Kiffmeister’s #Fintech Daily Digest (20230119)

January 19, 2023January 19, 2023 ~ kiffmeister

US authorities dismantle ransomware-friendly Bitzlato exchange, arrest co-founder

The U.S. Attorney for the Eastern District of New York (EDNY) charged Anatoly Legkodymov, co-founder of the Bitzlato digital asset exchange, with conducting a money transmitting business that transported and transmitted illicit funds and that failed to meet U.S. regulatory safeguards, including anti-money laundering (AML) requirements. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) alleged that Bitzlato facilitated “illicit transactions for ransomware actors operating in Russia, including Conti, a Ransomware-as-a-Service group that has links to the Government of Russia.” Also it said that Binance was among the biggest counterparties that received Bitcoin from Bitzlato between May 2018 and September 2022. [Read more at CoinGeek]

Digital Currency Group halts dividends as Genesis preps bankruptcy filing

Genesis Global Capital, the crypto lending unit of Digital Currency Group (DCG), is reportedly laying the groundwork for a bankruptcy filing. It has been in confidential negotiations with various creditor groups amid a liquidity crunch, and has warned that it may need to file for bankruptcy if it fails to raise cash. Genesis suspended withdrawals in November, soon after crypto exchange FTX — where Genesis held some of its funds — filed for bankruptcy. Meanwhile, DCG has informed its shareholders the firm is suspending dividends until further notice, and CoinDesk has reportedly hired Lazard to advise it on a sale that would carve it out from DCG. [Read more at CoinGeek]

National Australia Bank Becomes Second Australian Bank to Build Stablecoin

The National Australia Bank (NAB) aims to launch an Australian dollar-pegged stablecoin (AUDN) in the middle of 2023. Its purpose would be to allow its customers to settle transactions in real-time using Australian dollars, and several other purposes including “carbon credit trading, overseas money transfers and repurchase agreements.” The stablecoin will launch on the Ethereum and Algorand blockchains. NAB is the second major Australian bank to be involved in the creation of a stablecoin. Earlier, Australia and New Zealand Banking Group (ANZ) teamed up with crypto custodian Fireblocks to mint a stablecoin pegged to the Australian dollar. [Read more at CoinDesk]

Thailand Issues New Regulations on Custodied Cryptocurrencies

Thailand’s Securities and Exchange Commission (SEC) issued new regulations on custodied crypto-assets. Companies offering crypto custody services are now required to “establish a digital wallet management system to accommodate efficient custody of digital assets and keys and ensure safety of clients’ assets.” [Read more at the SEC]

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]

Kiffmeister’s #Fintech Daily Digest (20230118)

January 18, 2023January 18, 2023 ~ kiffmeister

Tokyo Fintech published a video of a presentation I gave on retail CBDC for your viewing enjoyment. [Watch it here]

Exploring multilateral platforms for cross-border payments

The Committee on Payments and Market Infrastructures (CPMI), the BIS Innovation Hub (BISIH), the International Monetary Fund (IMF) and the World Bank published a paper on challenges to addressing and approaching the establishment of a multilateral cross-border payments platform. Such a platform could reduce the need for intermediaries and allow payment service providers in different jurisdictions to transact directly with each other. Two paths are examined – the growth approach that involves expanding existing multilateral platforms to additional jurisdictions, currencies and participants, and the greenfield approach that involves building a new, potentially global, infrastructure for cross-border payments. [Read more at the BIS]

IMF to collaborate with the Philippines on wholesale CBDC project

The IMF will be collaborating with Bangko Sentral ng Pilipinas (BSP) to create a wholesale central bank digital currency (CBDC) aimed at addressing (i) frictions on cross border foreign currency transfers; (ii) settlement risk exposure arising from the use of commercial bank money in the equities market; and (iii) challenges in operating the automated intraday liquidity facility. The BSP has decided that retail CBDC would have limited benefits for the Philippines economy due to widespread digitalization of retail payments and financial inclusion reforms. [Read more at the IMF]

Way forward for the digital euro project

The European Central Bank (ECB) published a digital euro “way forward” slide deck that provides a nice summary of the current status of their CBDC project, including the timeline (see below). [Download the slide deck at the ECB]

Fast payment with cash and contactless payments possible

How long do payments via different payment methods take? This question was analyzed in an interesting research by Deutsche Bundesbank (BuBa). The result: The quickest payments are smartphones/smartwatch payments (14 seconds), followed by contactless card payments (15.2 seconds), and cash payments (18.7 seconds). [Read more at the BuBa]

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

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230117)

