đ© Central banks open door to crypto
New global prudential standard from BIS, and can CBDC's and privacy co-exist?
The New Money Brief covers the global rise of digital currencies and how they are disrupting the world of payments, and much else.
Delivered several times a week. Created and edited by Marc Andrew.
Big news out of Basel Friday.
The Bank for International Settlements (BIS), a rulemaker for public and private banks, released a document outlining its "prudential standard for cryptoassets" for global institutions.
There were concerns that the BIS may block banks from using âpermissionlessâ blockchains such as Bitcoin and Ethereum. That did not happen.
The standard - which will come into effect in 2025 - does not limit banks from using these new open-source technologies. Moreso, the BIS said that global banks should allocate a maximum of 2% of reserves to cryptocurrencies.
This is a positive development for the digital currency industry. It means open protocols such as Bitcoin can be used as payment rails for fiat currencies, which is a fast developing space. And it suggests that the central bank to central banks, literally designed to be the worldâs most conservative financial institution, believes a small allocation to emerging private currencies is⊠at least worth contemplating.
Given the FTX nonsense of late, thatâs no small feat. And even if 2% sound small, it represents a huge amount of capital.
Caitlin Longâs October op/ed remains an excellent read on this topic.
â«ïžâA global standard for banksâ exposure to crypto assets has been endorsed by the Group of Central Bank Governors and Heads of Supervision (GHOS) of the Bank for International Settlements (BIS). The standard, which sets a limit of 2% on crypto reserves among banks, must be implemented on Jan. 1, 2025, according to an official announcement on Dec. 16.Â
The report, dubbed âPrudential treatment of cryptoasset exposures,â introduces the final standard structure for banks regarding exposure to digital assets, including tokenized traditional assets, stablecoins and unbacked cryptocurrencies, as well as feedback from stakeholders collected in a consultation launched in June. The Basel Committee on Banking Supervision noted the report will soon be incorporated as a new chapter into the consolidated Basel Framework.
BIS's announcement highlights that the global banking system's direct exposure to digital assets remains relatively low, but recent developments have outlined "the importance of having a strong minimum framework for internationally active banks to mitigate risksâŠ"
Read the full story by Ana Paula Pereiro at Coin Telegraph
From the BISâ head of research, writing in the FT this weekend:
â«ïžâThere is a bitter irony in the turmoil currently gripping the crypto universe. Crypto was born in the depths of the great financial crisis of 2008 as a backlash against the failings of the conventional financial system, with its overleveraged shadow banks and daisy chain of leverage and maturity mismatch. However, todayâs upheaval bears all the hallmarks of precisely the failings that the industryâs early proponents railed against.
Some say âjust let crypto burnâ, but the idea that it will disappear of its own accord may be wishful thinking. When financial conditions change, even a much diminished sector that is the preserve of purists could still provide the embers for the renewed entry of centralised intermediaries.
Any intervention would need to overcome one key challenge: if policy allows crypto to intertwine itself with the mainstream financial system, it will usher in something that has been avoided so far. In particular, if stablecoins are brought into the regulatory perimeter, their role as the entry point to the rest of the crypto ecosystem will need to be addressed.
Policy should guard against letting them become the âcuckoo in the nestâ. The new standards issued by the Basel Committee on Banking Supervision on banking sector activities in crypto are a significant step in the right direction...
Read the full op/ed by Hyun Song Shin > Financial Times
â«ïž âHow is Roblox not Americaâs most prosperous company? Its daily average users hit 56.7 million in November, up 15% year over year. And its business economics could make a 19th century coal mine scrip store jealous.
Most Roblox users are kidsâhalf are under 12. They ask their parents for Robux to spend on hoodies, pets, dance moves, and more for their avatars. The company sets the exchange rate: For $9.99, you get 800 Robux. You can sweeten the rate by buying in bulk or signing up for Roblox Premium with recurring purchases.
Users develop the games and digital merchandise. Roblox collects 30% of purchasesâto start. For developers to convert their earnings to cash, they have to make 100,000 Robux. Most games flop, so users plow their Robux back into the game, or spend it on platform advertising to lure players. If a developer succeeds in earning 100,000 Robux, the exchange rate for sales will get them $350, even though the best exchange rate for purchasing that many Robux would cost $1,000. Also, only Roblox Premium users can sell.
Last year, Roblox had $559 million in free cash, up from $468 million the year beforeâŠ"
Read the full story by Jack Hough in Barrons
â«ïž âTo realize the full potential of Twitter, you have to look at the history of WeChat. The app's beginnings first started as just an instant messaging platform. It was no different than Twitter, DMS, Facebook Messenger, WhatsApp or others. The only difference was you could buy and sell stickers online. That was a monetisation model back in the day, and then eventually, they added a verification fee of $99 USD a year if you were an opinion leader. And then they added something called Moments which is essentially our version of the Instagram feed and Facebook feed.
