Month: July 2021

Kiffmeister’s #Fintech Daily Digest (07/22/2021)*

~ kiffmeister

India Eyeing Phased Roll Out of Central Bank Digital Currency

The Reserve Bank of India (RBI) is considering a “phased introduction” of a central bank digital currency (CBDC) including running pilot programs. CBDCs are desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private virtual currencies. Hence, the RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption, including both retail and wholesale CBDC. Hence, it would appear that the RBI is still in the very early stages of it CBDC deliberations, even though it has been exploring the pros and cons of introducing CBDCs for quite some time. 

Gensler Says Tokens Must Work Within Securities Regime

US Securities & Exchange Commission (SEC) Chair is taking aim at platforms that offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives. “It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime. If these products are security-based swaps [all of the rules that apply to such swaps,] such as trade reporting rules, will apply to them. Any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.”  

Paxos lawyer: Tether and USDC not ‘real stablecoins’

Paxos Trust lawyer and chief compliance officer Dan Burstein claims that Tether’s USDT and Circle’s USDC are unregulated “stablecoins” in name only. Paxo-issued Paxos Standard (PAX) and Binance Dollar (BUSD) are approved and regulated by the New York State Department of Financial Services (NYDFS). That means each token is backed by reserves in the safest instruments, such as bank deposits insured by the US Federal Deposit Insurance Corporation or short-term maturity US Treasuries (see below). Gemini Dollars (GUSD) issued by Gemini Trust Company, are similarly NYDFS regulated.  Burstein also pointed out that USDC reserves are actually held on Circle’s balance sheet (i.e. not segregated), implying that Circle views USDC reserves as its own property and therefore at risk in the event of Circle’s bankruptcy.

*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. Also, to get these updates sent to your inbox, please email me at kiffmeister@protonmail.com. (I’m still working out how to automate the subscription process after Google pulled the rug out from under me by shutting down Feedburner. I’m now using Mailchimp but haven’t yet figured out how to embed a subscription link in the blog.)

Kiffmeister’s #Fintech Daily Digest (07/21/2021)*

~ kiffmeister

The Positive Case for CBDC

This Bank of Canada staff discussion paper discusses the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. On innovation, it argues that a CBDC could be necessary to support the vibrancy of the digital economy by helping solve market failures and fostering competition and innovation in new digital payments markets. Overall, the paper finds that competition and innovation are valid supporting arguments for issuing a CBDC.  

Digital yuan pilots expand to insurance industry for the first time

The People’s Bank of China e-CNY is reportedly being piloted with Pingan Property Insurance, a subsidiary of China’s leading insurer, Ping An. The project involves a new insurance policy tailored to medical workers in Shenzhen’s Nanshan district, offering them various levels of compensation for diagnosis of or death due to COVID-19. Applicants are eligible for exclusive preferential allowance if they use the digital yuan wallet to make payments. 

Summary of BIS/FSI-hosted webinar on legal aspects of digital currencies

This note summarizes the themes and highlighted issues discussed at a January 26, 2021 webinar on the legal aspects of digital currencies, hosted by the Bank for International Settlements Innovation Hub and the Financial Stability Institute. Jurisdictions are devoting a great deal of attention to their legal frameworks to address the specific features of different types of digital currencies. While progress is being made, there is more work to be done. The legal design choices that can be made in response to the issues highlighted in the webinar would have consequences for the way in which digital currencies are treated in relevant jurisdictions.  

*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

Kiffmeister’s #Fintech Daily Digest (07/20/2021)*

~ kiffmeister

Circle Reveals Assets Backing USDC Stablecoin

Circle published a breakdown of the assets backing its USDC stablecoin in its latest attestation report. According to the report, on May 28 bout 61% of its tokens were backed by cash and money market funds. Yankee certificates of deposit (i.e., issued by non-US banks) comprise a further 13%, short-term U.S. Treasury securities account for 12%, unsecured commercial paper accounts for 9%, and the remaining tokens are backed by unsecured short-term municipal and corporate bonds. 

By “short-term” is meant a maximum term to maturity of three years, and the overall portfolio weighted average maturity is limited to 1.5 years. There are also credit rating limits based on S&P scales. The overall portfolio must main an average credit rating must of A or better, commercial paper holdings must be rated A1 on the short-term scale, and for bonds issued by corporations and financial institutions must be rated BBB+ or higher on the long-term scale.

Janet Yellen: We Must ‘Act Quickly’ on Stablecoin Regulation

U.S. Treasury Secretary Janet Yellen convened the President’s Working Group on Financial Markets (PWG), joined by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, to discuss stablecoins. In the meeting, participants discussed the rapid growth of stablecoins, potential uses of stablecoins as a means of payment, and potential risks to end-users, the financial system, and national security. The Secretary underscored the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place. The group also heard a presentation from Treasury staff on the preparation of a report on stablecoins, which would discuss their potential benefits and risks, the current U.S. regulatory framework, and the development of recommendations for addressing any regulatory gaps. The PWG expects to issue recommendations in the coming months. 

EU Proposes Ban on Anonymous Cryptocurrency Transactions

The European Commission is proposing to prohibit cash transactions higher than EUR10,000 and ban anonymous crypto-asset wallets, saying that crypto-assets should be governed by the same rules as regular bank wire transfers. The proposed rules would also oblige financial institutions that facilitate crypto-asset transfers to collect various personal data of senders and recipients, essentially expanding the so-called Financial Action Task Force (FATF) “travel rule” to crypto-asset transactions.

Bank of Korea selects provider for CBDC blockchain simulations

Ground X reportedly won the tender to lead the Bank of Korea’s central bank digital currency (CBDC) proof-of-concept work. Ground X, the blockchain subsidiary of Kakao, Korea’s largest social network, partnered with ConsenSys to create the Klaytn Ethereum-based public-permissioned blockchain that the PoC will be run on. Ground X will start work in August, with the first phase to be completed by December.   

Banque de France, Banque Centrale de Tunisie in wholesale cross border CBDC trial

An experimental wire transfer was carried out between two individuals, located respectively in France and Tunisia, in commercial bank money through transfer of wholesale central bank digital currency (CBDC) between Banque de France and Banque Centrale de Tunisie. The operation took place on the Instaclear interbank transaction solution based on the private distributed ledger operated by Prosperus, and both central banks have exchanged CBDC tokens in secured conditions. Bank Wormser Frères, la Banque Internationale Arabe de Tunisie and its French subsidiary BIAT France, were also part of this operation. 

BlockFi Hit With Cease and Desist in New Jersey

The Attorney General of New Jersey has ordered high-yield crypto lender BlockFi to stop accepting new customers. The order calls for BlockFi to stop accepting new [BlockFi Interest Account] clients residing in New Jersey beginning July 22, 2021,” although the company will be able to continue to serve existing customers in the state and other jurisdictions. BlockFi is accused of offering unregistered securities to its customers. 

*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

Kiffmeister’s #Fintech Daily Digest (07/19/2021)*

~ kiffmeister

I’ll be participating in a GovCoins panel on July 21 at 10:00 pm EST co-hosted by the Asia News Network. I’ll be discussing the latest central bank digital currency (CBDC) developments. 

Taming Wildcat Stablecoins

Based on lessons learned from history, Gary Gorton and the Fed’s Jeffery Zhang argue that privately produced monies are not an effective medium of exchange because they are not always accepted at par and are subject to runs. They present proposals to address the systemic risks created by stablecoins, including regulating stablecoin issuers as banks and CBDC issuance. 

However, in a series of threads, George Selgin critiques a number of assumptions made in the paper, including its interpretation of the historical record of private currencies:

*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

Kiffmeister’s #Fintech Daily Digest (07/18/2021)*

~ kiffmeister

El Salvador May Launch National Stablecoin: Reports

El Salvador’s government is reportedly planning to issue a U.S. dollar stablecoin. The currency would actually be issued by the central bank, pegged to the value of the U.S. dollar and backed by reserves of real U.S. dollars. The cryptocurrency would be called the “Colón-Dollar,” a reference to the country’s former national currency that was replaced with the U.S. dollar in 2001. The president’s brothers reportedly met with representatives from Cardano, WhizGrid and Algorand at different times. 

Should there be a digital euro (or a digital dollar for that matter)?