January 17, 2023January 17, 2023 ~ kiffmeister

I’m pleased to announce that I have joined the SODA (Sovereign Official Digital Association) team as its Research Director. SODA works with central banks, international organizations and financial institutions to provide real life use cases for public digital money. Central bank digital currency (CBDC), stablecoins and tokenized digital assets will become part of the financial landscape in the 2020s; SODA offers technology agnostic tools and resources to move from discussion to action and begin to explore the future of a more financially inclusive world. [Learn more about SODA here]

Also, Tokyo Fintech published a video of a presentation I gave on retail CBDC for your viewing enjoyment. [Watch it here]

Eurogroup statement on the digital euro project

The Council of the European Union (Eurogroup) reaffirmed its support for the continued efforts of all European and national institutions involved in the preparatory work for the potential issuance of a digital euro. It asserted that a digital euro should complement, and not replace cash, and should guarantee access to central bank money for euro area users in times of increased digitalization in payments.A risk-based approach could be followed to allow for more privacy in the case of less risky transactions, which could ensure a wider adoption of the digital euro among citizens with a stronger preference for privacy. The Council also supports the exploration of an offline functionality which would serve a wider range of use cases and also contribute to financial inclusion. [Read more at the Eurogroup]

Philippines central bank pushes through with wholesale CBDC plans to improve payments

The Bangko Sentral ng Pilipinas (BSP) has reportedly confirmed that it will not be exploring retail CBDC, instead focusing on wholesale CBDC to improve settlement times between banks. In April 2022 the BSP announced the start of its Project CBDCPh wholesale CBDC pilot program, with several leading financial institutions playing a part. On the retail payments front, the BSP has been focusing on drumming up support for private-sector digital payment rails, like they did with its recent “BSP Piso Caravan” program aimed at encouraging the public to replace their unfit banknotes and coins with digital cash. [Read more at the Philippine Star]

Iran and Russia are reportedly working on gold-backed stablecoin

Iran and Russia are reportedly looking to launch a new gold-backed stablecoin to be used for cross-border transactions in the place of the US dollar, the Iranian rial and the Russian ruble in the Persian Gulf region. The cryptocurrency would also specifically intended as a payment method in the Astrakhan area – an economic zone whose design helped Russia begin to receive cargo shipments from Iran. [Read more at Vedomosti]

2023 Crypto Crime Trends: Illicit Cryptocurrency Volumes Reach All-Time Highs Amid Surge in Sanctions Designations and Hacking

Chainalysis reports that, despite the market downturn, illicit crypto transaction volume rose for the second consecutive year, hitting an all-time high of $20.1 billion, likely a lower bound estimate. The measure of illicit transaction volume is sure to grow over time as new addresses associated with illicit activity are identified, and the figure doesn’t capture proceeds from non-crypto native crime (e.g. conventional drug trafficking involving cryptocurrency as a mode of payment). For example, in 2022 Chainalysis reported $14 billion in illicit activity in 2021, but that figure has now been raised to $18 billion, mostly due to the discovery of new crypto scams. [Read more at Chainalysis]

European Union Postpones MiCA Vote to April

The final vote on the European Union’s (EU’s) Markets in Crypto Assets Regulation (MiCA) legislation has been delayed until April 2023 due to translation issues. EU procedures require legal acts such as MiCA, which was negotiated in English, to be available in all the bloc’s 24 official languages. [Read more at CoinDesk]

ISO 20022 for dummies

SWIFT has published a comprehensive guide to the ISO 20022 messaging standard, outlining everything from the very basics, to why it matters, its impact and the benefits it offers. [Download the guide at SWIFT]

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

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230115)

January 15, 2023January 15, 2023 ~ kiffmeister

Tanzania plans ‘cautious’ central bank digital currency launch

The Bank of Tanzania is working toward a “phased, cautious and risk-based” introduction of a central bank digital currency (CBDC). The central bank will “continue to monitor, research and collaborate with stakeholders, including other central banks, in the efforts to arrive at a suitable and appropriate use and technology for issuance of Tanzanian shillings in digital form”. It is exploring both retail and wholesale CBDC. [Read more at the Bank of Tanzania]

The impact of cryptocurrency regulation on trading markets

A Journal of Financial Regulation article by Brian Feinstein and Kevin Werbach suggests that crypto-focused regulatory measures are essentially useless. They assembled original data on crypto regulations worldwide and used them to empirically examine movement in trading activity at a number of exchanges following key regulatory announcements. They concluded that, from the creation of bespoke licensing regimes to targeted anti-money-laundering and anti-fraud enforcement actions, as well as many other categories of government activities, there was no systemic evidence that regulatory measures cause traders to flee, or enter into, the affected jurisdictions. [Read more at SSRN]

These results are similar to those of a study by Ronald Pol published in Policy Design and Practice (Anti-money laundering: The world’s least effective policy experiment?). It found that the anti-money laundering policy intervention had less than 0.1 percent impact on criminal finances, compliance costs exceed recovered criminal funds more than a hundred times over, and banks, taxpayers and ordinary citizens are penalized more than criminal enterprises. The data are poorly validated and methodological inconsistencies rife, so findings cannot be definitive, but there is a huge gap between policy intent and results. [Read more at Policy Design and Practice]