Shortly after, WeChat added a payment feature, and like a bank, it allowed you to pay for everything from your grocery bills to your electric bill or with a swipe payment option using either a tablet or phone or a scannable QR code. Again, no different than what we do today with Apple Pay, Google Pay, or just any NFC QR code. Where WeChat stands out is that it made it possible for you to book travel, wait in line for a hospital, you could call the Uber equivalent, and even top up your cell phone and buy things on the app for 10 cents.
Read the full piece by Humphrey Ho > PR Week
â«ïž âMazars Group, the accounting firm used by crypto giant Binance Holding and other big players in the industry to vouch for their assets held in reserve, has halted all such work for crypto clients, dealing a blow to an industry seeking to shore up confidence in the wake of FTXâs collapse.Â
In an email sent by the French firm, Mazars said it had suspended work for cryptocurrency firms because of indications that markets havenât been reassured by the âproof-of-reservesâ reports it had published so far.
The firm was also concerned about intense media scrutiny, the email said. A Mazars spokesperson later said the suspension was limited to its provision of proof-of-reserves reports, citing âconcerns regarding the way these reports are understood by the public.â
Read the full story at source > Bloomberg
â«ïž âCentral bank digital currencies (CBDCs) have become a reality in ten countries: a number of countries in the Caribbean plus Nigeria. As a digital equivalent of a countryâs sovereign money, CBDCs take the form of bank accounts held at the countryâs central bank that account owners can access through an app. In countries where many people lack access to the traditional banking system, CBDCs give consumers access to a means of payment and include them in the financial system. It is, therefore, unsurprising that these countries are advancing the fastest in implementing CBDCs.
But for countries with more sophisticated financial systems, where financial exclusion is a small and isolated problem, CBDCs appear very much like an answer in search of a question.
Consider the euro area. Retail CBDCs, in other words, the digital euros that consumers could hold at the European Central Bank, will offer little value added to the European consumer who already has access to many alternative means of digital payment.
Wholesale CBCDs â the digital euros that banks could hold at the European Central Bank to facilitate cross-border payments â also would not represent much of an advance. Cross-border payments in the euro area already happen in real-time, round the clock, via the Target Instant Payment Settlement system. CBDCs will not offer much, if any, gain to banks as a way of reducing costs.
In global cross-border payments, however, CBDCs can make a difference and provide a platform that could change the face of international finance, particularly in an increasingly polarised worldâŠ
Make sure to read the full story by Maria Demertzis> Bruegel
â«ïž âFidelity National Information Services, known as FIS, said itâs undertaking a âcomprehensiveâ review of operations, alongside installing a new CEO earlier than expected, after discussions with two investment firm shareholders.
FIS âinitiated a comprehensive assessment of the Companyâs strategy, businesses, operations and structure with the goal of positioning the Company to drive stronger results, increase shareholder value and enhance client services,â the company said in a press release Thursday.
FIS acknowledged that the review comes as the company has entered conversations with the hedge fund D.E. Shaw and JANA Partners, both of which have acted as activist investors in the past, pushing companies to take certain actions. In a lengthy Dec. 14 agreement with D.E. Shaw that FIS included in a filing with the Securities and Exchange Commission on Thursday, the company agreed to place a new director on its board.
Read the full story > Payments Dive
â«ïžâHaving been slow in clamping down on cryptocurrency scams, the central banks and financial regulators are beginning to realise that they must accelerate central bank digital currencies (CBDC) in order to ensure that cybercurrencies do not reach scale at which they begin to eat into the central bank monetary creation franchise.
The reason central bankers and regulators were hesitant to take action on such internet scams was for fear of âpreventing innovationâ. But as the negative systemic consequences became clearer from market experience, central bankers realised that they need to offer an alternative in the form of CBDC. Stablecoins, which offer some linkage to either a specific currency or commodity, are also not fully trustworthy because there is a question of custody or legal entitlement to the underlying asset. The value of stablecoins may not be stable if everyone tries to cash in for hard currency.
Nevertheless, there are three areas where cryptocurrencies will continue to add value, which is why they will not disappear completely. The first is payments, which may escape the detection of the official sectorâŠ.
Source > Andrew Sheng, The Edge Malaysia
â«ïž âThe European Commission has announced that it will fund a multi-national and multi-company consortium as part of a larger pilot project involving an ambitious regional digital wallet program.
Many European Union leaders have wanted to see created an ID wallet, particularly one that transact payments. The pilot â one of four â is due to launch in March. The consortium will be led by Nobid, also known as the Nordic-Baltic eID Project. Funding will come from the EU Commissionâs Digital Europa Programme. Technology players in the project include Thales and iProov.
iProov CEO Andrew Bud says in a company announcement that the project will prove that Verifiable Credentials and biometrics can address emerging challenges in payments.
