Month: July 2022

Kiffmeister’s #Fintech Daily Digest (20220717)

~ kiffmeister

I’ve updated my tabulation of retail central bank digital currency (#CBDC) explorers – lots of link updates and one additional central bank (Dominican Republic). [See and download it here]

Women in Fintech: As Leaders and Users

The IMF published a paper that explores the interaction between women and fintech by examining: (i) the role of women leaders on firm-level performance in the fintech industry; and (ii) the determinants of gender gaps in the usage of digital services to better understand the cross-country differences. Results indicate that greater gender diversity in the executive board is associated with better performance of fintech firms. With regard to determinants of the gender gaps in the usage of digital financial services, the paper reports that higher financial and digital literacy of women is associated with lower gender gaps in digital financial inclusion, and that socio-cultural factors also play a key role. [Read more at IMF.org]

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]

Kiffmeister’s #Fintech Daily Digest (20220716)

~ kiffmeister

Central Bank Digital Currencies and Regulatory Alternatives: the Case for Stablecoins

The Richmond Fed published an article that discusses the question of whether a regulatory framework for stablecoins — where regulated banks can issue stablecoins backed 100% by deposits at the central bank — could serve as an alternative to issuing central bank digital currencies (CBDCs). It concludes that appropriate regulation may offer a path whereby stablecoins become effectively equivalent to CBDCs — when they are issued by regulated institutions and backed by reserves. [Read more at the Richmond Fed]

Chile central bank opens CBDC survey

The Central Bank of Chile has opened an online survey on its CBDC project. The poll is aimed at several audiences, including the financial sector and academics; specialists in payments and technological services; and the general public. [Read more] This initiative is expected to deepen the evaluation process started in May with the publication of a first report on CBDC issuance. A second report will be published at the end of this year or beginning of 2023. [Read more]

IMF reports discuss various central banks’ CBDC explorations

I was perusing the IMF website for recent reports that touch on member country CBDC explorations. Here are some of them in no particular order:

  • The IMF ran a peer learning event at its Singapore Regional Training Institute on July 6/7 at which Changchun Mu, Director General, Digital Currency Institute at the People’s Bank of China gave a presentation on the e-CNY. [Read more]
  • The Banque de la République d’Haïti has requested technical assistance from the IMF to help address the risks associated with CBDC deployment. Support has been received from specialized foreign firms and collaboration has been initiated with countries that have already launched a CBDC, particularly in the Caribbean. [Read more]
  • Côte d’Ivoire authorities are “cautiously exploring the benefits of a CBDC and the IMF said it stands ready to offer capacity development support. [Read more] However, it’s unclear how that would work because Côte d’Ivoire doesn’t have it’s own central bank. It’s part of the West African Monetary Union whose currency is the CFA Franc, issued by the Banque Centrale des États de l’Afrique de l’Ouest.
  • The Bank of Mauritius is still considering CBDC issuance, and as part of its recent Article IV consultation the IMF published a paper that assesses the potential impact on liquidity management and monetary policy transmission of various designs of Mauritian Digital Rupee. It finds that issuing a CBDC, especially when remunerated, may not bring clear advantages for liquidity management and may lead to complications for the transmission of the policy rate to market rates. A simpler option of non-interest-bearing retail Digital Rupee could be a safer option as it would lead to a lower risk of interference with policy transmission. [Read more]
  • El Banco Central de la República Dominicana is exploring the benefits of a CBDC and the IMF stands ready to offer capacity development support. [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]

Kiffmeister’s #Fintech Daily Digest (20220715)

~ kiffmeister

For those receiving this via email, please excuse the glitches that are occurring this week. I’ve moved servers and I’m still trying to get MailChimp to play nicely with it.

Circle’s Detailed Reserve Report Shows Only Cash, Short-Term Treasurys Back USDC Stablecoin

Circle Internet Financial released a detailed – though unaudited – breakdown of its reserve assets for the firm’s USD coin (USDC) that showed $42.1 billion in short-term U.S. government bonds and $13.6 billion in cash. The breakdown also listed the bonds’ individual CUSIP number identifiers. The cash was comprised of deposits at Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, Signature Bank, Silicon Valley Bank, Silvergate Bank and US Bancorp. [Read more at CoinDesk]

Saudi Arabia Has Massive Crypto Adoption, Says KuCoin Survey

According to a KuCoin survey in May, around 3 million Saudi Arabians, about 14% of the adult population aged 18 to 60, had become crypto investors. Another 17% of respondents said they are likely to invest in crypto over the next six months. [Read more at Inside Bitcoins]

