Kiffmeister’s #Fintech Daily Digest (20230915)*

September 15, 2023September 15, 2023 ~ kiffmeister ~ Leave a comment

Reserve Bank of India CBDC enhancements aim to boost adoption

The Reserve Bank of India (RBI) is reportedly planning to introduce new features to popularize the e-rupee retail central bank digital currency (CBDC), with transaction volumes running way short of the RBI’s end-2023 target (18,000/day versus a one million/day. The features include allowing digital rupee transactions when a customer is offline and linking the e-rupee to India’s Unified Payments Interface (UPI). In fact, many banks have already gone live with QR code-based e-rupee UPI interoperability, so this doesn’t seem to be new news. Also, HDFC Bank is reportedly already working with IDEMIA to build an offline e-rupee platform for feature phones. [Read more at Reuters]

Minutes of the July 2023 Bank of England CBDC Technology Forum

At the July 26, 2023 meeting of the Bank of England’s (BoE’s) CBDC Technology Forum Tom Mutton (Chair) explained that they were now at the start of the design phase of the digital pound roadmap, during which they would conduct experiments and proofs of concept, and develop a detailed blueprint. He noted that the design phase was expected to last for 2-3 years, after which a decision would be made on whether or not to proceed to the build phase, during which the Technology Forum is expected to provide ideas and expert analysis that could inform and challenge the Bank of England’s experiments and the eventual digital pound blueprint. [Read more at the BoE]

HSBC and HKUST to conduct one week hypothetical e-HKD trial

HSBC and the School of Business and Management of the Hong Kong University of Science and Technology (HKUST Business School) will run a one-week hypothetical e-HKD proof of concept. The bank will use distributed ledger technology (DLT) to simulate programmable money and instant settlement for retail payments. Around 200 HKUST Business School staff will receive hypothetical e-HKD to spend at five campus merchants, such as cafes. They can also receive rewards as a digital token. I’m not certain about this, but it may be running as part of the Hong Kong Monetary Authority (HKMA) e-HKD Pilot Programme announced in May 2023. [Read more at HSBC]

*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]

Kiffmeister’s #Fintech Daily Digest (20230914)*

September 14, 2023September 14, 2023 ~ kiffmeister ~ Leave a comment

Franklin Templeton files for Bitcoin ETF

Asset manager Franklin Templeton, which is one of the world’s largest asset managers, filed an application for a spot Bitcoin exchange-traded fund (ETF) with the U.S. Securities and Exchange Commission (SEC) on September 12, 2023. The product would be called “The Franklin Bitcoin ETF” and its shares would be listed and traded on the CBOE BZX Exchange. Coinbase would be the fund’s custodian and surveillance-sharing partner. [Read more at Decrypt]

Fintech funding in Europe stumbles 70% YoY

According to Finch Capital’s 8th Annual State of European Fintech Report, European fintech companies secured only EUR 4.6 billion in funding in H1 2023, versus the EUR 15.8 billion raised during the same period in 2022. The deal count in H1 2023 dropped 48% to 463. The massive drop was mainly driven by a decreased number of mega rounds, a retreat in activity from American investors, and a return to investment fundamentals. [Read more at Finch Capital]

Vanuatu launches VANKLIA, a new national payment system

The Reserve Bank of Vanuatu launched a new national digital payment platform, VANKLIA, to strengthen its digital economy and promote financial inclusion. The VANKLIA system is comprised of a real-time gross settlement (RTGS) component and an automated clearing house (ACH) component which facilitates the clearing of low value, high volume electronic fund transfers for batch payments. [Read more at the International Finance Corporation]

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230913)*

September 13, 2023September 13, 2023 ~ kiffmeister ~ Leave a comment

SWIFT begins beta tests of CBDC connector

SWIFT is working with three central banks and 30 financial institutions on beta tests of an experimental method for interlinking central bank digital currencies (CBDCs) with existing fiat infrastructures. In addition, SWIFT has started a second phase of sandbox testing, with commercial banks, central banks and financial market infrastructures exploring uses such as trigger-based payments for digital trade platforms, foreign exchange models, delivery vs. payment and liquidity saving mechanisms. [Read more at SWIFT]

