Kiffmeister’s #Fintech Daily Digest (20220709)

BoJ Liaison and Coordination Committee on Central Bank Digital Currency Interim Report

The Bank of Japan (BoJ) published an English version of its Liaison and Coordination Committee on Central Bank Digital Currency interim report. While the BOJ “currently has no plan to issue CBDC, the BOJ considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner”.  The report noted the strong preference for cash and high ratio of bank account holding in Japan, as reasons for cautiousness. However, as privately-issued digital currencies proliferate, a CBDC might be called for to provide broadly secure and neutral payment instruments to avoid fragmentation and monopolization of payment services, and to enable private businesses to utilize these as a source for creating new services. [Read more]

Bank of England Says Digital Pounds Unlikely to Work Like Cash

Deputy Governor Jon Cunliffe reportedly said that the Bank of England (BoE) is unlikely to offer a digital pound that works like banknotes, opting instead for an instrument managed through some sort of account, reflecting concerns that it could be used in crime and money laundering. The BoE plans to release a consultation paper at the end of the year about how a retail central bank digital currency (CBDC) might look. Cunliffe said it’s unlikely that any digital pounds will be issued within the next three years, that it’s more likely in five or more years. [Read more]

US FDIC Probing Voyager Claims That Customer Deposits Were FDIC Insured

The US Federal Deposit Insurance Corporation (FDIC) is taking a look at claims by bankrupt crypto broker Voyager that its customer deposits held in an omnibus account at New York-based Metropolitan Commercial Bank were FDIC insured. The FDIC protects customers from losing their funds in the event of a bank collapse, insuring up to $250,000 per account. This insurance, however, usually only applies to an actual bank failure, not upon failure of the bank’s client, i.e., Voyager’s collapse wouldn’t necessarily trigger an FDIC backstop. [Read more]

The FDIC move would seem to coincide with the July 5 activation of the final rule passed by the FDIC board on May 17, 2022 that addresses false advertising, misuse of the FDIC’s name, and misrepresentations about deposit insurance, based on section 18(a)(4) of the Federal Deposit Insurance Act (FDIA). This section prohibits any person from engaging in false advertising by misusing the name or logo of the FDIC or from making knowing misrepresentations about the existence of or the extent or manner of deposit insurance. [Read more]

That being said, the FDIC has been said to be studying pass-through coverage that would insure USD-backed/pegged stablecoin holders against losses up to $250,000 if the bank holding the collateral were to fail. FDIC regulations already provide for “pass-through” insurance for deposit accounts held through fiduciary relationships, a term that is defined to include agents and custodians. The latter includes crypto exchanges that hold USD on behalf of customers in omnibus accounts at FDIC-insured banks, but stablecoin holders don’t get these same kinds of protections, because the issuers don’t keep track of who the current holders are and how many they own, which is a requirement for pass-through insurance. [Read more]

Of course, FDIC insurance only protects customers in the event of the insolvency of the bank holding the deposits. That leaves open the question of where stablecoin holders rank in the event of the stablecoin issuer’s insolvency. This was recently discussed in a Twitter thread launched by JP Koning to which George Selgin and Dan Awry contributed. According to my read of the thread, which focused specifically on the Circle-issued USDC stablecoin, the answer seems to be “maybe” but the question could be tied up in courts for a long time. [Read more]

Upcoming events I’m affiliated with:

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]

2 thoughts on “Kiffmeister’s #Fintech Daily Digest (20220709)

  1. Basically the Bank is signaling that it is not likely to issue a digital pound that supports anonymous person-to-person transactions. So instead it will resemble more the digital payments platforms we already use, where all transactions have to pass through ledgers in which all transaction details, including who’s transacting, are recorded and surveilled for money laundering activity, etc.

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