Are there tech solutions to the privacy and compliance trade-offs for CBDCs?
Users will likely demand cash-like privacy protections for central bank digital currency (CBDC), which may be thwarted by regulations. However, in an article for CoinDesk, Jonas Gross and I outline new technology solutions that may enable high degrees of privacy while complying with regulations. [Read more at CoinDesk]
Banks will dominate stablecoins, and two other predictions about the future of money
My SODA colleague Chris Ostrowski and Chris Hayes, in another CoinDesk article, make three predictions on the landscape for CBDCs and stablecoins in Europe and in the U.S. based on the trends they’ve seen through engagement with central bankers and policymakers. [Read more at CoinDesk]
DC³ conference – from cryptocurrencies to CBDCs
I moderated a couple of sessions on offline central bank digital currency (CBDC) at the International Telecommunication Union (ITU) DC³ “From Cryptocurrencies to CBDCs” conference on January 27, 2023. The first session was on the importance of offline payments for CBDCs and financial inclusion at which cases were presented by Lars Hupel (G+D), Razvan Dragomirescu (WhisperCash), Joachim Samuelsson (Crunchfish) and Jerome Ajdenbaum (IDEMIA). The second session was a deep dive into offline CBDC implementaion and risk management presented by Lauren Del Giudice (IDEMIA) and Stuart Smith (VISA). [Both sessions were recorded and are available at the ITU]
Kansas City Fed rejects Custodia’s master account application
The Federal Reserve Bank of Kansas City has denied Custodia Bank’s application for a master account, according to a U.S. district court filing. The Kansas City Fed disclosed the rejection in a motion to dismiss filed with the U.S. District Court of Wyoming on Friday afternoon. Custodia is suing both the Kansas City Fed and the Fed Board of Governors over its long-delayed application for a master account, which grants access to the Fed’s various financial services, including its payment system. In its filing, the Kansas City Fed and the Board of Governors argue that the ruling should render Custodia’s lawsuit moot. The bank had sought to pressure the Fed to make a decision about its two-year-old application, arguing that it had been subject to an unreasonable delay. Nathan Miller, a spokesman for Custodia, said the bank plans to continue its litigation against the Fed, noting that the bank intends to challenge whether the bank has congressional authority to pick and choose which institutions can have master accounts. Custodia and others argue that any state chartered depository is entitled to master account access. [Read more at the American Banker]
Federal Reserve Board issues policy statement to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status
The Federal Reserve Board (FRB) issued a policy statement to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. The statement makes clear that uninsured and insured banks supervised by the Board will be subject to the same limitations on activities, including novel banking activities, such as crypto-asset-related activities. The statement also makes clear that uninsured and insured banks supervised by the Board would be subject to the limitations on certain activities imposed on national banks, which are overseen by the Office of the Comptroller of the Currency. The equal treatment will promote a level playing field and limit regulatory arbitrage… The Board generally believes that issuing dollar- denominated tokens (dollar tokens) using distributed ledger technology or similar technologies on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices. The Board believes such tokens raise concerns related to operational, cybersecurity, and run risks, and may also present significant illicit finance risks, because—depending on their design—such tokens could circulate continuously, quickly, pseudonymously, and indefinitely among parties unknown to the issuing bank. Importantly, the Board believes such risks are pronounced where the issuing bank does not have the capability to obtain and verify the identity of all transacting parties, including for those using unhosted wallets. [Read more at the FRB]
White House calls on congress to ‘step up its efforts’ on crypto regulation
The Biden administration published a statement urging Congress to “step up its efforts” with respect to regulating the cryptocurrency market. Other suggestions included strengthening transparency and disclosure requirements for crypto companies, strengthening penalties for violations of illicit-finance rules, and working more closely with international law enforcement partners. The officials also made suggestions about what Congress should not do in terms of crafting new crypto regulation, including “greenlight[ing] mainstream institutions, like pension funds, to dive headlong into cryptocurrency markets.” [Read more at the White House]
Upcoming conferences, webinars and speaking engagements:
- I’ll be speaking at SettleMint’s “central banks leading the way in the decentralized world” webinar on February 1 at 17:00 GST. [Register here]
- I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
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 firstname.lastname@example.org.
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 (email@example.com).
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]