Kiffmeister’s #Fintech Daily Digest (20221004)

Financial Stability Oversight Council Releases Report on Digital Asset Financial Stability Risks and Regulation

The Financial Stability Oversight Council (FSOC) released its report on the financial stability risks and regulatory gaps posed by various types of digital assets and provides recommendations to address such risks. To address regulatory gaps, the FSOC recommends the passage of legislation providing for rulemaking authority for federal financial regulators over the spot market for crypto-assets that are not securities; steps to address regulatory arbitrage including coordination, legislation regarding risks posed by stablecoins, legislation relating to regulators’ authorities to have visibility into, and otherwise supervise, the activities of all of the affiliates and subsidiaries of crypto-asset entities, and appropriate service provider regulation; and study of potential vertical integration by crypto-asset firms. [Read more at the FSOC]

Mastercard launches new crypto fraud protection tool

Mastercard is launching Crypto Secure to help banks assess the risk of crime associated with crypto merchants on its network. The service, powered by Mastercard-owned blockchain security startup CipherTrace, combines applies artificial intelligence to blockchain data and public records of crypto transactions, along with other sources, to determine crime-related risks of crypto exchanges within the Mastercard network. On the Crypto Secure platform, banks and other card issuers are shown a dashboard with color-coded ratings representing the risk of suspicious activity, with severity of risk ranging from red for “high” to green for “low.” [Read more at CNBC]

Fraud and scams are becoming more commonplace on P2P payment service Zelle

According to a report by from the office of U.S. Senator Elizabeth Warren, fraud and scams are a growing problem on peer-to-peer (P2P) payment service Zelle, and the banks that run the platform are not refunding the vast majority of defrauded consumers, breaking their promises to their customers and potentially violating federal law. A response by the industry acknowledged that Zelle,  like every instant P2P payment service, is not entirely free from those who seek to defraud users, but expanding the bank liability framework would have adverse impacts on consumers choice, the cost of the service, and on small financial institutions for whom the costs related to the potential for unlimited liability would be too onerous. [Read more at Quartz]

Tickets available for CBDC Think Tank masterclass

The CBDC Think Tank, in partnership with the IMF and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC for “official sector” staff and academics active in the CBDC / digital currency space only. The sessions are designed as instructional deep dives with full presentations and Q&A components.  Tickets are $99. [Register here]

Also, the CBDC Think Tank, in partnership with Georgetown University and the DC FinTech Week, is hosting a FREE (also in-person) Digital Currency Lecture Series, a set of digital currency lightning talks delivered by subject matter experts, on October 14 in Washington DC. [Request an invite here]

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.

Kiffmeister’s #Fintech Daily Digest (20220927)

First Project mCBDC Bridge Pilot Complete

Project mBridge is a prototype real-time cross-border payments platform based distributed ledger technology (DLT) and multiple central bank digital currencies (CBDCs) developed by the Bank for International Settlements Innovation Hub and four central banks. The first pilot is now complete, with over $12 million in value issued onto the platform facilitating over 160 cross-border payments and FX transactions totaling more than $22 million in value between 20 participating commercial banks over the course of a month. A detailed report will be released in October. [Read more on LinkedIn]

Central Bank Digital Currency: Financial Inclusion vs. Disintermediation

The Dallas Fed published a working paper that analyzes the impact of introducing a central bank digital currency (CBDC) on financial inclusion, and its potential adverse effect on bank funding. The paper highlights the role of two design parameters: the fixed cost of CBDC usage and the interest rate it pays, and derive principles for maximum inclusion and for mitigating the inclusion-intermediation trade-off. Agents’ choice of money instrument is endogenously driven by income heterogeneity. Pre-CBDC, wealthier agents adopt deposits, while poorer agents adopt cash and remain unbanked. CBDCs with low fixed costs (and low interest rates) are adopted by cash holders and directly increase inclusion. CBDCs with high fixed costs (and high interest rates) are adopted by deposit holders and increase inclusion by raising deposit rates. The former allows for more favorable inclusion-intermediation trade-offs. [Read more at the Dallas Fed]

 

