I’ve written up a summary of recent thinking on retail central bank digital currency (CBDC) operating models (single- vs multi-tier) based largely on the work of Raphael Auer and his BIS colleagues, and the Bank of England CBDC team.

I’ve also updated my tabulation of retail central bank digital currency (#CBDC) explorers, updating a few links (Madagascar and Nigeria) and adding Peru.

Bitt Awarded CBDC Contract for Central Bank of Nigeria

The Central Bank of Nigeria (CBN) is partnering with Bitt to roll out its eNaira retail CBDC later this year. Project Giant, as the Nigerian CBDC pilot is known, has been a long process that started with the Bank’s decision to digitize the Naira in 2017. Bitt was previously key to the development and launch of the CBDC pilot of the Eastern Caribbean Central Bank (ECCB) in April 2021.

Frances Coppola on Regulating Stablecoins for What They Are

“Whether a stablecoin needs dollar reserves depends on its actual or potential use in the conventional payments system. A stablecoin used only within the crypto ecosystem wouldn’t need 100% dollar reserves. It would only need sufficient dollar liquidity to maintain its peg – and if exchanges are compliant and redemptions restricted, that might not be very much. However, stablecoins could replace conventional rails for international payments, potentially making them faster, cheaper and available 24/7. Stablecoins used for this purpose would need to be fully exchangeable for U.S. dollars or other fiat currencies on demand 24/7, and would therefore either need 100% dollar reserves or access to central bank liquidity. [Hence,] rather than wasting time and energy trying to regulate crypto-only stablecoins as if they are banks or money market funds, regulators should concentrate on ensuring that stablecoins that are, or show signs of becoming, payment media within the conventional financial system have 100% reserves and/or are licensed banks.”

*To get these updates sent to your inbox, please email me at kiffmeister@protonmail.com. Also, 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.

2021)*

August 30, 2021 ~ kiffmeister

MAS Announces 15 finalists for the Global Retail CBDC Challenge

The Monetary Authority of Singapore (MAS) announced the 15 finalists for the global competition to develop retail central bank digital currency (CBDC) solutions (Global CBDC Challenge). The finalists will progress to the Acceleration Phase before they pitch their solutions to a panel of judges and an international audience at this year’s Singapore FinTech Festival. The Challenge attracted over 300 submissions from more than 50 countries. Participants were invited to address 12 problem statements relating to (i) CBDC instrument; (ii) CBDC distribution; and (iii) CBDC infrastructure; covering topics such as inclusivity, interoperability and programmability. The proposals from the finalists sought to address multiple problem statements through a variety of technology approaches including hardware wallets, digital identity and asset tokenization solutions.

Leading DeFi projects launch $100M global adoption initiative

A consortium of leading decentralized finance (DeFi) protocols will together provide up to $100 million in educational initiatives, grants, and incentives in an effort to educate individuals globally about decentralized finance. The DeFi for the People initiative — built on the Celo ecosystem — aims to utilize the decentralized nature of crypto and blockchain to provide finance to the world’s 6 billion mobile phone users. “Celo is an open-source blockchain ecosystem consisting of individuals and organizations who work alongside each other to promote global financial inclusion. Their conscious arm, Alliance for Prosperity, includes 150 partners such as Deutsche Telekom, Coinbase and Andreessen Horowitz.”

Central Bank of Nigeria to Launch CBDC Speed Wallet

The Central Bank of Nigeria (CBN) reportedly has sent a presentation to Nigerian banks about the e-Naira central bank digital currency (CBDC) project. The CBDC, which will not be renumerated, will run on a Hyperledger Fabric DLT platform, and users will access it with the CBN’s three-tier Speed Wallet. The first tier, which does not require users to have a bank account, will require users to register their phone number validated as a National Identity Number (NIN) and has a daily send/receive limit of N50,000 (about $120) and a maximum balance of N300,000 ($730). Tier Two wallet users, who must have a bank account and Bank Verification Number (BVN), will be able to send and receive N200,000 ($485) and hold up to N500,000 ($1,200). The third Tier allows daily transactions up to N1,000,000 ($2,430) with holdings limited to N5,000,000 ($12,150).

