The Central Bank of Nigeria (CBN) announced that it will launch its eNaira central bank digital currency (CBDC) on Monday, October 24. The launch had been originally scheduled for October 1, but it was delayed in deference to other key activities lined up to commemorate the country’s 61st Independence Anniversary. However, Nigerians have been able to download the eNaira app from either the Google Play or Apple App stores since late September. The CBN also published a white paper that provides detail on the eNaira’s critical dimensions. [Read more]

Virtual Assets and Anti-Money Laundering and Combating the Financing of Terrorism

The IMF published two papers aimed at assisting countries in their understanding and mitigation of the money laundering (ML), terror financing (TF), and financing of the proliferation of weapons of mass destruction (PF) risks related to virtual assets (VAs). The first paper explains why VAs are vulnerable for misuse for ML/TF/PF purposes and clarifies which assets and service providers should be subject to anti-money laundering and combating the financing of terrorism (AML/CFT) measures. It discusses the measures that all countries should take, and the type of action necessary in instances of criminal misuse of VA. The second paper focuses on the AML/CFT regulatory and supervisory framework for virtual asset service providers (VASPs), and discusses the necessary AML/CFT measures and provide examples of practical solutions to implement them. [Download the first paper here and the second here]

A Smart Solution to Advance Consumer-Centric Payments Innovation in America

This opinion piece suggests that the US Congress create a national “payments passport” by allowing money transmitters with at least 40 state licenses to obtain limited access to the payments system, provided they are subject to Federal Reserve regulatory standards and supervision tailored to payments services. State-based licensing and supervisory authority would remain in place, while the Federal Reserve would be empowered to ensure the safety, soundness, and integrity of its own payments system. This framework could also include tailored parent company oversight to protect safety and soundness and be limited to firms whose activities are predominantly financial in nature. And such payments companies would directly originate, clear, and settle payments, but lack access to broader Fed services. They would not be granted full banking powers, limiting the threat to community banks, while the preservation of state-based consumer protections would ease consumer advocates’ concerns. [Read more]

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October 23, 2021January 25, 2022 ~ kiffmeister

RBA is exploring wholesale CBDC applications to securities DVP settlement

The Reserve Bank of Australia (RBA) revealed, in its submission to the Australian Senate Select Committee on Financial Technology and Regulatory Technology, that it has been conducting research on wholesale CBDC, in its in-house Innovation Lab. This included the development in 2019 of a limited proof-of-concept of a distributed ledger technology (DLT) based interbank payment system using a tokenized form of CBDC backed by exchange settlement account balances held at the RBA. Currently, the RBA is close to finalizing a project with a number of external parties that extends the earlier proof-of-concept in a number of ways, including to incorporate tokenized financial assets. The project explores the implications of delivery-versus-payment (DVP) settlement on a DLT platform as well as other programmability features of tokenized CBDC and financial assets. [Read more]

Kiffmeister’s #Fintech Daily Digest (10/22/2021)

October 22, 2021January 25, 2022 ~ kiffmeister

The open-source CBDC Tracker has been updated to add the following countries that have announced central bank digital currency (CBDC) projects: Chile, Hong Kong, Honduras, Guatemala, Laos and Bhutan. We’ve also provided updated information for Georgia, Turkey, New Zealand and the United Kingdom. If you would like to become part of our CBDC Tracker Community, please join our Telegram group via the following link: https://t.me/joinchat/zyy_CB7AEMtkODlk.

Jamaica’s central bank targets large merchants for digital wallets

The Bank of Jamaica’s push to deepen the mobile money market forms part of the central bank’s CBDC drive to reduce cash usage. Governor Byles reportedly appealed to banks and other deposit-taking institutions to encourage their merchant customers to set up CBDC wallets. In particular, he wants to see cash-intensive industries to set up digital wallets to pay pensioners, enable toll road payments, and facilitate remittance flows. The test phase of the Jamaica CBDC, to assess the smoothness of transactions and get a read on the potential market receptivity to a digital currency, is under way and should wrap up by year end, with a public roll-out scheduled soon after. [Read more]

