Kiffmeister’s #Fintech Daily Digest (06/23/2021)*

What Is and Isn’t a Central Bank Digital Currency?

I’ve set out my definition of what is and isn’t a retail central bank digital currency (CBDC) in a new post. It may be obvious to most, but you’d be surprised how many people misspecify various privately- and sovereign-issued crypto as CBDC. Comments welcome!

Rwanda researching on central bank digital currency

The National Bank of Rwanda is reportedly studying the possibilities of issuing CBDC. According to John Karamuka, the Director of Payment Systems at the central bank,  their assessment and study is looking at economic, financial and technology aspects related to CBDC as well as the operationalization model, taking into account the local context. “The study is also analyzing the implication of the CBDC on monetary policy and financial stability.” 

Bank of Israel Testing Ethereum Tech in Digital Shekel Trial

Bank of Israel Deputy Governor Andrew Abir reportedly said that Israel has conducted a pilot test of a digital shekel. However, a more recent Bloomberg report implies that it’s actually an Ethereum-based proof of concept test.  

CBDCs: an opportunity for the monetary system

A Bank for International Settlements (BIS) paper examines how CBDCs can contribute to an open, safe and competitive monetary system that supports innovation and serves the public interest. Like the latest generation of instant retail payment systems, retail CBDCs could ensure open payment platforms and a competitive level playing field that is conducive to innovation. The ultimate benefits of adopting a new payment technology will depend on the competitive structure of the underlying payment system and data governance arrangements. The same technology that can encourage a virtuous circle of greater access, lower costs and better services might equally induce a vicious circle of data silos, market power and anti-competitive practices. CBDCs and open platforms are the most conducive to a virtuous circle. CBDCs built on digital identification could improve cross-border payments, and limit the risks of currency substitution. Multi-CBDC arrangements could surmount the hurdles of sharing digital IDs across borders, but will require international cooperation. 

Strike Dumps Tether, Set To Partner With Banks for El Salvador Remittances

Strike CEO Jack Mallers revealed that the firm would be integrating with the top five banks and two biggest cashpoint distributors in El Salvador. He said the cashpoint stores would enable people to exchange cash for balances on a mobile app like Strike and vice versa. The integrations would remove the need for USDT because Strike would be able to hold customers’ balances at the banks. It would also give them more places to cash out those balances for fiat currencies. The original plan was to hold recipient funds in USDT due to Strike’s limited banking options at the time. 

Bitcoin’s Money-Printing Machine Breaks Down as Futures Fall

The bitcoin futures basis trade, in which a trader would buy bitcoin in the spot market today and sell long-dated futures, locking in the discrepancy between the two prices, has collapsed along with crypto prices. Hedge funds piled into the trade, which could previously reliably produce double-digit annual gains. Even better, the arbitrage was virtually risk-free, given that CME Group Inc. is the counterparty. However, the trade existed because long-dated futures were more expensive than shorter-dated ones, given that Bitcoin is inherently scarce and theoretically should rise — a structure known as contango. 

Bitcoin Transactions Continue to Decline

Amidst the weak price action, the activity in the cryptocurrency market is also dying down. The number of transactions in blockchain per day has been dropping throughout 2021, ever since they hit 392k on January 7. The all-time high was made in December 2017 at 478.96k, and in early May 2019, per day transactions came close but only hit 441.85k. However, Layer 2 solution Lightning Network is seeing an increase in Bitcoin capacity, the number of nodes, and the number of channels — all three making new all-time highs. 

Goldman Begins Trading on JPMorgan’s Repo Blockchain Network

Goldman Sachs has joined the blockchain-based network created by JPMorgan Chase for repurchase agreements that use smart contracts and a digitized version of the U.S. dollar. On June 17 it swapped a tokenized version of a U.S. Treasury bond for JPMCoin, JPMorgan’s internal representation of a digital dollar. The digitized upgrade provides same-day settlement ability using smart contracts on an Ethereum-based blockchain that allow cash and Treasuries to be returned instantaneously. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: