Lars Ulbricht’s Post

The mid-market exchange rate (MMER), also known as the interbank or spot rate, represents the midpoint between a currency's buying (bid) and selling (ask) prices. This rate is widely used in global financial markets as the fairest benchmark for currency exchange, providing transparency and minimizing hidden charges. By calculating the mid-market rate using the formula (Bid Price + Ask Price) / 2, businesses and individuals can better understand the real cost of currency exchanges and compare rates offered by banks or financial institutions. Understanding the MMER empowers users to identify excessive fees, avoid overpaying, and make smarter financial decisions during international transactions. The MMER is crucial for international businesses as it enables accurate budgeting, better planning, and negotiation with financial providers for large transactions. By comparing mid-market rates with offered rates, businesses can ensure fair deals and avoid hidden costs like intermediary bank fees, which are common in traditional banking systems. Neo-banks, which leverage blockchain technology, eliminate these intermediaries and reduce unnecessary fees, offering a more cost-effective solution. In summary, understanding the mid-market exchange rate helps businesses and individuals save money, ensure transparency, and make informed decisions in foreign currency exchanges. To learn more visit this link: https://lnkd.in/duEQMmRy

The concept of "new money" in the digital economy refers to various forms of digital currencies and payment systems that are emerging alongside traditional fiat currencies. Here's a brief overview of some key points: - Digital Money: This is the digital representation of value, which can be stored and transferred electronically. It includes both public sector-issued digital currencies, like central bank digital currencies (CBDCs), and private sector-issued digital money, such as e-money and stablecoins¹. - Emerging Markets: Countries with emerging economies are leading the way in adopting digital money. For example, mobile money services like M-Pesa in Kenya have revolutionized payments and financial services for those without traditional bank accounts¹. - Benefits: Digital money offers major benefits in terms of efficiency and financial inclusion, allowing for cheaper and more efficient transactions, especially in cross-border payments¹. - Challenges: The transition to digital money comes with challenges that need to be managed, such as the risk of digital divide, currency substitution, and potential impacts on financial stability and policy effectiveness¹. - Innovation: Rapid technological innovation is driving the rise of digital money, and authorities worldwide must address new policy challenges to ensure consumer protection, financial integrity, and the stability of the financial system². The digital economy is rapidly evolving, and with it, the forms of money and payment systems are also changing, creating a landscape where digital transactions may become the norm. It's a complex transition that requires careful regulation and management to maximize the benefits and minimize the risks². (1) A New Era of Digital Money - IMF F&D. https://lnkd.in/gAKku-GJ. (2) The Rise of Digital Money: A Strategic Plan to Continue ... - IMF. https://lnkd.in/gpYQTG4m. (3) New Moneys in the Digital Era - philadelphiafed.org. https://lnkd.in/g42vZ3Kd. (4) 11. Stablecoins, Digital Currency, and the Future of Money. https://lnkd.in/gKD9hWCC.

