The New York Fed launched the New York Innovation Center (NYIC), to advance a strategic partnership with the Bank for International Settlements (BIS) Innovation Hub. As part of the New York Fed, the NYIC is collaborating with the Federal Reserve System, the BIS Innovation Hub, and public and private sector experts to validate, design, build, and launch new financial technology products and services for the central bank community. [Read more]

Bank Indonesia Mulls Digital Currency as a Way to ‘Fight’ Crypto

Bank Indonesia has reportedly been considering issuing a central bank digital currency (CBDC) since the start of 2021, as a tool to fight crypto, according to Juda Agung, an assistant governor at the central bank. He spoke in parliament while undergoing a fit-and-proper test to be named deputy governor. “We assume that people would find CBDC more credible than crypto. CBDC would be part of an effort to address the use of crypto in financial transactions.” [Read more]

ASX starts tests of blockchain post trade solution, but regulator is watching

Australian stock exchange ASX unveiled the first iteration of its Industry Test Environment (ITE1) for its blockchain post-trade solution CHESS. The solution uses Digital Asset’s DAML smart contract language and VMWare’s Blockchain. While today’s announcement is for developers, end users will access another iteration of the test environment from April 2022, with an April 2023 planned launch date. [Read more]

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Upcoming Virtual Conferences at Which I’m Speaking:

1st Annual Central Bank Conference on Development Economics in the Middle East and North Africa

I’ll be moderating a session on CBDC at the “1st Annual Central Bank Conference on Development Economics in the Middle East and North Africa”, hosted by the World Bank and the Central Bank of Tunisia tomorrow (December 1) from 10:30am to noon (ET). [Register here (it’s free!)]

2021)

November 29, 2021 ~ kiffmeister

Bank of Israel accelerating preparations for digital currency

The Bank of Israel is accelerating its study, research and preparation for the possible issuance of a digital shekel aimed at creating a more efficient payments system. Governor Amir Yaron said that, similar to other central banks, the Bank of Israel had not yet decided whether it will issue central bank digital currency (CBDC) and was still examining the issue. “Central banks have a unique role to play in preventing fragmentation and ensuring that the payment system becomes even more uniform and efficient. One way to do this is through CBDC.” [Read more]

What is the Value Proposition of Stablecoins for Financial Inclusion?

A new World Economic Forum white paper investigates the benefits and limitations of stablecoins for supporting financial inclusion in historically excluded or underserved populations. It concludes that, overall, stablecoins do not present features or capabilities that significantly reduce barriers to financial inclusion compared to pre-existing options, once accounting for consistent legal and compliance requirements. Stablecoins are subject to many of the same adoption and inclusion hurdles as other forms of retail finance, such as reliable internet and electricity, digital and financial literacy, and government identity documentation. [Read more]

Making digital currency interoperable

VISA’s research and product teams are working on a universal payment channel (UPC) initiative, a blockchain interoperability hub that connects blockchain networks and allows for transfers of digital assets. The UPC hub would connect different blockchain networks by establishing dedicated payment channels between them — whether that means connecting CBDC networks between countries or connecting CBDC networks with vetted private stablecoin networks. New, trusted blockchains could easily be added to the network of networks by creating new payment channels within the UPC hub. [Read more]

‘Buy now, pay later’ is booming. But companies are facing pressure to change

While “buy now, pay later” (BNPL) can offer benefits compared to credit cards, there are lurking issues that could present challenges to the companies this holiday shopping season. In complaints to the U.S. Consumer Financial Protection Bureau, consumers have said that they’ve had problems with purchases, either because they couldn’t make a return or get a refund, or got charged with fees they didn’t understand. Right now, BNPL is not regulated in the way that credit cards are in the United States. That means there are no standards for disclosures on fees, amounts owed, credit reporting and payments. Even the due dates of payments are not as clear as a credit card with a consistent payment date. The U.K. and Australia, where BNPL has taken off even faster than in the United States, have placed these products under a regulatory regime. U.S. regulators are likely to follow suit. [Read more]

Upcoming Virtual Conferences at Which I’m Speaking:

1st Annual Central Bank Conference on Development Economics in the Middle East and North Africa

I’ll be moderating a session on central bank digital currency (CBDC) at the “1st Annual Central Bank Conference on Development Economics in the Middle East and North Africa”, hosted by the World Bank and the Central Bank of Tunisia on December 1 from 10:30am to noon (ET). [Register here (it’s free)]

Kiffmeister’s #Fintech Daily Digest (11/26/2021)

November 26, 2021 ~ kiffmeister

Why Stablecoins and a Central Bank Digital Currency Have a Future Together

A new C.D. Howe Institute report advocates for the Bank of Canada issuing central bank digital currency (CBDC) to facilitate the emergence of Canadian dollar stablecoins. The report explains that Canadian-dollar-linked stablecoins could become attractive to Canadians by making them convertible into Bank-issued cash, and ensuring that the stablecoins are well designed and regulated from business conduct, competitive, operational, privacy and prudential perspectives. [Read more]

UK has no plans for a wholesale CBDC, envisages banks enabling synthetic

The Bank of England dismissed the option of a domestic wholesale CBDC, because the private sector can achieve a similar result themselves. Governor Bailey, at a UK House of Lords Economic Committee meeting, highlighted that banks have existing access to central bank money through its real time gross settlement system. Also, the Bank has introduced an omnibus account that would enable the banks to use digital coins between themselves that settle with the Bank of England. It might also allow nonbanks, like Fnality, to create wholesale digital currency backed by central bank money. [Read more]

FOMO Drives Tanzanian Central Bank to Plan Own Digital Currency

Governor Florens Luoga has reportedly revealed that the Bank of Tanzania has begun CBDC launch preparations, to “ensure that our country is not left behind the adoption of central bank digital currencies”. As part of preparations the Bank is strengthening the capacity of its officials on digital currencies and expanding research. [Read more]

Bank of Lithuania Continues Digital Euro Experiments by Engaging Market Participants

The Bank of Lithuania is inviting payment market participants and technology vendors to develop a QR code-based payment solution that enables instant settlements in digital euro at points of sale. The solution should be based on an app running on mobile devices, but connectivity based on short-range wireless technologies (e.g., NFC or Bluetooth) so transactions can be done offline. [Read more]

Kiffmeister’s #Fintech Daily Digest (11/25/2021)

November 25, 2021 ~ kiffmeister

Consortium of Japanese firms to test digital currency in coming months, launch in FY2022

A consortium of 74 Japanese firms, including the country’s three mega-banks, said it aims to launch a yen-based digital currency in fiscal 2022 after beginning trials in coming months. The digital currency, tentatively called “DCJPY”, will be backed by bank deposits and use a common platform to speed up large-scale fund transfers and settlement among companies. Crypto exchange DeCurret, which is leading the consortium, published a progress report and white paper. [Read more]

Setting Standards for Stablecoin Reserves

This paper, co-authored by Diem’s Chief Economist Christian Catalini, proposes that stablecoin issuers should comply with the capital and liquidity standards encoded in the Basel accords, and put aside appropriate capital buffers to mitigate credit risk, market risk, and operational risk. Furthermore, stablecoin issuers should hold appropriate liquidity to mitigate sudden redemptions and outflows. Compliance could be achieved with a balance sheet centered around short-maturity, high-quality, and liquid assets such as 3 months or less marketable government securities. [Download paper here]

Kiffmeister’s #Fintech Daily Digest (11/24/2021)

November 24, 2021 ~ kiffmeister

Central Bank Digital Currency: Considerations, Projects, Outlook

The Centre for Economic Policy Research (CEPR) has published a freely-downloadable book that brings together contributions from academics and experts from monetary authorities and international organizations to provide a detailed and insightful overview of the key considerations of current central bank digital currency (CBDC) developments worldwide. Specific chapters discuss the economic, legal and political implications of CBDC implementation, as well as assessing existing initiatives and reflecting on the future of the digital financial landscape. [Download here]