Regulating the crypto ecosystem: The case of unbacked crypto assets

The International Monetary Fund (IMF) published a Fintech Note that recommends that global bodies work to develop common crypto-asset taxonomies that can inform global and cross-sectoral standards while improving data insights. Standards should be risk-based, with greater requirements on entities and activities that generate more risk. Crypto asset service providers that deliver core functions and generate key risks should be licensed, registered, or authorized. [Read more at the IMF]

Regulating the crypto ecosystem: The case of stablecoins

The IMF published a Fintech Note that provides key elements that should feature in any stablecoin regulatory arrangement. Global regulation for stablecoins should be comprehensive, consistent, risk-based, flexible, and focus on their structural features and use. Requirements on stablecoins should cover the entire ecosystem and all its key functions, and there should be additional oversight for systemic stablecoin arrangements. In markets where risks are growing quickly, authorities should take immediate action by using all the tools at their disposal. For effective implementation, domestic and international collaboration are key. [Read more at the IMF]

Distributed ledger technology (DLT) options for CBDC

The Swiss National Bank’s Thomas Moser was one of the authors of a paper on the options for designing CBDCs using distributed ledger technology (DLT). It analyzes the various structures for implementation offered by DLT – public, permissioned and private – and the implications that each has for the central bank and the existing financial system. While a CBDC built on an open, permissionless system would provide the full functionality offered by DLT, it is also far more disruptive to the existing financial system and consequently requires more new infrastructure on the part of the central bank. Within the current DLT landscape, public-private partnerships offer the most practical and efficient means of building a DLT-based CBDC. A selection of existing DLT providers able to support a CBDC is also discussed. [Read more at SSRN]

The impact of fintech lending on credit access for U.S. small businesses

The Bank for International Settlements (BIS) published a working paper that explores the characteristics of pre-pandemic (2016-2019) small business lending (SBL) in the United States, using proprietary loan-level data from two fintech SBL platforms (Funding Circle and LendingClub). The results show that fintech SBL platforms lent more in zip codes with higher unemployment rates and higher business bankruptcy filings. Moreover, fintech platforms’ internal credit scores were able to predict future loan performance more accurately than the traditional approach to credit scoring, particularly in areas with high unemployment. Overall, fintech lenders have a potential to create a more inclusive financial system, allowing small businesses that were less likely to receive credit through traditional lenders to access credit and to do so at lower cost. [Read more at the BIS]

Tickets available for CBDC Think Tank masterclass

The CBDC Think Tank, in partnership with the IMF and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC for “official sector” staff and academics active in the CBDC / digital currency space only. The sessions are designed as instructional deep dives with full presentations and Q&A components.  Tickets are $99. [Register here]

Also, the CBDC Think Tank, in partnership with Georgetown University and the DC FinTech Week, is hosting a FREE (also in-person) Digital Currency Lecture Series, a set of digital currency lightning talks delivered by subject matter experts, on October 14 in Washington DC. [Request an invite here]

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.

Kiffmeister’s #Fintech Daily Digest (20220919)

After all this effort, crypto-assets are just tech stocks

Bloomberg’s Joe Weisenthal makes the same point I’ve been making for many months. “Basically [crypto-assets are] just tech stocks. Not only are the coins trading in line with each other still, they’re still basically trading in line with the Nasdaq 100… What does this all mean? One possibility is that the marginal crypto-asset buyers just doesn’t care about any of this stuff. Proof-of-work? Proof-of-stake? The merge? Inflation hedging? The halving? Deflationary monetary policy? What’s all that stuff? In other words, it’s possible that there’s a small coterie of people paying attention to any of this. And that what’s really driving price is just the animal spirits of a much larger group of speculators, who are also moving the price of Zoom or Tesla or Meta or whatever else. [Read more on Twitter]

Are interest rate swaps the next frontier of decentralized finance?

Decentralized finance (DeFi) is expanding into the world of interest rate swaps (IRS), a derivative instrument for exchanging fixed and variable interest rates. DeFi firm Voltz Labs has launched a non-custodial automated market making (AMM) IRS trading platform based on the Aave and Compound DeFi USDT, USDCDAI and ETH lending markets. However, IRS AMMs are challenged by DeFi markets’ lack of fixed-rate products off which to price swaps. (Traditional markets offer variable- and fixed-rate products off which to arbitrage each other.)  [Read more about the Voltz protocol here]

New data on the e-levy in Ghana: unpopular tax on mobile money transfers is hitting the poor hardest

Ghana introduced a 1.5% tax (“E-levy”) on mobile money transactions in May 2022, in a country where 40% of the population aged 15 and above use mobile money platforms. It has been justified as a way to reduce aid dependence, and to capture informal economy workers. An International Centre for Tax and Development (ICTD) paper finds that the overall effect of the E-levy is highly regressive with users in the bottom income quintile paying the largest share as a proportion of their income, especially home-based informal workers. However, a 100 cedi/day (equivalent to about $10/day) taxation threshold has provided some relief. [Read more at the ICTD]

 

Tickets available for CBDC Think Tank masterclass

The CBDC Think Tank, in partnership with the IMF and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC for “official sector” staff and academics active in the CBDC / digital currency space only. The sessions are designed as instructional deep dives with full presentations and Q&A components.  Tickets are $99. [Register here]

Also, the CBDC Think Tank, in partnership with Georgetown University and the DC FinTech Week, is hosting a FREE (also in-person) Digital Currency Lecture Series, a set of digital currency lightning talks delivered by subject matter experts, on October 14 in Washington DC. [Request an invite here]

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.

Kiffmeister’s #Fintech Daily Digest (20220918)

BIS Innovation Center at the NY Fed is looking into wholesale CBDC

Project Cedar, which is being run out of the BIS Innovation Center at the New York Fed, is looking into wholesale central bank digital currency (CBDC) from a research standpoint. It’s led by Per von Zelowitz, and what they’re trying to do, according to the Boston Fed’s Robert Bench, is “understand what are the requirements, or what are the things they need to think about, for the obligations of New York, which is the world’s leading capital market center?” Thanks to the Atlantic Council’s Josh Lipsky for bringing this to my attention.  [Read more at the Atlanta Fed]

Bullet train: New tokens and platforms may transform cross-border payments

A few weeks ago the IMF’s Finance & Development magazine published an article by Tobias Adrian and Tommaso Mancini-Griffoli that pitched the idea of a multi wholesale CBDC platform to achieve greater cross border payment efficiencies. The IMF will soon publish two papers on these topics that will lay out an initial blueprint for such platforms. This concept is also being pursued by the BIS Innovation Hub Hong Kong Centre’s Project mCBDC Bridge, along with the Hong Kong Monetary Authority, Bank of Thailand, People’s Bank of China and Central Bank of the United Arab Emirates. [Read more at the IMF]

Central Bank Digital Currencies – The Quest for Public Digital Payment Infrastructures

This paper by Xavier Lavayssière summarizes the many considerations that go into the decision as to whether a central bank should issue CBDC and the many design dimensions. The decision-making process raises fundamental questions about the functions of central banks, the roles of the public and private sectors, technological design and international monetary competition that will be defining for the payment industry, economic development and sovereignty. [Download at Blockchain@X]

The Demand for Programmable Payments

This paper Charles Kahn and Maarten van Oordt studies the desirability of programmable payments where transfers are automatically executed conditional upon preset objective criteria. They do so in a framework that captures a wide range of economic relationships between two parties, in an environment without legal recourse. They find that optimal payment arrangements for long-term economic relationships consist predominantly of simple direct payments. Programmable payments will be desirable, and may in fact be the only viable payment arrangement, in situations where economic relationships are of a short duration. [Read more at SSRN]

 

Tickets available for CBDC Think Tank masterclass

The CBDC Think Tank, in partnership with the IMF and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC for “official sector” staff and academics active in the CBDC / digital currency space only. The sessions are designed as instructional deep dives with full presentations and Q&A components.  Tickets are $99. [Register here]

Also, the CBDC Think Tank, in partnership with Georgetown University and the DC FinTech Week, is hosting a FREE (also in-person) Digital Currency Lecture Series, a set of digital currency lightning talks delivered by subject matter experts, on October 14 in Washington DC. [Request an invite here]

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.