First Bitcoin ETF Is Already in Danger of Breaching a Limit on Futures Contracts

The ProShares Bitcoin Strategy ETF is on track to reach a limit on the number of futures contracts it’s allowed after quickly becoming a little too popular. After just a couple of days of trading, the ProShares ETF has reached 1,900 contracts sold for October and there is 2,000 front-month limit imposed by the Chicago Mercantile Exchange. There are already 1,400 contracts for November and there is an overall maximum limit of 5,000 open contracts. [Read more]

Walmart installs 200 Bitcoin ATMs across the US

Walmart has partnered with coin-cashing machine company Coinstar and crypto-cash exchange CoinMe to set up a pilot of 200 Bitcoin ATMs in its stores across the US. The wider launch aims to eventually see the installation of 8,000 bitcoin ATMs across the country. These Bitcoin ATMs have an 11% surcharge, consisting of a 4% fee for the Bitcoin option, and an extra 7% cash exchange fee. In comparison, popular cryptocurrency trading platforms Coinbase and Binance charge 3.99% and 3% to 4.5% for credit and debit card purchases respectively. [Read more]

Kiffmeister’s #Fintech Daily Digest (10/21/2021)

October 21, 2021January 25, 2022 ~ kiffmeister

Bank of England mulls CBDC models in technology engagement forum

The Bank of England published the minutes of its first central bank digital currency (CBDC) Technology Forum meeting held on September 28, 2021. The Forum consists of senior stakeholders from industry, civil society and academia to gather strategic input on policy considerations and functional requirements pertaining to the practical challenges of designing, implementing and operating a CBDC. The meeting featured a discussion around alternative “platform” models for CBDC provision. In one model, the Bank would hold a record of every payment amount, and in another, it might just record the gross transactions with payment service providers (PSPs) in a ‘pooled model’. And they discussed a variant of the pooled model to allow delayed net settlement by the PSPs, even though customer payments would be real-time. Some meeting attendees suggested an alternative anonymous cash-like model without either the PSPs or the Bank keeping a ledger. However, other members queried the feasibility of this approach, both in terms of the viability of the technology, and in relation to resilience, and prevention of tampering and “double spending” of CBDC units. [Read more]

The Second U.S. Bitcoin ETF Is Set to Start Trading Friday

The Valkyrie Bitcoin Strategy fund will begin trading on the Nasdaq exchange on October 22, following the wildly successful debut of the ProShares Bitcoin Strategy ETF (ticker BITO), which accumulated more than $1.1 billion in assets in just two days of trading. [Read more]

Kiffmeister’s #Fintech Daily Digest (10/20/2021)

October 20, 2021January 25, 2022 ~ kiffmeister

Statement from Diem Regarding Congressional Interest in the Diem/Novi Project

Facebook’s Novi launched its retail payment app yesterday (October 19) going with Paxos’ USDP stablecoin as its transactional currency while it awaits regulatory approval for its own Diem stablecoin. However, almost immediately, US Senate Democrats addressed a letter to Facebook CEO Mark Zuckerberg questioning the company’s credibility with crypto, and calling for the immediate discontinuance of the Novi pilot and a commitment not to bring Diem to market. Diem replied by clarifying that Diem is an independent organization with Facebook’s Novi being just one of more than two dozen members of the Diem Association, so that Novi’s pilot with Paxos is unrelated to Diem. The response went on to say that “When Diem comes to market [it] will do so having reflected the feedback of regulators from around the world and with confidence that Diem’s payment system is secure, will protect consumers, and will combat financial crime.” [Read more]

Platform-based business models and financial inclusion

A Bank for International Settlements (BIS) paper addresses policy implications of incumbent financial institutions adopting platform-based business models. Digital platforms can dramatically lower costs and thereby aid financial inclusion, but these same features can give rise to digital monopolies. Platforms operate in multi-sided markets, and rely crucially on big data. This leads to specific network effects, returns to scale and scope, and trade-offs between efficiency and competition, financial stability and market integrity, and data privacy and consumer protection. To reap the benefits of platforms for financial inclusion while mitigating risks, policy makers can choose to: (i) apply existing financial, antitrust and privacy regulations, (ii) adapt old and adopt new regulations, combining an activity and entity-based approach, and/or (iii) provide new public infrastructures such as digital identity and retail fast payment systems. The paper argues that ex-ante competition rules, data portability and public infrastructures are particularly promising. [Read more]