Telegram integrates TON-based crypto wallet for its 800 million users

Telegram Messenger has reportedly integrated The Open Network-based self-custodial (TON Space) crypto wallet for its over 800 million monthly active users. All Telegram Wallet users can now access TON Space. Telegram Wallet is a bot that allows users to buy and sell crypto. Then, beginning in November 2023, all global Telegram users will be able to access the self-custodial wallet — excluding the U.S. and some other countries. In 2020, Telegram abandoned TON after the US Securities and Exchange Commission (SEC) sued Telegram for raising $1.7 billion through an initial coin offering (ICO) which they claimed was an unregistered security. [Read more at The Block]

World Bank study reveals key Fintech growth enabling factors

The World Bank published a paper that found that countries with less developed and less competitive banking systems exhibit higher levels of Fintech activity, in part explained by lower barriers to entry and more opportunities for digital financial services in such countries. It also found that Fintech activity is positively correlated with capital market development that may reflect a more favorable investment climate that fosters the emergence of fintech companies by providing the funding they need to develop. [Read more at the World Bank]

BCG Global Payments Report 2023

The Boston Consulting group (BCG) published its 2023 Global Payments Report, that takes deep dives into four payments industry subsectors: acquirers, issuers, wholesale transaction banks, and payments infrastructure providers. Total payments revenues grew at an annual rate of 8.3% from 2017 to 2022, taking the revenue pool to $1.6 trillion at the end of 2022. However, revenue growth is expected to slow as the retail payments mix shifts from cards to account-to-account transactions, and card margins shrink in some markets. [Read more at BCG]

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230912)*

September 12, 2023September 12, 2023 ~ kiffmeister ~ Leave a comment

BIS and Israel and HK central banks examine security, privacy and accessibility in CBDC design

Project Sela, a joint experiment conducted by the Bank for International Settlements (BIS) and the Israeli and Hong Kong central banks, showed that a retail central bank digital currency (CBDC) ecosystem can combine accessibility, competition and preventative cyber security, while retaining key advantages of physical cash. In Sela, the retail CBDC ledger is operated by the central bank without compromising end user privacy as personal identifiers are obfuscated. Retail payments are therefore settled directly on the central bank’s balance sheet in a privacy-preserving manner, meaning instant finality for transactions. [Read more at the BIS]

PayPal introduces on and off ramps for Web3 payments

U.S.-based PayPal users can now seamlessly convert their crypto into USD with its new off-ramp service. The company had already been operating an on-ramp service for its customers, allowing them to purchase crypto-assets. Currently, the new service is available to decentralized applications (dApps), wallets, and non-fungible token (NFT) marketplaces and is also available to users on MetaMask. Also Web3 merchants can integrate the new off-ramp service and connect to robust security controls and tools for fraud management, disputes, and chargebacks. [Read more at PayPal]

There are now two types of PayPal dollars, and one is better than the other

Interestingly, JP Koning shows that of the two types of US dollar digital currencies now offered by Pay Pal, its PayPal USD (PYUSD) stablecoins are actually safer than its the traditional account offering. Better quality assets back PYUSD, they are ranked more senior to other creditors if PayPal goes kaput in most states, and they are disclosed more transparently. Notably, PayPal’s regular accounts are regulated piecemeal under each U.S. states’ own peculiar version of a money transmitter license, that can almost always be legally backed by riskier assets, and typically do not require that they be held in trust solely for the benefit of customers. [Read more at Moneyness and the Cornell Law Review]

NIST stablecoin report highlights security and stability concerns

The US National Institute of Standards and Technology (NIST) published a report on stablecoin security considerations. These include unauthorized or arbitrary minting; vulnerability in smart contract codes leading to the theft of the stablecoin’s on-blockchain reserves, the malicious hacking or updating of smart contract codes, denial-of-service attacks on the data oracles that provide the smart contracts with off-blockchain information, and attacks on the underlying blockchain. The stability and trust issues the report identifies vary based upon the stablecoin use case, as well as the kind of marketplace that the stablecoins are traded upon. [Read more at NIST]

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230911)*

September 11, 2023September 11, 2023 ~ kiffmeister ~ Leave a comment

India’s central bank digital currency has 1.5M users, 300K merchants, says RBI chief

The Reserve Bank of India (RBI) reportedly provided an update on its central bank digital currency (CBDC) pilot that started in the wholesale segment in November 2022, followed by a pilot in the retail segment in December. The trial has been rolled out to approximately 1.5 million users, and is is being operated through 13 banks in 26 cities, and over 300,000 merchants as of end-August 2023. The RBI has enabled full interoperability with Unified Payments Interface (UPI) QR codes. Moreover, the RBI is likely to launch a CBDC pilot for transactions for interbank borrowing or call money market by October 2023. [Read more at Bitcoin.com]