Kiffmeister’s #Fintech Daily Digest (20220901)

Reimagining Money in the Age of Crypto and Central Bank Digital Currency

The future of money is undoubtedly digital, and in the latest issue of the IMF’s Finance & Development some of the world’s leading experts explore what it will look like? It includes my article about offline central bank digital currency (CBDC). [Read more at the IMF]

The Financial Stability Implications of Digital Assets

The US Fed published a paper that explores whether the digital financial system creates new potential challenges to financial stability. It describes emerging vulnerabilities that could present risks to financial stability in the future if the digital asset ecosystem becomes more systemic, including: run risks among large stablecoins, valuation pressures in crypto-assets, fragilities of decentralized finance (DeFi) platforms, growing interconnectedness, and a general lack of regulation. [Read more at the Fed]

Asia Far Ahead in Mobile Payment Adoption

WorldPay data from FIS has found that the Asia-Pacific region reached a much higher market share of mobile payments than other parts of the world (see above graphic). 44% of the transactions made at point of sale (POS) were carried out with a mobile phone instead of a debit/credit card or cash and 69% of online shop payments were completed on a mobile device. According to Global management consulting firm McKinsey, Southeast Asia has become a “wallet-first region.” Africa had the second highest share of POS mobile payments, at 12%, while Europe only saw 8% of POS transactions carried out on mobile. [Read more at Statista]

SAMA Updates Its Regulatory Sandbox Framework to Drive Innovation

The Saudi Central Bank (SAMA) updated its Regulatory Sandbox framework as part of its efforts to achieve the national strategic goals in the Saudi Vision 2030 Financial Sector Development Programme. The updated framework will also support the objectives of the fintech strategy and contribute to the economic empowerment of the Saudi society and its citizens by promoting further Fintech innovations. [Read more at the SAMA]

Bigtechs vs Banks

The Bank for International Settlements (BIS) published a paper that analyses an economy in which large technology companies, Bigtechs, provide credit to firms operating on their platforms. It focuses on two advantages that Bigtechs have with respect to banks: better information on their clients and better enforcement of credit repayment since big techs can exclude a defaulting firm from their ecosystem. While Bigtechs have both superior enforcement and complete and private information of the firm type Bigtechs can encroach on banks’ turf only if they guarantee some privacy to firms by tempering their drive to collect information about firm characteristics and leaving some rents to them. The way Bigtechs share information i.e. by providing information publicly or in a private way entails different outcomes in terms of efficiency. [Read more at the BIS]

Should we trust the credit decisions provided by machine learning models?

An article by a couple of Banco de España economists proposes a framework to assess how reliable machine learning (ML) technology is to credit assessments. It is based on generating datasets intended to resemble typical credit settings, in which the relationship between the variables is defined. It uses non-interpretable ML models on these generated datasets, and explain their results using two popular interpretability techniques. It then calculates to what extent the explanations given by the interpretability techniques match the underlying truth.  [Read more at SUERF]

Discounted tickets available for CBDC Think Tank masterclass

The CBDC Think Tank, in partnership with the International Monetary Fund and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC. The sessions are designed as instructional deep dives with full presentations and Q&A components.  Ticket prices are as low as $99 and you can save 30% by entering KIFFMEISTER where the registration page asks for a discount code. [Register here]

Also, the CBDC Think Tank, in partnership with Georgetown University and the DC FinTech Week, is hosting a FREE Digital Currency Lecture Series, a set of digital currency lightning talks delivered by subject matter experts, on October 14 in Washington DC. [Request an invite here]

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.

