Kiffmeister’s #Fintech Daily Digest (20230521)*

May 21, 2023May 21, 2023 ~ kiffmeister ~ Leave a comment

2nd Bank of Canada and Sveriges Riksbank conference on CBDC economics

The Riksbank will host a joint conference with the Bank of Canada on the “Economics of Central Bank Digital Currency (CBDC)” November 16-17, 2023 in Stockholm. In addition to presentation of academic papers on CBDC and payment innovations, the conference will feature a keynote address by Franklin Allen (Imperial College London), a distinguished policy panel, and a poster session. Participation in the conference is by invitation only. [Download the call for papers at the Riksbank]

Demand for tokenized US Treasury securities soars

Demand for tokenized versions of U.S. Treasury bonds is soaring as rising yields in traditional financial markets attract fresh capital from crypto investors. The combined market capitalization of tokenized money market funds nears $500 million, and has quadrupled in size this year. Franklin Templeton’s Franklin OnChain U.S. Government Money Fund (FOBXX) – which gives a BENJI token on the Stellar blockchain representing one share – grew to $276 million in assets at end-April. Ondo Finance’s OUSG and Matrixdock’s SBTB tokenized short-term Treasury security products , have grown to $132 million and $72 million of funds so far, respectively. [Read more at CoinDesk]

The digital euro: a precautionary device, not a deus-ex-machina

The Leibniz Institute for Financial Research Sustainable Architecture for Finance in Europe (SAFE) published a paper that concludes that the risks and imponderables do not favor the launch of a digital euro if that decision had to be made now. However, there may be future circumstances in which having a CBDC ready for use may be useful. For example, there could be an unexpected collapse in the availability of banknotes or sudden switches in consumer preferences towards payment instruments which current infrastructures cannot easily handle with the available technologies. Or we could experience phases of financial instability requiring the central bank to back up the private sector in order to preserve the functionality of the payment system. Or, there could be strategic security conditions necessitating more state-driven payment infrastructures. All these are unlikely scenarios, but not impossible ones, which would lead to the need for central banks to step in, perhaps in a short time. Therefore, preparing is a good thing, even if the odds of its usefulness in normal conditions are slim. [Read more at SAFE]

Payments are a utility and critical infrastructure

David Birch calls radical rethinking about payment infrastructure , like allowing more direct access to the pipes, provide digital fiat (dollars with an API) as a public good and allow non-credit creating payment banks/ institutions/ utilities to implement the transfers in space as a utility bringing value together (electronic money and digital cash) to put in place robust, inclusive and sustainable pipes for the rest of the economy to use. Let banks focus on creating credit and let them find other ways to stay in the transaction loop. [Read more on David Birch’s blog]

Project Leap: Quantum-proofing the financial system

Earlier this month (May 2023) the Bank for International Settlements (BIS) together with the Banque de France and Deutsche Bundesbank, launched Project Leap to build quantum-resistant IT environments for the financial system. It will test the implementation of post-quantum cryptographic protocols in central bank processes, and help to advance the central banking community’s knowledge of post-quantum cryptography. A concluding report and the accompanying technical architecture will be published. [Read more at the BIS]

*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.

Upcoming conferences, webinars and speaking engagements:

I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]
I’ll be lecturing at the Digital Euro Association (DEA) Digital Money Academy on July 27, 2023. [Register 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.

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 (20230518)*

May 18, 2023May 18, 2023 ~ kiffmeister ~ Leave a comment

A legal framework for the digital euro

The European Parliament published a study that assesses the European Central Bank’s (ECB’s) first three progress reports on the digital euro from a legal perspective. It looks into what key design choices proposed by the ECB reveal in terms of the legal qualification of the digital euro and discusses legal aspects of the infrastructure supporting it. It distinguishes between the object of the digital euro and the infrastructure or “scheme” needed for its distribution and settlement. Overall, the objective of ensuring a strong monetary anchor in the financial system should take centre stage. A simple and cash-like design of the digital euro would not only aid that objective, but also reduce legal risk. [Read more at the European Parliament]

Commencement of new phase of the e-HKD’s research programme

The Hong Kong Monetary Authority (HKMA) today announced the commencement of a new phase of its e-HKD central bank digital currency (CBDC) research program. A total of 16 firms from the financial, payment and technology sectors have been selected to participate. There will be deep dives into potential use cases in six categories, including full-fledged payments, programmable payments, offline payments, tokenised deposits, settlement of Web3 transactions and settlement of tokenised assets. [Read more at the HKMA and the list of projects here]

Note: The HKMA called this new phase a “pilot” but it’s not clear whether it will engage with actual users. If yes, it is a pilot, but if not, it would likely be a proof-of-concept phase.

Ripple to demonstrate tokenization in HKMA e-HKD program

Ripple is one of the firms participating in this new phase of the HKMA’s e-HKD digital Hong Kong dollar (e-HKD) research program by showcasing a real estate asset tokenization solution. Ripple will partner with Taiwan’s Fubon Bank and others to demonstrate equity release with tokenized assets using a retail version of the e-HKD CBDC. The project will run on the new Ripple CBDC Platform, that uses a new private ledger with XRP Ledger technology and enhanced functionality, including offline transactions and non-smartphone use. It’s the same platform that may be piloted in Bhutan, Montenegro and Palau. [Read more at Coin Telegraph]

Crypto, tokens and DeFi: navigating the regulatory landscape

The Bank for International Settlements (BIS) published a paper that provides an overview of policy measures taken in 19 jurisdictions to address the risks associated with activities that incorporate crypto-assets and distributed ledger technology (DLT) programmability capabilities in financial services. The paper classifies policy measures into three categories and identifies different types of initiatives across jurisdictions, including bans, restrictions, clarifications, bespoke requirements, and initiatives to facilitate innovation. It finds that, for centrally managed issuance activities, current regulatory initiatives focus mainly on issuers of security tokens and stablecoins. Initiatives related to centrally managed infrastructure activities mainly explore the benefits and risks from traditional financial intermediaries’ use of DLTs and their programmability capabilities. Initiatives related to centrally managed service provision activities often extend the regulatory perimeter to new non-bank centralized intermediaries. [Read more at the BIS]

I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]
I’ll be lecturing at the Digital Euro Association (DEA) Digital Money Academy on July 27, 2023. [Register here]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230501)

May 1, 2023May 1, 2023 ~ kiffmeister

Zimbabwe central bank to issue gold-backed digital coins in May

The Reserve Bank of Zimbabwe (RBZ) will introduce a gold-backed digital currency on May 8. They will not be pegged to any of the country’s units of account (Zimbabwe dollars, U.S. dollars and South African rand). The digital coins will be priced 20% above market and marketed as investments. However, digital wallets will be made available in a later phase to facilitate person-to-person payments with them. [Read more at the RBZ]

Central African Republic to drop crypto as legal tender

The Central African Republic’s (CAR’s) parliament has reportedly repealed legislation that made crypto-assets legal tender. A new law amends an April 2022 statute that proved controversial among the CAR’s partners in the Economic and Monetary Community of Central Africa. The idea was also likely doomed from the outset by the lack of internet connectivity in the region (only about 10% percent of the population have internet access). [Read more on Twitter]

Upcoming conferences, webinars and speaking engagements:

I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230424)

April 24, 2023April 24, 2023 ~ kiffmeister

ECB report on the digital euro and possible features of a digital wallet

The European Central Bank (ECB) published the 3rd progress report on the digital euro, as well as the findings of focus groups on people’s views on the features of a potential digital wallet. The digital euro will be potentially available initially to euro area residents, merchants and governments, it could be made available via existing banking apps and a Eurosystem app, and offline and person-to-person payments were seen as highly valued. [Read more at the ECB]

Chinese city of Changshu plans to pay employees using digital yuan

Changshu city will reportedly start paying civil servants and people who work for public institutions with e-CNY central bank digital currency (CBDC) starting in May 2023. The move marks a major step to promote the use of the digital currency, in the face of many hurdles, including its limited use cases, and the public’s preference for popular digital payment platforms such as WeChat Pay and Alipay. [Read more at the South China Morning Post]

Russia drafts law to use digital assets for cross border payments

Russia’s parliament reportedly published a draft law as part of an experimental regime to support the use of digital assets for cross border payments to help evade sanctions, and reduce the FX risk associated with settling dollar and euro transactions in other currencies. Russia already has a legal framework for tokenized assets for domestic usage, but additional legislation is needed to allow their use for cross border settlements. [Read more at Ledger Insights]

Zimbabwe’s central bank to issue gold-backed digital currency: Report

The Reserve Bank of Zimbabwe (RBZ) is reportedly set to introduce a gold-backed digital currency to serve as legal tender in the country. The move will allow small amounts of Zimbabwean dollars to be exchanged for the digital gold token. RBZ Governor John Mangudya said that this will represent the first steps by the central bank towards using the country’s gold reserves to tame Zimbabwe dollar depreciation. [Read more at the Sunday Mail]

Gemini to open a crypto derivatives platform outside the U.S.

U.S.-based Gemini crypto exchange is planning to open an offshore derivatives platform, joining other U.S. trading platforms like Coinbase in looking abroad, as the U.S. regulatory environment gets tougher. The first product at the new Gemini Foundation division will be a perpetual bitcoin (BTC) contract denominated in Gemini dollars (GUSD), followed by a perpetual ether (ETH) contract also linked to GUSD. [Read more at Gemini]

I tried to pay my US taxes in cash – here’s what happened

As further evidence of how flakey the “legal tender” concept is, this article documents the great difficulties the author had in paying his income tax in cash to the U.S. Internal revenue Service (IRS). It highlights some of the challenges faced by Americans without bank accounts, likely among the poorest taxpayers, who would either have to follow the arduous process followed by the article’s author, or pay fees for various end-arounds. [Read more at Cash Essentials]

Upcoming conferences, webinars and speaking engagements:

I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230423)

April 23, 2023April 23, 2023 ~ kiffmeister

Bank of Japan CBDC PoC Phase 2 Results

The Bank of Japan (BoJ) published the results of Phase 2 of its central bank digital currency (CBDC) proof-of-concept (PoC) that was conducted between April 2022 and March 2023. Although it is only available in Japanese, Norbert Gehrke wrote a summary of the report in English. The objective of the PoC Phase 2 was to uncover potential technical issues early as they relate to the basic functions covered in Phase 1. Some desirable peripheral functions not covered in Phase 1 were also added. Then, the technical implementation and processing performance was validated. [Download the report at the BoJ and read Norbert Gehrke’s English language summary on Medium]

Uptake of e-CNY remains disappointing

According to Changchun Mu, director of the People’s Bank of China’s Digital Currency Institute, China’s e-CNY CBDC needs to be made more appealing and user friendly in order to satisfy market needs. He was speaking at the Bank for International Settlements (BIS) Innovation Summit on March 22, 2023 and gave a surprisingly frank assessment of the status of the e-CNY pilot project. [Watch the video at the BIS and check out Rosa Giovanna Barresi’s summary and discussion on LinkedIn]

Fed’s Waller says tokenization shows promise, but risks remain

US Federal Reserve Board (Fed) Governor Christopher Waller spoke about the potential benefits and risks of blockchain-based asset tokenization and the related use of smart contracts. In particular, he pointed to the way that smart contract-enabled atomic settlement can mitigate settlement and counterparty credit risks by ensuring that the buyer will not pay if the seller does not deliver; and conversely, that the seller will not deliver if the buyer does not pay. However, smart contracts can have bugs and potential cyber vulnerabilities; and instantaneous settlement raises its own set of risks. [Read more at the Fed]

The shape of things to come: innovation in payments and money

Bank of England (BoE) Deputy Governor Sir Jon Cunliffe spoke about four areas where the tokenization of money is being explored. The first is stablecoins used for payments, the second is the tokenization of commercial bank deposits, the third is the next stage of the BoE’s work on issuing a digital pound and the last is the Bank’s work to ensure to ensure these new forms of money are robust and uniform. [Read the speech at the BoE and check out a discussion on LinkedIn led by Rosa Giovanna Barresi]

Upcoming conferences, webinars and speaking engagements:

I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230420)

April 20, 2023April 20, 2023 ~ kiffmeister ~ 1 Comment

EU Parliament approves crypto licensing, funds transfer rules

The European Parliament voted in the new Markets in Crypto-Assets Act (MiCA) crypto licensing regime, and the Transfer of Funds “travel rule” regulations. It now needs approval from the European Council before becoming effective regulation, after which the main provisions start to apply just over 12 months after publication in the EU’s official journal, likely in June. For example, on that timeline, the specific provisions of MiCA related to stablecoins will come into force in July 2024, while others, including those on crypto-asset service providers, will apply in January 2025. MiCA will allow companies to operate throughout the entire EU crypto market with a MiCA license granted in one country. [Read more at CoinDesk]

EU Parliament report warns of the risks of a digital euro

The European Parliament published a briefing ahead of a vote on whether to proceed with the technical implementation phase of a digital euro. While the report is broadly supportive of the preparatory work carried out by the European Central Bank (ECB), it is not a proponent of a digital euro itself. It casts doubts on the eventual launch of a central bank digital currency (CBDC), arguing that “when in doubt, [one should] abstain (but be prepared).” [Read more at the European Parliament website]

The shape of things to come: innovation in payments and money

Bank of England Deputy Governor Jon Cunliffe spoke about four areas where the tokenization of money is now being explored, stablecoins used for payments, the tokenization of commercial bank deposits, the next stage of the Bank of England’s Digital Pound work and the Bank’s work to ensure to ensure these new forms of money are robust and uniform. [Read more at the Bank of England and Rosa Giovanna Barresi’s commentary on LinkedIn]

SocGen subsidiary is first systemic bank to issue stablecoin on public blockchain

Societe Generale subsidiary SocGen Forge unveiled the EUR-pegged EURCV stablecoin (EUR CoinVertible), which is initially being issued on the Ethereum public blockchain with plans for other blockchains as well. This is the first public blockchain stablecoin issued by a subsidiary of a global systemically important bank (G-SIB). Access to the fully-backed stablecoin is restricted to investors that have been through SocGen KYC and AML procedures. The motivation for the issuance includes using it as a robust settlement asset for on-chain transactions, corporate treasury, on-chain liquidity funding and an asset for margin calls. [Read more at Ledger Insights]

Upcoming conferences, webinars and speaking engagements:

I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230412)

April 12, 2023April 12, 2023 ~ kiffmeister

Jamaican government incentivizing JAM-DEX CBDC uptake and usage

The Jamaican government launched two new incentive programs to increase the adoption of its JAM-DEX central bank digital currency (CBDC). The first is the “Small/Micro Merchant Incentive Program”, which will reward the first 10,000 merchants who sign up for the official JAM-DEX platform as of April 1, 2023, with a J$25,000 (about $164) deposit. The second is the “Wallet-holder Individual Loyalty Program”, which provides regular JAM-DEX users with loyalty points that may be redeemed for things such as 2% cashbacks on qualified purchases. [Read more at the Jamaica Ministry of Finance]

The tokenization continuum

The BIS published a primer on tokenization and its key elements. Tokenization can reap gains through transaction automation and new types of asset transfer, but it raises economic, legal and technical issues. These challenges define a “tokenization continuum” that represents the trade-offs involved in the tokenization of different kinds of traditional assets. The tokenization continuum suggests that where tokenisation is easiest, per-unit gains are likely to be modest. Efforts that concentrate initially on identifying the assets that are most suitable for tokenization may yield the largest benefits, especially when the asset is traded in large volumes. [Read more at the BIS]

Central bank digital currency and financial inclusion

The IMF published a paper that models the financial inclusion impact of introducing a retail CBDC in a developing country context. It finds that CBDC issuance can increase bank deposits from the previously unbanked by incentivizing the opening of bank accounts for access to CBDC wallets (offsetting potential flows from deposits to CBDCs among those already banked). Second, data from CBDC usage allows for the building of credit to reduce credit-risk information asymmetry in lending. However, if non-bank payment system providers can distribute CBDC, fewer funds will flow into deposit accounts from the unbanked, but if CBDC data is shareable with banks, those without bank accounts can still build credit and access lower interest rate loans. This design is optimal for welfare if the gains from greater access to CBDC outweigh the contraction in lending. [Read more at the IMF]

De La Rue slashes forecasts as banknote demand tumbles

British banknote printer De La Rue has warned that its profits will miss full-year forecasts as demand for fresh cash fell to its weakest level in 20-years. It also said it was in discussions with its lenders to seek “an amendment to its banking covenants”. Last year, De La Rue found itself in a fight with its auditor after a “going concern warning” because of what EY said was a “severe but plausible downside scenario” where if the group lost key currency contracts, it would breach a debt covenant on the group’s credit facility. [Read more at the Financial Times]

Upcoming conferences, webinars and speaking engagements:

I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230329)

March 29, 2023March 29, 2023 ~ kiffmeister

Russia delays digital ruble launch testing due to lawmaking process

The next phase of the Bank of Russia’s central bank digital currency (CBDC) testing, slated to start on April 1, 2023, has been delayed because relevant legislation has only passed through the first reading in the State Duma — the Federal Assembly’s lower house. However, the legislation may be enacted by early May. Meanwhile, the number of private banks participating in the pilot has also changed from 15 to 13. Some of the banks’ employees would become the test participants for CBDC retail payments, as well as one of the largest insurance companies in the country, Ingosstrakh. Hence, although the April 1 launch was being billed as a “pilot” is appears to be either further proof-of-concept or prototyping work, since none of the general public isn’t involved in the testing. [Read more at TASS]

Opening of the BIS Innovation Hub Eurosystem Centre

The Bank for International Settlements (BIS) Innovation Hub Eurosystem Centre, a joint effort by the BIS and all Eurosystem central banks, opened on March 28, 2023. The Centre will have offices in Frankfurt and in Paris, hosted and supported by the Deutsche Bundesbank and the Banque de France. The European Central Bank will coordinate the interactions of the Eurosystem with the Centre. The Centre’s project focus areas will be decentralized finance (DeFi), wholesale CBDC, cyber security and green finance. Projects include Atlas, which will create an open-source data platform to provide information on DeFi and crypto-asset market capitalization, economic activity and international flows of crypto-assets, and Mariana, which will explore automated market-makers (AMM) for the cross-border exchange of Swiss franc, euro and Singapore dollar wholesale CBDCs. [Read more at the BIS]

EU lawmakers impose €1,000 cap on anonymous crypto, cash transactions

European lawmakers have adopted legislation imposing a €1,000 cap on anonymous cryptocurrency transactions, as part of the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) package. The draft bill also seeks to cap anonymous cash transactions above €7,000 when it is not possible to identify the sender. The bill had an overwhelming majority of 99 votes in favor, eight against and six abstentions. The European parliament will start negotiations on the final text of the AML/CFT package after a plenary session in April. [Read more at the European Parliament]

Oxbridge Re starts selling tokenized securities to back its reinsurance sidecar

Oxbridge Re Ltd., the Cayman Islands based reinsurance firm with a Gulf Coast risk focus, has begun the initial offering of DeltaCat Re tokenized reinsurance securities, that will represent fractionalized interests in reinsurance contracts written by its reinsurance sidecar. “Democratizing reinsurance through tokenization allows investors to participate directly in the reinsurance business, which traditionally has extremely high barriers to entry… and enable the underwriting of higher value reinsurance contracts.” [Read more at Artemis.bm]

Upcoming conferences, webinars and speaking engagements:

I’ll be moderating the “CBDCs, Stablecoins, Commercial Bank Money Tokens – What is the Future of Money?” panel discussion at the Digital Euro Association (DEA) Digital Euro Conference on March 31 in Frankfurt. [Register with this link and the DECKIFFMEISTER20 code and get a 20% discount]
I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230307)

March 7, 2023March 7, 2023 ~ kiffmeister

Brazil announces CBDC proof-of-concept seeking to leverage financial services

Banco Central dos Brasil (BCB) announced the start of a (wholesale?) central bank digital currency (CBDC) proof-of-concept (PoC) project aimed at providing payment rails executed on distributed ledger technology (DLT) to support the provision of retail financial services, including the purchase and sale of tokenized government bonds, settled through tokenized bank deposits. The PoC is not aimed at leveraging digital payments, as this is already being done on a large scale with Pix, which was launched at the end of 2021 and has been widely adopted. [Read more at the BCB]

Compensation model for the digital euro

The European Central Bank (ECB) published a presentation on the digital euro compensation model. The digital euro is seen as a public good and should be free for basic use by private individuals, but there should be economic incentives for payment service providers (PSPs) to distribute the digital euro in order to generate network effects. PSPs will be allowed to charge merchants, as with cash and other payment methods today, and such fees could be determined by market forces. However, legislation might establish an expectation on merchant pricing considering the current levels for comparable retail payment solutions. [Read more at the ECB]

Alameda Research files suit against Grayscale over ‘self-imposed redemption ban’

Alameda Research, an affiliate debtor of FTX, which filed for bankruptcy in November, has filed suit against Grayscale Investments. The suit seeks to “unlock $9 billion or more in value for shareholders of the Grayscale Bitcoin and Ethereum Trusts and realize over a quarter billion dollars in asset value for the FTX debtors’ customers and creditors. The lawsuit claims that Grayscale charged over $1.3 billion in management fees in violation of trust agreements, and “contrived excuses” to prevent shareholders from redeeming their shares in what the statement described as a “self-imposed redemption ban.” As a result, the statement continued, the Trusts’ shares trade “at approximately a 50% discount to Net Asset Value.” [Read more at CoinTelegraph]

