TronWeekly

Crypto World News

You are here: Home / Archives for BIS

BIS

XRP Massive Limitations: BIS Caps Bank Holdings at 1%

by

The Bank for International Settlements (BIS) has laid down new rules for banks holding Group 2 cryptocurrencies like XRP. Known as the bank for central banks, the BIS sets standards and fosters cooperation among global financial institutions.

Group 2 assets, as defined by the BIS, include unbacked cryptocurrencies such as XRP, Bitcoin (BTC), and Ethereum (ETH). These assets also encompass certain stablecoins without effective stability mechanisms. The BIS views these as riskier due to their volatility.

Yesterday, the BIS released fresh guidelines on banks’ exposure to these cryptocurrencies. Eri, a notable figure in the XRP community, highlighted the publication on X.

According to the BIS, a bank’s total exposure to Group 2 assets must not exceed 1% of its Tier 1 capital. For those unfamiliar, Tier 1 capital is a bank’s core capital, acting as a primary buffer against financial losses. So, a bank with $1 trillion in Tier 1 capital can hold up to $10 billion in Group 2 assets.

Additionally, no single Group 2 cryptocurrency can make up more than 5% of the total Group 2 holdings. This means if a bank’s total Group 2 holdings are $10 billion, its XRP holdings must not surpass $500 million. This rule also applies to other Group 1 assets.

These limits aim to reduce the risk from the volatile nature of these crypto assets. Cryptocurrencies have seen significant public interest, but recent events like the Terra implosion in May 2022 and the FTX collapse in November 2022 have highlighted their risks.

The BIS’ new requirements will take effect on January 1, 2026. These criteria could reshape how banks handle assets like XRP, Bitcoin, and Ethereum.

Screenshot 218
Source

XRP: Mainstream Adoption and Regulations

As cryptocurrencies become more mainstream, regulations are tightening. The European Union recently enacted the first part of its MiCA regulations, impacting stablecoins. Major banks are also getting into crypto. Last December, the Basel Committee revealed the crypto holdings of 19 banks worldwide, showing $205 million in XRP.

Despite this, XRP adoption by banks has been slow, partly due to an ongoing lawsuit with the U.S. SEC. Crypto researcher Anderson noted in February that XRP might not see significant adoption by banks until the SEC clarifies its status as a security.

The BIS’ new rules signal a cautious approach as the financial world grapples with the risks and opportunities of cryptocurrencies.

Stablecoins: Promises of Stability Fall Short, BIS Report Warns

by

Stablecoins, a subset of cryptocurrencies designed to maintain a stable value against a reference asset, have garnered significant attention in the financial realm. However, a recent report by the Bank for International Settlements (BIS) casts doubt on their ability to live up to their name. The BIS study examined 68 stablecoins and found that none of them could consistently maintain their peg or guarantee full redemption. This raises concerns about their potential as a reliable store of value and a trustworthy medium of exchange.

The BIS report highlights several critical issues with stablecoins. Firstly, their peg to a reference asset is not always stable. While some stablecoins strive to maintain a 1:1 ratio with fiat currencies like the US dollar, others employ algorithmic mechanisms to adjust supply and demand. However, these mechanisms have proven fallible, leading to instances where token prices deviate significantly from their pegs.

Secondly, the full redemption of stablecoins is not guaranteed. Redemption refers to the process of exchanging stablecoins for the underlying asset, typically a fiat currency or commodity. However, the BIS report found that many token issuers lack sufficient reserves to fully redeem all outstanding tokens. This raises the possibility of a liquidity crisis, where holders are unable to exchange their tokens for the underlying asset.

The inability to maintain stable pegs and guarantee full redemption challenges the very essence of these tokens. If their value fluctuates and redemption is uncertain, they fail to fulfill their primary purpose of providing a stable and reliable form of digital currency.

Stablecoin Data Gaps Hinder Assessment

The BIS report also points to significant data gaps in the stablecoin market. Currently, there is limited information on the actual usage and user base of these tokens. This lack of transparency makes it difficult to assess their potential impact on the broader financial system.