The Bank of Finland’s Aleksi Grym kicked off an interesting Twitter discussion by asking whether there needs to be a digital euro (or digital dollar). One justification could be the threat to monetary sovereignty from other countries’ central bank digital currencies (CBDCs), foreign Bigtechs and other private money innovations (crypto-assets and stablecoins). Another view is that, if digital money and payments are an essential service, then digital euros and dollars are for those (i) who cannot afford the private options, or (ii) who trust the government to be a more reliable issuer than any private party. There is also the risk that private payment rails could become too important to fail.

Also, even in developed countries, using digital money and payments can be inefficient and expensive, and central banks can fill the gap because they’re not under pressure to make money on this. They don’t want to sell your personal data or show you ads. Furthermore, if the ability to make digital payments are seen as public goods that should available to all indiscriminately, only the state has the incentives to fund it. In any case, people can fall back to the CBDC if they dislike the private. In that respect, CBDC can be seen as a baseline for private entities to build on or compete with.

My view is that central banks shouldn’t be competing with private payment service providers unless there’s a clear market failure that other measures, such as regulations, can’t mitigate. But if a digital euro or dollar is deemed necessary, it should be aimed at small cash-like (i.e., anonymous) payments for users priced out of private digital payment rails. 

What constitutes an “offline” payment in the context of digital currency?

Razvan Dragomirescu set out his (and my) defining characteristics of “offline” payments in the CBDC context. First, if either party needs to be online during the transaction, or after the transaction to claim the funds, this is not offline. If the payee cannot use funds received offline from the payer to immediately pay someone else (offline), this is not an offline system. If the payee cannot verify that the payer is not double spending without going online, it is not an offline system.

Also, there should be no need to get online to sync with the network. The offline payments act as the network (with nodes following a common set of rules due to them running in secure elements that users can’t modify), there is no online network or server to sync with.  So the CBDC system is basically about transferring “IOUs” that are issued by the central banks and redeemable there.

*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

Kiffmeister’s #Fintech Daily Digest (07/16/2021)*

~ kiffmeister ~ 2 Comments

China releases digital yuan white paper, confirming it is not synthetic CBDC

The People’s Bank of China (PBOC) published a white paper on its e-CNY central bank digital currency (CBDC). It confirmed that it will adopt a two-tier distribution model, whereby the PBOC issues the CBDC and commercial banks merely distribute it (i.e., it’s not a “synthetic” CBDC). The paper outlines the primary objectives of the digital yuan, the first being to ensure financial inclusion and provide a public good digital cash while physical cash usage declines. The second objective is to promote fair competition and interoperability between different forms of digital cash. 

The whitepaper states that the CBDC is “mainly” designed for domestic use, but it will be usable across borders, while acknowledging monetary sovereignty issues and the principles of no detriment and interoperability:

  • No disruption: CBDC supplied by one central bank should continue to support the healthy evolution of the international monetary system. CBDC supplied by one central bank should not disrupt other central bank’s currency sovereignty and their ability to fulfill its mandate for monetary and financial stability, and meanwhile should protect the legitimate rights of consumers and boost fair competition.
  • Interoperability: The development of CBDC should fully tap the role of the existing infrastructures and leverage Fintech so as to enable interoperability between CBDC systems of different jurisdictions as well as between CBDC systems and incumbent payment systems. In the meanwhile, its development should contribute to the orderly development of the payment system and guard against market fragmentation.

It differentiates the e-CNY from other digital payment tools as being legal tender, not requiring a bank account, supporting offline payments and providing managed anonymity (anonymity for small value and traceable for high value transactions). Low value wallets to be set up with only a mobile number. 

Consistent with physical cash, e-CNY holdings will not earn interest, and the PBOC does not charge authorized operators for exchange and circulation services, and the operators do not charge individual clients for the exchange of e-CNY either.

The paper says that E-CNY is an account-based, quasi-account-based and value-based hybrid payment instrument. It has a variable face value and its value transfer takes the form of cryptocurrency strings. However, all of this seems like gibberish to me, and I welcome opinions on what it actually means.

Finally, E-CNY is programmable using smart contracts that enable self-executing payments according to predefined conditions or terms agreed between two sides, so as to facilitate business model innovation.