Amazon Taps Affirm to Offer BNPL Payment Option at Checkout

Amazon is testing Affirm’s are testing “buy now, pay later” (BNPL) payment platform firm with select customers, and plans to make Affirm more broadly available to its customers in coming months. On the platform, customers are told the total cost of the transaction up front and have the option to split the total cost of purchases of US$50 or more into simple monthly payments at checkout. There are no late or transaction fees.

Kiffmeister’s #Fintech Daily Digest (08/29/2021)*

August 29, 2021 ~ kiffmeister

Ethereum’s Blockchain Split in Two

Last week, Ethereum’s blockchain has split in two from a bug in a previous version of the chain’s main node software. The software, known as Geth, makes up roughly 75% of Ethereum nodes and as much as 73% of Geth nodes have yet to update to the new version to fix the bug. That meant that around 50% of Ethereum nodes were running a split-off chain with out-of-date and bugged software that could allow double-spends. However, it had little impact as most of the miners had already switched to updated versions of Ethereum software. It seems that it was mostly non-mining nodes that had yet to make the switch to the new version of the software.

Private Digital Currency and Monetary Sovereignty

This paper by the Bank of Canada’s Scott Hendry and Yu Zhu confirms the validity of central bank concerns that wide adoption of a private digital currency and decline in the use of central bank money may undermine monetary sovereignty. The analysis is based on a theoretical model in which fiat money and the digital currency differ in the types of transactions that they can serve, with the latter dominating in online transactions. Although the central bank wants to maintain the value of the fiat money by keeping low inflation in case households want to use the fiat money for transactions, a welfare-maximizing central bank would also want to encourage households to use e-money for transactions where e-money has an advantage. This can be achieved by raising inflation of fiat money since it is a substitute for e-money, and the incentive to raise inflation would dominate if the usage of fiat money was sufficiently low. However, if the use of the central bank money becomes sufficiently low, this leads to high inflation and low welfare. The paper concludes that, to defend monetary sovereignty, the central bank should maintain or expand the use of central bank money, for example, by offering a central bank digital currency (CBDC) designed to be a perfect substitute for the private e-money.

Avanti Applies to Become a US Federal Reserve Member Bank

Wyoming-based Avanti Financial Group has filed an application to become a Member Bank of the Federal Reserve. This membership application is different from Avanti’s prior application to obtain payment system access from the Federal Reserve via a master account, which Avanti filed in October 2020 and which remains pending. Avanti meets the requirements for both membership and payment system access, and with this latest application, Avanti becomes the first digital asset bank to seek formal regulation by the Federal Reserve in addition to its existing regulator, the Wyoming Division of Banking.

Banco de Reserva del Perú on Central Bank Digital Currency

Banco de Reserva del Perú has apparently been studying CBDC since at least 2019. “Central banks must continue with the analysis, both conceptual and technological, in order to be prepared for eventual changes in the conditions they face regarding the conduct of monetary policy in the future. It is essential to continue with the study and analysis of the potential effects of the issuance of a digital currency, as well as learning from the experiences of other countries on the subject.” I’ve added Peru to my tabulation of retail CBDC explorers.

Kiffmeister’s #Fintech Daily Digest (08/27/2021)*

August 27, 2021 ~ kiffmeister

Cuba to Recognize and Regulate Crypto on the Island

A Cuban government resolution published in the Official Gazette said the central bank can authorize use of cryptocurrencies “for reasons of socioeconomic interest”, set rules for such currencies and determine how to license providers of related services within Cuba.

Kiffmeister’s #Fintech Daily Digest (08/26/2021)*

August 26, 2021 ~ kiffmeister

Controversial crypto rules remain in infrastructure bill after House vote

Controversial new US crypto-asset tax requirements are likely to become law through the bipartisan infrastructure bill. The crypto-asset community rallied to fix the language, but the House voted to proceed with the bill as is, moving forward without any new amendments or opportunities to change it. The deal made to move the bill through the House of Representatives prohibits any new amendments from being considered unless the House approves a new rule that would allow them.

According to Coindesk, the new requirements come from the U.S. Treasury Department looking to clarify its authority to impose tax-reporting requirements on crypto exchanges and certain decentralized exchanges (DEXs). Specifically, Treasury appears to want to capture DEXs that have intermediaries as part of their platforms, rather than true peer-to-peer projects.

