Tether Continues to Reduce Commercial Paper Holdings
Tether announced further progress towards reducing its commercial paper portfolio. As of July 1, Tether had 8.4 billion of these holdings, of which 5 billion will expire on July 31. The goal remains to bring commercial paper holdings down to zero, switching them into short-term U.S. Treasury securities.
Visa: Public willingness to use CBDCs is the biggest challenge
"“Perhaps the greatest challenge to CBDC deployment will come from the public’s willingness to use it. Inevitably, CBDCs will come up against payment solutions that the public has already come to rely on, and given that there are only a handful of CBDCs in operation, how people will respond to this new innovation is an open question,” the report stated."
Basel's bank rules for crypto-assets get stricter for stablecoins, lighter for crypto
"To fully qualify as a lower risk stablecoin, the price cannot go below 99.9 cents on more than three days in 12 months. A stablecoin outright fails the test if it drops below 99.8 cents more than ten times during a year. We assume this is at any point during the day, but that’s unclear. Using data from Messari, USDC, considered higher quality than Tether, would have failed both tests intraday every day during the past month. Tether managed to pass on six out of 30 days. However, at ‘close’ USDC would have failed the first test just four times compared to 16 times for Tether. But extrapolating to a year, that’s enough for both to be classed as a pure cryptocurrencies."
"Andreas Dombret and Oliver Wünsch see an opportunity in the proliferation of digital currencies and argue for central banks to issue their own digital currencies to create a viable alternative to cash and deposit money that also allows policymakers to ensure that the official monetary system remains the most attractive one."
Coinbase’s conflation of in-house stablecoin, US dollar sparks liquidity concerns
Coinbase announced that the platform will be “unifying USD and USDC order books,” adding that “USDC order books will be merged under USD order books to create a better, more seamless trading experience with deeper liquidity for USD and USDC.” USDC (aka USD Coin) is the stablecoin issued by Centre, a consortium of Circle and Coinbase. This may provide a ‘more seamless’ experience, but it also gets Coinbase out of a potential fiat liquidity crunch, in the wake of massive customer USD withdrawals during the current crypto crash.
US abortion laws revive a strong argument for cash
"Now that the US Supreme Court has overturned Roe v. Wade, Americans are raising concerns about what data police and prosecutors could access to incriminate people who seek abortions, which has happened before. If law-enforcement officials can’t access medical documents, they could turn to financial services companies for data on payment transactions. With abortion now illegal in several US states, paying for abortion services with cash could be one way to avoid detection, posing a challenge to the idea that cash is on its way out."
Montran and eCurrency announce the very first CBDC solution fully integrated with a Central Bank's RTGS solution for central bank currency management
"Montran Corporation and eCurrency Mint announced today the successful integration of Montran's Real Time Gross Settlement (RTGS) with eCurrency's Central Bank Digital Currency (CBDC) platform. As a result, CBDC is seamlessly interfaced with central bank currency management payment operations. The first implementation is the Bank of Jamaica which currently has Montran's RTGS deployed for final settlement in Jamaican Dollars and is in the process of a national rollout of the eCurrency solution to provide Jamaica's Central Bank Digital Currency, Jam-Dex."
Basel Committee wants to limit banks' digital asset exposure to just 1% of equity
The Basel Committee on Banking Supervision suggested during its second consultation on the prudential treatment of crypto-asset exposures that banks limit their exposure to so-called Group 2 crypto assets to just 1% of their Tier 1 capital. Group 2 digital assets include major non-stablecoin, non-tokenized cryptocurrencies like Bitcoin and most altcoins. Therefore, banks would only be able to commit 1% of their total equity or net asset value in either long or short positions toward Group 2 digital assets. Moreover, the Basel Committee is considering banks adopting a 1,250% risk premium for Group 2 digital assets. In comparison, stocks typically have a 20% to 150% risk premium attached to their nominal values, depending on the company's credit rating. Under Basel III, a bank's risk-weighted assets must not surpass 10.5% of its Tier 1 capital for prudent leverage.
"This is a quick post to share some of the things I've learnt from watching Tether over the last two months. I'm hoping other Tether watchers find this information useful and share some of their own Tether watching tricks in the comments section. (No conspiracy theories, please. Just analysis).
