Month: April 2024
Kiffmeister’s #Fintech Daily Digest (20240428)
Evidence of concentrated DeFi liquidity from DEXs and AMMs
The OECD published a paper that provides evidence of increased concentration of decentralized finance (DeFi) liquidity provision in decentralized exchanges (DEXs) and automated market makers (AMMs). A low trade count is observed in liquidity pools where DeFi liquidity provision is concentrated, with 20% of the pools of some of the DEXs examined accounting for more than 90% of the trading volume of these DEXs. Also, a small number of liquidity providers participating in the examined pools represent a significant part of the trading activity. This could exacerbate DeFi vulnerabilities, with possible impact on market functioning, price discovery, and competitive dynamics. [Read more at the OECD]
Custodia to file appeal over denied access to Fed master account
Custodia Bank will appeal the US District Court ruling in Wyoming that supported the decision of the Federal Reserve Bank of Kansas City to deny Custodia a master account. This move is part of Custodia’s continued efforts to secure direct access to the Kansas City Fed’s payment systems, which it deems crucial for the growth of its operations. The appeal marks the latest development in a prolonged legal battle that goes back to 2022. The March 29, 2024 ruling highlighted the Fed’s discretionary power in granting or denying master accounts, the judge stating that “Federal laws do not require the Federal Reserve to give every eligible institution a master account.” [Read more at Bitcoinist]
FYI I’ll be speaking at the Digital Currency Conference in London on September 23-24. The conference will bring together policymakers, regulators, and technology and innovation experts to network and discuss all aspects of digital currencies. And enter the KiffmeisterDCC code at registration to get a 20% discount! [Find out more and register here]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240426)
CBDCs in the Middle East and Central Asia
The IMF published a paper on central bank digital currency (CBDC) developments in the Middle East and Central Asia (ME&CA) region. A survey of IMF country teams representing 31 ME&CA countries found that 19 are considering issuing or exploring CBDC, most of which are at the research stage, although a few are at the proof-of-concept (POC) stage (Bahrain, Georgia, Saudi Arabia, United Arab Emirates). Kazakhstan is most advanced in its CBDC journey, having initiated two digital tenge pilots. The region’s fragile and conflict-affected states and low-income countries (LICs) have expressed limited interest. The paper also includes three country case studies (Jordan, Kazakhstan, and Libya). [Read more at the IMF]
(The 31 countries surveyed were Algeria, Armenia, Azerbaijan, Bahrain, Djibouti, Egypt, Georgia, the Islamic Republic of Iran, Iraq, Jordan, Kazakhstan, Kuwait, the Kyrgyz, Republic, Lebanon, Libya, Mauritania, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tajikistan, Tunisia, Turkmenistan, United Arab Emirates, Uzbekistan, West Bank and Gaza, and Yemen.)
There’s a lot to digest here (68 pages of dense detail) and I’m still going through it to figure out when it’s taking about retail, and when it’s talking about wholesale CBDC, in search of new data for my two (retail and wholesale) CBDC databases. The paper is often fuzzy in that regard. But here are two tidbits I found interesting from a first pass:
- The Islamic Republic of Iran, where the “crypto trial” has finished the pre-pilot phase, will run on a platform called Borna, a permissioned DLT platform, meaning the central bank decides which entities have access. The technology was developed using Hyperledger Fabric. Iran has reportedly completed the pre-pilot phase of its “crypto rial,” but details of the project remain limited. [Source: Motamedi, M. 2022. “Why Is Iran Turning to a New ‘Digital Rial?” Aljazeera]
- Central Bank of Bahrain is also testing a wholesale CBDC based on the JPM Coin system, but mainly for interbank transactions instead of cross-border payments.
And this is an interesting nugget, with the IMF enthusiastically pumping Ripple Labs! I guess the authors didn’t read the G20 memo, or maybe the IMF is just trying to poke the U.S. authorities!? From page 5:
“In Georgia, where the focus is on a CBDC’s potential to promote financial inclusion, the central bank has been actively researching CBDC capabilities, design, and potential use cases since 2020 and officially launched a limited access live pilot of the digital lari with Ripple Labs on its cutting-edge CBDC platform.”
