Category: CentralBanking

Kiffmeister’s #Fintech Daily Digest (20240906)

~ kiffmeister

BCB announces projects selected for the second phase of Drex testing (Ledger Insights)

Banco Central do Brasil (BCB) announced the 13 themes that will be trialed during the second phase of the Drex wholesale central bank digital currency (CBDC) project. The first phase involved testing processes such as issuing, transferring and settling digital treasury bonds with tokenized commercial bank deposits with wholesale CBDC utilized for interbank settlements. During the second phase, various financial services will be developed via smart contracts on the Drex platform created by 16 consortia or companies. The platform is a permissioned Ethereum network using Hyperledger Besu. [Read more at the BCB]

Lessons from India’s Unified Payments Interface (UPI)(SUERF)

Société Universitaire Européenne de Recherches Financières (SUERF) published a note that draws lessons from the success of India’s Unified Payments Interface (UPI). It argues that this success majorly owes to ease of development of applications, easy use and zero-transaction fees for end-users. Further success factors have been strict data protection rules, active partnership with the private sector and adept regulation. The note also discusses the organization of the Indian payment market since the launch of UPI, and the changes in digital payment market in India, with a focus on payment volumes and values. It highlights the increasing investments in the payments market and increased adoption over time, and provides insights into the implications of payment systems for financial inclusion in India, and touches upon some challenges UPI faces. [Read more at SUERF]

Tokenization: another giant leap for securities? (NY Fed)

The U.S. Federal Reserve Bank of New York (NY Fed) published an article that explains what tokenization is and how it works, and looks at how past innovation in financial markets might offer lessons for the future. Multiple successful experiments show efficiencies in a completely tokenized world—where money and securities are all tokenized and settlement can be automated and synchronized with smart contracts. Change takes time, and there may be a period of years where tokenized money would need to interact with traditional securities, or vice versa. As an example, the article points to the Swiss National Bank (SNB) Project Helvetia which initially tried to link the existing payment system to a tokenized securities system, but found that without tokenized cash operational burdens were added, not reduced. Hence, when Helvetia went live, it did so with wholesale CBDC. [Read more at the NY Fed]

Focusing on users: lessons for Canada’s CBDC from the digital euro and digital pound (CIGI)

The Centre for International Governance (CIGI) published Ori Freiman’s paper that explores how Canada can craft a responsible and user-centric approach to its digital loonie project. It emphasizes meaningful public engagement in both technical design and regulatory processes — drawing from the U.K. and European Union (EU) consultative approaches. It also highlights the importance of responsible personal data handling and clear regulatory language, learning from EU expectations and UK legislative concerns. It concludes with recommendations that span across five key areas, critical to the successful integration of the digital loonie within the fabric of society; the developmental approach, engagement strategy, regulation and consumer protection, regulatory novelty and further research. [Read more at CIGI]

AI and Central Banks—Speeding Ahead within Legal Guardrails (IMF)

International Monetary Fund (IMF) staff published a short note that highlights the legal challenges concerning central banks’ governance, transparency, and accountability in central banks’ AI exploration, first covered in a 2021 IMF Fintech Note. AI can significantly strengthen central banks’ agility to predict and mitigate crises and improve monetary policy implementation, as well as the regulation and supervision of financial institutions. However, the use of AI tools could pose risks and challenges to central banks’ governance, data privacy, intellectual property, cybersecurity, and legal liability. An effective AI journey for central banks requires completion of ‘AI legal checkpoints’: is there an effective oversight function? Is there adequate expertise? Are central banks’ decisions relating to AI transparently disclosed? Do central banks remain accountable for their actions? Central banks should carefully assess if their legal frameworks are adequate to ensure they are well equipped for their AI journey. [Read more at the Oxford Business Law Blog]

I don’t consider AI a “Fintech” issue but I have recently started to track the topic, mainly from a central banking policy perspective. I’ve been collecting them here: https://www.diigo.com/user/kiffmeister?query=%23AI.

Upcoming Speaking Engagements:

  • CBDC Conference, Istanbul, September 10-12. The conference will offer representatives of central banks, commercial banks, technology providers, policy makers and academics the perfect platform to learn about the latest CBDC developments, exchange ideas with experts and peers. [Find out more and register here][Central bank delegates may be eligible for free registration (email registration@cbdc-conference.com to find out more)]
  • Digital Currency Conference, London, 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]

And 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 (02/25/2022)*

~ kiffmeister

Sorry for the delay, but I was attending (and participating in) the excellent in-person Currency Research digital currency conference in Washington DC. (That’s me, second from the left in the photo below!)