Palau partners Ripple on national stablecoin using XRP Ledger

The Republic of Palau has partnered with Ripple to develop a U.S. dollar-backed stablecoin for the country using the XRP Ledger. If launched, it could be the world’s first government-based national stablecoin (GovCoin). (The Pacific island nation has no central bank and uses the U.S. dollar as its official currency, so a CBDC is out of the question.) The IMF hasn’t opined on this yet, but it was only a month ago that it completed its 2021 Article IV mission and no mention was made of any such development. [Read more]

Senate Banking Panel Head Seeks Added Information About Stablecoins

The Senate Banking Committee has sent letters to stablecoin issuers Coinbase, Gemini, Circle, Paxos, Tether, TrustToken, Centre, and Binance US, asking about general business practices and safeguards. Responses are expected by December 3. This is likely a sign of an upcoming hearing. [Read more]

US OCC Issues Interpretive Letter on Cryptocurrency and Banks

The US Office of the Comptroller of the Currency (OCC) confirmed that national banks and federal savings associations can engage in crypto-asset activities, including providing custodian services, holding fiat reserves for stablecoin operators and operating cryptocurrency network nodes. However, they must demonstrate adequate controls in place before they can do so. [Read more]

India seeks to block most cryptocurrencies in new bill, government says

India is looking to bar most private cryptocurrencies when it introduces Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the winter session of Parliament, according to a bulletin posted on Lok Sabha, the Indian parliament’s official website. However, the Bill will permit “certain exceptions” to promote the underlying technology of cryptocurrency and its applications. The Bill also includes the framework for the Reserve Bank of India to issue central bank digital currency (CBDC). Of note, the Bill’s description is apparently identical to the one the government listed for the previous parliamentary session earlier this year. [Read more]

Kiffmeister’s #Fintech Daily Digest (11/23/2021)

November 23, 2021 ~ kiffmeister

BOJ Closer To Rollout Of Digital Currency

The Bank of Jamaica is reportedly slated to commence national rollout of its central bank digital currency (CBDC) platform during the first quarter of 2022. National Commercial Bank is currently the sole deposit-taking institution participating in the CBDC proof of concept (PoC) slated to conclude in December. The PoC is being run with staff and their family members, and individuals and small merchants will be added before this year end. They will test person to person and person to business transactions, and automated banking machines cash-ins and cash-outs. [Read more]

Are US regulators about to get tough on crypto?

U.S. federal bank regulatory agencies issued a statement summarizing their interagency crypto-asset “policy sprints” and providing a roadmap of future work related to crypto-assets. It summarizes the agencies’ plan to provide greater clarity throughout 2022 on whether certain crypto-related activities conducted by banking organizations are legally permissible, and related expectations for safety and soundness, consumer protection, and compliance with existing law and regulations. The focus includes crypto-asset safekeeping and traditional custody services, ancillary custody services including staking, facilitating crypto-asset lending and distributed ledger technology governance services, facilitation of customer purchases and sales of crypto-assets, loans collateralized by crypto-assets, issuance and distribution of stablecoins, and activities involving the holding of crypto-assets on balance sheet. [Read more]

IMF warns El Salvador of bitcoin-related risks in Article IV mission concluding statement

El Salvador should not use bitcoin as legal tender, IMF staff wrote in their concluding statement of the 2021 Article IV mission. Given bitcoin’s high price volatility, its use as a legal tender entails significant risks to consumer protection, financial integrity, and financial stability, and gives rise to fiscal contingent liabilities. Also they recommended that the Chivo wallet should fully safeguard customers’ funds by segregating and ring-fencing reserve assets. However, staff did acknowledge that crypto-technologies and digital payment systems like Chivo have the potential to make payments more efficient, thereby enhancing financial inclusion and supporting growth. [Read more]

Stablecoin Advocates Make Their Case to U.S. Banking Regulators

Members of the USDF Consortium met with senior officials of the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. about how to issue a regulatory-compliant stablecoin. The USDF Consortium is an association formed by Figure Technologies, JAM FINTOP, and a group of FDIC-insured banks. Its USDForward (USDF) stablecoin would be issued, and backed, by dollar deposits at U.S. banks, which would be consistent with the recommendations of the President’s Working Group. USDF is currently being used on the Provenance Blockchain in a limited scope to facilitate the real-time, bilateral settlement of transactions. [Read more]