In conclusion, the BIS report raises serious concerns about the stability and reliability of these tokens. Their inability to consistently maintain their pegs and guarantee full redemption casts doubt on their viability as a store of value and a trustworthy medium of exchange. Until these issues are addressed, stablecoins are unlikely to gain widespread adoption and acceptance in the real economy.

French Central Bank Backs CBDC As Key To New Global Monetary System

by

In a significant move that underscores the evolving landscape of digital currencies, representatives of Banque de France, the country’s central bank, have thrown their weight behind the central bank digital currency (CBDC) discourse. In a recent announcement, Denis Beau, the first deputy governor of Banque de France, hailed CBDC as the linchpin for ushering in a novel international monetary system.

According to a recent report, Beau’s endorsement came during a pivotal moment on October 3 when he asserted that CBDCs could be the catalyst for revolutionizing cross-border payments and reshaping the global financial order. Unlike many who view CBDCs as an afterthought in the cross-border arena, Beau emphasizes their strategic importance from the outset.

Pioneering CBDC Development Paths Unveiled

The deputy governor laid out two paths for Central Bank digital currency development. The first path entails establishing common standards and fostering interoperability between wholesale CBDCs and traditional financial systems. The second path, actively advocated by the International Monetary Fund (IMF) and the Bank for International Settlements (BIS), revolves around creating regional or global central bank digital currency platforms. These platforms would enable the direct exchange of standardized wholesale CBDCs while facilitating payment versus payment and delivery versus payment transactions.

One noteworthy highlight in Beau’s address was his reference to Project Mariana. This collaborative initiative, involving Banque de France, the Monetary Authority of Singapore, and the Swiss National Bank, delved into the potential of an automated market maker (AMM). The project, which concluded successfully in late September, could hold key insights for the future of central bank digital currency

In a broader context, Beau extended his thoughts beyond central bank digital currency, touching on the tokenization of finance. He ardently believes that the public sector must actively support the private sector to unlock blockchain’s full potential while managing associated risks. He believes tokenized “central bank money availability” and tokenized assets should be seen as allies rather than rivals in the evolving financial landscape.

Banque de France’s enthusiastic embrace of central bank digital currency as a cornerstone of a fresh global monetary system signals a significant shift in the central bank’s approach. As discussions around CBDCs continue gaining momentum worldwide, the world eagerly watches how other central banks respond to this emerging financial paradigm.

Related Reading: |CBDC Battle Royale: Congress Divided Over Digital Currency

BIS Report: Why Bitcoin Adoption Is Growing Among Retail Investors

by

On November 14th, the Bank for International Settlements (BIS) published a research report that outlined the factors that lead retail investors to participate in the cryptocurrency market. 

They provide support for the notion that the majority of investors perceive cryptocurrencies as speculative investments as opposed to methods of settlement for legitimate business dealings.

Their key findings indicate that more entrance by retail investors has been associated with price rises for Bitcoin globally. Notably, data from 2015 to 22 shows that users are more likely to use cryptocurrency trading applications actively in the months after a spike in the price of Bitcoin.

It was also highlighted that this positive association holds up well when other possible causes are taken into accounts, such as the general state of the financial markets, uncertainty, or national characteristics.

Moreover, for the protection of investors and consumers as well as for financial stability, this finding is also pertinent for policy discussions on the regulation of cryptocurrencies. Simple calculations show that it is highly likely that between 73 and 81% percent of individuals lost money in investments involving cryptocurrency.

Screenshot 2022 11 15 185755
Source: BIS Working Papers

However, the findings point out a major concern among retail investors that they may not be aware of the risks involved with investing in cryptocurrency. Events from recent times, such as an increase in interest rates and other financial burdens, can cause this newfound asset class to suffer a significant blowback.

Crypto App Adoption When Bitcoin Was On Spike

The report says:

We find that 73% of the users downloaded their app when the price of Bitcoin was above $20,000 – above the price of Bitcoin in October 2022.

Screenshot 2022 11 15 185308
Source: BIS Working Papers

The second finding in the research is that, when the demographics of crypto app users are examined, it is discovered that 40% of users are males under 35, a group that is typically considered to be the most “risk-seeking” in society. 

