Cryptorevue March 2023
Banking crisis pushes FED to launch FED Now earlier, Nigeria seeks to replace eNaira provider, Operation Choke Point 2.0 comes into plain sight
CBDCs
Bank of England Hesitates
The BoE has been researching opportunities for upgrading CHAPS and RTGS services after 2024. According to the bank, the industry has generally expressed interest in providing wholesale CBDC functionality via RTGS, however, the overall stance remains against developing an entirely new protocol.
Japan to Launch CBDC Pilot In April
Coindesk has reported that the Bank of Japan is accelerating its efforts to launch a Digital Yen. The likely reason for this may be the rapid decrease of US Treasuries reserves supporting the Yen exchange rate.
Liquidity Pools in BIS Icebreaker Project
theBlock has reported on a project called “Icebreaker” that proposes bridging domestic retail CBDC systems through a “hub-and-spoke” model. The so-called Icebreaker hub would consist of foreign exchange providers on both sides picking the cheapest conversion path for the payer in a cross-border transaction.
“FX providers would hold and manage [retail CBDC] liquidity in their operating currencies,” the report reads. “Each FX provider would submit buy and sell rates for those currencies to the Icebreaker hub. The Icebreaker hub therefore maintains a live database of the submitted FX rates and returns the best available rate along with the identity of the FX provider to the payer upon request.”
The BIS has been supporting the acceleration of central bank-backed digital currencies. “CBDCs replicate existing forms of money in a technologically superior way,” general manager Agustin Carstens said in a speech in February.
Researchers from IMF suggested a global marketplace to trade tokenized money directly across borders, a concept similar to the modern-day crypto-exchange. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. The new report interprets different payment arrangements in terms of their implied trust structures and discusses how the tokenization of money alters trust links and allows for a potentially more efficient market structure to exchange money.
Digital Rial: Pre-Pilot Phase
Coindesk published a news item about the imminent launch of a digital currency in Iran. The event coincided with the visit of the head of the Russian Central Bank, Elvira Nabiullina. Parallel implementation of digital currencies may help sanctioned economies in developing trade and avoiding sanctions imposed by Western countries.
SWIFT Interlinks CBDCs
Swift has finished experiments for testing the interlinking of different CBDC protocols among 18 central and commercial banks – including the Banque de France, the Deutsche Bundesbank, the Monetary Authority of Singapore, BNP Paribas, HSBC, Intesa Sanpaolo, NatWest, the Royal Bank of Canada, SMBC, Société Générale, Standard Chartered, and UBS. The participants were given access to a sandbox over a 12-week period where they were able to test, assess and provide feedback on the experimental solution.
SWIFT has developed a solution hosted by Kaleido, a blockchain and digital assets platform, and connected two blockchain networks – Quorum and Corda. The platform includes a simulated RTGS network and could also accommodate both wholesale and retail CBDC use cases. During testing, participants sent 183 payments in the sandbox environment, with 4,736 transactions processed in total including test instance payments.
USA Launches FedNow
The Fed will be launching a new payment service much earlier than anticipated (2025). It will start operating in July. In June, the Federal Reserve and certified participants will conduct production validation activities to confirm readiness for the July launch. FedNow may be viewed as a CBDC due to its properties, although there are at least two separate initiatives focused solely on the creation of a “Digital dollar.”
https://explore.fednow.org/
Ghana is in trouble, Nigeria seeks to reshape CBDC
Ghana is on the cusp of a default as the grace period on a $40.6 million coupon due on its dollar bond maturing in 2026 expires at the end of Friday.
https://www.bnnbloomberg.ca/ghana-on-cusp-of-default-as-grace-period-winds-down-1.1885463
Nigeria Seeks Partners for Tech Revamp of Its eNaira Digital Currency
Nigeria is in talks with potential technology partners to develop a new system to run and manage its central bank digital currency, the eNaira.
The Central Bank of Nigeria wants to develop its own software for the digital currency so that it can keep full control of the effort, according to two people familiar with the matter who asked not to be named due to the matter’s confidentiality. It has discussed the plans — which are in the early stages — with New York-based technology firm R3, one source said.
Here is an interview with Mr Ayo of WEMA Bank in Nigeria about the lack of money in circulation.