Nations participating in the consortium will be representatives and business leaders from Norway, Latvia, Denmark, Germany, Iceland, Italy and Latvia.
Financial companies, including banks, in Germany, Norway, Denmark, Italy and Iceland will part of the effort. But members will be from seemingly far afield. Latvia State Radio and Television will participate, for example.
Read the full story at source > Biometric Update
Can CBDCâs and privacy co-exist? From Jonas Gross:
â«ïž ;Reports last week that Goldman Sachs was gearing up to lay off 400 employees may have underestimated the breadth of the coming cuts. By a factor of 10.
Managers across the bank have been asked to identify low performers for a cull that could cut loose as many as 4,000 employees â or up to 8% of its staff, Semafor reported Friday, citing people familiar with the matter.Â
The cuts are likely to come in January, according to CNBC. That would put it ahead of a conference for Goldman shareholders, where management is expected to lay out the bankâs performance targets.
Read the full story at source > Payments Dive
â«ïž âThe New York State Department of Financial Services (NYDFS) on Thursday issued digital asset guidance to state-regulated banks laying out what information financial institutions must submit before getting approval to engage in virtual currency-related activities.
The guidance, one of the clearest paths forward yet for banks to offer cryptocurrency services, instructs banks to submit a business plan with details of the proposed activity, detail how such a service would impact the bank's capital and liquidity and inform NYDFS of its plans at least 90 days beforehand.
In a statement, NYDFS Superintendent Adrienne Harris said the new policies are "critical to ensuring that consumersâ hard-earned money is protected" and that New York-regulated banks remain competitive.
The regulator will âmake a comprehensive assessmentâ of the information presented under the guidance to determine whether a bank should be permitted to engage in a proposed crypto-related activity, according to an industry letter sent Thursday to regulated institutions.
Read the full story at source > Reuters
â«ïž âFollowing experiments demonstrating that DLT (blockchain) can be used with existing networks to complete CBDC financial transactions in real-time, Banque de France, HSBC and IBM have published a paper exploring their key findings.
Around the world, central banks are considering the viability of their own digital currency. Further, the efficiency and security that CBDC affords could bolster payments in developed countries and promote financial inclusion in emerging markets.
Ahead of the Banque de France CBDC experiments, HSBC launched its Digital Vault Service, which can hold securities and process and manage delivery versus payment (DvP) and payment versus payment (PvP) settlements.
HSBC also uses blockchain for its FX Everywhere service, a DLT solution for the netting and settlement of FX transactions and payments. In May 2020, HSBC partnered with IBM to propose a series of experiments for the Banque de Franceâs wholesale CBDC programme.
Source: Yahoo Finance
â«ïž âMost people who have heard about central bank digital currencies (CBDCs) hate central bank digital currencies. The only people who like central bank digital currencies are the central banks devising themâŠ
A CBDC will be a central bank liability and controlled by the central bank. There are two types of central bank money right now: physical dollars issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve, like a debit card is âdigitalâ.
Americans have long held money this way, utilizing credit cards and online payment apps tied to bank accounts. A CBDC is different from existing money platforms like credit and debit cards because a CBDC is run by the Fed, not a commercial bank. The Federal Reserveâs job is to oversee the supply of money and keep inflation in check. Programmable currencies are a way to do that. This is the lynchpin of CBDCs, however the concept of programmability is not yet defined. CBDCs are still in their early phase of development.
There are two types of CBDCs in the works: retail and wholesale. Governments will need to determine the level of access to their stablecoin, whether it is permissionless, permissioned or semi-permissioned. These paths will determine geopolitical efficiency and how other cryptocurrency ecosystems will ultimately be affected.
Read the full op/ed by Kenneth Rapoza > Forbes
Bitcoin was invented to transform electronic payments, but its relatively slow transaction speed (in comparison to Visa) has hampered retail-level use.
That may be changing because of the Lightning Network, and it bears ongoing interest. For example:
Also of note:
Why Visa is making a $1 Billion dollar bet on Africaâs payments market. New from Niall Feguson: For the Fed, a Red Card from the 70âs. Payoneer gains major payment institution license in Singapore. Bloomberg covers the e-Rupee. Hong Kong launches first crypto ETFâs. Crypto hangover hits Hong Kong. France under pressure to tighten crypto-friendly regulations. In cross-border payments, the disupted have become the disruptors. Hedge funds are out to annihilate bitcoin miners.
Please expect irregular delivery over the next two weeks due to Christmas travel and holidays. Enjoy your time with loved ones! And see you in your inboxes consistently again in January.