*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

Kiffmeister’s #Fintech Daily Digest (07/15/2021)*

~ kiffmeister

ShapeShift to Shut Down, Airdrop FOX Tokens to Decentralize Itself Out of Existence

Crypto trading platform ShapeShift will begin winding down its operations as a formal company, and hand over its legacy to a decentralized autonomous organization (DAO) controlled by holders of its FOX token. Currently employing 65 people, ShapeShift will have no employees, no bank accounts and no CEO in somewhere between 4 and 12 months’ time.


Apple, Goldman Plan ‘Buy Now, Pay Later’ Service to Rival Affirm

Apple is working on a new “Apple Pay Later” service that will let consumers pay for any Apple Pay purchase in installments over time, rivaling the “buy now, pay later” offerings of Affirm and PayPal. The service will use Goldman Sachs as the lender, and will give users the option to pay for it across four interest-free payments made every two weeks, or across several months with interest.

Fintech and the digital transformation of financial services: implications for market structure and public policy

This paper, jointly written by Bank for International Settlement and World Bank staff, discusses the policy issues regarding competition, regulatory perimeters and ensuring a level playing field, associated with the digital  transformation of financial services. Potential outcomes regarding competition, concentration and market composition include a “barbell” outcome composed of a few large providers and many niche players. Authorities must coordinate across financial regulation, competition, and industry regulatory bodies to manage trade-offs between stability and integrity, competition and efficiency, and consumer protection and privacy.

*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

Kiffmeister’s #Fintech Daily Digest (07/14/2021)*

~ kiffmeister

ICYMI: The CBDC Tracker team, which I recently joined, has released a new update of its comprehensive open source central bank digital currency (CBDC) database. Along with updated project information, many changes have been made to make it a more accurate, comprehensive, timely, and useful tool for CBDC research. We’ve also opened up a Telegram group to crowdsource the news collection. 

Eurosystem launches digital euro project 

The European Central Bank (ECB) has decided to launch the investigation phase of a digital euro project. The investigation phase will last 24 months and aim to address key issues regarding design and distribution. It will examine the use cases that a digital euro should provide as a matter of priority to meet its objectives: a riskless, accessible, and efficient form of digital central bank money. The project will also shed light on the changes to the EU legislative framework which might be needed.

Survey Results on the Possibility of e-hryvnia implementation

The National Bank of Ukraine (NBU) surveyed 100 financial market experts to determine the market niche and potential use cases for an NBU-issued central bank digital currency. Most respondents believe retail cashless payments and cross-border payments and settlements to be the most promising use cases for e-hryvnia. Second came G2P welfare payments, featuring smart contract technology to restrict the CBDC’s use to specific purposes or during a special period of time. There was also considerable interest in the potential of e-hryvnia as an instrument for virtual assets settlements.

Binance: Fiat off-ramps keep closing, reports of frozen funds

Amy Castor reports that Binance customer funds continue to increasingly become trapped inside of Binance, as the fiat exits close around the exchange . Binance has told its UK customers that it had disabled GBP withdrawals after its key payment partner, Clear Junction, ended its business relationship with the exchange. Clear Junction provides access to the UK Faster Payments network.

*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

Kiffmeister’s #Fintech Daily Digest (07/13/2021)*

~ kiffmeister

The CBDC Tracker team, which I recently joined, has released a new update of its comprehensive open source central bank digital currency (CBDC) database. Along with updated project information, many changes have been made to make it a more accurate, comprehensive, timely, and useful tool for CBDC research.

UAE Central Bank sets sights on digital currency launch

The Central Bank of the United Arab Emirates (CBUAE) has reportedly made central bank digital currency (CBDC) issuance a priority in its 2023-2026 roadmap. However, I’ve found no evidence of this roadmap on the CBUAE website, and we don’t know whether the focus will be on retail or wholesale CBDC.


Crypto crackdown targeting USD access points has begun: Caitlin Long

Avanti Bank & Trust CEO Caitlin Long has declared that the US regulatory crackdown on crypto “has begun.” She predicted that authorities will not target crypto-assets directly, instead opting to go after “intermediaries” and “access points” for U.S. dollars into the sector. She also noted that July 13 marked the “key event” in which the comment period for the Federal Reserve’s proposed payment system access guidelines ended. Caitlin emphasized the importance of ensuring crypto firms are able to gain direct access to Fed master accounts.

*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