Kiffmeister’s #Fintech Daily Digest (10/19/2021)

October 19, 2021January 25, 2022 ~ kiffmeister

Quote of the day from Noelle Acheson, Head of Market Insights at Genesis Trading: “digital money is great except for when they decide to switch it off for a while”, as M-Pesa shuts down for four hours for scheduled maintenance! Systemically important payment systems must have offline rails!

ProShares Bitcoin-linked ETF launches on NYSE

ProShares’ Bitcoin Strategy ETF, the first Bitcoin U.S. futures-linked exchange-traded fund (ETF) began trading on the New York Stock Exchange. The addition of the crypto fund to a major stock exchange follows years of deferred decisions from the Securities and Exchange Commission (SEC). [Read more] Also, Grayscale Investments announced that NYSE Arca has filed with the SEC to convert its Grayscale Bitcoin Trust flagship product into a Bitcoin Spot ETF. However, despite the SEC’s allowance of a futures-based ETF, it has yet to let a spot ETF through, citing concerns of market manipulation in spot venues. But Grayscale argues that if a regulator is comfortable with a derivative, it follows that it must be comfortable with the underlying asset.

Pilot version of Facebook’s Novi digital wallet app now available

Facebook’s Novi digital wallet app is being rolled out a small pilot in the United States and Guatemala. With it, people can send and receive money instantly, securely, and with no fees. It will use the Pax Dollar (USDP) stablecoin through partnerships with Paxos and Coinbase. A small cohort of users in both countries will be able to download the Novi app on iPhone or Android devices, sign up with valid government-issued ID, and add money to their accounts with a debit card. According to CEO David Marcus, USDP was chosen because it’s been operating successfully for over three years and has important regulatory and consumer protection attributes. He also made it clear that Novi’s support for the larger-scale Diem project hasn’t changed and they intend to launch Novi with Diem once it receives regulatory approval and goes live. [Read more]

Tether’s bitcoin-backed lending clashes with dollar promise

“The CEO of crypto lending platform Celsius Network has said that Tether lends out new USDT stablecoins in return for cryptocurrencies — a claim that calls further into question Tether’s founding promise that it uses only real dollars to issue its tokens. Celsius borrows USDT from Tether in return for well-known cryptocurrencies. New USDT is issued for such loans and later destroyed when the loan is closed so it does not permanently increase USDT in circulation. This flies in the face of the Tether operating model described in its whitepaper – issuance of USDT is supposed to be on a one-for-one basis against dollars. However a primer published in May 2021 says only that that ‘newly issued [USDT] must be backed by collateral’ and that ‘redeemed [USDT] tokens are not released back into circulation unless new collateral has been provided’.” [Read more]

NYAG in open war with crypto lenders

The New York Attorney General (NYAG) has sent two platforms cease and desist (C&D) orders and three other lenders inquiry letters this week. The NYAG appears concerned that New Yorkers can buy, sell, and loan crypto products illegally offered via various platforms. Two unnamed crypto lenders issued C&Ds will have a brief period of time — 10 to 14 days — to ensure that New Yorkers no longer have access to their products. [Read more]

China’s crypto investors get creative to bypass domestic trading ban

As more and more crypto exchanges have announced plans to stop registering mainland Chinese users and phase out existing users there, many investors on the mainland are reportedly making efforts to register companies overseas to bypass the know-your-customer (KYC) checks, which could allow them to trade crypto as corporations. Many vendors on Taobao, China’s major e-commerce marketplace owned by Alibaba, are taking the chance to provide intermediary services for those mainland investors. [Read more]

