Month: May 2023

Kiffmeister’s #Fintech Daily Digest (20230506)

~ kiffmeister

On Tuesday (May 9, 2023) at 10am EST (3 pm UK time) I’ll be chatting (virtually) with author and commentator David Birch (15Mb Ltd) about what to expect from the introduction of new forms of money, such as central bank digital currency (CBDC) and stablecoins. Are the use cases strong enough to expect their adoption? Are we ready and eager to use and receive payments in these new forms of money? [Sign up at FNA]

Binance faces US probe of possible Russian sanctions violations

The US Department of Justice (DOJ) is reportedly investigating whether Binance was used illegally to let Russians skirt US sanctions and move money through the cryptocurrency exchange. Binance is also already being examined by the Internal Revenue Service (IRS) and federal prosecutors, regarding anti-money laundering obligations compliance, and the Securities and Exchange Commission (SEC) has been scrutinizing whether the exchange has supported the trading of unregistered securities. [Read more at Bloomberg]

Mapping the privacy landscape for central bank digital currencies

An article by Raphael Auer, Rainer Böhme, Jeremy Clark and Didem Demirag explores the multiple dimensions of retail CBDC privacy considerations. They point to the number of distinct stakeholders, combined with the technical challenges, as possibly responsible for stalling progress toward deploying retail CBDC. One step forward is understanding who the key stakeholders are and what their interests are in payment records. Knowledge of conflicting interests is helpful for developing requirements and narrowing the range of technical solutions. This article contributes to the literature by identifying three stakeholder groups – privacy enthusiasts, law enforcement, and data holders – and exploring their conflicts. A main insight is that nuanced data-access policies are best to resolve the conflicts, which in turn rule out many technical solutions that promise “hard privacy,” meaning solutions relying on cryptography and user-guarded secrets without room for human discretion. This observation shifts attention to a softer form of privacy-enhancing technologies, which gives authorized stakeholders the capability to access certain payment records in plaintext under defined circumstances. Such a system depends on compliance and accountability, supported with technically enforced access control, limited retention periods, and audits. This is referred to as “soft privacy”. [Read more at Pulpsy.com] 

Crypto-assets and CBDC – Potential implications for developing countries

The United Nations Conference on Trade and Development (UNCTAD) published a paper aimed at supporting developing country policymakers in their thinking about crypto-assets. Crypto adoption has been strong in developing countries, based on its purported capacity to increase financial inclusion, reduce costs of remittances, and ease access to investment finance and export credit. However, any substitution of national sovereign currencies by crypto-assets can jeopardize financial stability and the effectiveness of monetary policy, reduce the effectiveness of capital controls, pose risks to countries’ monetary sovereignty and, through the pseudonymous character of crypto assets, facilitate illicit financial flows. Some of these challenges can be addressed by regulation, improving financial inclusion and monetary stability, CBDC, fast retail payment systems and improved auxiliary digital infrastructure. [Read more at the UNCTAD]

A simple model of a central bank digital currency

The National Bureau of Economic Research (NBER) published a paper that highlights the trade-offs between physical and digital forms of retail central bank money based on a general equilibrium model. It finds that the key differences between cash and CBDC include transaction efficiency, possibilities for tax evasion, and, potentially, nominal rates of return. It establishes conditions under which cash and CBDC can co-exist and shows how government policies can influence relative holdings of cash, CBDC, and other assets. The paper illustrates how a CBDC can facilitate negative nominal interest rates and helicopter drops, and also how a CBDC can be structured to prevent capital flight from other assets. [Read more at the NBER]

Wholesale CBDC – the safe way to debt capital market efficiency

The European Stability Mechanism (ESM) published a paper that analyzes the usefulness of digital currencies for wholesale financial transactions in Europe. It identifies the risks impede broad adoption of distributed ledger technology (DLT), despite potential widespread debt capital market efficiency gains from DLT-based smart contracts. A wholesale CBDC on a private permissioned blockchain could overcome these risks and impediments and lead to significant efficiency gains in the financial system. [Read more at the ESM] 

