Kiffmeister’s #Fintech Daily Digest (20220513)

JAM-DEX Phased Rollout Underway

The Bank of Jamaica has started a phased rollout of its JAM-DEX central bank digital currency (CBDC) while the process to amend the Bank of Jamaica Act (BOJA) progresses. The amendments to BOJA will make CBDC legal tender and enshrine the Bank as the sole issuer. Currently National Commercial Bank (NCB) offers JAM-DEX through its Lynk digital wallet. In this regard, anyone with Lynk will be able to transact using JAM-DEX with another Lynk wallet holder at a date to be advised by NCB. Other digital wallet providers are being assessed in the Bank’s Fintech Regulatory Sandbox in preparation for distributing JAM-DEX later this year. [Read more]

Binance Stops Terra Trading. Luna and Its Stablecoin Are Down for the Count

Binance briefly suspended trading of the TerraUSD U.S. dollar algorithmic stablecoin which is trading between $0.10 and $0.20, down from a $0.40 to $0.65 range on Thursday (May 12, 2022).

Meanwhile, the asset-backed Tether (USDT) stablecoin appears to have re-pegged to the dollar.

Not Your Keys, Not Your Coins: Unpriced Credit Risk in Cryptocurrency

Adam Levitin considers what would happen to customers’ custodial holdings if a crypto-asset exchange in the United States were to fail. U.S. law gives substantial protection to the custodial holdings of securities, commodities, or cash deposits by securities or commodities brokers or banks, but no such regime exist for custodial holdings of crypto-assets. Instead, bankruptcy courts are likely to deem the custodial holdings to be property of the bankrupt exchange, rather than of its customers. The customers would merely be general unsecured creditors of the exchange, entitled only to a pro rata distribution of the exchange’s residual assets after any secured or priority creditors had been repaid. [Read more]

Coinbase warns that bankruptcy could wipe out user funds

And guess what! Hidden away in Coinbase’s disappointing first-quarter earnings report is an update on the risks of using Coinbase’s service that may come as a surprise to its millions of users. In the event the crypto exchange goes bankrupt, Coinbase says the crypto-assets it holds in custody on behalf of its customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible.  [Read more]

Chile’s central bank pushes back digital currency decision

Banco Central de Chile said that although a CBDC could improve payment systems and mitigate risks, a deeper cost and benefit analysis is required and it would publish a new report towards the end of the year. The central bank said CBDC would allow the benefits associated with digital transformation to be enhanced, while mitigating some of its risks, adding that the currency could help develop a more competitive, resilient and inclusive payment system. However, a final decision on this requires a more in-depth analysis of its costs and benefits, as well as a more complete comparison with other policy alternatives that address the same challenges. [Read more]

Central bank digital currency and bank intermediation

The European Central Bank (ECB) published a paper that analyzes the mechanisms through which commercial banks and the central bank could react to the introduction of a digital euro. Overall, effects on bank intermediation are found to vary across credit institutions in normal times and to be potentially larger in stressed times. Further, a potential digital euro’s capacity to alter system-wide bank run dynamics appears to depend on a few crucial factors, such as CBDC remuneration and usage limits. [Download here]

Upcoming events I’m affiliated with:

Satoshi Capital Advisors is hosting a virtual workshop on wholesale CBDC, stablecoins and digital capital markets on May 24 (starting at 08:00 EST). [Register here with the passcode: CBDC]

The CBDC Think Tank is hosting a CBDC Papers Lecture Series on June 17 and 24, each session starting at 7am EST and running for 3 hours. [View list of papers and register here]