Kiffmeister’s #Fintech Daily Digest (20220831)

Ava Labs CEO denies CryptoLeaks’ claims as ‘conspiracy theory nonsense’

Ava Labs CEO Emin Gün Sirer has dismissed allegations from CryptoLeaks that the company formed a “secret pact” with U.S. law firm Roche Freedman LLP to use the American legal system “gangster style” to “attack and harm crypto organizations [i.e., Ava Labs competitors].” Ava Labs is the firm behind Avalanche (AVAX), an Ethereum (ETH) rival in the decentralized finance (DeFi) and customized blockchain space. Roche Freedman LLP was recently involved in separate high-profile lawsuits against Solana Labs and Binance, claiming that the firms were engaging in unlawful activities. [Read more at CoinTelegraph]

The Digital Dollar Project Launches Technical CBDC Sandbox Program

The Digital Dollar Project (DPP) launched its central bank digital currency (CBDC) Technical Sandbox Program, with the help of initial participants Digital Asset, EMTECH, Knox Networks, and Ripple. It will serve as a collaborative space for the DDP participants and financial service providers, offering a neutral environment for the evaluation of technological, business, and policy approaches to CBDCs. It is slated to begin in early October with the inaugural cohort focused on cross-border payments. [Read more at the DPP]

Klarna losses quadruple as costs rise

“Losses at Swedish [buy now, pay later] payments provider Klarna reported a net loss of SKr6.2 billion ($581 million) for the first half of 2022, compared with SKr1.4 billion a year earlier. (Buy now, pay later services allow consumers to defer or divide payments into instalments.) Klarna attributed the deepening losses to higher employee costs, investments in integrating newly acquired Swedish price comparison service PriceRunner and rising credit losses, reflecting the greater difficulty of underwriting new customers with limited credit histories.” [Read more at the Financial Times]

Discounted tickets available for CBDC Think Tank masterclass

The CBDC Think Tank, in partnership with the International Monetary Fund and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC. The sessions are designed as instructional deep dives with full presentations and Q&A components.  Ticket prices are as low as $99 and you can save 30% by entering KIFFMEISTER where the registration page asks for a discount code. [Register here]

Also, the CBDC Think Tank, in partnership with Georgetown University and the DC FinTech Week, is hosting a FREE Digital Currency Lecture Series, a set of digital currency lightning talks delivered by subject matter experts, on October 14 in Washington DC. [Request an invite here]

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.

Kiffmeister’s #Fintech Daily Digest (20220830)

Nigerian Central Bank Slashes CBDC Transaction Fees by 50%

The Central Bank of Nigeria is reportedly slashing the service fees incurred by individuals and merchants using the eNaira central bank digital currency (CBDC) platform by 50%. [Read more at the Daily Trust]

Banco Central do Brasil publishes list of projects selected for LIFT 2022

The Banco Central do Brasil (BCB) announced the short list of eight projects selected in the 2022 Laboratory of Financial and Technological (LIFT). One of them is a proposal to convert a stablecoin on the Celo blockchain into Real Digital, studying the interoperability between the public blockchain that runs on the EVM (Ethereum Virtual Machine) and the central bank digital currency (CBDC), in addition to the possible interoperability with Pix. [Read more at the BCB]

Federal Reserve updates FedNow Service timing to mid-2023

The Federal Reserve Banks have narrowed the timing of the FedNow Service launch to mid-year 2023, specifically targeting a production rollout of the service in the May to July timeframe. This further defines the previously communicated 2023 launch window for the anticipated instant payments service and comes as the FedNow Pilot Program prepares to enter technical testing for the service starting in September. [Read more at the Fed]

Indonesia and Singapore to Pursue Cross-border QR Code Payments Connectivity

Bank Indonesia (BI) and the Monetary Authority of Singapore (MAS) have commenced work on a cross-border QR payment linkage between Indonesia and Singapore as part of the ASEAN-wide payments connectivity effort. This linkage, which is targeted to be launched in the second half of 2023, will allow users to make instant, secure, and efficient retail payments by scanning the QRIS (Quick Response Code Indonesian Standard) or NETS QR codes displayed by merchants. [Read more at the MAS]

FBI: Crooks are using these DeFi flaws to steal your money

After a run of thefts from decentralized finance (DeFI) platforms, the US Federal Bureau of Investigations (FBI) has warned that criminals are increasingly exploiting bugs in these platforms to steal investors’ cryptocurrency. [Read more at the FBI]