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

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230113)

January 13, 2023January 13, 2023 ~ kiffmeister

E-CNY app adds payment function for when mobiles are offline, out of power

The People’s Bank of China (PBOC) has added a new function to its e-CNY payment app so that select Android-based mobile phones can be still be used to make tap-to-pay payments without internet connection or power. Users need to activate the function in the e-yuan app, and can choose how many times it can be used and how much can be paid after their phone shuts down. To allay security concerns, A verification code must be entered into the device if set payment and transaction limits are exceeded. Additionally, users can suspend the function by logging into the e-yuan app from another device. It apparently uses near-field Communications (NFC) technology, and payment amounts are limited to ten transactions of up to RMB 500 ($75). [Read more at Yicai Global].

Market research on possible technical solutions for a digital euro

As announced in December 2022, the European Central Bank (ECB) is inviting market participants to take part in market research to get an overview of options for the technical design of possible digital euro components and services. Participation is voluntary and will not have any impact on eligibility for future procurement procedures related to a digital euro or any other topic. Nor will it imply any pre-selection for a potential subsequent tender. Submissions are due by February 17, 2023 in a fully anonymous manner, avoiding trade names. [Read more at the ECB]

Addressing the risks in crypto: laying out the options

A Bank of International Settlements (BIS) paper suggests that authorities can take three different approaches when it comes to crypto-assets; targeted regulation, containment (“let crypto burn”), or a complete ban. Central banks and public authorities could also work to make traditional finance (TradFi) more attractive. A key option is to encourage sound innovation with central bank digital currency (CBDC). [Read more at the BIS]

Mobile money activity rates: Exploring barriers to regular use

The Global System for Mobile Communications (GSMA) is exploring of low mobile money activity rates. Despite high sign-up rates, only 26% of accounts are active on a monthly basis, while 38% are active on a 90-day basis. Findings from the annual GSMA Consumer Survey run in ten countries in 2021 shed light on perceived reasons for low activity. The main barriers were found to be a preference for cash, lacking sufficient funds for mobile money to be useful and not needing mobile money due to alternative electronic financial services. Other important barriers include users having a limited ability in using a phone, and mobile money transaction costs being too high. [Read more at the GSMA]

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

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230112)

January 12, 2023January 12, 2023 ~ kiffmeister

CBDC: Expanding financial inclusion or deepening the divide?

The MIT Digital Currency Initiative (DCI) published a paper on how a central bank digital currency (CBDC) could be designed to improve access to financial services, and whether it makes economic sense for a central bank to issue CBDC as a means of promoting inclusion and what preconditions may be necessary for success. It argues that any digital currency is only as good for inclusion as the intermediaries through which people use it. Designing a CBDC that merely replicates the features of existing digital payment systems would not make a meaningful difference for financial inclusion. More specifically, for me these are some of the key takeaways :

CBDC designers should consider how to preserve the benefits of self-custody (i.e., cutting out intermediaries) by considering a wider range of custody designs opened up by new possibilities with digital currency technology.
Making payments digitally on most incumbent platforms depends on external infrastructures and intermediaries for access, undermining their accessibility and inclusiveness, making offline capabilities a design priority.
Striking a balance between risks and rewards of data usage is critical. Smart decisions about privacy can yield many benefits, including building public trust and avoiding centralization of data vulnerable to attacks.

Finally, the paper underscores that the question of trust is at the core of the decisions people make about their money, and will likewise be a key factor in any successful CBDC. Especially considering the rise of authoritarian regimes, the acceleration of the surveillance state, and the increasing challenge of regulating the technology industry, it is far from self-evident that citizens should trust a CBDC. In order to be trustworthy for all, CBDC must be trustworthy to the most vulnerable. [Read the full report at the DCI]

China includes CBDC in its currency circulation report

The People’s Bank of China (PBC) reports that at end of 2022, there were 13.61 billion e-CNY ($2 billion) in circulation, representing about 0.13% of the 10.47 trillion yuan in circulation. [Read more at the PBOC]

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

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230111)

January 11, 2023January 11, 2023 ~ kiffmeister

Indians living in ten countries can now make payments through UPI

India’s National Payments Corporation of India (NPCI) has extended access to the Unified Payments Interface (UPI) to non-resident Indians from 10 countries (Australia, Canada, Hong Kong, Oman, Qatar, Saudi Arabia, Singapore, United Arab Emirates, United Kingdom, and the United States). Indians living abroad comprise the world’s largest overseas remittance-sending diaspora. Other countries like Nepal, Bhutan, and Singapore, have already signed deals with NPCI to integrate their payment networks with UPI, enabling seamless cross-border payments. [Read more at the NPCI]