FYI I’ll be speaking at the Digital Currency Conference in London on September 23-24. The conference will bring together policymakers, regulators, and technology and innovation experts to network and discuss all aspects of digital currencies. And enter the KiffmeisterDCC code at registration to get a 20% discount! [Find out more and register here]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240423)
Kyrgyz Bank advances its digital som CBDC project
The Kyrgyz Bank Interagency Working Group (IWG) on Regulatory Impact Analysis (RIA) wrapped up its work on the implementation of a potential digital som. Their comprehensive analysis delved into ten Kyrgyz Republic legislative acts related to the introduction of the central bank digital currency (CBDC), proposing crucial amendments in the process. During a meeting of the Steering Committee on Digital Som, the IWG demonstrated a demo version of the digital som on the (blockchain) platform of one of the CBDC platform providers of CBDC. Going forward, the project team will continue further work on research, analysis of proposals, as well as negotiations with CBDC platform. [Read more at the Kyrgyz Bank and on Altynbek Kamchybek uulu’s LinkedIn post]
ECB says iPhone is currently incompatible with digital euro
The European Central Bank (ECB) is opposed to Apple’s proposed changes to the iPhone’s near-field communication (NFC) at the core of Apple Pay. The ECB argues that by not providing third parties with full access to the secure element (SE) of its NFC technology, Apple Pay maintains an unfair advantage against third-party payment apps on iPhones. Because of these limitations, contactless payments made through third-party apps on iPhone would be less user-friendly and ultimately be slower than Apple’s offering. Also, iPhones would be incompatible with the digital euro, because the current enabling legislation requires the ability to do peer-to-peer (P2P) and offline payments, the latter which requires access to the SE. [Read more at the ECB]
Stablecoins and national security: Learning the lessons of Eurodollars
The Brookings Institute published a paper by Timothy Massad, U.S. Commodity Futures Trading Commission (CFTC) , on how blockchain-based stablecoins could undermine the global financial system plumbing that has been exploited by U.S. authorities to protect national security interests (e.g., by implementing sanctions). He discusses various regulatory and legislative options, and finds them either insufficient or disrespecting reasonable privacy expectations. Mr. Massad suggests that, at minimum, stablecoin issuers should be required to engage in enhanced monitoring of blockchains for suspicious transactions and consider when the issuer must “freeze” stablecoins. [Read more at Brookings]
Interlinking fast payment systems for cross-border payments
The Reserve Bank of Australia (RBA) published a report on the benefits, design choices and challenges associated with linking fast payment systems (FPSs) across countries. It finds that connecting FPSs has the potential to considerably improve the speed and transparency of cross-border payments, benefiting both end users and service providers. Crucial to realizing these benefits are well-designed governance, scheme rules and payments processing capabilities, which help to manage risk and ensure a seamless cross-border payments experience. However, establishing an interlinking arrangement poses challenges, including dealing with differences in legal and regulatory frameworks across participating jurisdictions and agreeing on governance arrangements and scheme rules. [Read more at the RBA]
FYI I’ll be speaking at the Digital Currency Conference in London on September 23-24. The conference will bring together policymakers, regulators, and technology and innovation experts to network and discuss all aspects of digital currencies. And enter the KiffmeisterDCC code at registration to get a 20% discount! [Find out more and register here]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240421)
Bank of Japan publishes update on retail CBDC experiments
The Bank of Japan (BOJ) published a progress report on its central bank digital currency (CBDC) proof of concept (POC) work. It’s available only in Japanese, so I’m leaning on Norbert Gehrke’s excellent summary. The BOJ is building an account-type CBDC ledger that covers everything from user wallets/apps to the intermediary and central systems. In parallel, the BOJ has established a CBDC Forum with 64 private companies organized into five working group themes, with more planned. The BOJ aims to steadily advance CBDC discussions through POCs and the CBDC Forum, although no decision has been made yet on actual CBDC issuance. [Read the report here and Norbert’s summary here]
The Central Bank of Mauritania commissions G+D to design a digital currency
The Banque Centrale de Mauritanie is partnering with Giesecke+Devriant (G+D) to design and introduce a potential CBDC complementing the Ouguiya national currency. The aim of the joint project is to gain a clear understanding of how a digital Mauritanian Ouguiya could benefit society and the country’s economy. G+D will support the central bank in defining the requirements for a national CBDC and deliver the technical solution for initial testing of defined uses cases. [Read more at G+D]
FYI I’ll be speaking at the Digital Currency Conference in London on September 23-24. The conference will bring together policymakers, regulators, and technology and innovation experts to network and discuss all aspects of digital currencies. [Find out more and register here]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240420)
Tether launches USDT on TON Network, Telegram Wallet
Tether’s US dollar-pegged USDT and gold-pegged XAUT stablecoins have launched on The Open Network (TON), facilitating peer-to-peer (P2P) cross-border payments via Telegram’s Wallet app among over 900 million global users. TON is a blockchain network that Telegram started to develop in 2018, but they open-sourced it in 2020 after the U.S. Securities and Exchange Commission (SEC) charged the firm with violating federal securities laws. [Read more at Tether]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240419)
South African Reserve Bank to continue retail CBDC exploration
The South African Reserve Bank (SARB) published its Digital Payments Roadmap, aimed at realizing the overarching goals and strategies of the National Payment System Framework and Strategy: Vision 2025, including the promotion of competition and innovation, cost-effectiveness, interoperability and financial inclusion. In the Roadmap, the SARB commits to further exploring the issuance of retail and wholesale central bank digital currency (CBDC) over a two-year timeline. The work will follow up on the work that started in May 2021 to investigate the feasibility, desirability and appropriateness of issuing retail CBDC, and on the SARB’s wholesale CBDC proof of concept work that goes back to Project Khokha 1, completed in 2018. [Read more at the SARB]