Discounted tickets available for CBDC Think Tank masterclass

The CBDC Think Tank, in partnership with the International Monetary Fund and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC. The sessions are designed as instructional deep dives with full presentations and Q&A components.  Ticket prices are as low as $99 and you can save 30% by entering KIFFMEISTER where the registration page asks for a discount code. [Register here]

Also, the CBDC Think Tank, in partnership with Georgetown University and the DC FinTech Week, is hosting a FREE Digital Currency Lecture Series, a set of digital currency lightning talks delivered by subject matter experts, on October 14 in Washington DC. [Request an invite here]

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.

Kiffmeister’s #Fintech Daily Digest (20220713)

For those receiving this via email, please excuse the glitches that are occurring this week. I’ve moved servers and I’m still trying to get MailChimp to play nicely with it.

International Standard Setters Publish Guidance on Stablecoin Regulations

The Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO) published their final “same risk, same regulation” guidance on regulating stablecoin arrangements (SAs). The guidance highlights that the transfer function of an SA is comparable to the transfer function performed by other types of financial market infrastructure (FMI). As a result, an SA that performs this transfer function is considered an FMI for the purpose of applying the Principles for Financial Market Infrastructures (PFMI) and, if determined by relevant authorities to be systemically important, the SA as a whole would be expected to observe all relevant principles in the PFMI. [Read more at BIS.org]

Bank Indonesia to Evaluate CBDC Influence to Local Economy

Bank Indonesia continues to research central bank digital currency (CBDC) and plans to issue a white paper at the end of this year concerning the development of a Digital Rupiah. The central bank’s CBDC exploration has six salient objectives: (i) providing a risk-free means of digital payment using central bank money, (ii) mitigating the risk of non-sovereign digital currency, (iii) expanding payment system coverage and efficiency, including cross-border transactions, (iv) expanding and accelerating financial inclusion, (v) providing new monetary policy instruments, and (vi) facilitating the distribution of fiscal subsidies. [Read more at Bank Indonesia]

Central Bank Digital Currency: Stability and Information

The U.S. Office of Financial Research published a paper that studies how introducing a central bank digital currency (CBDC) would affect the stability of the banking system. It presents a model that captures concerns that the option to hold CBDC can increase the incentive for depositors to run on weak banks. It highlights two countervailing effects. First, banks do less maturity transformation when depositors have access to CBDC, which leaves them less exposed to runs. Second, monitoring the flow of funds into CBDC allows policymakers to identify and resolve weak banks sooner, which also decreases depositors’ incentive to run. The paper’s results suggest that a well-designed CBDC may decrease rather than increase financial fragility. [Read more at FinancialResearch.gov]

Cambodia rolls out unified QR code support for Bakong payment system

The National Bank of Cambodia has introduced a new QR code standard for mobile banking apps in the country, starting with the central bank-backed Bakong blockchain-based peer-to-peer payments system. The KHQR allows merchants to accept mobile payments from any of the 37 commercial bank and payment service provider using a QR code directly supported by Bakong. [Read more at the National Bank of Cambodia]

Issuing Central Bank Digital Currency on Algorand

The Algorand Foundation published a paper that describes its approach to issuing retail CBDC, including a detailed overview of relevant design considerations and examples of use cases facilitated by the Algorand platform. [Read more at Algorand.com]

Upcoming events I’m affiliated with:

The CBDC Think Tank, in partnership with the International Monetary Fund and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC. The sessions are designed as instructional deep dives with full presentations and Q&A components.  [Register here]

Kiffmeister’s #Fintech Daily Digest (20220630)

Grayscale Sues SEC Over Bitcoin ETF Application Rejection

Grayscale Investments’ application to convert its $13.5 billion Grayscale Bitcoin Trust (GBTC) into a spot-based bitcoin exchange-traded fund (ETF) was denied by the U.S. Securities and Exchange Commission (SEC), because the application failed to answer questions about preventing market manipulation, as well as other concerns. Consequently, Grayscale immediately launched a law suit asking the U.S. Court of Appeals for the District of Columbia Circuit to review the SEC’s rejection order, alleging that the SEC is failing to apply consistent treatment to similar investment vehicles that it has approved like futures-based bitcoin ETFs, and is therefore in violation of the Administrative Procedure Act and Securities Exchange Act of 1934. [Read more]