ABN AMRO issues tokenized corporate bond on public blockchain

ABN AMRO issued a €450,000 bond on a public blockchain on behalf of APOC Aviation. The bond’s entire issuance process was digital, including the preparation, placement and documentation. Ownership of the digital asset was recorded on the blockchain after payment was received, but payment took place on conventional payment rails. Investors store the digital assets in a wallet. [Read more at ABN AMRO]

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

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230110)

January 10, 2023January 10, 2023 ~ kiffmeister

Mexican central bank digital currency (CBDC) update

A Mexican central bank digital currency (CBDC) is reportedly still in its initial stages of development, with the general directorate of payment systems and market infrastructures indicating that it is still determining the requirements for its issuance. Also, in response to a transparency request made by El Sol de México, Banxico said that for the fiscal year of 2022 10.22 million pesos (about $535,000) were allocated to the central bank’s CBDC project, obtained from the fees charged to financial institutions for using the Interbank Electronic Payment System. [Read more at El Sol de México]

BoE engages external experts for CBDC projects

The Bank of England (BoE) has engaged Consult Hyperion, on a pair of £100,000+ CBDC assignments. The contract award notices for Point-of-sale [PoS] proof-of-concept [PoC] consultancy services and Feasibility study service on the e-commerce of CBDC were published on the UK government’s Contracts Finder service. The website also shows that the BoE is currently working with Oliver Wyman to provide support on paper for research on digital currency and the MIT Digital Currency Initiative. Interestingly, all were awarded under nontransparent procurement processes that allow the BoE to avoid open tenders. [Read more at Global Government Fintech]

Who Owns Custodied Crypto Assets? A New Bankruptcy Court Ruling Amplifies Concerns

Crypto-assets held in custodian-controlled accounts could become the property of that custodian in the case of a bankruptcy filing. A U.S. Bankruptcy judge in New York ruled that, under the plain terms of the Terms of Service, Celsius Network owns the assets in approximately 600,000 interest-bearing customer accounts and can use those funds as the bankrupt company sees fit in its bankruptcy process. For account owners, the judge’s ruling means that rather than immediate repayment in full, they are unsecured creditors, which moves down the repayment line and very likely means they will not ever receive all their funds back. [Read more at JDSupra]

The decision will be instructive in answering similar questions raised in the Voyager, FTX, and BlockFi bankruptcies, all of which had yield-earning accounts, but it will not qualify as controlling law over the issue. The Celsius Network decision provides at least one approach—start with the terms of use in order to set out the parties’ basic ownership rights under the contract. If such terms of use are unambiguous, then the plain language of the contract will determine whether deposited digital assets are considered property of the bankrupt debtor’s estate. Meanwhile, investors should hold their crypto-assets themselves in either “cold” or “hot” wallets—or both. [Read more at Goodwin Procter LLP]

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)

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230107)

January 7, 2023January 7, 2023 ~ kiffmeister

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.”

FRB-2022-CBDC-and-lessons-from-the-Fed-ON-RRP Download

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)

Kiffmeister’s global central bank digital currency monthly monitor

USDC stablecoin as a backdoor central bank digital currency

January 7, 2023December 4, 2024 ~ kiffmeister ~ 2 Comments

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. Since November, BlackRock has been managing about two-thirds of the reserve assets in a bespoke money market fund, the Circle Reserve Fund (CRF) , which invests mostly in U.S. short-dated Treasuries. The BPI claims that Blackrock has applied for the fund to access 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. The use of the ON RRP by the CRF could effectively transform USDC into a “backdoor” synthetic central bank digital currency (CBDC) if all of the assets are parked there. [Read more at the BPI]

However, Ledger Insights points out there are some frictions and applications to the application process that might trip up BlackRock’s purported ON RRP application on behalf of the CRF. First off, applicants must have been operating for at least one year, and the CRF was launched in November 2022 so the earliest it could apply would be in November 2023. Also, the application form asks about the proportion of shareholders in high risk sectors from an anti-money laundering (AML) perspective. Given Circle is the sole shareholder and its involvement in the cryptocurrency and DeFi sectors, that would be 100%. Nevertheless, the BPI fears that if and when the CRF gets Fed ON RRP access, USDC would become equivalent to an account at the Fed and a “breathtaking example of regulatory arbitrage… and introduce the potential for systemic contagion from the crypto markets into the traditional financial system.” However, IMF and New York Fed staff have written rather positively about the possibility of stablecoins backed directly by central bank deposits, although the Fed has been reluctant to give Master Account access to non-depository institutions, and even banks, like Wyoming-chartered Custodia Bank.

frb-2022-cbdc-and-lessons-from-the-fed-on-rrp Download