Group items tagged

Nivaura has developed "the first commercially viable floating rate bond using blockchain technology," and the new instrument is now being tested by Santander and LeasePlan, the vehicle leasing company.

"Narrow banks would improve the competition in deposit markets, which would in turn would reduce the current subsidisation of incumbent banks, improve the transmission of monetary policy, raise deposit rates at other banks and reduce dispersion in money market rates," McAndrews wrote in comments to the Fed.

In the absence of a proper fixed exchange rate and a credible mechanism to maintain it, Libra looks more like a standard flexible exchange rate currency. Its stability will depend on its credibility. Referring to the fact that there are enough assets backing its supply is not a good argument (that argument applies to any central bank issuing fiat money).

CME Group is set to make changes to its reference rate and index tied to ether. Sources say it could mean a future tied to the crypto is coming to its marketplace.

The Bitcoin (BTC) network's hash rate suffered a mysterious flash crash on Sept. 23, in a sudden intraday plummet from 98,000,000 TH/S to 57,700,000 TH/s. By press time, levels have recovered back to 92,800,295 TH/S- yet remain shy of their recent record of 102,848,135 on Sept. 18.

The combined effects of the hash rate decrease and the ensuing outflow of miners from the market have resulted in arguably one of the biggest blows to the Bitcoin network since 2011. The negative impact is difficult to fully assess at this time. However, the reasons for the slump are disputable and are being attributed to a number of factors - from the upcoming BTC halving and the raging coronavirus pandemic to a worldwide recession causing miners to leave the market.

Could now be a good time to announce a CBDC? The asset/saving-less can be encouraged to sign up to the system with the promise of a $2000/£2000/€2000 stimulus and an ongoing stipend of x amount for however long the crisis lasts (an effective negative rate). Those seeking safety for savings, meanwhile, can be promised the protection of par value, with capital invested strategically redeployed in the system in the shape of zero-rate loans for temporarily struggling businesses?

This Bank of Canada paper investigates how interest-bearing central bank digital currency (CBDC) would interact with traditional monetary policy tools, such as the interest on central bank reserves. The analysis is based on a model in which CBDC and bank deposits are perfect substitutes as electronic payment methods. It finds that CBDC tends to weaken the pass-through of the interest on reserves to deposit rates when banks have market power, but the reverse holds when the market is competitive. However, a high (low) interest rate on reserves may weaken (strengthen) the pass-through of the interest on CBDC.

VanEck has filed a proposal for an Ethereum exchange-traded fund (ETF) with the US Securities and Exchange Commission (SEC). The proposed VanEck Ethererum Trust, which would trade on the CBOE, would track the MVIS CryptoCompare Ethereum Benchmark Rate, an index developed by a VanEck affiliate that bears a lot of similarity to the rate underpinning VanEck's potential bitcoin ETF. The benchmark would aggregate median prices from the most liquid, lowest risk five Ethereum exchanges worldwide. These prices would then be weighted by volume.

According to data fetched by CryptoQuant, Bitcoin miners at Chinese mining firm F2pool started the massive sell-off that crashed the BTC/USD exchange rate by almost 20% in just less than 24 hours on January 21. Beginning January 15, outflows from F2Pool - currently the largest mining pool comprising roughly 15% of total hash rate - began to rise. By the 17th, daily outflows had reached 10,000 BTC, these continuing for three days in a row before returning closer to normal levels.

Opium Finance has released collateralized debt obligation products (CDOs) for Compound Finance's automated lending markets. Opium is a decentralized finance (DeFi) protocol that allows for creating, settling, and trading decentralized derivatives. Compound Finance is an algorithmic, autonomous interest rate DeFi protocol that allows for the creation of money markets on the Ethereum blockchain. Investors can put up the Compound debt token cDai - and soon Uniswap tokens - to diversify exposure to DeFi lending markets. Opium's product pays out structured returns to both a senior and junior risk tranche in exchange. The former tranche offers a 7% fixed return on DAI (a crypto-backed USD-pegged stablecoin) at maturity, while the latter pool offers a variable rate paid out after filling up the senior tranche's return.

The European Central Bank (ECB) has made clear that banknotes are here to stay. Even if you cannot use banknotes for e-commerce, you could still hoard them at home as a store of value. And the ECB is not only committed to issuing banknotes, but also to supporting the efforts of the European Commission and others to maintain the usability of banknotes. The ECB has no intention at all to make banknotes disappear, but the opposite. Hence, there is no intention to use negatively-renumerated central bank digital currency (CBDC) to help monetary policy below the effective lower bound on policy rates. However, one could imagine a tiering system where citizens can hold up to a certain amount - for example, €3,000 - for which remuneration would never be negative, while for holdings beyond that, an interest rate would be applied which would be below other risk-free liquid investments, and possibly negative.