Digital euro conspiracy theories and privacy concerns put EU central bankers in the hot seat

“Proponents of a digital euro are facing political opposition to their plans for a central bank digital currency (CBDC) – and technocratic central bankers aren’t sure how to respond… That opposition can start with legitimate concerns over privacy and the limits of government power – but can also venture into conspiracy theories that paint CBDCs as part of a much wider, orchestrated program of state control. ‘We can assure people you are not traced and we can prove it with audits and whatever, but if outside of the system people start talking about this and convincing each other on social media … then that is a big blow.”'” [Read more on CoinDesk]

Hungary for fintech: an interview with the Central Bank of Hungary’s Anikó Szombati

Global Government Fintech published an interview with Magyar Nemzeti Bank’s (MNB’s) Anikó Szombati on the central bank’s financial innovation agenda. She made particular mention of the MNB’s private blockchain-based non-fungible token (NFT) issuance and the associated mobile application platform. The first series of NFTs were based on six collector versions of a five forint coin. Users obtain the NFTs by solving quizzes. By collecting NFTs containing all six letters of the word ‘forint’, users were able to participate in a prize game in which they could win special physical coin sets. The MNB is now working with SODA (Sovereign Official Digital Association) on a bridging operation between the current private blockchain and a public blockchain. [Read more at Global Government Fintech]

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230910)*

September 10, 2023September 10, 2023 ~ kiffmeister ~ Leave a comment

SEC vs. Ripple: Commission urges court To grant appeal request in latest filing

In a new filing submitted on September 8 the Securities & Exchange Commission (SEC) urged the US District Court for the Southern District of New York to certify its motion for interlocutory appeal of the court’s judgment in the lawsuit against Ripple and “stay further proceedings until the resolution of that appeal.” This comes week after the payment technology platform argued that the court should not certify the commission’s interlocutory appeal. [Read more at the CourtListener]

The Palau stablecoin proof of concept reporting mess

On September 7, 2023 I reported that the Palau was wrapping up the first of its US dollar stablecoin (PSC) proof-of-concept (PoC) experiments on September 8, 2023. This was based on an X (formerly Twitter) post by Jay Hunter Anson, Digital Residency Office Director at the Palau Ministry of Finance. Some crypto publications took this to mean that Palau was entirely shutting down the PSC research project so Mr. Anson came back on X to make it clear that the PoC, originally scheduled for 60 days, was actually extended for another 30 days to test some additional use cases discovered along the way, and allow more people to participate.

We can blame the crypto press for not doing proper fact checking, but the Palau government could also do a better job of coordinating its communication. You have to link various X and Facebook posts to get the whole story. For example, an end-July post on the government’s Facebook page said that the PoC was originally scheduled for 90 days starting at the end of July, which would put the 60 day inflection point at the end of September, making the original September 7 post on X sound a bit fishy. Later on the 7th, Mr. Anson filled in the blanks to imply that the 90-day PoC had three phases. The August phase was apparently for live field testing, the September phase will see the completion of retailer redemption, freezing of the August batch of PSC and then the minting of new PSC for another live test in the October phase.

However, the confusion doesn’t end there. There was another post on the government’s Facebook page on September 7 that said that the PoC terminates at the end of September, contradicting the end-July announcement of a 90-day PoC.

All of this is why most governments have dedicated communications staff to coordinate such messages.

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230909)*

September 9, 2023September 9, 2023 ~ kiffmeister ~ Leave a comment

How should central banks explore central bank digital currency?

The IMF published a paper (co-written by yours truly) that proposes a dynamic central bank digital currency (CBDC) decision-making framework under which the central bank can make decisions under uncertainty. A phased and iterative approach could allow central banks to adjust the pace, scale, and scope of their CBDC projects as the domestic and international environment changes. If designed appropriately, CBDCs could allow central banks to modernize payment systems and future-proof central bank money as the pace and shape of digitalization continues to evolve. However, the decision to proceed with CBDC exploration and an eventual launch would need to be jurisdiction specific, depending on the degree of digitalization of the economy, the legal and regulatory frameworks, and the central bank’s internal capacity. [Read more at the IMF]

