Iran to Pilot ‘National Cryptocurrency,’ Amend Central Bank Law
"The central bank of Iran is gearing up to begin the pilot phase of its digital currency project in the near future, its new head announced to representatives of local media. The monetary authority is also preparing to move forward with a plan to reform the legislation that governs its own activities."
Bank of England mulls CBDC models in technology engagement forum
The Bank of England published the minutes of its first central bank digital currency (CBDC) Technology Forum meeting held on September 28, 2021. The Forum consists of senior stakeholders from industry, civil society and academia to gather strategic input on policy considerations and functional requirements pertaining to the practical challenges of designing, implementing and operating a CBDC. The meeting featured a discussion around alternative "platform" models for CBDC provision. In one model, the Bank would hold a record of every payment amount, and in another, it might just record the gross transactions with payment service providers (PSPs) in a ‘pooled model’. And they discussed a variant of the pooled model to allow delayed net settlement by the PSPs, even though customer payments would be real-time. Some meeting attendees suggested an alternative anonymous cash-like model without either the PSPs or the Bank keeping a ledger. However, other Members queried the feasibility of this approach, both in terms of the viability of the technology, and in relation to resilience, and prevention of tampering and “double spending” of CBDC units.
Hindenburg Research Announces $1,000,000 Bounty For Details On Tether’s Backing
"Hindenburg Research, a forensic financial research firm, today announces it is launching the Hindenburg Tether Bounty Program (the “Program”) – a reward of up to $1,000,000 for information leading to previously undisclosed details about cryptocurrency “stablecoin” Tether’s backing."
An innovative digital payment solution, PaySe is a financial inclusion enabler created to address the key challenges faced by banks and other financial institutions to make banking services accessible even in the remotest geographies across India. As the world's first offline solution, PaySe can be used to accept and make payments even when completely offline. It does this by using a secured smart card and an NFC enabled device. PaySe also provides financial institutions with the capability to acquire customers efficiently by capturing customer data, verifying documents, conducting KYC / AML checks and creating customer accounts. For us PaySe is more than just a business – we see it as something we should do for the society.
Statement from Diem Networks US Regarding Congressional Interest in Project
Facebook's Novi launched its retail payment app yesterday (October 19) going with Paxos’ USDP stablecoin as its transactional currency while it awaits regulatory approval for its own Diem stablecoin. However, almost immediately, US Senate Democrats addressed a letter to Facebook CEO Mark Zuckerberg questioning the company’s credibility with crypto, and calling for the immediate discontinuance of the Novi pilot and a commitment not to bring Diem to market. Diem replied by clarifying that Diem is an independent organization with Facebook’s Novi being just one of more than two dozen members of the Diem Association, so that Novi’s pilot with Paxos is unrelated to Diem. The response went on to say that "When Diem comes to market [Diem] will do so having reflected the feedback of regulators from around the world and with confidence that Diem’s payment system is secure, will protect consumers, and will combat financial crime.”
Central bank digital currency in an historical perspective
"My overview of the history of monetary transformations suggests that technological change in money is inevitable, driven by the financial incentives of a market economy. Government has always had a key role in the provision of currency (outside money), which is a public good. It has also regulated inside money provided by the commercial banking system. This held for fiduciary money and will likely hold for digital money."
Open questions on the international dimension of central bank digital currencies
"This column identifies open research questions around the international macro-financial dimension of central bank digital currencies, including what is different about them, and what the implications for international central bank cooperation are. Addressing these questions would not only push the frontier of knowledge, it would also provide the conceptual backbone and evidence that could usefully inform future policy decisions on CBDCs. "
Pilot version of Facebook's Novi digital wallet app now available
Facebook's Novi digital wallet app is being rolled out a small pilot in the United States and Guatemala. With it, people can send and receive money instantly, securely, and with no fees. It will use the Pax Dollar (USDP) stablecoin through partnerships with Paxos and Coinbase. A small cohort of users in both countries will be able to download the Novi app on iPhone or Android devices, sign up with valid government-issued ID, and add money to their accounts with a debit card. According to CEO David Marcus, USDP was chosen because it's been operating successfully for over three years and has important regulatory and consumer protection attributes. He also made it clear that Novi's support for the larger-scale Diem project hasn’t changed and they intend to launch Novi with Diem once it receives regulatory approval and goes live. https://www.novi.com/file/pilot-version-of-novi-now-available
France tests CBDC issuance in treasury bond blockchain trial
A consortium of institutions led by Euroclear have completed a test run of the use of wholesale central bank digital currency (CBDC) for settling French treasury bonds on a blockchain. The experiment, using technology from IBM and commissioned by the Banque de France included Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, Societe Generale. The trial is part of a wider Banque de France initiative commissioned in March 2020, to test the integration of a central bank digital currency for the exchange and settlement of tokenised financial assets between financial intermediaries.
Tether’s bitcoin-backed lending clashes with dollar promise
"The CEO of crypto lending platform Celsius Network has said that Tether lends out new USDT stablecoins in return for cryptocurrencies — a claim that calls further into question Tether’s founding promise that it uses only real dollars to issue its tokens. Celsius borrows USDT from Tether in return for well-known cryptocurrencies. New USDT is issued for such loans and later destroyed when the loan is closed so it does not permanently increase USDT in circulation. This flies in the face of the Tether operating model described in its whitepaper - issuance of USDT is supposed to be on a one-for-one basis against dollars. However a primer published in May 2021 says only that that 'newly issued [USDT] must be backed by collateral' and that 'redeemed [USDT] tokens are not released back into circulation unless new collateral has been provided'."
The e-cedi, which the Bank of Ghana is set to pilot, reportedly seeks to facilitate transactions without the need for power or connectivity." This is a core functionality of the Filia central bank digital currency (CBDC) platform of the Bank of Ghana's technical partner G+D.
Digital yuan's anonymity is misunderstood, says China's digital currency leader
Mu Changchun, the Director General of the People's Bank of China (PBOC), clarified how the managed anonymity of China’s digital yuan works. Wallets come in multiple tiers, with small transaction value tiers supporting anonymity by requiring only a phone number as identity, but larger-value tiers requiring conventional proof of identity. Under China's Personal Information Protection Law, the telecom companies cannot release identity information to any third parties, including the central bank. However, if it’s suspected that some anonymous transactions are illicit, law enforcement agencies can present a legal warrant to the phone company to get the user’s identity. Also, all wallets have a sub wallet function in which each merchant can have a separate wallet to avoid linking a person across merchants.
CFTC Fines Tether and Bitfinex $42.5M for ‘Untrue or Misleading’ Claims
The US Commodity Futures Trading Commission (CFTC) fined Bitfinex and Tether more than $42 million on allegations that over a 26-month period between 2016 and 2018, the reserve funds backing its USDT stablecoin were comingled with the company’s corporate funds and held in non-cash products, relying on unregulated entities and certain third-parties to hold funds comprising the reserves. In a statement published shortly after the CFTC release, Tether confirmed that indeed the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times, contrary to what the firm had claimed during the period in question.
G7 Public Policy Principles for Retail Central Bank Digital Currencies
The G7 published a set of public policy principles for retail central bank digital currency (CBDC) alongside a G7 Finance Ministers and Central Bank Governors’ Statement on CBDCs and digital payments.
FSB publishes targets for enhancing cross-border payments and progress under its Roadmap
The Financial Stability Board (FSB) published a progress report on the first year of the G20 Roadmap for Enhancing Cross-Border Payments, bringing together in one place the work under the wide-ranging, but interconnected, set of initiatives. Most of the milestones set for 2021 have been successfully completed or are close to finalization. The breadth of the work underway and the recognition of the importance of conducting sufficient external outreach has led some of the timelines to be extended. But the end-goals of the overall Roadmap remain firmly on track. The next stage of work in 2022 includes the development of specific proposals for material improvements of underlying systems and arrangements, as well as the development of new systems.
"This article digs into general-purpose CBDC design features and challenging technological decisions that digital architects, policy-makers and bankers are currently working on. Arguably, the paper could be many pages longer, but we wanted to offer more of a stock-take review so that you, the reader, could see the larger design picture more easily. We expect that the inventory of features and issues will continue to change over time as evaluations and testing proceeds. "
G7 Set to Release the Guidelines for the Creation of CBDCs
The Group of Seven (G7) industrialized nations are reportedly discussing a draft document that sets out standards for the creation and issuance of central bank digital currency (CBDC). Among issues considered “essential” for any CBDC, the document cited appropriate national regulatory and oversight frameworks for the new payment system, as well as “rigorous” standards of privacy and accountability for the protection of users’ data and transparency on how information will be secured and used. The paper also pointed to concerns over a significant use of any CBDC by residents of a foreign country, which could lead to currency substitution and loss of monetary sovereignty in both the issuing and foreign country.
OFS and AUGENTIC GmbH reveal the design of the offline "Smart Banknote CBDC" prototype
"A smart banknote is a physical banknote that interacts with a CBDC solution and acts as a transitional device between traditional and CBDC based payment systems. A smart banknote can be used like a classic banknote; however, the owner can redeem his cold wallet (physical banknote) and transfer the note’s value to a digital wallet by scanning the QR code with the private key. Our smart banknote includes a public and a private key represented by QR codes of which the private one is sealed. When the cover of the private key is removed, the QR code scanned, the value of the banknote can be transferred to a digital wallet. Conceptually after this procedure, the smart banknote cannot be transferred anymore."
"EMTECH, an award-winning software company modernizing central banking infrastructure for financial inclusion and resilience, with blockchain-based platforms, and Hedera Hashgraph, provider of the most used, sustainable, enterprise-grade public network for the decentralized economy, announced today a partnership to develop an enterprise-grade, highly performant, highly secure and energy efficient CBDC (Central Bank Digital Currency) infrastructure product."
