Day: August 10, 2021

Kiffmeister’s #Fintech Daily Digest (08/10/2021)*

~ kiffmeister

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

In previous posts I’ve discussed what is and isn’t a retail #CBDC and in this post I extend the discussion to wholesale CBDC and launch a new tabulation of wCBDC experiments. Basically I conclude that when people say “wholesale CBDC” they really mean “distributed ledger technology (DLT) based wholesale CBDC, because wholesale CBDC itself is no novelty. And here’s the link to the “live” version of my tabulation of wholesale CBDC experiments. Please let me know if I’m missing or misrepresenting any. https://kiffmeister.blogspot.com/2021/08/dlt-based-wholesale-cbdc-experiments.html

Bank of Jamaica Mints First Batch of Central Bank Digital Currency

The Bank of Jamaica (BOJ) minted Jamaica’s first batch of central bank digital currency (CBDC). A total of J$230 million in CBDC will be issued to deposit-taking institutions and authorized payment service providers during the CBDC pilot exercise which ends in December. Minister of Finance and the Public Service, Nigel Clarke, said that legislative amendments to accompany CBDC will be in place before March 31, 2022, the end of the current fiscal year. 

Crypto compromise dies in the Senate due to last-minute defense spending proposal

“A late-game attempt to make changes to controversial cryptocurrency tax reporting requirements included in the Senate’s infrastructure bill died [when it didn’t get the required unanimous consent]… Alabama Senator Richard Shelby motioned to add his own amendment to the broader infrastructure bill: a $50 billion earmark for defense. The combined package was subsequently shot down by an objection from Bernie Sanders… The Senate is expected to vote today on a final bill, which will then need to go through the House.” 

The bill that will go the House will include the contentious tax reporting provision that will expand the definition of “brokers” to include those dealing in digital assets, such as miners, validators, wallet providers, and DeFi protocol developers. Senators Ron Wyden, Cynthia Lummis, and Pat Toomey had offered an amendment that would exempt non-custodial actors. That was followed by a competing amendment from Senators Mark Warner and Rob Portman that would only explicitly exempt proof-of-work miners and wallet providers from the requirement. That was followed yesterday by the compromise amendment that was ultimately shot down. 

Hackers stole at least $600M in Poly exploit across three chains

Hackers allegedly breached blockchain-based platform Poly Network and extracted more than $600 million in cryptocurrencies, marking the biggest hack ever in the decentralized finance space. The network said it would be pursuing legal action against the hackers and urged them to return the pilfered funds. It also requested that miners on the aforementioned chains and crypto exchanges blacklist tokens coming from the affected addresses.

*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. 

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

~ kiffmeister ~ 4 Comments

In a previous post I discussed what is and isn’t a retail central bank digital currency (rCBDC): A broadly available general purpose digital payment instrument, denominated in the jurisdiction’s unit of account, that is a direct liability of the jurisdiction’s monetary authority, and subject to the same rules and regulations as imposed on the jurisdiction’s other units of account. The gist of this is summarized in the following table.

I then went on to describe wholesale central bank digital currency (wCBDC) as being like an rCBDC, but being restricted to wholesale, financial market payments. But some will notice that I never mentioned the technology platform – whether it runs on a centralized or decentralized ledger, or whether there is even a ledger at all (i.e., “token” based). And that’s because discussions around rCBDC are generally agnostic about the platform type. However, it’s my sense that that is not the case for wCBDC.

And that may be because wCBDC is not really anything new. For example, a 2018 IMF staff discussion note characterized central bank reserves as a “wholesale form of CBDC used exclusively for interbank payments” which has been around for ages. And in 2020, ECB legal staff noted that “the issuance by central banks of digital liabilities and the corresponding holding, by third parties, of intangible money claims against the balance sheet of the digital liability-issuing central bank would not represent a genuine novelty.”

And a 2020 paper that surveyed wCBDC research found that “the overarching motivation for CBDC research by CBs is to assess the impact of distributed ledger technology (DLT) on financial market infrastructures (FMIs). Which all implies to me that when people say “wholesale CBDC” they really mean to say is “distributed ledger technology (DLT) based wholesale CBDC. This may be a trivial discussion but when we say “retail CBDC” we encompass all platforms (centralized, distributed and token-based) and as everyone knows I’m a stickler on definitions!

And although I don’t follow wholesale CBDC developments closely, I’ve tabulated below the experiments that have popped up in my Daily Digest. If I’ve missed any, please let me know in the comments! FYI I plan to keep the table updated on my Kiffmeister Chronicles blog. That’s also the best version of the table to use if you want to follow the live links in the “references” section.