Screenshot 2022 11 15 185159
Source: BIS Working Papers

Compared to female users and older males, these users are more sensitive to changes in the price of Bitcoin. Additionally, they discover a user sensitivity for Android users, who typically earn less than iOS users.

The highest rates of crypto exchange app adoption across the research period were seen in Turkey, Singapore, the United States, and the United Kingdom, as assessed by the total number of downloads per 100,000 individuals. China and India have the lowest rates of retail use, where legislative constraints probably limit broader implementation.

Screenshot 2022 11 15 185008
Source: BIS Working Papers

Related Reading | FTX’s Collapse Prompts Urgent Regulation From French Central Bank

Crypto Critic: BIS Urged Global Economies To Rein Inflation ‘Quickly & Decisively’

by

Bank for International Settlements [BIS], known for its anti-crypto stance has called on global banks to raise interest rates “quickly and decisively” to curb inflation before it snowballs. Speaking on the sidelines of its annual meeting, Agustín Carstens, BIS general manager, stated,

“The key for central banks is to act quickly and decisively before inflation becomes entrenched.”

Carstens, former head of Mexico’s central bank, said the BIS doesn’t expect a period of widespread stagflation to take hold in the near term.

While admitting that many global central banks and the BIS itself had grossly underestimated how quickly global inflation has spiraled out of control over the past six to 12 months, the top exec however maintained that “the central banks have responded forcefully in a very agile fashion.”

The latest meeting comes at a time when global markets are engulfed in one of the biggest sell-offs as banking heavyweights like the U.S. Federal Reserve and the ECB ditching lower rates and stimulus measures.

“Crypto Fears Are Coming True”- BIS Report

Last week, BIS has warned that the risks of decentralized digital currency are already materializing. In its recent annual report the Swiss-based institution stated that since November 2021, the entire value of the cryptocurrency industry has been wiped out by more than $2 trillion.

The BIS has outlined its vision for the future monetary system, in which central banks utilize the technological advantages of the blockchain to create digital versions of their own currencies.

According to the report, Bitcoin and its ilk ‘cannot reflect the trust associated with the fiat money circulated by central banks, nor can it assure price stability.’

BIS said crypto assets’ “structural flaws” might act as a roadblock to the ‘soundness of the financial system’. And in its own words,’ cryptocurrencies do not perform money’s basic functions. The recent turmoil in the crypto universe is a reminder of their financial vulnerabilities.’

While calling DeFi a “key development,” the report stated that there is no apparent unison in the settlement system of the DeFi ecosystem and layer-1 blockchains.

Further, the report addressed the recent collapse of the Terra ecosystem and pointed out that the stablecoins are not as stable as they are claimed to be.

 

BIS Report outlines CBDC benefits as joint initiative evolves to Phase 3

by

Central Bank Digital Currencies or CBDCs have been gradually gaining traction. While some countries are at a later stage in terms of piloting, others seem to have lagged in the global race.

The US, for one, has been struggling with its e-dollar exploration. Nevertheless, entities such as BIS and IMF have continued to advocate for the CBDC rollout in response to the growing popularity of stablecoins and have also backed several collaborative initiatives of the same.

In the latest development, the Bank for International Settlements [BIS] outlined a prominent use case after reviewing a prototype being jointly developed by the central banks of China, the United Arab Emirates, Thailand, and the Hong Kong Monetary Authority.

CBDC Speed and Cost benefits

Titled ‘Inthanon-LionRock to mBridge,’ the report by the Switzerland-based financial institution stated that blockchain-powered CBDCs can potentially minimize cross-border payments’ transaction throughput from multiple days to just a few seconds. According to BIS, the aforementioned prototype shows a tangible improvement not just in terms of cross-border transfer speed but also substantially reduces numerous of the core cost components of correspondent banking. It further stated,

BIS stated that the prototype essentially displayed the potential of faster and lower-cost cross-border transfers for participating jurisdictions. It also went on to add that it can be beneficial for jurisdictions that do not necessarily have strong correspondent banking relationships.