A guide to central bank digital currency product development

The IMF published a paper that develops a CBDC-specific project management methodology that establishes a common terminology and offers guidance to development teams on best practices for addressing the complex requirements and risks associated with CBDC. It is centered on an original five-step approach called the “5P Methodology”: preparation, proof-of-concept, prototypes, pilots, and production. The methodology emphasizes a phased approach to CBDC research and development, with strong focus on research preparation, experimentation and testing, risk management, stakeholder engagement, and cyber resilience. [Read more at the IMF]

Ripple acquires Fortress Trust, expands license portfolio in the US

Ripple is expanding its portfolio of U.S. regulatory licenses with the acquisition of Fortress Trust. Fortress Trust provides regulatory and technology infrastructure for blockchain organizations. The company holds a Nevada Trust license that allows it to custody financial assets. The acquisition is in addition to the more than 30 licenses Ripple holds across the country as a money transmitter, along with a BitLicense in New York, required digital currency businesses operating in the state. [Read more at Businesswire]

Open banking, shadow banking and regulation

The Bank of England (BoE) published a paper that argues that open banking will create diverse banking models: competitive banks (serving depositors who adopt open banking) and monopolistic banks (serving the other depositors). In equilibrium, at the margin, the profit of competitive and monopolistic banks should be equal. Hence, the system-wide impact of any policy change cannot be judged solely by the impact on a typical monopolistic or competitive bank, the impact on relative profitability also matters since this can lead banks to move from one banking type to another. [Read more at the BoE)

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230908)*

September 8, 2023September 8, 2023 ~ kiffmeister ~ Leave a comment

Hong Kong expands trial of China’s digital yuan to more banks

Hong Kong is reportedly actively testing China’s digital yuan and has entered the second phase of technical testing to incorporate a predominant local payment system. The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) have completed the initial technical tests for cross-border payments using the digital yuan in Hong Kong. Currently, they are conducting the second phase of the technical trial, involving more Hong Kong banks and testing the digital yuan wallet’s top-up function through the Faster Payment System. [Read more at The Block]

Circle says its USDC stablecoin was as diversified as possible. Is that accurate?

JP Koning published an article that debunks Circle’s claim that the reserves backing its USDC stablecoin were “as diversified as possible” prior to the collapse of Silicon Valley Bank, in which $3.3 billion (8% of reserves) was held in the form of uninsured deposits. Circle blames banking for its woes, which is “extremely difficult” for crypto firms, but Paxos doesn’t seem to be having the same problem with its USDP stablecoin. $185.5 million were spread over thousands of banks using deposit placement networks like IntraFi, and were thus insured by the government. For the remainder, Paxos obtained $72 million worth private insurance. Only $10.9 million in deposits were effectively unprotected, a small 1.3% sliver of USDP’s total assets. JP askes, rather than keeping 8% of its assets lodged at a second tier bank without insurance, why didn’t Circle follow Paxos’s risk reduction strategy? [Read more at Moneyness]

Fortune magazine published a behind-the-scenes account of Circle’s Silicon Valley Bank (SVB) trials and tribultations. Circle’s management “devised a plan A, B, and C. The first failed when Circle’s attempted wire to get out its deposits didn’t go through. [They] remained optimistic that the government would guarantee its deposits—plan B. In case that didn’t work out, the executives spent the weekend negotiating deals with companies who would buy Circle’s SVB holdings for $0.85 on the dollar, which, along with Circle’s own balance sheet, would be enough to restore USDC’s reserves.” [Read more at Fortune]

IOSCO consults on global DeFi regulation. Targets MEV, developers

The International Organization of Security Commissions (IOSCO) published a report on the regulation of decentralized finance (DeFi). It makes nine recommendations that include analyzing the DeFi protocol, identifying responsible persons and mapping functionality to existing regulated activities. The proposed recommendations are principles-based and outcomes-focused, and aimed at DeFi products, services, arrangements, and activities by applying IOSCO’s widely accepted global standards for securities markets regulation. [Read more at IOSCO]

The oracle problem and the future of DeFi

The BIS published a paper on the role of oracles to import real-world data into blockchain-based decentralized finance (DeFi) environments for use in smart contracts. Smart contracts in DeFi rely on accurate reporting of real-world events to function correctly. The oracle problem poses a challenge of incorporating reliable real-world information into DeFi applications while maintaining the core principles of decentralization: trustlessness and no single point of failure. It underscores a notable limitation of DeFi, which requires sacrificing trust in intentions (whether individuals or institutions are fair and ethical) that cannot be fully captured by consensus protocols. This restricts the scope of DeFi to communities that are willing to rely solely on trust in competence. [Read more at the BIS]