Central Bank Digital Currency and monetary policy implementation
The European Central Bank (ECB) published a paper that discusses the potential impact of retail CBDC introduction on monetary policy implementation if it leads to a decrease in commercial bank deposits. Should this happen, bank holdings of central bank reserve holdings might shrink. However, the paper argues that uncertainty as to the timing and extent of any conversions of deposits into CBDC might prompt banks to scale up their demand for central bank reserves in order to hold larger precautionary buffers. Consequently, central banks might need to adjust their reserve supply and other features of their monetary policy implementation. In any case, the paper suggests CBDC design features could mitigate the risk of negative consequences for monetary policy implementation. [Read more at the ECB]
Project FuSSE aims to modernize financial market infrastructures
The Inter-American Development Bank (IDB) provided an update on Project FuSSE (Fully Scalable Settlement Engine), a joint project with the Bank for International Settlements (BIS) Innovation Hub and Bank of Canada. It is an initiative that offers open-source technology among central banks to facilitate the implementation of payment systems and other settlement infrastructures to advance financial inclusion Latin America and the Caribbean. It will also provide technical assistance for regulatory design and institutional capacity improvement. [Read more at the IDB]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240417)
New Zealand launches CBDC consultation
The Reserve Bank of New Zealand (RBNZ) launched its second retail central bank digital currency (CBDC) consultation (the first one was in 2021). Based on feedback and preparation of a business case, a decision will be made on whether to proceed to a “preparation” phase. The consultation document advocates for “digital cash” accessible to everyone, including those that don’t have a bank account, and should be usable when the power is out or the internet is down, and work via physical cards, and on devices like phones and or watches. [Read more at the RBNZ]
Modernizing financial markets with wholesale CBDC
The World Economic Forum (WEF) published a report that explores the potential of wholesale central bank digital currency (CBDC) to unlock new economic models and integration points. Four areas of differentiated value are highlighted. First they can realize a global settlement window by harmonizing foreign exchange (FX) and securities markets settlement times to overcome operational hour disparities among key trading corridors. Second, they can expand payment-versus-payment arrangements through cost-effective solutions that can support a diversity of currencies to enhance currency liquidity. Third, they can mutualize data across parties by securely transmitting settlement data across parties and jurisdictions to support automation, reduce settlement risk, and enhance trade and post-trade activities. Lastly, they tokenize credit risk-free settlement media for settling tokenized securities and supporting emerging tokenized payment instruments. [Read more at the WEF]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240416)
Bank of Israel considering remunerated CBDC
Andrew Abir, Deputy Governor of the Bank of Israel (BOI), floated the idea of a remunerated digital shekel, as a way to push banks to up their games. “We could consider that the digital shekel, which will be built to be able to pay interest directly on the public’s holdings, would actually do that. Of course, we will need to think about this carefully – for example, by setting it at a lower level than the Bank of Israel policy interest rate, and/or by limiting the types of users who will be eligible for it and the maximum amount on which interest would be paid.” [Read more at the BOI]
Finternet: the financial system for the future
The Bank for International Settlements (BIS) published its vision for a “Finternet” of multiple financial ecosystems interconnected with each other, much like the internet. The envisioned system leverages tokenization and unified ledgers, underpinned by a robust economic and regulatory framework, to dramatically expand the range and quality of financial services. The paper provides a blueprint for how key technical characteristics like interoperability, verifiability, programmability, immutability, finality, evolvability, modularity, scalability, security and privacy can be incorporated, and how varied governance norms can be embedded. [Read more at the BIS]
UK Finance announces new RLN experimentation phase
UK Finance announced work on a new UK Regulated Liability Network (RLN) experimentation phase with eleven of its members. The UK RLN is envisaged as a common “platform for innovation” across multiple forms of money, including existing commercial bank deposits and a shared ledger for tokenized commercial bank deposits. It will focus on three use cases; payment-upon-delivery for a physical product, the process of buying a home, and digital bond settlement. The experimentation phase will run until summer 2024 and will cover customer and business benefits, technical feasibility via proofs of concept in a technology sandbox, and the legal framework. [Read more at UK Finance]
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 john@kiffmeister.com.
Kiffmeister’s #Fintech Daily Digest (20240413)
Updates on European Central Bank retail and wholesale CBDC workstreams
The European Central Bank (ECB) published a slew of PowerPoint presentations from its two parallel central bank digital currency (CBDC) workstreams (wholesale and retail). First from the digital (retail) euro governance workstream:
- ECB Executive Board Member Piero Cipollone on the current digital euro state of play
- The ECB’s European Retail Payments Board (ERPB) on the digital euro timeline
- Update on the workstream on the methodology for the calibration of holding limits
- Technical considerations on providing multiple digital euro accounts
- State of play on offline digital euro
And the New Technologies for Wholesale settlement Contact Group (NTW-CG) focusing on the use of distributed ledger technology and other new technologies in wholesale financial markets, including what most everyone else calls wholesale CBDC, posted an update on its pilot timeline and onboarding activities.
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.