Kiffmeister’s #Fintech Daily Digest (11/22/2021)

November 22, 2021 ~ kiffmeister

SIX claims world first with tokenized bond issuance on its new Digital Exchange

SIX’s Digital Exchange has reportedly issued the world’s first tokenized bond in a fully regulated environment using distributed ledger technology (DLT), which settles trades instantly, freeing up liquidity. The bond, which was joint lead managed by Credit Suisse, UBS, and Zürcher Kantonalbank, was issued in two parts. Part A, the digital or tokenized part of the bond, accounted for CHF100 million of the total issuance volume. The remaining CHF50 million, was allocated to the traditional part of the bond (Part B). [Read more]

Global regulatory database to help policymakers unlock fintech’s potential

The World Bank has assembled a Global Database of Fintech Regulations that constitutes a curated library of enabling laws, regulations, and guidelines from nearly 200 countries in a searchable and easy-to-use format. The data show that while some countries have strong enabling regulations for fintech and digital financial services, others simply lack the necessary regulatory infrastructure. Also, foundational legislation exists in most countries, but there are important gaps, for example in the implementation of basic data-protection regulations. [Read more]

Eurosystem publishes new framework for overseeing electronic payments

The European Central Bank (ECB) has approved a new oversight framework for electronic payments following a public consultation. The Eurosystem will use the new payment instruments, schemes and arrangements (PISA) framework to oversee companies enabling or supporting the use of payment cards, credit transfers, direct debits, e-money transfers and digital payment tokens, including electronic wallets. It will also cover crypto-asset-related services, such as the acceptance of crypto-assets by merchants within a card payment scheme and the option to send, receive or pay with crypto-assets via an electronic wallet. [Read more]

4 key cybersecurity threats to new central bank digital currencies

The World Economic Forum published an article that summarizes key points from its new white paper on central bank digital currency (CBDC) technology considerations that lays out imperative considerations for CBDC cybersecurity. The bar for security is not only about “keeping the bad guys out” or minimizing unauthorized account access. It must be comprehensive and consider the full spectrum of risks, ensuring that the system works as it was designed and that its integrity remains intact. [Read more]

Kiffmeister’s #Fintech Daily Digest (11/20/2021)

November 21, 2021 ~ kiffmeister ~ 1 Comment

El Salvador to Issue $1B in Tokenized Bonds on Blockstream’s Liquid Network

The President of El Salvador reportedly announced that the El Salvador government will issue a $1 billion “Bitcoin Bond” on the Blockstream Liquid sidechain network. To facilitate the process, El Salvador’s government is working on a securities law, and the first license to operate an exchange would go to Bitfinex. The funds raised will be split between a $500 million allocation of Bitcoin and $500 million to building out energy and Bitcoin mining infrastructure in the region. [Read more]

Digital yuan being trialed for securities transactions

China Galaxy Investment Management will run a digital yuan pilot for securities transactions in association with ICBC Bank. The central bank digital currency (CBDC) project will be used to pay fees for data, consulting and other services, and to settle over-the-counter stock transactions in the tripartite deposit management system. [Read more]

White paper introducing Jack Dorsey’s decentralized Bitcoin exchange published on Friday

Jack Dorsey, co-founder, and CEO of both Square and Twitter, released a white paper detailing plans for Square’s decentralized Bitcoin exchange tbDEX. Unlike most decentralized exchanges, or DEXs, tbDEX will not utilize a trustless model, and therefore will not feature its own governance token. Instead, it is a message protocol designed to facilitate trust relationships without relying on a federation to control access. [Read more]

Kiffmeister’s #Fintech Daily Digest (11/19/2021)

November 19, 2021 ~ kiffmeister

I’ve updated my tabulation of retail central bank digital currency (#CBDC) explorers to include updates out of Australia, India, Peru and Russia. [Click here]