Stablecoin runs and the centralization of arbitrage

A paper by Yiming Ma, Yao Zeng, and Anthony Lee Zhang analyzes the run risk of USD-backed stablecoins and uncover a dilemma between stablecoins’ price stability and financial stability. They show that panic runs exist even though general investors only trade stablecoins in secondary markets with flexible prices. Run incentives are reinstated by stablecoin issuers’ liquidity transformation and the fixed $1 at which arbitrageurs redeem stablecoins for cash in the primary market. The authors discover that more efficient arbitrage amplifies run risk. This explains why stablecoin issuers only authorize a small set of arbitragers even though it comes at the expense of maintaining a stable secondary price. In other words, the centralization of arbitrage embeds an inherent tradeoff between run risk and price stability. The paper’s findings are based on a model and a novel dataset on stablecoin redemptions, trading, and reserve assets. Calibrating the model, the authors find a higher run risk for USDT, the largest stablecoin, compared to USDC, the second-largest stablecoin. However, even USDC bears significant run risk due to its less concentrated arbitrage and more concentrated deposit holdings. [Read more here]

Upcoming conferences, webinars and speaking engagements:

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 (20230505)

~ kiffmeister

Hungary takes a novel approach to blockchain testing

Magyar Nemzeti Bank has collaborated with the Sovereign Official Digital Association (SODA) to issue non-fungible tokens (NFTs) on a private blockchain. By successfully participating in financial literacy quizzes, Hungarian coin collectors and NFT enthusiasts are being awarded central bank-issued tokens and then swapping and trading them on the Money Museum mobile application. This is part of a contest to win a set of limited edition commemorative coins. As any member of the public can use the blockchain to collect, swap and register their ownership of the coins, this type of activity – though gamified – this is arguably a central bank digital currency (CBDC) pilot. [Read more at OMFIF]

Zimbabwe central bank sets price to sell gold-backed digital tokens

The Reserve Bank of Zimbabwe (RBZ) will start selling its gold-backed digital currency on May 8, 2023. Applications must be for a minimum of US$10 and US$5,000 for individuals and corporates and other entities, respectively, in U.S. dollars and local currency. The US dollar price will be “informed or guided” by the international gold price as determined by the London Bullion Market Association PM fix. Payment in local currency will be at a 20% margin above the willing-buyer willing-seller interbank mid-rate. Applications will close on May 10, 2023. [Read more  at  the  RBZ]

Brazil’s central bank releases the directives of the digital real technical testing

The Banco Central do Brasil (BCB) published the details of its digital real central bank digital currency (CBDC) technical testing. It will involve no real transactions (so it isn’t a pilot). Its aim is to validate the use of a DLT solution on the Hyperledger Besu platform, evaluating programmability and the ability to comply with legal and regulatory requirements, mainly related to privacy, as well as its technological viability. The details include the criteria for selecting the ten participating institutions. [Read more at the BCB]

Reserve Bank of India and Bank for International Settlements launch G20 TechSprint 2023

The Reserve Bank of India (RBI) and the Bank for International Settlements Innovation Hub (BISIH) have launched the fourth edition of the G20 TechSprint, a global technology competition to promote innovative solutions aimed at improving cross-border payments. Developers from around the world should submit application from May 04, 2023 to June 04, 2023 and the TechSprint will conclude around August/ September 2023. The 2023 TechSprint will focus on AML/CFT/Sanctions technology solutions to reduce illicit finance risk, FX and liquidity technology solutions to enable settlement in emerging market and developing economy (EMDE) currencies, and technology solutions for multilateral cross-border CBDC platforms. [Read more and apply at the RBI]

Navigating Bankruptcy in Digital Asset Markets

The International Swaps and Derivatives Association (ISDA) published the second of two papers that examines how digital assets may be held by customers through intermediaries and considers how those assets can be protected following an insolvency of the intermediary, with a specific focus on English and US law.

The first paper focused on the enforceability of netting arrangements, finding that it depends on the counterparty’s local insolvency law, which may exclude or omit digital assets from its scope of application. On collateral posting, it is likely that most (if not all) developed jurisdictions will recognize digital assets as property that is protected under local law. However, the precise nature and extent of any rights associated with that property interest, the strength of legal certainty and certain technical issues, will vary based on the applicable jurisdiction(s). [Read more at ISDA]

The second paper, concluded that traditional and fundamental protections of clear legal terms and segregation of assets can be adapted to the world of digital assets. It recommended that rules governing the ownership of customer digital assets following insolvency of an intermediary should be made as clear as possible. Achieving greater clarity in the application of these rules will ensure that customers are given equivalent rights and protections to what they would expect for traditional assets or financial products. [Read more at ISDA]

Nearly half of Americans think their money isn’t safe in a bank

According to a poll released on May 4, 2023 by Gallup, 48% of U.S. adults are concerned with their money, broken down into 19% who are “very” worried and 29% who are “moderately” worried, despite the fact that the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per borrower, per bank. On the other hand, 30% selected “not too worried” and 20% are “not worried at all.” The poll was conducted between April 3 and April 25 following the collapse of Silicon Valley Bank in March. [Read more at Fast Company]