China’s WeChat integrates digital yuan into payment platform

WeChat has reportedly added China’s central bank digital currency (CBDC) to some of its payment services, following rival Alipay in offering support for the digital yuan since December 2022. WeChat Pay now allows digital yuan payments on certain apps, such as ordering food from McDonald’s and paying bills. Direct CBDC transactions between WeChat users are expected to follow. [Read more at Forkast]

Upcoming conferences, webinars and speaking engagements:

I’ll be on a “public finance and the digital future” panel at the March 23-25 Willamette College of Law “Our Money, Our Future” (Hybrid) Conference in Salem, Oregon on March 24. [Register here]
I’ll be moderating the “CBDCs, Stablecoins, Commercial Bank Money Tokens – What is the Future of Money?” panel discussion at the Digital Euro Association Digital Euro Conference on March 31 in Frankfurt. [Register here]
I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]

Kiffmeister’s global central bank digital currency monthly monitor

Kiffmeister’s #Fintech Daily Digest (20230224)

February 24, 2023February 24, 2023 ~ kiffmeister

The IMF on elements of effective policies for crypto-assets

The IMF published a board paper on “Elements of Effective Policies for Crypto Assets” that provides guidance to IMF member countries on key elements of an appropriate policy response to crypto-assets. It sets forth a framework of nine policy actions that can help members develop a comprehensive, consistent, and coordinated policy response. These include developing and enforcing prudential, conduct, and oversight requirements to all crypto market actors, and not granting crypto-assets official currency or legal tender status. [Read more at the IMF]

Canadian crypto trading platforms face ‘enhanced’ rules under new regulations

The Canadian Securities Administrators (CSA) published new guidance for the local crypto-asset industry, warning crypto-asset trading platforms (CTPs) that they would have to abide by “enhanced investor protection commitments. These include “enhanced expectations” regarding the custody and segregation of crypto-assets held on behalf of Canadian clients and a prohibition on offering margin, credit, or other forms of leverage to any Canadian client. They will also prohibit CTPs from permitting clients to purchase or deposit stablecoins and proprietary tokens without the prior written consent of the CSA. [Read more at the CSA]

Technology behind crypto can also improve payments, providing a public good

The IMF published a blog post that makes the case for leveraging the technology behind crypto-assets to upgrade payment infrastructures and ensure interoperability, safety, and efficiency in digital finance. It points particularly to tokenization, encryption, and programmability, plus central bank digital currencies (CBDCs) to clear and settle transactions. Payments could be made from one private money to another, through the CBDC ledger or platform. Money could be escrowed on the CBDC platform, then released when certain conditions are met, such as when a tokenized asset is received. And the CBDC platform could offer a basic programming language to ensure smart contracts are trusted and compatible with one another. More detail on these ideas were published in a recent IMF working paper (“A Multi-Currency Exchange and Contracting Platform“). [Read more at the IMF]

Digital euro should prioritize online, P2P payments, ECB says

A digital euro should prioritize online purchases and making person-to-person (P2P) payments, according to a slide deck on the European Central Bank (ECB) website. Other uses such as paying taxes, receiving welfare payments, and making payments in physical stores, should only follow in later tranches of a CBDC rollout. [Read more at the ECB]

Representative Emmer says no to U.S. CBDC

Tom Emmer, a member of the US House of Representatives, has introduced a new bill to prohibit the Federal Reserve from issuing a retail CBDC. “My bill, which prohibits the Fed from issuing a CBDC directly to individual Americans, is a statutory prohibition on a surveillance tool that could be used to kill private sector innovation and deflate the dollar’s dominance.” [Read more on Tom Emmer’s website]

Crypto bank Custodia’s bid for Fed supervision rejected again

The US Federal Reserve Board (FRB), in a unanimous decision, has again rejected Wyoming-chartered Custodia Bank’s bid to become a member of the Federal Reserve System, after previously denying the application in January 2023. The initial rejection said Custodia’s business model “presented significant safety and soundness risks,” and claimed Custodia did not have a sufficient risk management framework in place.” [Read more at the FRB]

FYI yesterday I reported on a mysterious IMF technical note on Jordan’s CBDC exploration, and today the link reappeared here!

Upcoming conferences, webinars and speaking engagements:

I’ll be providing a (probably virtual) update on global central bank digital currency (CBDC) developments at the Digital Euro Association Digital Euro Conference on March 31 in Frankfurt. [Register here]
I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]

Kiffmeister’s global central bank digital currency monthly monitor