BIS revealed the project evolving into Phase 3 which involves additional experimentation with respect to design choices, technology trade-offs, and defining a future direction from prototype to an open-source, production-ready system.

This isn’t the only joint initiative. As a matter of fact, the central banks of Australia, Singapore, Malaysia, and South Africa unveiled a joint initiative to trial international settlements with the help of CBDC earlier this month. Called ‘Project Dunbar,’ the initiative is expected to prototype shared platforms thus facilitating direct transfers between institutions using digital currencies issued by multiple central banks.

Dunbar is slated to be conducted in partnership with the Bank for International Settlements Innovation Hub from its Singapore Center. Similar to mBridge the initiative will also be based on a DLT-enabled infrastructure to “lay the foundation for global payments connectivity.”.

BIS’s latest project urges Australia, Malaysia, Singapore, and South Africa to test cross-border CBDCs

by

The Bank of Internation Settlements’ aka BIS has been keeping an eye on the development of central bank digital currencies [CBDC] across the globe. In order to further spruce up the process, the bank hopes to initiate the whole cross-border system for CBDCs.

CBDCs have started to steer the world in a whole new direction. These central bank-issued assets seem to be the latest interest of governments across the globe. An array of countries have already developed the digital version of their fiat currency, however, a few others are still stuck in the research process. China has been at the top of the game as it has its asset already in use.

Now with an aim to get ahead in the race, BIS has urged the central banks of four regions namely, Australia, Malaysia, Singapore, and South Africa to join the bank’s latest initiative, Project Dunbar.

BIS’s Project Dunbar to focus on cross-border CBDCs

The aforementioned central banks have been working along with BIS to roll out a prototype that carries out cross-border CBDCs. The reason behind this is to uphold direct transactions and eliminating the requirement of intermediaries. With this prototype, the banks hope to diminish time as well as the cost of transactions.

Furthermore, the project would look into the “international dimension” of the design of the CBDC. Andrew McCormack, Head of the BIS Innovation Hub Centre in Singapore, would reportedly overlook the project.

Speaking about the same, McCormack said,

“Project Dunbar brings together central banks with years of experience and unique perspectives in CBDC projects and ecosystem partners at advanced stages of technical development on digital currencies. With this group of capable and passionate partners, we are confident that our work on multi-CBDCs for international settlements will break new ground in this next stage of CBDC experimentation and lay the foundation for global payments connectivity.”

Several bank officials from across the globe believe that this project could be great for the CBDCs of different countries.

CBDCs Get Green Signal from Bank of International Settlements

by

The topic of central bank digital currencies or CBDCs has been in discussion by regulators for a long time with many nations developing their own versions of it. Whatever remaining qualms the rest of the banking industry may have had about CBDCs seems to have changed after the latest approval by the Bank of International Settlements [BIS]. The document was the clearest signal yet from central banks that they are ready to fight any effort to undermine their key role in the global financial system.

Considered the central bank to all other banks, the BIS stated that if CBDC technology was not adopted by the banking world it would be left in the lurch by alternatives. The CBDC mentioned its latest directive in a list of recommendations released on June 23. According to the BIS, if banks remained stoic on their stance on the nascent technology, it would be overtaken by the Big Tech such as Amazon, Facebook, and Alphabet.

The release also included comments from BIS official Benoit Coeure who said:

“The train has left the station. It is not that we are getting carried away, we are just looking around. That [Big Tech overtake] is a place where you don’t want to be, where governments don’t want to be. The new trade wards are technology wars.”

Significance of BIS’s stance on CBDC

Coeure and the BIS’s statement comes at a time when global superpowers like China have CBDCs in the works. Although the digital renminbi had received a lot of traction during the initial announcement, it has since then dipped in terms of developmental progress. This lethargy shown by states is not something that would be seen by the mammoth technology giants swarming for dominance, said Coeure.

Coeure was not the only BIS official as he was also joined by his colleague Hyun Song Shin. Shin added that the onus was now on the authorities to decide whether citizens need digital IDs to use CBDCs. The other alternative would be a token-based cryptocurrency system that would keep transactions private. Both Coeure and Shin agreed that the BIS’s best pick out of the two would be going with the ID system.

