Kiffmeister’s #Fintech Daily Digest (20220621)

CBDCs, Not Crypto, Will Be Cornerstone of Future Monetary System, BIS Says

According to a 42-page chapter in the Bank for International Settlements (BIS) 2022 Annual Economic Report crypto’s structural flaws make it an unsuitable basis for a monetary system, and instead envisions a future where programmability and tokenization are built on top of central bank digital currencies (CBDCs). Structural flaws make the crypto universe unsuitable as the basis for a monetary system: because it lacks a stable nominal anchor, while limits to its scalability result in fragmentation. Contrary to the decentralization narrative, crypto often relies on unregulated intermediaries that pose financial risks. [Read more]

Bank of Israel investigates anonymous digital shekel payments

The Bank of Israel published an update on their CBDC proof-of-concept (PoC) experiments, including some that were based on distributed-ledger technology (DLT) infrastructure on the cloud, and the application of a Quorum blockchain based on Ethereum. They also examined a platform developed by VMware in which there would be a wallet that can hold “ordinary” digital shekels, the transfer of which is recorded in the ledger, and “private” digital shekels, the transfer details of which are not recorded openly, and where both sides to the transaction enjoy complete privacy as with cash payments. There would be a periodic (e.g., monthly) “budget” for payment using private shekels. [Read more]

BIS G20 TechSprint 2022 Shortlist Winners

Yesterday I reported that the BIS Innovation Hub and Bank Indonesia had apparently chosen the projects that will be invited to showcase prototypes in a July workshop for the CBDC-focused G20 Techsprint. The BISIH have yet to publish them, but I picked up four from vendors themselves: BitMint (quantum-safe offline-capable peer-to-peer digital currency (DC) platform), Dragonfly Fintech (blockchain-based DC platform), Fluency (blockchain-based offline-capable DC platform), and Giesecke+Devrient (multiple-media offline-capable DC platform). Now thanks to Gieseke+Devrient’s  Tanja Heßdörfer, we have three more; Bitt and IDEMIA (offline-capable DC platform),  Extolabs (offline-capable DC platform), and R3 (blockchain-based DC platform).

The U.S. Uniform Commercial Code and Crypto

In this Twitter thread, Adam Levitin discusses the impact on crypto-asset markets of the new (and pending) Article 12 (A12) of the U.S. Uniform Commercial Code (UCC). The UCC is state law, but it’s developed by the American Law Institute (ALI) and the Uniform Law Commission (ULC), which has state government representatives. A12 has been approved by the ALI and is pending ULC approval. Once that happens, it will be up to state legislatures to adopt it, which may take a year or two. A12 will enable perfection of security interests in digital assets, which is not possible in most states. That’s a problem because if a debtor (e.g., a crypto-asset exchange) files for bankruptcy, any unperfected security interest (e.g., crypto-assets held in custody at the bankrupt exchange) can be avoided, meaning that the creditor (crypto-asset holder) becomes an unsecured creditor. For more detail see Adam’s “Not Your Keys, Not Your Coins” paper. [Read more]

Upcoming events I’m affiliated with:

The second session of the CBDC Think Tank CBDC Papers Lecture Series will be held on June 24 starting at 7am EST and run for 4 hours. [View list of papers and register here]

The CBDC Think Tank, in partnership with the International Monetary Fund and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC. The sessions are designed as instructional deep dives with full presentations and Q&A components.  [Register here]