UK’s FCA says it is ‘not capable’ of supervising crypto exchange Binance

The UK Financial Conduct Authority (FCA) said it is “not capable” of properly supervising Binance despite the “significant risk” posed by the cryptocurrency exchange’s leveraged products. Binance’s UK affiliate had “failed to” respond to some of its basic queries, making it impossible to oversee the sprawling group. The FCA said that Binance’s “complex and high-risk financial products” posed “a significant risk to consumers”, and that one of Binance’s London-based affiliates had supplied insufficient information on the wider group’s products offered in the UK, as well as other business details.

Kiffmeister’s #Fintech Daily Digest (08/25/2021)*

August 25, 2021 ~ kiffmeister

Thai SEC proposes new rules for digital asset custodians

The Thai Securities and Exchange Commission is seeking public comments on additional amendments to the regulations on custody of clients’ assets in digital asset businesses, which includes keeping custody of fiat money and seeking benefits from the clients’ assets for the clients’ interest. They look to prohibit crypto companies from using investor assets for the “benefit of another client or other persons,” or seeking benefits from both investors’ fiat money and digital assets, including digital lending to other persons. “Seeking benefits from clients’ fiat money shall be prohibited except in the form of deposit with commercial banks”.

The Impact of Fintech on Central Bank Governance

This IMF paper reviews how central banks have been reacting to the challenges posed by fintech to the legal foundations of their governance. It finds that fintech calls for reconsidering the adequacy of the legal formulation of currency issuance and payment systems functions and powers. Fintech may impact the functional autonomy for some key central bank functions. For example, the role claimed by governments in designing CBDC will be an important issue to consider; the legal framework will need to carefully delineate the respective roles and responsibilities between the government and the central bank. The authors suggest that central bank law reform must be sufficiently broad to achieve appropriate levels of “agility” to provide a “future-proof ” legal framework. For instance, legislation (and by extension the legal framework to which the central bank is subject) should to the maximum extent possible be technology-neutral.

Facebook Rolls Out Birthday Gifting Via Facebook Pay

Facebook is launching a new birthday gifting option using Facebook Pay. Messenger users in the U.S. can send and receive cash gifts directly through the chat platform. Gift recipients will be notified via Messenger and on Facebook with their virtually wrapped gift message and balloons. Once users confirm their Facebook Pay information, the cash gift will be instantaneously deposited into the recipient’s bank account.

Klarna’s losses soar as credit defaults double

Credit losses at Klarna, the Swedish “buy now, pay later” company, more than doubled in Q2 2021. Klarna said that credit losses tended to increase when it entered new markets such as recent launches in New Zealand, France, and Spain. It added Poland last week. Klarna has faced controversy in some countries as critics have argued it encourages younger people to spend money that they do not necessarily have and then pay back in instalments. Klarna positions itself as an alternative to credit cards and their high rates that drive economic inequalities, with those who can afford to pay off their balances each month reap rewards through loyalty schemes while those who can’t afford to simply get into more debt.

Kiffmeister’s #Fintech Daily Digest (08/24/2021)*

August 24, 2021 ~ kiffmeister

Paxos is rebranding its stablecoin from PAX to USDP

Paxos is rebranding its stablecoin from Paxos Standard (PAX) to Pax Dollar (USDP) so it is more easily identifiable as a US dollar-backed token. The updated USDP smart contract will go live on August 31, 2021. PAX has always maintained reserves that are 100% cash or cash equivalents, which for Paxos means short-term Treasury bills.

India leads real-time payments, study shows

“A recent report by EIU (The Economist Intelligence Unit) found that India is leading the real-time payments market, followed by China and South Korea. In terms of the mobile payment market, China leads instead, followed by India. Following the success of India’s UPI, several countries are currently in the process of building instant real-time payment platforms. Brazil, for example, debuted its fast payment Platform, Pix, in late 2020. In early 2021, Saudi Arabia unveiled its new version of the instant-payments platform, Sarie, which facilitates a quick transfer of funds using various methods of identification, including mobile numbers and email addresses.”