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230907)*

September 7, 2023September 7, 2023 ~ kiffmeister ~ 1 Comment

CBDCTracker.org released another update to its central bank digital currency (CBDC) database. [Check it out at CBDCTracker.org and read Atakan Kavuklu’s summary of the key updates on Medium]

FSB and IMF outline comprehensive approach to identify and respond to macroeconomic and financial stability risks associated with crypto-assets

The Financial Stability Board (FSB) and the IMF published a report outlining a comprehensive policy and regulatory response to crypto-asset activities to address the risks of crypto-assets to macroeconomic and financial stability. To address macroeconomic risks, it says jurisdictions should safeguard monetary sovereignty and strengthen monetary policy frameworks, guard against excessive capital flow volatility and adopt unambiguous tax treatment of crypto-assets. Some authorities might consider bans but they should not substitute for robust macroeconomic policies, credible institutional and monetary policy frameworks, and comprehensive regulation and oversight. [Read more at the FSB]

Bangko Sentral ng Pilipinas selects technology for CBDC project

The Bangko Sentral ng Pilipinas (BSP) has selected Hyperledger Fabric as the distributed ledger technology (DLT) for its Project Agila (formerly known as Project CBDCPh) wholesale central bank digital currency (CBDC) sandbox tests. Project Agila aims to orient the BSP and participating financial institutions on CBDC technology solutions that have the potential to enhance the country’s large-value payment system. By the end of Project Agila, the participants are expected to have a clearer understanding of CBDC technology and assess the capability of wholesale CBDCs to foster advancements in the large-value payment system. [Read more at the BSP]

Palau to freeze USD-backed stablecoin after proof-of-concept launch in July

Palau is wrapping up the first of its US dollar stablecoin (PSC) proof-of-concept (PoC) experiments on September 8, 2023, just over a month after the launch in July 2023 that was slated to run for three months. Following the distribution halt, PSC will also be frozen after September 15, becoming unavailable for spending by users. The government will send a survey to PoC participants, the results of which will be critical to deciding whether to move forward with the next phase of the stablecoin program. [Read more on X]

IMF reports on Saudi Arabia’s CBDC exploration

The IMF in its Saudi Arabia 2023 Article IV staff report reported on the Saudi Central Bank (SAMA) central bank digital currency (CBDC) explorations. Through Project Aber, SAMA was one of the first central banks to experiment with domestic and cross-border wholesale CBDC. Leveraging the lessons of the experiment, SAMA is continuing to explore wholesale CBDC use cases. SAMA is undertaking a three-phased approach (evaluation, testing, implementation), allowing for ongoing assessment at each stage, against which the future roadmap will continue to evolve. [Read more at the IMF]

FASB says crypto-assets should be marked at current values

The U.S. Financial Accounting Standards Board (FASB) has moved to insist companies use “fair-value” accounting to report their crypto holdings. The accounting rules will be mandatory for all companies for fiscal years beginning after December 15, 2024. However, companies will be allowed to adopt the rules once FASB formally publishes them later in 2023. The crypto assets have to be currently classified as intangible assets, as defined by US accounting rules, and fungible. Stablecoins and wrapped tokens aren’t covered. [Read more at FASB]

Kiffmeister’s central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230906)*

September 6, 2023September 6, 2023 ~ kiffmeister ~ Leave a comment

Blockchain privacy and regulatory compliance: towards a practical equilibrium

Ethereum’s Vitalik Buterin has co-authored a paper on a smart contract-based protocol designed to reconcile financial privacy with regulatory compliance. The core idea is to allow users to publish a zero-knowledge proof, demonstrating that their funds (do not) originate from known (un-)lawful sources, without publicly revealing their entire transaction transaction history. This is achieved by proving membership in custom association sets (“privacy pools”) that satisfy certain properties, required by regulation or social consensus. [Read more on SSRN]

Bank of Canada explores impact of quantum computing on CBDCs

The Bank of Canada has engaged evolutionQ for a research project involving quantum-safe cybersecurity technologies for greenfield digital currencies. The Bank of Canada is exploring technologies and technical ecosystems that may inform decisions relating to the development of a potential digital loonie. The evolutionQ research will explore the impact of integrating quantum-safe encryption methods and crypto-agility as design goals for central bank digital currency (CBDC). The code developed during the research will be released as open source to give developers and researchers the opportunity to explore the new cryptographic methods. [Read more at evolutionQ]

Kiffmeister’s central bank digital currency monthly monitor