It’s Time to Abandon the “Token vs. Account” Discussion

Celo’s Ezechiel Copic tears down the bogus distinction between “account-based” and “token-based” digital currency (DC), where ownership of the former is tied to identity, and the latter requires verifying the validity of the object used to pay. The distinction makes great sense in the physical currency world, but breaks down in the DC world, where blockchain-based DCs muddy the waters. A NY Fed article back in 2020 made similar points, but the bogus distinction persists! [Read more]

Digital Euro Consultancy Request for Proposals

The European Central Bank published a request for proposals for digital euro design and business model consultancy services. A pre-qualification phase will select 10 candidates to be invited to tender, after which five successful bidders will be awarded with a framework agreement. The total value of the contracts, excluding value-added taxes is EUR20,000,000. [Read more]

Ukrainian central bank suspends electronic cash transfers

The National Bank of Ukraine ordered electronic money (e-money) issuers to suspend the issuance of e-money and the replenishment of electronic wallets with e-money, as Russian forces lay siege across Ukraine. Other measures included suspending the foreign exchange market, limiting cash withdrawals and prohibiting the issuance of foreign currency from retail bank accounts. This has led to many Ukrainians reportedly turning to cryptocurrencies. [Read more]

Avanti Is Now Custodia, Announces Countdown to Launch in Q2

Wyoming-based Avanti Financial Group has changed its name to Custodia Bank, and announced plans to launch in Q2 with U.S. dollar deposit accounts for business customers, initially providing ACH and Fedwire services. Its post-launch roadmap includes digital asset custody, Avit™ (a payment instrument akin to a digital cashier’s check) and prime services, facilitated by customer-facing APIs to enable the programmability of payments by customers. [Read more]

* To get these updates sent to your inbox, please sign up here. Also, for those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech.

Kiffmeister’s #Fintech Daily Digest (10/31/2021)

~ kiffmeister

Interoperability of stablecoins

According to this (pay-walled) article by Manmohan Singh, Caitlin Long and Charles Kahn, without access to central bank payment rails, non-bank stablecoins will be perceived (however large the high-quality liquid asset (HQLA) buffers they may propose) to be less safe than bank stablecoins. As most stablecoins are in US dollars, the US has an opportunity to exploit its (relatively) late entry into the stablecoins discussion. Allowing stablecoins from banks and non-banks chartered as banks to interoperate – not just by enabling both to have access to central bank payment systems, but also by enabling the use of public, open-source technology protocols that already interoperate with each other – will make a difference in the payments/settlements landscape. [Read more]

Three Attacks on Proof-of-Stake Ethereum

The Ethereum network currently has a proof-of-work (PoW) consensus mechanism and in time, the protocol plans to fully transition into a proof-of-stake (PoS) network. The authors of this paper combine techniques from two recently presented PoS Ethereum attacks: one where short-range reorganizations of the underlying consensus chain are used to increase individual validators’ profits and delay consensus decisions, and one where adversarial network delay is leveraged to stall consensus decisions indefinitely. This combined vector considerably relaxes the requirements on adversarial stake and network timing, and thus renders the attacks more severe. It allows an adversary with vanishingly small fraction of stake and no control over network message propagation to cause even long-range consensus chain reorganizations. Honest-but-rational or ideologically motivated validators could use this attack to increase their profits or stall the protocol, threatening incentive alignment and security of PoS Ethereum. The attack can also lead to destabilization of consensus from congestion in vote processing. [Read more]

To get these updates sent to your inbox, please sign up here. Also, for those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech.

Kiffmeister’s #Fintech Daily Digest (08/25/2021)*

~ kiffmeister

Thai SEC proposes new rules for digital asset custodians

The Thai Securities and Exchange Commission is seeking public comments on additional amendments to the regulations on custody of clients’ assets in digital asset businesses, which includes keeping custody of fiat money and seeking benefits from the clients’ assets for the clients’ interest. They look to prohibit crypto companies from using investor assets for the “benefit of another client or other persons,” or seeking benefits from both investors’ fiat money and digital assets, including digital lending to other persons. “Seeking benefits from clients’ fiat money shall be prohibited except in the form of deposit with commercial banks”. 

