Fintech Daily Digest

The Swiss stock exchange SIX wants the Swiss National Bank to issue a wholesale central bank digital currency to settle payments on its new digital securities trading platform. The SNB has been cool on retail CBDC, but the proposed SDX stablecoin would apply only to inter-banks payments.

For hundreds of millions of citizens across the world, digital currencies like Bitcoin, Ripple, and potentially even the Libra don't pose a threat to financial stability. They offer an escape from chronic financial instability and high and variable rates of inflation that result from poorly managed government monies.

The unbanked do not have bank account numbers and they may not have credit cards, either. They have cash. There's nothing in the Libra white paper about how Libra will lower fees to convert fiat cash into Libra, which is both the essential challenge of consumer banking and an explicit part of Libra's problem statement.

The IMF and World Bank surveyed the authorities in 189 countries on a range of Fintech-related topics and received 96 responses. They suggest that countries are broadly embracing the opportunities of fintech to boost economic growth and inclusion, while balancing risks to stability and integrity.

The IMF finds that "risks in Switzerland's rapidly growing fintech space may not be well understood due to data gaps, resource constraints, and the authorities' liberal approach."

The Libra investment tokens will give founding members the right to a portion of funds from a future reserve as well as incentives in Libra coin. The Libra Association is clear that it intends for the Libra coin sold to users on its blockchain to be a currency. However, the intermingling of the Libra coin as incentives for the founding members may be viewed by the SEC as integrating the offerings of the Libra investment tokens and the Libra coin, making the Libra coin a security as well from the SEC's viewpoint.

Facebook is looking to hire more than 30 professionals to ramp up its blockchain work, including the Libra cryptocurrency.

Libra, unlike other stablecoins, is intended to complement national currencies rather than replace them. This doesn't mean, however, that Facebook understands monetary economics any better than my 24-year-old [Silicon Valley] luncheon companions.

If the purpose of a stablecoin is to offer a new kind of payment instrument that uses fiat currency as the settlement asset, the question becomes, what added value, if any, such a product would bring to the everyday user. But Libra doesn't even seem to have the intention of developing front-end solutions for everyday users. Instead, its core proposition is limited to becoming a new settlement asset, diluted by the fact that it will be patched together from other existing ones.

"Crypto is alive and well these days, even if you reject the utopian predictions that it will somehow displace money as we know it. If we have had a hard time seeing the resiliency of the crypto space, it is because we are not used to thinking of futures that are radically different from the present. But those futures - for monetary institutions at least - now seem to be closer than ever before."

CME saw a record volume of USD 1.6 billion and record open interest for Bitcoin contracts of USD 373 million, on June 26, 2019. The value of BTC rose to almost USD 14,000, causing short traders to liquidate over half a billion dollars in a single day.

"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.

Up to five new digital bank licences will be issued here, paving the way for non-bank players to break into a local financial services scene dominated by a handful of traditional providers.

Global payment services provider Swift has said that its new cross-border payments platform is coping with greater consumer demand for speed and transparency. Swift launched its global payments initiative, or GPI, in 2017, in an attempt to speed up cross-border payments systems.

Ex-WBG Chief Economist Kaushik Basu: "Policymakers must urgently consider what kind of world private digital money could create. We may then need new laws and global treaties to mitigate potential negative fallout and curb the power of the organizations that run these new currencies."

The 'travel rule', which is currently applied to wire transfers in the US, would mean exchanges need to swap sensitive customer information when transferring funds - a policy that might not sound the death knell for cryptocurrency, but could introduce significant complications for platforms in jurisdictions that decide to introduce legislation reflecting the new guidance.

Dukascopy intends to issue ERC-20 stablecoins dubbed "Dukascash" pegged to the euro, Swiss franc, and U.S. dollar, and gradually increasing the list of Dukascash tokens' base currencies depending upon customer demand.

According to the IMF paper, several central banks in different countries are considering implementing some form of CBDC. Uruguay has reportedly launched a pilot program already, while the Bahamas, China, Eastern Caribbean Currency Union, Sweden and Ukraine are on the verge of testing their systems.

Bitcoin has a systemic-stability, but not a price-stability, mechanism built into it. Bitcoin has a virtuous cycle that fiat currencies don't have. As its price goes up, more hash power joins the network, the network's security hardens, and it becomes more immune to attack - more systemically stable.

The Board of the Bank for International Settlements has approved the establishment of a BIS Innovation Hub to foster international collaboration on innovative financial technology within the central banking community.