💲 Stablecoin and Fate of Fiat! Stablecoins have the potential to significantly impact the future of fiat currencies and the broader financial system in several ways. Here are the key points to consider: 😇 Enhanced Stability and Trust Stablecoins are designed to maintain a stable value relative to a fiat currency or a basket of assets. This stability can make them attractive for everyday transactions, remittances, and as a store of value, potentially reducing the reliance on volatile cryptocurrencies and even traditional fiat currencies in some contexts. 🗾 Efficient Cross-Border Transactions Traditional cross-border payments can be slow and expensive due to multiple intermediaries and regulatory complexities. Stablecoins can streamline this process, offering faster and cheaper transactions. This can benefit both individuals and businesses engaged in international trade. 💰 Reduced Transaction Costs Transactions with stablecoins can be cheaper than those with traditional fiat currencies due to lower fees and fewer intermediaries. This efficiency can make stablecoins an attractive option for consumers and businesses, potentially reducing the demand for fiat currency transactions. 💹 Enhanced Monetary Policy Tools Central banks could leverage stablecoins to implement monetary policy more effectively. For instance, they could issue CBDCs, which are a type of stablecoin. This would give central banks more precise control over the money supply and enable more direct stimulus measures. ♻ Challenges to Sovereignty and Regulation Widespread adoption of stablecoins could challenge the sovereignty of national currencies and complicate regulatory oversight. Governments may struggle to control money supply and enforce monetary policy if stablecoins issued by private entities or foreign governments become prevalent. 📇 Encouraging Digital Economy Stablecoins can accelerate the shift towards a digital economy. They enable seamless integration with digital platforms and services, fostering innovation in sectors like fintech, e-commerce, and decentralized finance (DeFi). 💸 Potential for Economic Shifts If stablecoins gain widespread acceptance, there could be significant shifts in economic power and influence. Countries that adapt to and integrate stablecoins effectively may gain a competitive edge in the global economy, while those that resist may face challenges. 💱 Hybrid Financial Systems The future may see a hybrid financial system where stablecoins coexist with traditional fiat currencies. This coexistence could lead to new financial products and services that leverage the strengths of both types of currency. In conclusion, stable coins have the potential to transform the financial landscape by offering stability, reducing costs, and enhancing financial inclusion. However, their impact will depend on regulatory responses, technological advancements, and the willingness of individuals and institutions to adopt these new forms of digital currency.

Standard Chartered and Zodia Markets analysts predict that stablecoins will see significant growth in adoption, potentially representing 10% of U.S. M2 transactions in the future. "At present, stablecoins are equivalent in size to only 1% of U.S. M2 transactions and just 1% of FX transactions, but as the sector becomes legitimised, a move to 10% on each measure is feasible," Standard Chartered Global Head of Digital Assets Research Geoff Kendrick and Zodia Markets co-founder Nick Philpott said in a report on Thursday. The M2 money supply is a key measure of the total money supply in an economy that includes all the money in circulation plus other assets that are easily convertible to cash. According to the analysts, the primary driver for this growth will be the regulation of stablecoins in the U.S. During the Biden administration, three major bills were introduced to establish regulatory frameworks for banks to issue stablecoins, though little progress was made. However, Kendrick and Philpott see the incoming Trump administration as having the potential to make more substantial progress in stablecoin regulation, which could accelerate the sector's development. #zodia #standchart #stablecoins https://lnkd.in/e2c7UaKb

The cash leg of the digital economy is becoming highly competitive, with various options emerging, ranging from wCBDCs to #stablecoins and tokenized money market funds (MMFs). In Europe, interest in stablecoins, or e-money tokens (EMTs) is rising, with notable projects like Societe Generale - FORGE EURCV, DWS Group, or Monerium entering the scene. However, regulatory constraints prevent the development of a strong EUR-based stablecoin market that can scale and compete effectively with dominant dollar-based stablecoins like Tether.io and Circle, which operate without specific regulatory oversight in the US, maintaining dollar dominance in the web3 ecosystem. Just to illustrate it, Tether, for example, saw a remarkable $5.2 Bn in profits during H1 2024, with a market cap of $120 Bn. Limitations to competitiveness: ▶️ Investments: stablecoin issuers typically invest their stablecoin reserves in high-quality liquid assets (HQLAs) such as T-Bills, earning interest on their reserves. However, this model leaves them exposed to interest rate fluctuations. In contrast, European EMT issuers face regulatory requirements to deposit at least 30% of reserves in safeguard accounts, with the remaining 70% reinvested in HQLAs. A key advantage for European bank-based EMT issuers is their ability to deposit reserves in ECB accounts,thanks to the two-tier system earning 3.75% interest as of now. How? This is possible because, since the European banking system is structured in what is called the two-tier system, European credit institutions have direct reserves accounts in the ECB, allowing them to benefit from yields offered by the ECB’s monetary policy. ▶️ Competition in yield: if banks share a portion of the yield from ECB deposits (akin to dividends) with clients, non-bank EMT issuers may struggle to compete without direct ECB access. For non-bank issuers to be competitive, they would need to outperform the 3.75% yield available to banks by a significant margin, making the competition harder. ▶️ Custody and Fees: MiCA requires issuers to store funds in multiple credit institutions, introducing custody-related costs. Banks can bypass these fees by managing their own reserves internally, giving them an edge over non-bank issuers that must rely on third parties for custody services. Final Thoughts: This regulatory framework could ultimately drive EMT issuance in Europe toward banks, reducing competition in the process. Why? Because the liquidity shift from credit institutions to EMT issuers could create systemic risks, disrupting the current funding mechanisms banks rely on. In the end, Europe’s EMT market may shift toward bank-issued ones, but at what price?

