Fintech Daily Digest

"Considering that the Bank Secrecy Act was passed in 1970 as a way to monitor foreign accounts and is now responsible for over 26 million reports on Americans a year, it should be no surprise that people are worried about the threat a CBDC could pose to financial privacy. There is little doubt that government officials will tout the risks of terrorists, drug cartels, and money launderers to justify the surveillance that a CBDC would bring. But surveilling "for bad actors" inevitably means surveilling innocent people as well. It's time to reduce financial surveillance, not further entrench it. Introducing a CBDC would mark the end of what little financial privacy is left in the United States."

To date, at least three transactions have reportedly been made with the Banco do Brasil (BCB) Drex central bank digital currency (CBDC) as part of its proof of concept experimentation. One was carried out between two private banks (BTG Pactual and Itaú Bank) to test the compatibility and the efficiency of the payment network. The second was between the BCB and a public-sector bank (Caixa Econômica Federal). The third, in September 2024, was an interbank transaction between a public bank (Caixa) and a private digital bank (Inter). All were presumably conducted in the BCB's Drex sandbox.

The Banque de France carried out two transactions involving tokenised assets: a reverse repurchase agreement with Société Générale and an outright securities purchase with BNP Paribas. Société Générale pledged bonds issued in 2020 on the public blockchain Ethereum as collateral, in exchange for CBDC tokens issued by the Banque de France on the DL3S interoperability solution (distributed ledger). Both parties used the technological capabilities of the Société Générale Forge platform, which acted as registrar for the issuer. The Banque de France purchased a tokenised euro area sovereign bond in the secondary market, and successfully tested two corporate actions - coupon payment and redemption - both of which were settled on the Banque de France DL3S platform. BNPP's securities business acted as subscriber and registrar for the Banque de France, operating on the Neobonds blockchain.

A bill has reportedly been introduced to Russia's State Duma that that would make the use of the digital ruble central bank digital currency (CBDC), mandatory for banks and merchants. The draft law proposes a phased rollout starting on July 1, 2025 with systemically important banks, and expanding to all banks by 2027. It would make accepting digital ruble payments mandatory for retailers with annual revenues over 30 million rubles by July 2025, with the threshold dropping to 20 million rubles by July 2026. The draft bill would also mandate the use of a universal QR code system for almost all digital ruble payments.

[June 2023] Digital Inverted Time-based one-time passwords (TOTP) authentication can be a practical method for buyers to prove that they made a payment to a cost-sensitive offline merchant. Using TOTP we can establish a secure channel between the payment backend and the seller operating an offline PoS. Our solution around the limitations of the CAP theorem [6] is thus to securely heal the network partition by establishing cryptographically secured communication via an untrusted buyer's device. This allows the payment system to assure consistency despite the merchant not having a connected endpoint under their control. In practice, it may suffice for sellers to only selectively check the TOTP code to still create an effective deterrent against buyers using fake payment applications. Even merchants that are generally operating online could use our design as part of an inexpensive contingency plan to continue secure operations during network outages.

The Cambridge Centre for Alternative Finance (CCAF) published a report that examines the key motivations, models, and policy considerations for wholesale central bank digital currency (CBDC). It discusses the need for wholesale CBDCs as risk-free settlement assets to support digital transaction infrastructure and mitigate potential instability arising from reliance on tokenized private assets. Central banks are considering wholesale CBDCs as an alternative to upgrading real-time gross settlement (RTGS) systems, aiming to keep pace with programmable, always-on infrastructures that facilitate real-time, cross-currency liquidity and tokenized asset transactions.

"Over the next 10 years, a big bang will be unfolding in central bank land. ISO 20022, a new standard for communicating electronic payments instructions between financial institutions, will be taking over. This, combined with the emergence of real-time central bank retail payment systems, means that payments in 2030 are going to be much better than in 2020."

The Bank of Russia introduced new rules, effective on February 23, 2025, requiring banks to suspend digital ruble transactions for two days if they are suspected of involving fraud. If such a transaction is detected, the bank will notify the customer about possible fraud. If the customer doesn't confirm it by the next day, the transaction will be canceled. Similar measures have been in effect for ordinary transfers since July 24, 2024. https://cbr.ru/press/event/?id=23261

De la Roche W. Consulting published a report that presents a comparative analysis of existing legal frameworks for decentralized autonomous organizations (DAOs) across several key jurisdictions, including Switzerland, the United States (Wyoming), Abu Dhabi Global Market (ADGM), Japan, United Arab Emirates, and the United Kingdom. By examining these regions' regulatory landscapes, we assess how each jurisdiction approaches the formation, governance, liability, and compliance of DAOs, identifying both commonalities and differences. This analysis highlights the strengths and weaknesses of current legal structures, providing insights that may inform harmonized standards and best practices on a global scale.

Russian Presidential Aide Yury Ushakov announced that Belarus, Bolivia, Indonesia, Kazakhstan, Cuba, Malaysia, Thailand, Uganda and Uzbekistan will become BRICS partners on January 1, 2025. These would be in addition to the existing member countries: Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates. In addition, over two dozen more countries have shown interest in a systemic dialogue with BRICS: Azerbaijan, Bahrain, Bangladesh, Burkina Faso, Cambodia, Chad, Colombia, the Republic of the Congo, Equatorial Guinea, Honduras, Laos, Kuwait, Morocco, Myanmar, Nicaragua, Pakistan, Palestine, Senegal, South Sudan, Sri Lanka, Syria, Venezuela, and Zimbabwe. https://tass.com/politics/1892171

"This paper examines the relationship between financial literacy and cryptocurrency ownership using machine learning techniques. Based on 2,121 survey responses, it identifies significant predictors of cryptocurrency ownership, including age, population size, cash transaction weight, bank innovation perception, income level, and self-assessed financial literacy. A noteworthy finding is the importance of financial literacy as a determinant of cryptocurrency ownership. Financial literacy is as statistically relevant as other variables, such as age, in reducing the likelihood of holding cryptocurrencies. "

As central banks around the world have explored and researched the uses, viability, and needs for a central bank digital currency (CBDC), Hyperledger's distributed ledger technologies (DLTs) have been at the forefront of these experimentations. This ebook provides the reader an overview of the Hyperledger Foundation, why open source development is appropriate for all central bank projects and real-life examples of CBDC projects around the world.