This paper discusses how different CBDC attributes (anonymity, remuneration, value-added services or caps on the holdings) can limit the substitutability between bank deposits and CBDCs in different situations. CBDC holding caps seem the most obvious solution but this may face practical difficulties such as how to impose the limits when an individual holds CBDCs in wallets offered by different providers or what to do with payments to accounts that exceed the caps. Another possibility is to set different tiers of CBDCs holdings, with a penalizing interest rate above a certain threshold. This may function in normal times, but would probably require extremely penalizing (negative) rates in a crisis or a bank run, which may create problems from the point of view of the central bank objective of preserving the value of money. Even if the CBDC is non-interest bearing, the substitutability between deposits and CBDCs will still depend on the extent to which regulation and competition dynamics allow banks and other financial intermediaries to compete with CBDCs, and in a crisis situation their value-added services may become irrelevant as compared to the safety of central bank money.

Booming demand for stablecoins in DeFi's yield farming landscape is breaking DAI's U.S. dollar peg. MakerDAO's DAI, which uses Ethereum and other stablecoins as collateral to maintain the peg, is trading above its targeted peg, has been consistently trading above $1 since mid-March. The community responded by setting all rates to zero, but the demand for DAI is so extreme that even these zero rates don't make a difference. MakerDAO's community is debating some tweaks to its monetary policy to restore the peg, though Maker's creator believes the only long-term solution is adding additional, varied collateral to the DAO.

Since Black Thursday, ETH is still performing well and organic demand for leverage has only increased. However, DAI selling from leverage seekers could not offset the yield farming craze and on average DAI has traded at around $1.02. Potentially, market making activities also decreased due to lucrative opportunities from yield farming. Importantly, this all happened despite heavily increased debt ceilings, the onboarding of new collateral assets and 0% rates across the board. The issue is that all the conventional monetary tools at hand simply cannot compete with massive DAI demand from yield farmers and new price mechanics introduced by several AMMs like Curve.

Simon Potter and Julia Coronado have proposed the creation of recession insurance bonds (RIBs). RIBs would be zero-coupon securities distributed to households with payouts that are recession contingent - eg if policy rates reach the zero lower bound or there is a 0.5% increase in the unemployment rate. Basically it's narrow bank-type model that's small and fit for purpose, with a per person cap (e.g., $10,000). https://www.piie.com/publications/policy-briefs/reviving-potency-monetary-policy-recession-insurance-bonds https://www.piie.com/publications/policy-briefs/securing-macroeconomic-and-monetary-stability-federal-reserve-backed

This paper finds that central bank digital currency (CBDC) may not be widely accepted in the presence of a sizeable informal economy. Based on a two-sector monetary model, it shows an L-shaped relationship between the informal economy and CBDC. The CBDC can formalize the informal economy but this effect becomes marginally significant in countries with significantly large informal economies. In order to promote CBDC adoption and improve its effectiveness, tax incentives and positive CBDC interest rates can be useful tools. It further finds that adjustments to the CBDC interest rate can trigger a reallocation effect between formal and informal sectors, that improves the effectiveness of both conventional monetary policy and fiscal policy.

The spread of COVID-19 and related government lockdowns have led to a 24% to 32% increase in the relative rate of daily downloads of finance mobile applications in the 74 countries surveyed. Preliminary analysis suggests that market size and demographics, rather than level of economic development and ex-ante adoption rates, drive differential trends across countries.

Data from CryptoQuant suggests that miners are most likely behind the recent bitcoin sell-off. Some large Chinese miners may be selling because bitcoin is well above their breakeven costs. For large miners in Sichuan, China, the current rainy season will allow them to negotiate lower electricity rates. This means some mining centers will be able to secure a $0.03/KW rate which will bring down the cost of mining to about $6,000. Also, over-leveraged or small miners outside of China, whose profit margins have been significantly impacted by the May xx halving, may be capitulating or simply selling to cover operating expenses.

The prospect of central bank digital currency (CBDC) has raised concerns over its potential to cause structural (i.e. permanent) or cyclical (i.e. crisis-related, temporary) bank disintermediation. Moreover, negative interest rate policy is incompatible with the unconstrained supply of zero-remunerated CBDC. This column argues that a two-tier remuneration system for CBDC would be an efficient solution to these issues. It would allow households to access the CBDC as a means of payment with non-negative remuneration and would also make it possible to overcome the perceived dichotomy between retail and wholesale CBDC.