El Salvador rolls out 200 Bitcoin ATMs ahead of nationwide adoption

El Salvador’s government is rolling out 200 ATMs and preparing 50 bank branches across the nation to allow residents to exchange crypto for fiat easily, in preparation for adopting Bitcoin (BTC) as legal tender. Those not interested in using BTC will be able to exchange the BTC for cash at any of those locations. The U.S. dollar will continue to be in circulation. El Salvador has also created the Chivo crypto wallet that would be compatible with the new ATMs and would be interoperable with any existing crypto wallet.

Poly Network hackers return remaining stolen assets

The Poly Network crypto thieves released the last key to the remaining funds of 28,953 Ether and 1,032 Wrapped Bitcoin tokens, worth approximately $141 million, on Monday. The company is in the process of returning full asset control to users, although $33 million worth of Tether tokens frozen post-attack are still immovable.

Deloitte’s 2021 Global Blockchain Survey

Deloitte’s 2021 Global Blockchain Survey found that 76% of executives globally think digital assets will be a “strong alternative to or replacement for” fiat in the next five to 10 years. 78% of respondents said that digital assets will be important to their industry in the coming 24 months. The survey of 1,280 senior executives and practitioners was conducted March 24 through April 10. One-third of respondents were based in the U.S., with the rest in Brazil, China, Germany, Hong Kong, Japan, Singapore, South Africa, the UAE and the U.K.

Kiffmeister’s #Fintech Daily Digest (08/23/2021)*

August 23, 2021 ~ kiffmeister

Circle Stablecoin to Be Held ‘Entirely’ in Cash, US Treasuries

The Centre Consortium announced that USD Coin (USDC) stablecoins will only be backed by cash and U.S. Treasury Bills. Centre oversees which entities are allowed to issue the stablecoin and use its API. In July, its parent company Circle, which issues the USDC, revealed that USDC was only 61% backed by cash (including money market funds) and cash equivalents (high-quality short-term fixed income securities). The July attestation report showed that reserves included Yankee Certificate of Deposit (13%), commercial paper (9%), corporate bonds (5%) and municipal bonds and U.S. Agencies (0.2%).

PayPal to enable cryptocurrency services for UK customers

PayPal announced plans to enable UK customers buy, hold, and sell Bitcoin, Ethereum, Litecoin and Bitcoin Cash, starting this week. By accessing their PayPal account via the website or the mobile app, they can view real-time crypto prices, access educational content to help answer commonly asked questions, and learn more about cryptocurrencies, including the opportunities and risks.

Kiffmeister’s #Fintech Daily Digest (08/21/2021)*

August 21, 2021 ~ kiffmeister

VanEck, ProShares Abruptly Withdraw Ether Futures ETF Proposals

Less than two days after submitting separate applications to the US Securities and Exchange Commission (SEC) for ETH-based exchange-traded funds (ETFs), VanEck and ProShares withdrew the applications. Bloomberg Senior ETF Analyst Eric Balchunas speculated that the abrupt withdrawals could mean that the SEC spoke to both firms and told them they were unlikely to approve an ETF futures fund.

Payments In Chaos: Do We Need Cash In Case Of Disasters?

“The key lesson from disasters is not that we should keep cash but that what we should have in place is a means to P2P payments in the absence of mobile networks, electricity and clearing systems. I don’t want to labor the point about the unsuitability of blockchain-based payments for general purpose cash replacement, but this seems to me to reinforce a critical design characteristic for central bank digital currencies: they must be able to work offline.”

Kiffmeister’s #Fintech Daily Digest (08/20/2021)*

August 20, 2021 ~ kiffmeister

I’ve updated my tabulation of retail central bank digital currency (CBDC) explorers. No big changes. Just updated links and some shuffling of some projects into the more “active” categories.

SEC Chairman Says DeFi Projects ‘Have a Lot of Centralization‘

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said that while the SEC remains neutral on the innovative technology involved in Bitcoin and DeFi, he is concerned about the risks that the sector poses to investors. He argues that some decentralized platforms “actually have a lot of centralization” and that crypto projects should register their products with the regulatory agency. “This field is not going to reach any of its potential if it tries to stay outside of our laws.”

Calling Poly Network incompetent, upset hackers refuse to give back remaining $141M

“The Poly Network hackers have returned assets worth around $427 million, but hackers accused the company of “incompetency” and are refusing to give back the remaining $141 million.”

Month: August 2021

Kiffmeister’s #Fintech Daily Digest (08/31/2021)*