The Central Bank of Nigeria published a white paper that provides detail on the critical dimensions of its eNaira central bank digital currency (CBDC). It provided more detail on the individual wallet tiers and limits (Table 2 and 3 below) and the two-tier, apparently "hybrid", architecture (Figure 7). The local press is reporting that the launch of the pilot is imminent.
"Can central banks deliver on and guard cash-like privacy and resilience properties of a CBDC? And if so, at what cost? In order to maintain public’s access to central bank money are operational investments or subsidies needed to both CBDC deployment as well as to sustainability of cash infrastructures?"
Challenges to the International Role of the U.S. Dollar
According to a new paper by the Federal Reserve, the US dollar's dominant role in global markets should continue, but that status could be threatened by increased European integration, the continued rapid growth of China, or cryptocurrencies. However, absent any large-scale political or economic changes, it concludes that the dollar will likely remain the world's dominant international currency for the foreseeable future. For example, even with more European fiscal integration, remaining political separation will continue to cause policy uncertainty that would undermine the Euro as a viable competitor. And there are significant roadblocks to more widespread use of the Chinese renminbi, including it not being freely exchangeable, the Chinese capital account being closed, low investor confidence in Chinese institutions and the rule of law. As for cryptocurrencies, the paper's assessment is that it is unlikely that technology alone could alter the landscape enough to completely offset the long-standing fundamental reasons the dollar has been dominant.
Crypto Mystery: Where’s the $69 Billion Backing the Stablecoin Tether?
A Bloomberg article made numerous claims against Tether, including that its chief financial officer Giancarlo Devasini has used the company’s reserves to make investments, that seem to contradict Tether’s public position that the holdings were fully backed at all times. In addition, the article alleges that Tether has invested in Chinese firms and issued crypto-backed loans “worth billions of dollars.” Furthermore, Wall Street traders were canvased to see if any had ever seen any trades made by the company, which supposedly holds $30 billion in commercial paper short-term loans — suggesting the fact that none had seen any should raise eyebrows. Additionally, only one bank was located — in the Bahamas — that was working with the firm. Tether called the article “another tired attempt to undermine” the company, pointing to its recent quarterly report on its holdings to demonstrate that it is 100% backed, although not offering any detail on its asset holdings that would concretely refute the Bloomberg article's contentions.
"Again, I think if you told that story five years ago people would think you were nuts. “No no no,” they would say, “you can’t manufacture safe dollar assets out of Bitcoin, Bitcoin is too volatile, there is no floor, it could go to zero, this is nonsense.” I think there is a good chance that if you tell that story five years from now it will be unremarkable. “Yes right of course the Bank of Tether issues deposits worth one Tether and uses those deposits to fund margin loans to levered Bitcoin investors, that’s just how banking works,” people will say. It is just a function of how confident people are in Bitcoin’s permanence and its function as a store of value. Right now we are in between; the story is plausible but still weird. It’s not the story that Tether wants to tell, and it’s not the main story of Tether. But it's the interesting part."
MoneyGram launches USDC settlement using the Stellar blockchain
"MoneyGram has partnered with the Stellar Development Foundation to enable consumers to send money using Circle’s USD Coin (USDC) stablecoin, and convert directly to and from fiat across its global retail platform. Working alongside Circle, MoneyGram will also enable “near-instant backend settlement,” account funding and local fiat withdrawals using USDC. United Texas Bank will act as the settlement bank to complete the process within the regulatory framework."
US FDIC Said to Be Studying Deposit Insurance for Stablecoins
The Federal Deposit Insurance Corp. (FDIC) is reportedly studying whether certain stablecoins might be eligible for its coverage. The agency is trying to analyze what so-called pass-through FDIC insurance might look like for the reserves that stablecoin issuers hold at banks. Such coverage would insure holders of the tokens against losses up to $250,000 if the bank holding the collateral were to fail. The FDIC is also looking at what regular, direct deposit insurance might look like for banks that want to issue stablecoins.
The National Bank of Georgia (NBG) reportedly plans to launch a retail central bank Digital currency (CBDC) pilot next year, following up on their April 30, 2021 request for fintech companies to cooperate in the digital lari project.
CPMI and IOSCO publish guidance, call for comments on stablecoin arrangements
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published for public consultation preliminary guidance that confirms and clarifies that systemically-important stablecoin arrangements (SAs) should observe international standards for payment, clearing and settlement systems. The report proposes additional guidance on how certain aspects of the CPMI/IOSCO Principles for Financial Market Infrastructures (PFMIs) apply to the novel features of SAs.
Circle's newest attestation report shows that it has sold most of its corporate bonds, long-dated commercial paper, Yankee certificates of deposit, and Treasury notes, that back its USDC stablecoin.
Circle, a key supporter of the USDC stablecoin, received an “investigative subpoena” from the U.S. Securities and Exchange (SEC) Enforcement Division in July 2021. The subpoena arrived one month after Circle began onboarding corporate USDC holders into its first high-interest yield product, Circle Yield. The subpoena requests “documents and information regarding certain of our holdings, customer programs, and operations," but Circle did not elaborate on what the SEC’s investigation was focused on.
