Kiffmeister’s #Fintech Daily Digest (20230107)

USDC stablecoin as a backdoor central bank digital currency

As I reported yesterday, the US-based Bank Policy Institute (BPI) is raising concerns that a sizeable proportion of Circle’s USDC stablecoin reserves could be parked at the Federal Reserve, despite Circle not having a central bank account. This would be achieved by accessing, via BlackRock the Fed’s overnight reverse repo (ON RRP) facility, which provides money funds and government-sponsored enterprises a standing option to invest overnight with the Fed at a fixed rate, currently 4.3%. This involves the fund buying Treasuries from the Fed, which are resold to the Fed at a future date at a slightly higher price. The net effect of the cash flows, with the transfer of money to the Fed, is not dissimilar to depositing the USDC reserve cash at the Federal Reserve.

Interestingly, the Fed covered this in an appendix to a 2022 paper on the Macroeconomic Implications of CBDC that is well worth reading (see below).  It concludes that, “while research has shown that take- up in the ON RRP can crowd out private repo, and that the demand for safe assets can increase ON RRP take-up at the expense of private repo, the overall impact on the banking sector so far has not led to a significant contraction in bank deposits or bank lending… That said, the effect on the banking sector could change as short-term interest rates increase and the Federal Reserve’s balance sheet contracts.”

And just a reminder that you can get the Daily #Fintech Digests emailed directly to your inbox by signing up here.

2nd Edition of DC³ Conference – From Cryptocurrencies to Central Bank Digital Currencies (CBDCs)

The International Telecommunication Union (ITU) will hold (virtually) the second edition of its DC3 Conference – From Cryptocurrencies to Central Bank Digital Currencies (CBDCs)​ from January 24 to 27 2023. On January 27 I will be moderating two panels on offline central bank digital currency (CBDC). Also, on January 24, Jacques Francouer and I will be providing an update to our ITU Digital Currency Global Initiative digital currency ontology work. [For more event detail go to the ITU DC3 conference site]

Kiffmeister’s global central bank digital currency monthly monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

The Sovereign Official Digital Association (SODA) is a technology-agnostic firm offering advisory services at the intersection of central banking, digital finance and the web3 industry, aiming to make public digital money a reality. SODA believes institutions in the existing financial ecosystem should have access to the tools and resources they need to move from discussion to action. SODA offers ‘real life’ use cases to help test digital money and drive adoption as central banks and other public institutions explore the future of a more financially inclusive world powered by interoperable blockchain-based networks. SODA would love you to join us on this journey – please get in touch (chris@sodapublicmoney.org).

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]