Offline payments for smartphones
Crunchfish published a paper by Lipis Advisors on the challenges of implementing offline payments on smartphones and how to mitigate the risks. Offline payments require a much higher security than what is offered by the smartphone rich execution environment (REE). This higher level of security may be achieved by implementing offline payments as a trusted application (TA) protected by a tamper-resistant element (TRE) that provides a secure runtime and storage for both cryptographic keys and other offline assets, such as the offline balance and risk rules. The TRE can be provided either as a hardware-based standalone TRE or a software-based app-integrated TRE, the trade-off being the higher security of the former versus the greater scalability of the latter. [Read more at Crunchfish]
Banca D’Italia published a paper on the channels through which the introduction of a central bank digital currency (CBDC) may affect the banking system and the economy at large. The paper also provides a set of illustrative exercises about the potential impact of a CBDC on the funding structure and profitability of banks using data on the Italian banking system between June 2021 and March 2023. It finds that the impact depends on how credit institutions re-optimize their balance sheets in response to the outflow of deposits induced by the CBDC. It finds that the potential impact could be manageable if there were individual holding limits and the CBDC were introduced in an environment characterized by ample liquidity and stable funding for banks. [Read more at Banca D’Italia]
CBDC and bank lending: The role of financial frictions
Fernando Cirelli (Columbia University) and Remo Nyffenegger (University of Basel) posted a paper that examines the impact of CBDC on bank lending, emphasizing the role of different financial frictions. “Within a stylized general equilibrium model, we integrate a banking sector characterized by market power on deposits and leverage constraints, together with liquidity in households’ utility. Calibrating the model to US data and simulating a CBDC introduction as a shift in households’ preferences for public money, our results indicate that a CBDC increases bank lending when market power is the primary operating friction in the banking sector. However, this outcome reverses when leverage constraints are binding for banks.” [Read more on SSRN]
The impact of a digital euro on financial stability and consumer welfare
From the European Banking Federation (EBF) comes another paper that examines the impact of CBDC on bank deposit outflows, this one focusing on different digital euro holding limits . It confirmed that the higher the limit, the greater the outflows, with smaller banks being the most vulnerable, and the effect greater when the banking system is under stress. [Read more at the EBF]
Market structure of crypto-asset exchanges: Challenges and trends
The Bank of Canada published a paper that provides an overview of crypto exchanges, contrasting their design with exchanges in traditional financial markets and discussing emerging regulatory trends and innovations aimed at solving the problems crypto-asset exchanges face. It draws particular attention to the “vast amounts” of crypto-assets that crypto exchanges hold on their users’ behalf, “exposing users to continued losses from hacks, price dislocations and the whims of exchanges and third-party processors. The paper also points to important regulatory and oversight gaps between crypto exchanges and the infrastructure that supports traditional financial markets. [Read more at the Bank of Canada]
FYI here are some of my upcoming speaking engagements:
– Digital Euro Conference 2024 (Frankfurt on February 29)[Register here and get a 20% discount with the Kiffmeister20 code]
*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.
Kiffmeister’s 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 (only) if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and 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]