The IMF’s Staff Report for Nigeria’s 2022 Article IV Consultation noted that the uptake of the Central Bank of Nigeria’s eNaira in the first year has been slow with retail wallet downloads amounting to 942,000 at the end of November 2022 — which adds up to only 0.8 percent of active bank accounts. Also, the total number of eNaira retail transactions since the project’s inception (around 802,000) is less than the number of eNaira wallets, indicating that the wallets are not being actively used. The IMF report recommended that the eNaira be integrated the into existing mobile payment system to facilitate interoperability between mobile money operators and optimize the last-mile delivery of social assistance.
The full report can be found here.
Stablecoins
Stablecoins and the Real Economy
The Banque de France (BdF) published a paper that examines the impact of stablecoin issuer investment practices on the financing of the real economy. The authors identified changes in the stablecoin demand for US dollar-denominated commercial papers (CP) by exploiting cross-sectional and time-varying heterogeneity in the main stablecoins’ reserve assets policy. According to the research, CP issuers catered to the additional demand for stablecoins by issuing more, illustrating the implications of stablecoins for financial stability and the financing of the real economy. However, the authors also collected records reflecting changes on Circle's and Tether's balance sheets and clearly demonstrate that, up until now, issuers have been systemically decreasing CP exposure.
Coinmetrics studies Binance USD
Coinmetrics did a deep dive into the history of the Binance USD issued by Paxos, which recently was ordered to shut down stablecoin issuance. The company found similar trading profiles for Tether and BUSD, while revealing a great concentration of wealth among the top 100 accounts, indicating that the supply has mostly been exchanged among wallets and bridges, facilitating off-chain trading on CEXs—mostly Binance itself. On the other hand, USDC and Tether exhibit more diversity in their holder bases. With regard to BUST, Coinmetrics also created a special dashboard. The platform itself has received a lot of attention. Morgan Stanley Capital International (MSCI) collaborated with Coinmetrics and Goldman Sachs to develop the digital assets classification framework.
Australia’s Digital Dollar Use Cases
The Reserve Bank of Australia (RBA) and Digital Finance Cooperative Research Centre (DFCRC) have announced 14 use case proposals, along with their providers, that will participate in RBA/DFCRC CBDC pilots. The cases include offline payments, tax automation and a CBDC for “trusted Web3 commerce,” with participants ranging from banks — such as Commonwealth Bank and Australia and New Zealand (ANZ) bank — to payment providers like Mastercard. According to the September 2022 RBA white paper, use case end users will be selected by use case providers. A report on the project is expected to be published around the middle of the year.
Norway Enters 4th Stage of CBDC Testing
Norges Bank, as part of the fourth phase of its CBDC project, is assessing the legislative amendments that are expected to be required to introduce a CBDC. Other parts of the fourth phase include the testing of technical solutions in combination with further analysis of the need for a CBDC and the potential consequences of its introduction.
Digital Assets
Siemens Issues Digital Bonds
The company issued its first digital bond on a public blockchain in accordance with Germany’s Electronic Securities Act (eWpG). The bond has a total volume equal to €60 million and maturity of one year.
Choke Point 2.0
The first three months of 2023 have seen some banks breaking ties with crypto-companies and Binance getting ordered to cease the operations of its stablecoin overseas. The following post (available in Russian) goes into detail about what is happening, linking it to the previous Operation Choke Point.
For English speakers, we recommend listening to two podcasts for a breakdown of the original Operation Choke Point:
https://onthebrink-podcast.com/ocp-murray/
https://onthebrink-podcast.com/kelman-ocp/
Regulations
FATF Disappointed
The Financial Action Task Force (FATF) has agreed on an action plan to drive the “timely implementation” of its global standards for crypto. The FATF noted that many countries have failed to implement its norms, including the “travel rule,” which requires virtual asset services providers (VASPs) to collect and share information on crypto transactions. FATF published its updated standards for crypto in 2019, but last June, it said that only 11 of 98 surveyed jurisdictions were enforcing the travel rule and urged them to act faster. As a result, the FATF’s plenary body has come up with a road map aimed at strengthening the implementation of FATF standards on virtual assets and VASPs, which will include a stocktaking of current global levels of implementation to be published in the first half of 2024.