Kiffmeister’s #Fintech Daily Digest (09/30/2021)

The BIS and seven advanced economy central banks explore what a retail CBDC might look like

The Bank for International Settlements (BIS) and seven advanced economy central banks published three reports intended to build a global consensus for the design and development of a retail central bank digital currency (CBDC). A CBDC robustly meeting the foundational principles envisaged by this group could be an important instrument for central banks to enhance financial stability, harness new technologies and continue serving the public. However, CBDCs would likely have wide-ranging impacts on policy issues beyond a central bank’s traditional remit, so broad engagement and cooperation will play a key role in central banks’ CBDC deliberations. Also:

  • A CBDC system would should involve both public and private actors to ensure interoperability and coexistence with the broader payment system.
  • CBDCs would have implications for financial intermediation and would need careful design and implementation; but the analysis suggests the impacts on bank disintermediation and lending could be manageable for the banking sector. 
  • International cooperation on CBDC could provide an avenue for improving cross-border payments.

New Zealand central bank consults on retail central bank digital currency

The Reserve Bank of New Zealand published a discussion papers seeking public feedback to assess retail CBDC use cases. The central bank emphasized that a potential New Zealand CBDC would be digital money issued by the bank alongside cash. The central bank notes that while the amount of cash in circulation has been growing in New Zealand, it is still used “proportionately less for transactions by most people. [Read more] ” 

Visa develops interoperability concept for central bank digital currency payments

Visa published a paper on its “universal payments channel” (UPC) that will facilitate transactions between various stablecoins and central bank digital currencies (CBDCs). Specifically, it proposes a hub-and-spoke payment route that can be used to support digital token transfers of funds across different networks through payment channels. The UPC protocol facilitates payments through a “UPC hub” that  acts as a gateway to receive payment requests from registered sending parties and routes them to registered recipient parties. [Read more]  

ISDA Takes First Steps to Crypto Derivatives Standards

The International Swaps and Derivatives Association (ISDA) has established a new digital asset legal and documentation working group. As it stands, institutions trading digital asset derivatives typically use an amended version of existing ISDA definitions and templates or entirely bespoke documentation they’ve developed internally. That’s not ideal: it results in a lack of standardization that may ultimately hamper transparency and liquidity and lead to higher levels of risk. The new working group will focus on developing specific legal standards for crypto derivatives, in the same way there is for interest rate, FX, equity, credit and commodity derivatives. [Read more

Big tech regulation: what is going on?

The Bank for International Settlements (BIS) published a paper on the additional regulatory responses that might be needed to comprehensively address big tech risks and achieve policy consistency at the international level. Although recent initiatives in China, the EU and the US constitute important steps in the right direction, if big techs continue to gain prominence in the financial system, additional policy responses might be necessary. It is also very likely that new policy actions will largely need to follow an entity-based approach and require close cooperation between competition, data and financial authorities. Moreover, given the cross-border scope of big tech activities, enhanced international regulatory cooperation is essential. [Read more

Enabling open finance through APIs: report on payment initiation

The BIS also published a report that summarizes the analysis conducted by the Technical Task Force (TTF) of the Consultative Group on Innovation and the Digital Economy (CGIDE) on the solutions available for payment initiation within a centralized application programming interface (API) architecture. [Read more]

Pandemic sparks evolutionary year for Canadian payment landscape

Payments Canada published its annual Canadian Payment Methods and Trends 2021 report, which analyzed 20 billion payment transactions made in 2020, totaling $9.4 trillion, and discusses trends that are transforming the Canadian payment landscape. It confirmed that the Covid-19 pandemic further accelerated migration to digital and contactless payments and growth in online transfers, with a decline in cash and checks. Credit cards remain the most used payment method, followed by debit cards. [Read more]  

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October 4-6 CBDC Conference

On October 4 I’ll be providing an overview of international work on retail CBDC and evolving thinking on motivations, system design and safeguards at The CBDC Conference. You can register for this and the full three-day (October 4-6) event here: