Debunking the narratives about cryptocurrency and financial inclusion
"There are more direct and impactful ways that we can address financial inclusion concerns rather than use cryptocurrencies. To address the needs of low-income households, for instance, the U.S. government could offer and encourage the use of a robust, real-time payments solution, as other countries have done.[76] (In fact, the Federal Reserve plans to launch the FedNow Service, an instant payment system, in mid-2023.) The U.S. government should also ensure that outreach efforts related to this instant payment system are focused on engaging underserved communities.[77] "
"This document describes the proof-of-concept (PoC) developed by the Inter-American Development Bank (IADB), the IDB Lab, LACChain, Citi Innovation Labs, and ioBuilders to demonstrate cross-border payments between entities in different countries that involve currency exchange, using digital money represented by tokens -tokenized money- in the LACChain Besu Blockchain Network. For this PoC, Citi played the role of the bank holding the funds; the IDBs headquarters in the U.S. played the role of the sender of tokenized dollars; an individual in Dominican Republic played the role of recipient of tokenized Dominican pesos; LACChain provided the blockchain infrastructure and developed the back end, the smart contracts and the integrations; and ioBuilders provided technical advice and developed the front end."
Singapore lays down the law for crypto trading and stablecoins
The Monetary Authority of Singapore (MAS) published two consultation papers proposing strict regulatory measures to reduce the risk to consumers from cryptocurrency trading while supporting the development of stablecoins as a credible medium of exchange. One of the papers is focused on reducing the risk to consumers from speculative trading in cryptocurrencies, requiring that digital payment token (DPT) service providers ensure proper business conduct and adequate risk disclosure. The other paper is focused on ensuring that stablecoins have a high degree of value stability, including imposing capital requirements on nonbank issuers. https://www.mas.gov.sg/news/media-releases/2022/mas-proposes-measures-to-reduce-risks-to-consumers-from-cryptocurrency-trading-and-enhance-standards-of-stablecoin-related-activities
National Bank of Kazakhstan Wraps up CBDC PoC Tests
"The National Bank of Kazakhstan in cooperation with Payment and Financial Technologies Development Center of the National Bank of Kazakhstan launched #retail #CBDC tests last week."
Foreign Exchange Transactions Take Center Stage in New BIS CBDC Report
""Equipped with the lessons from the pilot and earlier phases of the project, Project mBridge will continue its work," the report said. "This includes the technology-build and testing – including improving on existing functionalities and adding new functionalities to the platform – in an effort to move from the current pilot phase towards MVP and eventually a production-ready system.""
Project mBridge: Connecting economies through CBDC
The BIS Innovation Hub's (BISIH's) Hong Kong Center and its partner central banks published the results of its pilot testing of its mBridge multi-CBDC (mCBDC) multi-currency cross-border transaction platform. Over six weeks in 2022, the platform was put to the test through a pilot involving real-value transactions among 20 commercial banks from four different jurisdictions. Over $12 million was issued on the platform, facilitating over 160 payment and FX payment-versus-payment (PVP) transactions totaling more than $22 million in value. See also: https://www.coindesk.com/policy/2022/10/26/foreign-exchange-transactions-take-center-stage-in-new-bis-cbdc-report/
Central Bank of Turkey plans to pilot test a CBDC in 2023
According to Turkey’s Presidential Annual Program for 2023, the Central Bank of Turkey will start piloting a central bank digital currency (CBDC) in 2023. Many news services are reporting that a Digital Lira will be launched in 2023, but according to Google Translate the key passage in the Annual Program Budget Rationale ("kullanım testlerine başlanacaktır") translates to "usage tests will begin" which sounds like a pilot to me. But it does sound like several proofs of concept (PoC) have been done (the Annual Program calls them "pilots", but if they didn't include "usage tests" then they're PoCs by my definition.
The macroeconomic impact of cryptocurrency and stablecoin economics
The World Economic Forum’s (WEF's) Digital Currency Governance Consortium has published a summary of the earlier-published comprehensive analysis of the macroeconomic impact of cryptocurrency and stablecoins. The project had two objectives: (i) to project economic outcomes of crypto and stablecoins given various possible high-level regulatory paths and (ii) to arm policymakers and business leaders with the projections to inform decision-making. The rising concern around the potential spillover effects of crypto and stablecoins on the financial system was another impetus.
Digital-Currency Plan Falters as Nigerians Defiant on Crypto
"A year after launching Africa’s first digital currency, Nigeria’s central bank is turning to the nation’s three-wheeler taxi operators to speed the adoption of the eNaira, as regulators across the world scrutinize its every move. It’s offering a 5% discount to drivers and passengers of the motorized rickshaws who use the eNaira. It’s the latest attempt to kickstart the central bank digital currency (CBDC), which has so far attracted just one in 200 Nigerians... The relatively low adoption up until this point, while not uncommon for countries in the early phases of launching a digital currency, may be caused by insufficient incentives for commercial banks or mis-targeted consumer messaging, according to John Kiff, managing director of the CBDC Think Tank."
"In wrapping up, I think this is up there with the best wallets I have used. It’s a shame about the micro USB charger, but I’m an Android boy and I like having one cable for everything. Overall, if you are looking to jump into cold storage, this is a strong option – the CoolWallet Pro is a great hardware wallet with market-leading features. "
This week, the Central Bank of Nigeria (CBN) commemorated the first anniversary of the launch of its eNaira retail CBDC, which was formally launched on October 25, 2021. The press release is notable, because until now, according to that official announcement in 2021, it was a pilot launch, so sometime in the last year it morphed into a full launch, which many of us (me included) suspected it was from the start, despite the use of the word "pilot".
Establishing a US CBDC: The right time or too risky?
"Waller took a more cautious view. “It is critical that we keep both the benefits and risks of digital assets in the policy conversation,” he said. Waller noted that, in January 2022, the Federal Reserve Board published a discussion paper on the topic and has not yet resolved to move forward. Personally, he said, “I am highly skeptical of whether there is compelling need for the Fed to create a digital currency.” In particular, he took issue with Singh’s view that the lack of a CBDC would threaten the dollar. “The underlying reasons for why the dollar is the dominant currency have little to do with technology, and the introduction of a CBDC would not affect those underlying reasons.”"
A new experiment by the Bank for International Settlements (BIS) Innovation Hub and Hong Kong Monetary Authority (HKMA) shows central bank digital currency (CBDC) can work with private stablecoins, even if intermediary operators go bust. Project Aurum created a technology stack comprised of a wholesale interbank system and a retail e-wallet system, setting up two different types of tokens: intermediated CBDC and stablecoins backed by CBDC in the interbank system. While intermediated CBDC is a direct liability of the central bank, CBDC-backed stablecoins are liabilities of the issuing bank, with its backing assets held by the central bank.
Increasing access to USDC internationally: commission-free trading via non-USD currencies
Coinbase says the adoption of USD Coin has been “more conservative” outside of the United States, which it believes is a result of international currency conversion fees. The U.S. exchange said there is currently three times more USDC bought with U.S. dollars as compared to other currencies. The exchange said it is aiming to “build more on-ramps for users to access USDC,” and will be waiving fees for all customers who buy or sell USDC using any fiat currency.
BoE looking for help with its offline CBDC research and PoC work
The Bank of England is looking for a specialist supplier to help them with their offline central bank digital currency (CBDC) research and proof of concept (PoC) work. The process of applying is a bit wonky because thy've delegated it to the UK government's digital supplier procurement system, and if you or your firm are not already on their supplier list, tough luck. And tough luck for the Bank too, because the "supply" of offline digital currency experts is rather thin, and most probably aren't already be on the list.
Here’s why Silvergate is delaying its planned stablecoin launch
Silvergate Capital no longer plans to launch its own payments-focused, dollar-pegged stablecoin this year. Company executives said the delay is related to regulatory compliance, not technical issues, underscoring that the technology was ready when Silvergate acquired it from Diem.
The competing priorities facing U.S. crypto regulations
The rise of cryptocurrencies has demonstrated just how difficult it is both to enforce existing financial regulations in the context of new currencies and to predict how those new currencies will be used, and by whom. That’s not a reason to forswear all new forms of currency but it is a reason to approach them cautiously and with an eye to the opportunities for abuse and illicit activity. It’s also a reason to be less confident about what types of benefits a CBDC will realistically be able to offer, especially since many of those could potentially be addressed through other, less radical changes to existing financial institutions and instruments.
“JP Morgan already enables tokenized U.S. dollar deposits with JPM Coin. Now it plans to enable blockchain-based Euro deposits ‘soon’… Most blockchain financial applications sit under JP Morgan’s Onyx division. This includes Onyx Digital Assets with an intraday DLT repo application, Liink for messaging around conventional payments and JPM Coin. It’s also experimenting with using JPM Coin on a public blockchain as part of Project Guardian, its Singapore DeFi experiments with the Monetary Authority of Singapore.”
Central Bank Digital Currency: Towards A Composable Standards-Based Implementation
This paper by Vipin Bharathan and Mani Pillai proposes a CBDC implementation approach based on two reference standards; the Token Taxonomy Framework (TTF) for tokens and the International Swaps and Derivatives Association (ISDA) Common Domain Model (CDM) for contracts. The proposal’s basic pattern is a contract network linked to a token network, bridging the gap between business contracts and the corresponding exchange of value.