U.S. Treasury Says Crypto, Rival Currencies Risk Eroding Sanctions

The U.S. Department of the Treasury reported that U.S. adversaries have increasingly turned away from the U.S. dollar to facilitate their transactions as American sanctions seek to target everything from Iranian oil sales to individuals accused of human rights abuses. The report cited rising risks from new payment systems, and the advent of digital assets, and called for a more multilateral approach to sanctions policy at the Treasury, in order to keep up with changes in the global financial system. [Read more]

France tests CBDC issuance in treasury bond blockchain trial

A consortium of institutions led by Euroclear have completed a test run of the use of wholesale central bank digital currency (CBDC) for settling French treasury bonds on a blockchain. The experiment, using technology from IBM and commissioned by the Banque de France included Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, Societe Generale. The trial is part of a wider Banque de France initiative commissioned in March 2020, to test the integration of a central bank digital currency for the exchange and settlement of tokenised financial assets between financial intermediaries. [Read more]

El Salvador removes BTC price feed from Chivo app to crack down on arbitrage scalpers

“El Salvador’s government has moved to prevent users of its Chivo digital wallet from gaming the app’s price freeze feature to glean risk-free profits through arbitrage. Wallet users will be no longer be able to see the reference price provided for trades executed using the price freeze feature — which allows traders to retain the Bitcoin (BTC) price quoted by the app for up to one minute. Opportunistic traders have been using the price freeze feature to scalp for arbitrage across other cryptocurrency trading platforms globally during periods of significant price volatility for Bitcoin.” [Read more]

Ghana Seeks to Ensure E-Cedi Digital Currency Can Be Used Offline

The e-cedi, which the Bank of Ghana is set to pilot, reportedly seeks to facilitate transactions without the need for power or connectivity.” This is a core functionality of the Filia central bank digital currency (CBDC) platform of the Bank of Ghana’s technical partner G+D. [Read more]

Kiffmeister’s #Fintech Daily Digest (10/18/2021)

October 18, 2021 ~ kiffmeister

I’ve updated my tabulation of wholesale central bank digital currency (CBDC) experiments to add Hyperledger Besu to the technology platform used in the Bank for International Settlements Innovation Hub (BISIH) multi CBDC mBridge joint project (BISIH Hong Kong Centre, the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates).

Digital yuan’s anonymity is misunderstood, says China’s digital currency leader

Mu Changchun, the Director General of the People’s Bank of China (PBOC), clarified how the managed anonymity of China’s digital yuan works. Wallets come in multiple tiers, with small transaction value tiers supporting anonymity by requiring only a phone number as identity, but larger-value tiers requiring conventional proof of identity. Under China’s Personal Information Protection Law, the telecom companies cannot release identity information to any third parties, including the central bank. However, if it’s suspected that some anonymous transactions are illicit, law enforcement agencies can present a legal warrant to the phone company to get the user’s identity. Also, all wallets have a sub wallet function in which each merchant can have a separate wallet to avoid linking a person across merchants. [Read more]

ProShares announces Tuesday listing of bitcoin futures ETF $BITO

“ProShares announced it will launch its bitcoin futures-tied exchange traded fund (ETF) on October 19. On October 15, the firm filed a post-effective amendment prospectus stating its intention to list on October 18. Now, additional public documents say that ‘the Fund is scheduled to list and begin trading on the NYSE Arca on October 19, 2021.’ The ProShares Bitcoin Strategy ETF will trade under the ticker $BITO. It will invest mostly in bitcoin futures, though it will not directly invest in the cryptocurrency. The US Securities and Exchange Commission (SEC) has yet to approve a spot-based bitcoin ETF, and many proposals have been cast aside due to concerns of price manipulation in the bitcoin spot market.” [Read more]

Grayscale confirms Bitcoin ETF plans

Grayscale announced it will be converting its GBTC Trust into an ETF “once there’s official and verifiable evidence of the SEC’s comfort with the underlying Bitcoin market — likely in the form of a Bitcoin futures ETF being deemed effective — the NYSE Arca will file a 19b-4 to convert $GBTC into an ETF.” [Read more]