Celo network back online after almost 24-hour outage

Proof-of-stake- based blockchain Celo suffered from an on-and-off network outage for 24 hours on July 14. It was the network’s first outage since the mainnet launch in April 2020. Celo is an open-source blockchain that enables users with phone numbers to make payments with crypto by using their phone numbers as a proxy for public keys. [Read more at CoinTelegraph]

Crypto collapse: Celsius’ real liabilities and fake assets, Voyager still bankrupt, 3AC owns CryptoDickButt #1462

Another excellent update from Amy Castor and David Gerard on the continuing CeFi/DeFi train wreck. [Read more at the Attack of the 50 Foot Blockchain]

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]

Kiffmeister’s #Fintech Daily Digest (20220714)

~ kiffmeister

For those receiving this via email, please excuse the glitches that are occurring this week. I’ve moved servers and I’m still trying to get MailChimp to play nicely with it.

Environmental Implications of a Central Bank Digital Currency

The World Bank has published a paper that explores the environmental implications of central bank digital currency (CBDC) and highlights ecological footprint differences between CBDC and other payment methods. As the legitimacy of CBDC is backed by the trust of central banks, it does not need to prove its legitimacy through energy-intensive consensus or mining mechanisms, so its energy consumption is low. CBDC can also be designed to use various systems, such as real time gross settlement systems, distributed ledger technology, or a mixture of both. [Read more at the World Bank]

Celsius Files for Chapter 11 Bankruptcy

Celsius Network, the crypto lender that is facing a liquidity crisis, has filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York. It suspended withdrawals on June 12, cut jobs and hired restructuring experts to advise on its financial situation.
Celsius says it has $167 million in cash on hand, enough to “support certain operations during the restructuring process.” [Read more at Celsius Network]

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]

Kiffmeister’s #Fintech Daily Digest (20220713)

~ kiffmeister

For those receiving this via email, please excuse the glitches that are occurring this week. I’ve moved servers and I’m still trying to get MailChimp to play nicely with it.

International Standard Setters Publish Guidance on Stablecoin Regulations

The Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO) published their final “same risk, same regulation” guidance on regulating stablecoin arrangements (SAs). The guidance highlights that the transfer function of an SA is comparable to the transfer function performed by other types of financial market infrastructure (FMI). As a result, an SA that performs this transfer function is considered an FMI for the purpose of applying the Principles for Financial Market Infrastructures (PFMI) and, if determined by relevant authorities to be systemically important, the SA as a whole would be expected to observe all relevant principles in the PFMI. [Read more at BIS.org]

Bank Indonesia to Evaluate CBDC Influence to Local Economy

Bank Indonesia continues to research central bank digital currency (CBDC) and plans to issue a white paper at the end of this year concerning the development of a Digital Rupiah. The central bank’s CBDC exploration has six salient objectives: (i) providing a risk-free means of digital payment using central bank money, (ii) mitigating the risk of non-sovereign digital currency, (iii) expanding payment system coverage and efficiency, including cross-border transactions, (iv) expanding and accelerating financial inclusion, (v) providing new monetary policy instruments, and (vi) facilitating the distribution of fiscal subsidies. [Read more at Bank Indonesia]

Central Bank Digital Currency: Stability and Information

The U.S. Office of Financial Research published a paper that studies how introducing a central bank digital currency (CBDC) would affect the stability of the banking system. It presents a model that captures concerns that the option to hold CBDC can increase the incentive for depositors to run on weak banks. It highlights two countervailing effects. First, banks do less maturity transformation when depositors have access to CBDC, which leaves them less exposed to runs. Second, monitoring the flow of funds into CBDC allows policymakers to identify and resolve weak banks sooner, which also decreases depositors’ incentive to run. The paper’s results suggest that a well-designed CBDC may decrease rather than increase financial fragility. [Read more at FinancialResearch.gov]

Cambodia rolls out unified QR code support for Bakong payment system

The National Bank of Cambodia has introduced a new QR code standard for mobile banking apps in the country, starting with the central bank-backed Bakong blockchain-based peer-to-peer payments system. The KHQR allows merchants to accept mobile payments from any of the 37 commercial bank and payment service provider using a QR code directly supported by Bakong. [Read more at the National Bank of Cambodia]

Issuing Central Bank Digital Currency on Algorand

The Algorand Foundation published a paper that describes its approach to issuing retail CBDC, including a detailed overview of relevant design considerations and examples of use cases facilitated by the Algorand platform. [Read more at Algorand.com]