Stablecoins Come Into Focus in EU’s MiCa Legislation
Regulatory guidance and oversight are topics that regularly intrude in the stablecoin market and are sure to shape the future of the ecosystem. Last week, the European Council voted in favor of the EU’s Markets in Crypto Assets (MiCA) legislation, set to come into force in 2024, to provide greater transparency and accountability to individuals and businesses operating in the crypto industry with stablecoins given special treatment. In particular, the new rules forbid the collection of interest by investors on stablecoins, which could provide motivation for securitization of tokenized retail money-market funds or commercial bank deposits, which do not fall under MiCA and are free to pay interest.
Central Bank of Eswatini partners with Giesecke+Devrient to further explore CBDC issuance
The Central Bank of Eswatini (CBE) has partnered with Giesecke+Devrient (G+D) to research and explore the development of a central bank digital currency (CBDC). G+D's appointment stems from the completion of the 1st phase of the CBDC Diagnostic Study conducted in 2020 which found that a retail CBDC presented the strongest and direct opportunity for the adoption of a digital currency in Eswatini.
"The global rise in interest rates is finally beginning to percolate into the stablecoin sector. One of the effects of this rise is that centralized stablecoins, which by default pay 0% to holders, are introducing backdoor routes for paying interest to large customers. While large stablecoin holders may be benefiting from this trend, small holders of stablecoins are being ignored. Small stablecoin holders need to unite. By working together through a StablecoinDAO, their bargaining power vis-a-vis the big stablecoin issuers improves. They may be able to negotiate the same interest payments that large stablecoin customers are getting... A StablecoinDAO would work along the same lines as a high-interest savings ETF. People would deposit their stablecoins -- USD Coin, Gemini Dollar, Binance USD, USDP, Tether, Dai -- into a smart contract. In return they'd get a new stablecoin called, say, UniteUSD, which would be redeemable on demand into any of the DAO's underlying stablecoins. UniteUSD itself would be useful. It could be used for purchases, deposited into smart contracts, or traded on decentralized exchanges and whatnot. StablecoinDAO would have the authority to swap one underlying stablecoin out with a new one. That potential threat would give the DAO the necessary leverage to negotiate interest payments."
The potential of central bank digital currencies for cross-border payments
This SUERF Policy Brief presents the key findings of the annual BIS survey of central banks about their engagement in central bank digital currency (CBDC) and it discusses these findings in the context of cross-border payments. As in previous years, the motivations to consider issuing a CBDC differ between AE and EMDE central banks and between retail and wholesale CBDCs. Overall, the retail CBDC work in AEs is driven mainly by domestic payments efficiency, payments safety and financial stability considerations. The same reasons are also important drivers for the retail CBDC work in EMDEs, however, their CBDC engagement is, above all, driven by financial inclusion-related motivations.
The real reason Circle de-risked its USDC reserves?
"Back in 2020-21, Circle was investing USDC's reserves in all sorts of riskier assets. Then it shifted to a 100% Treasury bill policy. Why? Circle feared being classified as an 'investment company' as defined in the Investment Company Act of 1940." (HT @jp_koning) See page 70 here: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001876042/d372f208-1c41-4909-b529-f2b0614fc1ea.pdf
Central bank digital currencies: An active role for commercial banks
McKinsey & Company published a report that pitches active commercial bank involvement in central bank digital currency (CBDC) decision-making processes. But more interestingly for me, the report advocates central banks taking a more "agile" approach to CBDC research and development. "By adopting an agile approach, central banks can deploy a CBDC within three years, compared with five years or more using a traditional waterfall development model. Although adoption and realization of scale will likely prove to be longer-term efforts, lessons from early launches and a set of best practices can help foster early market acceptance.
Digital yuan transactions volume crossed $14B mark
China’s central bank digital currency (CBDC) project has reached the roughly 100 billion yuan ($14 billion) transaction mark during its pilot phase. “Multiple e-government service platforms have opened digital renminbi payment services, supporting online and offline channels to handle various public utility payments, using digital renminbi to issue tax rebate funds, special funds for monthly medical insurance payment, funds for helping people in need, and ‘specialized, special and new’ enterprise support funds, etc.” Going forward, the People's Bank of China (PBOC) plans to launch the cross-border payments between Hong Kong and mainland China, following the principle of “anonymity for small amounts and traceability of large amounts” to protect the user’s personal data. https://mp.weixin.qq.com/s/mrc_vPXAZf4glX9_NEfmUQ
European Data Protection Board statement on the digital euro
The European Data Protection Board (EDPB) reiterated the importance of ensuring digital euro privacy and data protection by design and by default. The EDPB cautioned against the use of systematic validation and tracing of all transactions in digital euros. In this respect, the EDPB recommended that the digital euro be made available both online and offline, along a threshold below which no tracing is possible, to allow full anonymity of daily transactions.
How Central Bank Digital Currencies can promote inclusion
"Central banks must consider the following four areas when designing CBDCs to ensure they empower individuals around the globe. Leading architects of CBDCs can help us plot a course forward."