Klarna Adds Pay Now Option Following Complaints About BNPL Service

“Klarna announced the addition of the ability to “Pay Now” for UK customers alongside the option to Buy Now, Pay Later (BNPL). Klarna said it took these actions after being informed by the UK Financial Ombudsman Service (FOS) that complaints about BNPL products currently could not be referred to FOS on a voluntary jurisdiction basis. Klarna said it has established its own complaints adjudicator for consumers who remain dissatisfied with how a complaint against Klarna has been handled. Klarna addeed that it has worked with consumer group, Fairer Finance, to make sure that terms & conditions are easy to understand.” [Read more]

Kiffmeister’s #Fintech Daily Digest (10/16/2021)

October 16, 2021 ~ kiffmeister

CFTC Fines Tether and Bitfinex $42.5M for ‘Untrue or Misleading’ Claims

The US Commodity Futures Trading Commission (CFTC) fined Bitfinex and Tether more than $42 million on allegations that over a 26-month period between 2016 and 2018, the reserve funds backing its USDT stablecoin were comingled with the company’s corporate funds and held in non-cash products, relying on unregulated entities and certain third-parties to hold funds comprising the reserves. Tether confirmed that indeed the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times, contrary to what the firm had claimed during the period in question. [Read more]

US Treasury publishes new sanctions guidance for crypto businesses

The US Treasury Department Office of Foreign Asset Control (OFAC) released a new brochure with crypto-specific guidance on navigating U.S. sanction controls. It largely pushes the idea that OFAC expects virtual currency operators to shoulder the same responsibility for avoiding sanctions violations as other financial institutions. OFAC names a range of actors that must develop risk-assessment programs, including technology companies, exchangers, administrators, miners, and wallet providers, as well as more traditional financial institutions that may have exposure to virtual currencies or their service providers. [Read more]

Kiffmeister’s #Fintech Daily Digest (10/15/2021)

October 15, 2021 ~ kiffmeister

SEC Set to Allow Bitcoin Futures ETFs as Deadline Looms

“The US Securities and Exchange Commission (SEC) is reportedly poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading. Unlike Bitcoin ETF applications that the regulator has previously rejected, the proposals by ProShares and Invesco Ltd. are based on futures contracts and were filed under mutual fund rules that SEC Chairman Gary Gensler has said provide significant investor protections.” [Read more]

Kiffmeister’s #Fintech Daily Digest (10/14/2021)

October 14, 2021 ~ kiffmeister

G7 Public Policy Principles for Retail Central Bank Digital Currencies

The G7 published a set of public policy principles for retail central bank digital currency (CBDC) alongside a G7 Finance Ministers and Central Bank Governors’ Statement on CBDCs and digital payments. The principles explored in the report are divided into two categories:

Foundational issues cover monetary and financial stability; legal and governance frameworks; data privacy; competition; operational resilience and cybersecurity; illicit finance; spillovers; and energy and environment.
Opportunities focus on supporting the digital economy and innovation; financial inclusion; payments to and from the public sector; cross-border functionality; and international development.

The final section discusses the concept of dependencies that may be encountered in designing a retail CBDC ecosystem, for example, interactions between protecting users’ privacy and countering illicit finance. The report seeks to highlight some of the design choices that these dependencies might imply and offers some considerations on how to approach these complex issues. [Read more]

More specifically, CBDC should be committed to transparency, the rule of law and sound economic governance, and not undermine the ability of central banks to fulfil their mandates for monetary and financial stability. The report emphasizes the importance of rigorous standards of privacy, accountability for the protection of users’ data, and transparency on how information will be secured and used, to command trust and confidence by users. Also, any CBDC ecosystem must be secure and resilient to cyber, fraud and other operational risks, must address illicit finance concerns and be energy efficient. CBDCs must operate in an open, transparent and competitive environment that promotes choice, inclusivity and diversity in payment options. It notes the importance of considering interoperability on a cross-border basis given the potential role for CBDCs in enhancing cross-border payments. At the same time, the report recognizes a shared responsibility to minimize harmful spillovers to the international monetary and financial system. [Read more]

Month: October 2021

Kiffmeister’s #Fintech Daily Digest (10/24/2021)