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]

Kiffmeister’s #Fintech Daily Digest (20220712)

~ kiffmeister

South Korea Ready to Test its CBDC with Commercial Banks (Revised)

The Bank of Korea (BOK) wants to commence real-world testing for its prototype central bank digital currency (CBDC) with 10 domestic commercial banks in the second half of the year. Until now, the BOK CBDC work has been limited to proof-of-concept experiments, starting with basic functions such as minting, issuance, distribution, and redemption from August to December last year, and payment, digital asset transactions, and cross-border remittances from January to June this year. Now the central bank wants to know whether the prototype is compatible with various banks’ IT platforms and wants to investigate possible interoperability-related issues. [Read more at the Bank of Korea (see page 63)]

France Starts Second Stage of Wholesale CBDC Experiments

The Banque de France (BdF) has kicked off the second phase of experimentation into a wholesale CBDC, with an eyer towards being ready to introduce central bank money as a settlement asset as early as 2023, with the implementation of the European pilot regime. Over the past year, the central bank has successfully completed the first phase of its experimentation program, comprising nine experiments with the private sector and with other public actors, with a focus on cross-borer payments and tokenized securities settlement. Now the BdF wants to get closer to a viable prototype, testing it in practice with more private actors and more foreign central banks in the second half of 2022 and in 2023. [Read more at the Banque de France]

BIS Innovation Hub and Bank Indonesia announce finalists of G20 TechSprint CBDC challenge

The Bank for International Settlements (BIS) and Bank Indonesia announced the 21 shortlisted finalists for the G20 TechSprint CBDC challenge. The shortlisted teams now have until the end of August to complete their prototypes, which will then be judged by an independent expert panel convened by Bank Indonesia. Winners for each of the three categories will be announced in October ahead of the G20 Summit. Among the shortlisted were BitMint, R3, Ripple, S.e.A. (Stellar, eCurrency and ANZ), Bitt-IDEMIA, Crunchfish, and Giesecke+Devrient (G+D) Filia. [Read more at the BIS including all the shortlisted firms]

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]

Kiffmeister’s #Fintech Daily Digest (20220711)

~ kiffmeister

Options for access to and interoperability of CBDCs for cross-border payments

The Bank for International Settlements Innovation Hub, Committee on Payments and Market Infrastructures, International Monetary Fund and the World Bank assessed different options for cross-border access and interoperability of central bank digital currencies (CBDCs). They highlight that CBDCs currently have a key benefit in being able to consider cross-border functionality already during the initial development phase, but this “clean slate” advantage has an expiry date. International cooperation and coordination are needed in the early stages of CBDC design. In addition, any system must be built with the flexibility to adapt both to a changing world and the different CBDC designs likely to be chosen by central banks. [Read more at BIS.org]

FSB issues statement on the international regulation and supervision of crypto-asset activities

The Financial Stability Board (FSB) announced that it will submit to the October meeting of G20 finance ministers and central bank governors a public consultation report on its review of its high-level recommendations for the regulation, supervision and oversight of “global stablecoin” arrangements, including how existing frameworks may be extended to close gaps and implement the high-level recommendations. The FSB will also submit a public consultation report that proposes recommendations for promoting international consistency of regulatory and supervisory approaches to other crypto-assets and crypto-asset markets and strengthening international cooperation and coordination. [Read more at FSB.org]

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]

Kiffmeister’s #Fintech Daily Digest (20220710)

~ kiffmeister

Paxos Becomes First Stablecoin Issuer to Disclose Full Monthly Reserve Holdings Backing

Paxos will now disclose on a monthly basis the specific financial instruments backing its USDP and BUSD stablecoins, in addition to its attestations. These reports will provide the CUSIP numbers of all instruments backing USDP and BUSD, showing that Paxos only backs its stablecoins with cash, overnight loans secured only by US Treasuries, and US Treasuries with a less than 90 day maturity. As a Trust Company chartered by the New York State Department of Financial Services, Paxos is legally required to hold all regulated stablecoin reserves in bankruptcy remote, fully-segregated accounts and in only cash and cash equivalents. [Read more]