Last year, the Bahamas became the first nation to launch a native CBDC, dubbed the Sand Dollar. Aside from China, other European nations such as France and Switzerland were also trying their hands at creating general purpose CBDCs.

BIS And Swiss National Bank To Roll Out CBDC By The End Of 2020

by

Governments across the globe seem to be fond of the idea of a digital currency, however, they continue to despise crypto assets. Yet, the introduction of the Central Bank’s Digital Currency [CBDC] into the global financial arena is substantial proof that the world has moved ostensibly towards digitalization. The latest news from the Swiss National Bank reveals that the development of CBDC is heading in a positive direction.

Swiss National Bank Joins Forces With BIS

A recent report revealed that the Swiss National Bank [SNB] and the Bank for International Settlements [BIS] was prepping to test a CBDC by the end of 2020. The collaboration of these banks came to light at the Bund Summit held on Sunday in Shangai. The Head of Innovation Center at BIS, Benoit Coeure spearheaded the summit and revealed that both the banks were going to roll out a CBDC in the proof-of-concept stage.

With the intention of launching a CBDC by the end of this year, Coeure pointed out that the incorporation of proof-of-concept would allow the experimenting of retail CBDC. Researching central bank digital currencies has been overseen by Coeure at BIS. The platform purposes to draw connections between the existing payment systems along with several other elements.

The partnership between the SNB and BIS dates back to 2019. Both the banking giants collaborated to explore the prospects of blockchain-based tokens. For its latest venture, however, BIS aims to bolster its level of blockchain. During the early stages of their partnership, SNB had stated,

“This new form of digital central bank money would be aimed at facilitating the settlement of tokenized assets between financial institutions.”

BIS further announced its plans on joining forces with several other banks across the globe. Hoping to inspect its cross-border abilities, Coeure revealed that BIS would work closely with the Hong Kong Monetary Authority as well as the Bank of Thailand.

While China is well ahead in its CBDC game, other countries along with banks have been trying to catch up with the Asian country.

Coronavirus Pandemic to Trigger CBDC Development Globally

by

The Bank of International Settlements (BIS) anticipates the effect of the coronavirus pandemic on retail payments to trigger positive development of CBDC globally. BIS is a Swiss-based international organization comprised of 60 central banks. The organization has released several reports centered on decentralization, cryptocurrencies, and central bank digital currencies (CBDC). CBDCs refer to state-issued cryptocurrencies, whose legal tender depends on the regulatory structure of a government.

Coronavirus impact on global payments

BIS ‘latest June 24 report suggests that the coronavirus pandemic has inflicted extreme changes in retail settlements. In addition, the report outlines the advantages and disadvantages of the current payment systems.

The report, for starters, highlights the rapid deterioration of fiat payments due to the risk of transmitting the virus between traders and consumers. And the economic uncertainty has caused “precautionary holdings” in fiat, leading to a decline in daily cash transactions.

Around the same time, restrictions levied by national governments, such as closing down tangible shops, have contributed to a steady decline in payment settlement on e-commerce. Besides, the fall in travel has led to a decrease in international visa transactions, and a substantial decline in remittances from migrants.

BIS says both of these changes show the benefits and limitations of the current payment system. Digital payment systems, on the other hand, have made it possible for many commercial operations to operate given the great disruption to daily activities.

“The crisis has amplified calls for greater access to digital payments by vulnerable groups and for more inclusive, lower-cost payment services going forward.”

Opportunity for CBDC development globally

In this regard, the BIS report outlines that CBDC development is globally at the frontier of policy opportunities “for central financial authorities;” could amount to a sea change. ” It notes that a successful CBDC could provide” a new, secure, trusted, and widely accessible digital payment method.

The BIS also noted that it would continue to offer its assistance to central banks worldwide in CBDC research and design. The organization has demanded global cooperation to ensure that post-COVID-19, future changes in international payments will be less split, more comprehensive, and more productive.