Upcoming conferences, webinars and speaking engagements:

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 (20230504)

~ kiffmeister

Florida and North Carolina legislators approve anti-CBDC legislation

The North Carolina (NC) House of Representatives and the Florida House of Representatives and Senate approved anti-central bank digital currency (CBDC) legislation.  The NC legislation prohibits individuals from using CBDCs for any payments to the state, and bars the Federal Reserve from using NC as a potential CBDC pilot testing ground. The Florida legislation excludes CBDC from the definition of “money” for purposes of the Uniform Commercial Code (UCC). The Cato Institute’s Nicholas Anthony has written a nice explainer on the impact of the UCC on digital currency in general, and the Uniform Law Commission has published a paper that covers the CBDC impact specifically. [Read more at Kitco]

The SEC redefines “exchange”: An act in three parts

The US Securities and Exchange Commission (SEC) has reopened the comment period on proposed amendments to Rule 3b-16 under the Securities Exchange Act of 1934. The amendments could significantly expand the number and type of platforms subject to registration with the SEC as exchanges or broker-dealers, including decentralized finance (DeFi) platforms that trade crypto-asset securities. The reopening requested information and public comment on crypto-asset securities trading on such systems. [Read the SEC press release here and analysis by Morrison Foerster here]

Upcoming conferences, webinars and speaking engagements:

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 (20230503)

~ kiffmeister

CBDCTracker.org released another update as it aims to be the central, accurate and up to date information point for all CBDC projects. Key highlights since the last update on April 18 include:

  • Belarus and Peru (with assistance from the IMF) starting to investigate CBDC
  • Changshu city officials being paid in e-CNY in another attempt to promote its use
  • The ECB publishing a third progress report and announcing an investigation into wholesale CBDC
  • Ghana delaying the launch of the eCedi
  • The Bank of Israel outlining potential scenarios for deciding to issue a digital shekel
  • Sweden’s Sveriges Riksbank publishing an update on its e-krona technical work
  • The Schweizerische Nationalbank planning to continue its wholesale CBDC-based securities settlement-focused Project Helvetia

Digital euro legislative proposal delayed

A digital euro legislative proposal was to be published on May 24, 2023, but it has now been delayed until June 28, 2023.  It will be published alongside documents pertaining to data access in financial services and the revision of European Union (EU) rules on payment services. [Read more at the European Commission]

Upcoming conferences, webinars and speaking engagements:

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 (20230502)

~ kiffmeister

Bhutan has been mining Bitcoin with hydropower since BTC price was $5,000

The commercial and investment arm of Royal Government of Bhutan, Druk Holding and Investments (KHI), has been mining Bitcoin since April 2019 when the crypto-asset was priced around $5,000 (versus the current $28,000 or so). KHI is exploiting the country’s vast amounts of cheap energy generated through its hydro projects. Plus the the country’s high mountain passes or mountains provide natural cooling for the mining rigs that would consume a lot of power for air conditioning in warmer places. [Read more at The Bhutanese]

Coinbase launches International Exchange with Bitcoin and Ethereum perpetual futures

The Bermuda-based Coinbase International Exchange launched following regulatory approval from the Bermuda Monetary Authority (BMA). It will initially offer Bitcoin and Ethereum perpetual futures settled in USD Coin (USDC) only to qualified institutional clients outside of the United States through an application Programming interface (API). According to Coinbase, perpetual futures accounted for nearly 75% of global crypto trading volume in 2022, and Coinbase’s offerings will allow leverage of up to 5x. [Read more at Coinbase]

Upcoming conferences, webinars and speaking engagements:

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 (20230501)

~ kiffmeister

Zimbabwe central bank to issue gold-backed digital coins in May

The Reserve Bank of Zimbabwe (RBZ) will introduce a gold-backed digital currency on May 8. They will not be pegged to any of the country’s units of account (Zimbabwe dollars, U.S. dollars and South African rand). The digital coins will be priced 20% above market and marketed as investments. However, digital wallets will be made available in a later phase to facilitate person-to-person payments with them. [Read more at the RBZ]

Central African Republic to drop crypto as legal tender

The Central African Republic’s (CAR’s) parliament has reportedly repealed legislation that made crypto-assets legal tender. A new law amends an April 2022 statute that proved controversial among the CAR’s partners in the Economic and Monetary Community of Central Africa. The idea was also likely doomed from the outset by the lack of internet connectivity in the region (only about 10% percent of the population have internet access). [Read more on Twitter]

Upcoming conferences, webinars and speaking engagements:

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]