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Prudential treatment of cryptoasset 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.
Russia exploring CBDC for settlements of real estate deals
"The Central Bank of Russia (CBR) is expanding its trails for the digital ruble it is developing. The CBR is now also exploring more use cases for the central bank digital currency (CBDC), including for use in settlement of real estate deals."
In this March 31 speech, 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."
Recent Technological Advances in Financial Market Infrastructure in ASEAN+3
This Asian Development Bank (ADB) report ascertains the current status of technology adoption, including wholesale CBDC applications, by its Cross-Border Settlement Infrastructure Forum member organizations. They include central securities depositories and central banks in the Association of Southeast Asian Nations (ASEAN) plus the People’s Republic of China, Japan, and the Republic of Korea (collectively known as ASEAN+3) region.
"The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency (CBDC) ensures that public money remains a relevant unit of account."
Taiwan completes trials of its prototype CBDC for retail use
[This is a 2022 story] Taiwan has completed trials of its prototype retail central bank digital currency (CBDC) in technical simulations. Taiwan started to study and test a retail CBDC in September 2020, and the central bank has engaged with at least Taiwanese five commercial banks in the proof-of-concept (POC) work. They also tested a wholesale CBDC. Next steps are to educate the public on purported benefits, draw up regulations and put in place a sound legal framework, before proceeding to a public pilot. https://www.cbc.gov.tw/tw/cp-302-153094-0954b-1.html
Central bank provider SICPA to create CBDC venture with INX
INX, the inter-dealer broker and digital asset trading platform, is planning a joint venture with central bank provider SICPA to develop a central bank digital currency (CBDC) offering. While SICPA is best known for its secure inks that have been used on Euro notes, it also has extensive digital capabilities. The CBDC offering will be based on blockchain and aims to expand interoperability between different stakeholders across borders.
Ripple Launches CBDC Competition to Encourage XRPL Innovation
Ripple has announced the CBDC Innovate challenge, with a total prize pool of $150,000. The Ripple CBDC Innovate challenge seeks to inspire programmers to build applications capable of running on the XRP Ledger and supporting retail central bank digital currencies (CBDCs), interoperability and financial inclusion. The deadline for the first batch of submissions is August 25. Competitors are expected to build or update a fintech or payment solution that makes use of CBDC and can run on the XRP Ledger, create a solution that can take advantage of CBDC's advantages or create an interface that allows any human to engage with a CBDC.
ANZ customer Victor Smorgon Group successfully purchased tokenized Australian carbon credits (BCAU) using the ANZ-issued stablecoin A$DC. This transaction is an important step for ANZ as the bank explores greater circulation of the stablecoin. In this transaction, Victor Smorgon Group used A$DC as a medium of exchange to purchase the BCAU carbon tokens from Zerocap, an Australian crypto asset investment platform.
Iran To Roll Out Pilot Version Of Crypto-Rial Digital Currency Soon
The Central Bank of Iran (CBI) is reportedly preparing a pilot launch of its Crypto-Rial central bank digital currency (CBDC) in August 2022. In the first phase, the pilot process will be launched in one region before it is extended to other areas of the country.
Bank of Russia Accelerates Schedule for Digital Ruble Project
The Central Bank of Russia is continuing to step up efforts to test and issue the digital ruble, with a roadmap for full implementation now expected by the end of 2023, with pilot testing scheduled to begin in April 2023. In February (2022) the central bank had implied that it had started pilot testing already, but this new announcement makes the earlier efforts sound more like proof of concept work ("clients were able to exchange non-cash rubles in their accounts for digital ones, and then they transferred digital rubles between themselves").
The art of public money: Policy considerations for central bank digital currencies
To allow CBDC to be broadly accessible and transferable in real-time without continuous dependency upon digital connectivity, an “offline” capability to create secure point-to-point payments through the use of authorized hardware will be critical.
"Congressman Jim Himes (CT-04) today released a proposal for the issuance of a Central Bank Digital Currency (CBDC) by the Federal Reserve. In the white paper, Rep. Himes argues that along with many other benefits, the implementation of digital currency by the U.S. government could play a critical role in preserving the dollar’s role as the global reserve currency of choice."