World Economic Forum launches digital currency info resource

The World Economic Forum (WEF) has created a resource suite to help policymakers and the private sector better understand policies and regulations around digital currencies. The main resource is a collection of eight white papers that explore numerous critical topics related to CBDCs and stablecoins, including an evaluation of their value proposition for the under-served, identification of key policy and regulatory actions, and discussion of salient technology considerations and trade-offs. It was produced by the WEF’s Digital Currency Governance Consortium, which includes over 85 private- and public-sector member organizations from over 30 countries. [Read more]

Bank of Russia to Charge Fees for Digital Ruble Transactions

Bank of Russia is reportedly planning to charge fees for all central bank digital currency (CBDC) transactions. However, the fees will be lower than those within Russia’s Faster Payments System (FPS), a service that lets individuals make instant interbank transfers. The FPS system allows users to transfer up to 100,000 rubles ($1,360) with zero commissions. For transfers beyond this amount, the system charges a 0.5% fee of the transfer amount, but no more than 1,500 rubles ($20) per one transfer. [Read more]

Kiffmeister’s #Fintech Daily Digest (11/18/2021)

November 18, 2021 ~ kiffmeister

Peru’s central bank joins global push to develop a digital currency

The Banco Central de Reserva del Perú (BCRP) is reportedly working with the central banks of Singapore, India and Hong Kong in developing a central bank digital currency (CBDC). Earlier this month, the Monetary Authority of Singapore (MAS) announced that it was embarking on Project Orchid – to build the technology infrastructure and technical competencies necessary to issue a digital Singapore dollar should Singapore decide to do so in future. Plus the MAS is involved in several wholesale CBDC projects with other central banks, although not with the BCRP, unless I missed that memo. [Read more]

India’s central bank may launch digital currency pilot next year

Meanwhile… the Reserve Bank of India (RBI) is reportedly going to pilot its CBDC in the first quarter of the next fiscal year. Previously, the central bank governor had said a pilot could be launched by December 2021 but there has been no official timeline committed to by the RBI. But again no mention of collaboration with the Banco Central de Reserva del Perú. [Read more]

The Future of Payments: Cryptocurrencies, Stablecoins or Central Bank Digital Currencies?

Tony Richards, Head of Payments Policy at the Reserve Bank of Australia (RBA) revealed that RBA staff are still not convinced that a strong policy case has emerged in Australia for a retail CBDC. Australia’s existing electronic payments system already provides households and businesses with a wide range of safe, convenient and low-cost payment services. Also, much (if not all) of the innovation and new functionality that could potentially be enabled by a CBDC could in principle also be enabled by innovation based around commercial bank deposit accounts, e-money or stablecoins. But given the possibility that the balance could shift towards a case for issuance of retail CBDCs, the RBA has been stepping up its CBDC research. [Read more]

The ECB’s case for central bank digital currencies

European Central Bank (ECB) Executive Board member Fabio Panetta pleaded the case for a digital euro in a Financial Times op-ed, arguing that, although Eurozone residents already have access to a vast supply of private digital means of payments that make a retail CBDC redundant. He views a digital euro as important to ensure that central bank money remains the trusted anchor of the payment system, to support financial stability and trust in the currency. This is crucial to preserving the transmission of monetary policy and thus protecting the value of money. [Read more]

Designing a digital euro for the retail payments landscape of tomorrow

Mr. Panetta also gave a speech that builds on the points made in the Financial Times op-ed, outlining how the ECB will structure its work in the investigation phase to ensure that it designs a digital euro that is attractive to consumers. [Read more]

MoneyGram Announces New Pilot with the Stellar Development Foundation

MoneyGram announced a new pilot in the Stellar blockchain whereby both parties will launch a live cash-in and cash-out pilot in the United States. Participants can deposit cash into their wallets at participating MoneyGram locations and also send payments internationally via Stellar’s USDC. Also, the pilot allows participants to exchange USDC for any fiat currency supported on the MoneyGram platform. [Read more]

Month: November 2021

Kiffmeister’s #Fintech Daily Digest (11/30/2021)