The Bank of Canada (BOC) published a paper that investigates the introduction of a retail central bank digital currency (CBDC) into the market for payments. Focusing on the point of sale (POS), it develops and estimates a structural model of consumer adoption, merchant acceptance and usage decisions. It counterfactually simulates the introduction of a CBDC, considering a version with debit-like characteristics and one encompassing the best of cash and debit, and characterize outcomes for a range of potential adoption frictions. It shows that, in the absence of adoption frictions, CBDC has the potential for material consumer adoption and merchant acceptance, along with moderate POS usage. However, modest adoption frictions substantially reduce outcomes along all three dimensions. Incumbent responses required to restore pre-CBDC market shares are moderate to small and further reduce the market penetration of CBDC. Overall, this implies that an introduction of retail CBDC into the market for payments is by no means guaranteed to be successful.

The European Central Bank (ECB) published its latest study on the payment attitudes of consumers in the euro area (SPACE), which looks at the payment habits of consumers in euro area countries. It finds that cash remains the payment method used most frequently in shops, although its use is declining. The share of digital payments continues to increase, but at a slower pace, with cards still being the most popular method. The share of mobile apps is on the rise. Over half of euro area consumers prefer to use cards and other digital payment methods. However, a majority of consumers consider it important to have the option to pay with cash.

"We provide comprehensive background regarding the Ethereum blockchain protocol, focusing especially on the economic incentives of participants. We begin by explaining how the Ethereum protocol selects proposers to propose blocks and attesters to vote for or against blocks. We discuss both how the Proof-of-Stake protocol is used to select proposers and attesters, and also how the Gasper protocol is used to aggregate attester votes and thereby determine the finalized blockchain. We then discuss how builders, searchers and relays have arisen to support and enhance the Ethereum block production process. Finally, we clarify the transaction life-cycle from the user perspective, explaining how user transactions are submitted and settled on the blockchain. Through our discussion, we clarify the economic trade-offs faced by each participant and the associated real-world decision variables for each participant."

The German Bundestag passed the Finanzmarktdigitalisierungsgesetz of FinmadiG just in time for the December 30, 2024 coming into force of the European Union (EU) Markets in Crypto-Assets Regulation (MiCAR). The German legislation was required to designate Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) as the regulator, without which it could not award licenses. That would have allowed EU firms with crypto licenses from other countries to operate in Germany, but German firms would not have been able to operate in the EU.

The U.S. Securities and Exchange Commission (SEC) approved the first spot exchange-traded funds (ETFs) combining Bitcoin and Ethereum (weighted by free-float market capitalization). The agency has authorized Nasdaq to list the Hashdex Nasdaq Crypto Index US ETF and the CBOE BZX Exchange to list the Franklin Crypto Index ETF. The Hashdex ETF will track the two crypto-assets based on the market capitalizations and prices posted within the Nasdaq Crypto Index. The Franklin ETF will use the will directly use the CF Institutional Digital Asset Index as its valuation source. One of the main factors that the SEC considered for this filing is on surveillance-sharing, an agreement between exchanges to share trading data and essential market information to help detect and prevent fraud and manipulation across connected markets. https://www.sec.gov/files/rules/sro/nasdaq/2024/34-101998.pdf https://www.sec.gov/files/rules/sro/cboebzx/2024/34-101963.pdf

Deutsche Bank is working on a fix for the regulatory challenges financial institutions face when trying to use public blockchains, such as the risk of inadvertently transacting with criminals or sanctioned entities. The bank unveiled a test version of Project DAMA-2, a Layer-2 Ethereum-based asset-servicing pilot in November 2024, as part of the bank's contribution to the Monetary Authority of Singapore's (MAS) Project Guardian. https://www.axelar.network/blog/deutsche-bank-dama-2-announcement

IMF staff and the El Salvadoran authorities reached a staff-level agreement on a new arrangement under the IMF's Extended Fund Facility (EFF) for about $1.4 billion to support the government's reform agenda. The agreement is subject to IMF Executive Board approval. Provisions on the agreement imply that if approved, El Salvador would have to scale back certain aspects of its bitcoin strategy. Bitcoin acceptance will be made voluntary for the private sector and public sector involvement in crypto activities will be confined. Also, taxes will only be paid in U.S. dollars, and the government will gradually unwind its role in the Chivo digital wallet program. https://www.imf.org/en/News/Articles/2024/12/18/pr-24485-el-salvador-imf-reaches-staff-level-agreement-on-an-eff-arrangement

The Bank for International Settlements (BIS) published a paper on the insights and lessons learned from a range of fast payment systems (FPS). Over 100 jurisdictions worldwide, including 15 jurisdictions in Latin America, have implemented FPS. The first, overview chapter draws out general insights from experiences in the Americas, such as on the impact of fast payments on financial inclusion, the role of central banks and domestic and cross-border interoperability. The next chapter looks in greater depth at Pix in Brazil, and its complementarities with other means of payment. A further chapter dives into the experiences of SINPE Móvil in Costa Rica, including the impact on banks. The final chapter explores the experience of the Unified Payments Interface (UPI) in India.