The Impact of Fintech on Central Bank Governance

This IMF paper reviews how central banks have been reacting to the challenges posed by fintech to the legal foundations of their governance. It finds that fintech calls for reconsidering the adequacy of the legal formulation of currency issuance and payment systems functions and powers. Fintech may impact the functional autonomy for some key central bank functions. For example, the role claimed by governments in designing CBDC will be an important issue to consider; the legal framework will need to carefully delineate the respective roles and responsibilities between the government and the central bank. The authors suggest that central bank law reform must be sufficiently broad to achieve appropriate levels of “agility” to provide a “future-proof ” legal framework. For instance, legislation (and by extension the legal framework to which the central bank is subject) should to the maximum extent possible be technology-neutral. 

Facebook Rolls Out Birthday Gifting Via Facebook Pay

Facebook is launching a new birthday gifting option using Facebook Pay. Messenger users in the U.S. can send and receive cash gifts directly through the chat platform. Gift recipients will be notified via Messenger and on Facebook with their virtually wrapped gift message and balloons. Once users confirm their Facebook Pay information, the cash gift will be instantaneously deposited into the recipient’s bank account.

Klarna’s losses soar as credit defaults double

Credit losses at Klarna, the Swedish “buy now, pay later” company, more than doubled in Q2 2021. Klarna said that credit losses tended to increase when it entered new markets such as recent launches in New Zealand, France, and Spain. It added Poland last week. Klarna has faced controversy in some countries as critics have argued it encourages younger people to spend money that they do not necessarily have and then pay back in instalments. Klarna positions itself as an alternative to credit cards and their high rates that drive economic inequalities, with those who can afford to pay off their balances each month reap rewards through loyalty schemes while those who can’t afford to simply get into more debt. 

*To get these updates sent to your inbox, please email me at kiffmeister@protonmail.com. Also, for those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech. 

CBDC Workshop for Caribbean and Central American Central Banks

~ kiffmeister

The CBDC Think Tank is offering a free intensive and hands-on central bank digital currency (CBDC) course exclusively for Caribbean and Central American central bankers looking to understand and position for CBDCs. It runs over three consecutive Tuesday mornings starting June 15 at 10am (ET). The workshop is a mix of lectures from CBDC experts and hands-on exercises. Scheduled lecturers John Kiff (ex-IMF), Ashley Lannquist (World Economic Forum), David Andolfatto (St. Louis Fed), Jamiel Sheikh (Columbia University), Sonja Davidovic (IMF), Arthur Rossi (IMF) and Jacques Francoeur (Security Inclusion Now). Register here: https://www.eventbrite.com/e/the-cbdc-workshop-tickets-152572742179.

Kiffmeister’s #Fintech Daily Digest (05/06/2021)*

~ kiffmeister

Federal Reserve proposes guidelines for what firms qualify for Fed accounts, payments services

The U.S. Federal Reserve proposed guidelines for what sorts of financial institutions can have access to accounts at the central bank and its related payment services. “With technology driving rapid change in the payments landscape, the proposed Account Access Guidelines would ensure requests for access to the Federal Reserve payments system from novel institutions are evaluated in a consistent and transparent manner that promotes a safe, efficient, inclusive, and innovative payment system, consumer protection, and the safety and soundness of the banking system.” 

Kazakhstan Digital Tenge (CBDC) Pilot Project

The National Bank of the Republic of Kazakhstan plans to conduct a comprehensive study of the benefits and risks of issuing retail central bank digital currency (CBDC). It will start with the definition of the tasks solved by the digital currency, the method of its emission and distribution, the technology used, the impact on monetary policy, financial stability and the payment ecosystem. 

Coinbase Saw a 17% Jump in Law Enforcement Requests in 2020

Coinbase published its Transparency Report showing that it received 4,227 requests for customer data in 2020 from U.S. authorities and law enforcement agencies deom around the world, and that the pace of requests is increasing. The U.S. agencies ranged from the FBI and Drug Enforcement Agency to the country’s tax collector, the IRS, and the Food and Drug Administration.   

IRS Authorized to Get Records from Kraken for US Taxpayers Transacting at least $20k In Crypto

A federal court in the Northern District of California authorized the Internal Revenue Service (IRS) to serve a John Doe summons on the crypto exchange Kraken, seeking information about U.S. taxpayers who have used crypto. The IRS is seeking information about taxpayers who conducted at least $20,000 in transactions in crypto between 2016 and 2020.  

Digital Assets, Distributed Ledger Technology, and the Future of Capital Markets

A report from the World Economic Forum (WEF) and Boston Consulting Group (BCG) has found that while distributed ledger technology (DLT) offers the potential for significant market-wide transformation, market participants are still far from adopting this technology at scale at a market-wide level. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech