Kiffmeister’s #Fintech Daily Digest (20220601)

Managing the failure of systemic digital settlement asset (including stablecoin) firms

The U.K. government proposes to amend its Financial Market Infrastructure Special Administration Regime to bring crypto-assets within the jurisdiction of the Bank of England while giving the institution the reins in the event of a collapsing stablecoin. One proposed amendment includes broadening the legal definition of a “payment system” to include crypto-assets, providing the central bank with regulatory powers under Part 5 of the 2009 Banking Act. The government clarified that the central bank will only step in during “systemic” collapses, which it defines as any “deficiencies in [a system’s] design or disruption to its operation may threaten the stability of the U.K. financial system or have significant consequences for businesses or other interests.” [Read more]

MAS Partners the Industry to Pilot Use Cases in Digital Assets

The Monetary Authority of Singapore (MAS) announced the commencement of Project Guardian, a collaborative initiative with the financial industry that seeks to explore asset tokenization use cases. The central bank will run pilot tests in four areas to test the feasibility of applications covering blockchain, trust anchors, asset tokenization and institutional-grade decentralized finance (DeFi) protocols. The first industry pilot will explore potential DeFi applications in wholesale funding markets, involving the creation of a permissioned liquidity pool comprising tokenized bonds and deposits. The pilot aims to carry out secured borrowing and lending on a public blockchain-based network through execution of smart contracts. [Read more]

Bank of Ghana tests CBDC integration with mobile money providers

The Central Bank of Ghana (BoG) has reportedly granted Vodafone Cash and CalBank customers the opportunity to test its online version of its central bank digital currency (CBDC), the eCedi. BoG has created online and offline wallets for eCedi but has only deployed the online pilot in the city’s capital, Accra, and Tarkwa. Meanwhile, the BoG’s Governor reported that usage and uptake of the offline version of the eCedi is still being piloted in a small town called Sefwi Asafo in the Western North region. [Read more]

Retail CBDC and U.S. Monetary Policy Implementation: A Stylized Balance Sheet Analysis

A Federal Reserve paper explores how a retail central bank digital currency (CBDC) could affect the balance sheets of the Federal Reserve, commercial banks, and U.S. households. Then it considers how these balance sheet changes could affect monetary policy implementation. It illustrates that the potential effects are highly dependent on the initial conditions of the Fed’s balance sheet. It considers a scenario where the digital dollar were to be widely adopted for both payments and a store of value, in which case the Fed would need to hold more Treasuries on a permanently bigger balance sheet. Moreover, the analysis demonstrates how the Fed may use its existing tools to manage the effects of a retail CBDC on monetary policy implementation. [Read more]

Legal Wrappers and DAOs

This paper co-authored by Chris Brummer offers an overview and explanation of legal wrappers available to decentralized autonomous organizations (DAOs) in a U.S. legal context. It observes how the qualitative features of DAOs are unanticipated by legal wrappers modeled after 20th century corporations, nonprofits and partnerships. It then surveys a diverse range of wrappers available to DAOs, and highlights how thoughtful legal engineering can help mitigate frictions that arise when attempting to wrap established legal forms around DAOs and DAO operations. To demonstrate, the white paper proceeds through a variety of fact scenarios spanning protocol, media, collector, social, and philanthropic DAOs to illustrate how wrappers might be employed to protect DAO participants from unlimited liability, optimize tax treatment, engage in contractual off-chain transactions, and enable compliance with key regulatory expectations. [Read more]

Upcoming events I’m affiliated with:

The CBDC Think Tank is hosting a CBDC Papers Lecture Series on June 17 and 24 starting at 7am EST and running for 4 hours each day. [View list of papers and register here]