More African Central Banks Are Exploring Digital Currencies
The IMF published a blog that provides a summary of African central bank digital currency (CBDC) activity based on CBDCTracker.org data. It points to the need for governments to improve access to digital infrastructure such as a phone or internet connectivity, and the importance of offline access, for a retail CBDC to be effective, particularly if financial inclusion is a primary motivator. It also underscores the need for central banks to develop the expertise and technical capacity to manage data privacy and financial integrity risks, including strengthening national identification systems so know-your-customer requirements are more easily enforced. There is also a risk that users pull too much money out of banks to purchase CBDCs, affecting banks’ ability to lend.
Danmarks Nationalbank published a paper that summarizes the central bank's thoughts on digital currency, including retail central bank digital currency (CBDC). At present, and with the associated costs and possible risks, the paper concludes that it is not clear how retail CBDCs will create significant added value relative to the existing solutions in Denmark. However, the central bank will continue to continuously assess the various reasons for issuing retail CBDC and their possible relevance in relation to the Danish financial system
Tether To Launch GBP₮, Tether Tokens Pegged to the British Pound Sterling
Tether will be launching Tether tokens (“GBP₮”) pegged to British Pound Sterling in July. No further details were provided, such as how and where it will be backed. It will join four other fiat-currency pegged tokens Tether has in the market: the U.S. dollar-pegged USD₮, the Euro-pegged EUR₮, the offshore Chinese Yuan-pegged CNH₮, and MXN₮, the Mexican Peso-pegged stablecoin.
Mojaloop Foundation Launches the Mojaloop CBDC Center of Excellence in Singapore
The Mojaloop Foundation launched its Mojaloop Central Bank Digital Currency Center of Excellence in Singapore to advance financial inclusion in emerging markets. Mojaloop is an open source payment platform based on the non-blockchain-based Interledger Protocol.
Bank of Israel investigates anonymous digital shekel payments
The Bank of Israel published an update on their CBDC proof-of-concept (PoC) experiments, including some that were based on distributed-ledger technology (DLT) infrastructure on the cloud, and the application of a Quorum blockchain based on Ethereum. They also examined a platform developed by VMware in which there would be a wallet that can hold “ordinary” digital shekels, the transfer of which is recorded in the ledger, and “private” digital shekels, the transfer details of which are not recorded openly, and where both sides to the transaction enjoy complete privacy as with cash payments. There would be a periodic (e.g., monthly) “budget” for payment using private shekels. https://www.boi.org.il/en/NewsAndPublications/PressReleases/Pages/20-6-22.aspx
CBDCs, Not Crypto, Will Be Cornerstone of Future Monetary System, BIS Says
According to a 42-page chapter in the Bank for International Settlements (BIS) 2022 Annual Economic Report crypto’s structural flaws make it an unsuitable basis for a monetary system, and instead envisions a future where programmability and tokenization are built on top of central bank digital currencies (CBDCs). Structural flaws make the crypto universe unsuitable as the basis for a monetary system: because it lacks a stable nominal anchor, while limits to its scalability result in fragmentation. Contrary to the decentralization narrative, crypto often relies on unregulated intermediaries that pose financial risks. https://www.bis.org/publ/arpdf/ar2022e3.htm
Project Rosalind Phase 1 - Invitation for Expression of Interest (EOI) for API Users and Advisors Group
The BIS Innovation Hub London Centre invites companies and organizations to submit expressions of interest to join the Project Rosalind to develop application programming interface (API) prototypes for distributing CBDCs. The group will be structured into two tiers – API users and technical advisors, with different roles and responsibilities for each. The project, run jointly with the Bank of England, aims to address some of the questions around developing a retail CBDC system, including: how to improve public-private sector collaboration? How to maximize interoperability, encourage competition and enable adoption? How might retail CBDC meet current and future consumer needs in a fast-changing payments landscape? The objective is to explore how this interface could best enable a central bank ledger to interact with private sector service providers to safely provision retail payments.
Bangladesh exploring CBDC as an alternative to ‘risky’ private digital currencies
Bangladesh Bank will be conducting a central bank digital currency (CBDC) feasibility study, according to the country's Minister of Finance AHM Mustafa Kamal. The main motivation is to "facilitate currency in virtual transactions and to encourage startups and e-commerce businesses.