Targeted Update on Implementation of FATF’s Standards on VAs and VASPs

The Financial Action Task Force (FATF) published an update on implementation of its standards on virtual assets (VAs) and VA service providers (VASPs), with a focus on the travel rule, which requires VASPs to collect and share with each other personal data on both senders and receivers in transactions exceeding USD/EUR 1,000. In other words, the personal data of the transacting parties is supposed to “travel” along with their transfers. The report that notes only 11 of 98 surveyed jurisdictions are enforcing and supervising it. The also report highlights the continued need to monitor monitor the growth of, and illicit financing risks associated with decentralized finance (DeFi) and non-fungible token (NFT) markets and unhosted wallets. [Read more]

Prudential treatment of crypto-asset exposures – second consultation

The Basel Committee on Banking Supervision has published a second public consultation on the prudential treatment of banks’ crypto-asset exposures. It builds on the preliminary proposals set out in the June 2021 consultation and the responses received from stakeholders. The basic structure of the proposal in the first consultation is maintained, with crypto-assets divided into two broad groups; Group 1 including those eligible for treatment under the existing Basel Framework with some modifications, and Group 2 including unbacked crypto-asset and stablecoins with ineffective stabilization mechanisms,  which would be subject to a new conservative prudential treatment including an overall gross limit on such holdings. The updated proposals provide more detail on the proposed standard and include new elements such as an infrastructure risk add-on to cover the new and evolving risks of distributed ledger technologies.  [Read more]

The road to enhanced payments

In this March 31 speech that I overlooked, the Bank of England’s Victoria Cleland introduces Project Meridian, a joint initiative with the BIS Innovation Hub that will prototype and test end-to-end flow of real-time gross settlement (RTGS) platform synchronized settlement, which could be used for different trades such as securities and foreign exchange. Synchronization would enable the cash movements in RTGS to happen if and only if a corresponding asset on another ledger is transferred, which is something that wholesale central bank digital currency (WCBDC) aficionados imply requires a distributed ledger technology (DLT) platform. Ms. Cleland makes a point that I make frequently in webinars and workshops:

“I do wonder though whether the term “wholesale CBDC” is a misnomer. Electronic central bank money has been available to financial institutions for decades via RTGS systems. In the provision of central bank infrastructure the key is not the label, but who can access it and what functionality is provided.” [Read more]

Upcoming events I’m affiliated with:

The CBDC Think Tank, in partnership with the International Monetary Fund and George Washington University, is hosting a full-day in-person CBDC Masterclass on October 12 in Washington DC. The sessions are designed as instructional deep dives with full presentations and Q&A components.  [Register here]

Kiffmeister’s #Fintech Daily Digest (20220612)

The Central Bank Digital Currency (CBDC) “Elephant in the Room

The Centre for European Reform asks why would anyone use a retail CBDC? “Central banks will struggle to rollout CBDCs that will be widely adopted. They may not provide consumers the same benefits as today’s services; privacy is unlikely to be a game-changer; and the private sector still offers scope for innovation. Without widespread adoption, a CBDC will be an expensive failure, and will do little to advance central banks’ goals. For the EU, regulation is a more sensible way to make European payments cheaper, and more diverse, competitive and innovative.” [Read more]

Russian state-owned company builds blockchain-based replacement for SWIFT

Rostec, a state-owned defense conglomerate headquartered in Moscow, announced that it has developed a blockchain platform that can be used for international settlements. Named the CELLS industrial blockchain, it is Russia’s purported replacement for the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system. The platform will allow for settlements in national currencies and allow Russia to circumvent all international sanctions. [Read more]

Upcoming events I’m affiliated with:

The CBDC Think Tank is hosting a CBDC Papers Lecture Series on June 17 and 24 starting at 7am EST and running for 4 hours each day. [View list of papers and register here]