monetary and fiscal policy dependence on the US. It’s not total monetary sovereignty, but it’s an improvement on the present situation. However, some of the details bring into question how much de-dollarizing is really going to happen here. The El Salvador government will be working with digital wallet developer Strike to build the financial infrastructure needed to make its BTC all of this this a reality.

In March 2021 Strike launched a beta pilot of its Strike Global mobile payment app in El Salvador, after which it quickly became the country’s number one downloaded app. The app is aimed at facilitating incoming USD remittance payments which account for more than 20% of El Salvador’s GDP. However, although Strike Global uses BTC as the app’s “plumbing” layer, it actually leaves the the end user with flaky USD-pegged USDT stablecoins.  (“Flaky” because of the many questions surrounding the composition of the reserves that the issuer (Tether) holds against outstanding USDT.) 

Strike claims that an El Salvador user can simply go to a BTC ATM or local Bitcoin teller and receive real US dollars, but apparently there are only two BTC ATMs in the country. 

David Gerard hypothesizes that Bukele likely wants to get hold of the dollars coming in as remittances — if Strike doesn’t just keep them all — and adding tethers to the economy in place of dollars would allow him to effectively print money that he couldn’t print otherwise.  

*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