The Financial Bubble Era Comes Full Circle

Matt Taibbi asks some tough questions about the sanctity of the reserve assets that back Circles USDC stablecoin, and the issue of bankruptcy remoteness. Circle is unlike some competitors, whose user agreements specifically spell out that reserves are, say, “fully backed by US dollars held by Paxos Trust Company, LLC,” or “custodied pursuant to the Custody Agreement entered into by and between you and Gemini Trust Company, LLC.” Those describe trust agreements, which are truly bankruptcy remote. However, Circle is not a trust, so customers  are guarded only by protections afforded under state money transmission laws. However, Circle is only regulated  as a money transmitter in the states where Circle has licenses, and the firm has obtained licenses only in those states were licenses are required. There are other reasons to be concerned as a USDC hodler, and I recommend reading the whole post. [Read more]

See also this Twitter thread which wonders aloud whether customer funds held by other US “money transmitters” like PayPal, Square and Venmo are truly bankruptcy remote!? [Read more]

Why Stablecoins Fail: An Economist’s Post-Mortem on Terra

This article from the Richmond Fed dives into potential answers to these questions about the failed Terra UST stablecoin. UST was backed by LUNA, but the price of LUNA was backed by its option value of converting to UST. When the confidence of this circular backing is shaken, the liquidity of algorithmic stablecoin becomes flighty. In this case, the algorithm does not fully function because Terra needs to (but can’t always) defend both UST and LUNA. When market liquidity evaporated, UST and LUNA ultimately relied on the issuer’s equity to support the prices, similar to the backing of a more traditional currency as seen in the Asian Financial Crisis. It is the part of economics cannot be replaced by technology. [Read more]

Crypto collapse: 3AC, Voyager, Celsius, and other DeFi casualties: Another great summary of the growing DeFi Dead Pool by Amy Castor and David Gerard. [Read on…]

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]

Kiffmeister’s #Fintech Daily Digest (20220709)

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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]

Kiffmeister’s #Fintech Daily Digest (20220708)

~ kiffmeister

US Treasury Develops ‘Framework’ for International Crypto Regulation

The U.S. Treasury Department published a fact sheet outlining how it could work with foreign regulators to address the cryptocurrency sector. The fact sheet, which is the first report published by the department as a result of U.S. President Joe Biden’s executive order on crypto, said the framework “is intended to ensure that … America’s core democratic values are respected,” pointing to consumer, investor and business protection, the safety of the global financial system and interoperability. The framework’s policy objectives also include reducing the potential use of crypto for illicit finance, promoting access to financial services, supporting technological advancement and “reinforc[ing] U.S. leadership in the global financial system.” [Read more]

Experts invited to join technical talks on digital euro

The European Central Bank (ECB) is inviting technology experts to take part in online technical talks to explore options for the design of a central bank digital currency. The talks will focus on the large-scale application of privacy-enhancing technologies in settlement of retail payments. For example, how can the payment asset issuer exert control over settlement rules and maintain adequate, tamper-proof evidence of the amounts in circulation, while also minimizing the accessibility of sensitive information? The talks will be held at expert level as closed sessions with members of the ECB’s digital euro project team. [Read more]

Essays on Digital Currencies and Monetary Policy

This dissertation by Jonas Gross studies issues related to digital currencies and monetary policy. In particular, it analyzes the determinants of the monetary policy of the European Central Bank (ECB) and examines design aspects of central bank digital currencies (CBDCs), e.g., related to financial stability, monetary policy, and privacy. For example, it finds that CBDCs crowd out bank deposits and negatively affect bank funding, but this crowding-out effect can be mitigated if the central bank chooses to provide additional central bank funds or to disincentivize large-scale CBDC accumulation via low or potentially even negative interest rates (if the CBDC is remunerated). [Read more]

Interlinking payment systems and the role of application programming interfaces: a framework for cross-border payments

The Committee on Payments and Market Infrastructures (CPMI) published a report that provides a framework to help payment system operators and authorities understand and evaluate the benefits, challenges and risks of interlinking arrangements. It also provides an overview of important trends in interlinking arrangements and adoption of application programming interfaces (APIs) by payment systems. Interlinking arrangements allow banks and other payment service providers to transact with each other without requiring them to participate in the same payment system or use intermediaries. Such arrangements can shorten transaction chains, reduce overall costs and increase the transparency and speed of payments. [Read more]

NIST Announces First Four Quantum-Resistant Cryptographic Algorithms

The U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) has chosen the first group of encryption tools that are designed to withstand the assault of a future quantum computer, which could potentially crack the security used to protect privacy in the digital systems we rely on every day — such as online banking and email software. The four selected encryption algorithms will become part of NIST’s post-quantum cryptographic standard, expected to be finalized in about two years. [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]