Thanks for the great article and analysis. I have a couple of questions - What additional measures, in your opinion, could strengthen trust in stablecoins during periods of market instability, beyond regulation and transparency of reserves? What key differences, in your view, should be considered when developing regulatory requirements for stablecoins as opposed to traditional banks?

The Reserve Bank of Australia and the Digital Finance CRC have published a consultation paper seeking industry feedback on Project Acacia. This research project will explore how different forms of digital money and associated infrastructure could support the development of wholesale tokenised asset markets in Australia. The consultation paper seeks expressions of interest from industry in participating in an experimental research phase for Project Acacia, and in joining an Industry Advisory Group for the project. Input is also sought on the technical and functional capabilities of new forms of settlement infrastructure and digital money, including wholesale CBDC and tokenised bank deposits, that could promote well-functioning tokenised asset markets and stability in the financial system. Responses to the consultation paper are requested by Wednesday 11 December 2024 via projectacacia@rba.gov.au. Special thanks to Chris Thompson, Rochelle Guttmann, John Kenyon, Jack Hillier, Nick Wiley, James MacNaughton, Rhea C., Christopher Day and Mia Trzecinski for all their hard work on digital currencies research at the Reserve Bank of Australia. For more details, see: https://lnkd.in/gbsbuMGv

All The Reserve Bank of Australia (#RBA) and the Digital Finance Cooperative Research Centre (#DFCRC) today published a consultation paper which seeks industry feedback on a new research initiative, Project Acacia. This project will explore how different forms of digital money and associated infrastructure could support the development of wholesale #tokenised asset markets in Australia. It was flagged in the roadmap set out in the recent joint RBA-Treasury paper and related speech on central bank digital currency (CBDC) and the future of digital money in Australia. Those in #Crypto #CDBC or #stablecoins or just #payments should consider

You heard about bank runs, but do you know what a “stablecoin run” is? The European Banking Authority (EBA) (Olli Castren and Riccardo Russo) has analysed the risks associated with collateralised stablecoins. Key takeaways are: 1️⃣ Stablecoin issuers holding disproportionate amounts of high-yielding but illiquid assets face the risk of runs. This is comparable to traditional banks and can be mitigated through regulation. 2️⃣ Transparency about the composition of reserve assets incentivises issuers to maintain a higher proportion of liquid assets. 3️⃣ Overcollateralisation—holding assets in excess of liabilities—can compensate for potential devaluations of reserves. But it does not fully protect against bankruptcy, especially when there are negative shocks to the asset prices. 4️⃣ During a crisis, regulators could intervene by suspending stablecoin redemption. In this period, illiquid assets can be held until maturity, avoiding selling them at a discount. 5️⃣ The paper models various scenarios and analyses social welfare outcomes. As a result, it suggests a set of measures, including “close monitoring by supervisory authorities, overcollateralisation, and tight disclosure rules.” The authors’ analysis seems thorough and contains concrete risk-mitigation proposals. It makes sense that they only consider collateralised, but not algorithmic stablecoins (see also https://lnkd.in/d2xWnhMU) On a personal note: I like that stablecoin issuers are now increasingly treated like banks, i.e., financial institutions that issue liabilities and must manage the risks on their balance sheets. To paraphrase Perry Mehrling: liquidity, not solvency, is the issue. By the way, stablecoins can also be affected by shocks to assets deemed safe and liquid. When Silicon Valley Bank failed in March 2023, for a time, USDC traded as low as 86 cents on the dollar. Circle had held $3.3bn in SVB deposits, representing about a third of their cash holdings (and about 8% of their total collateral). Researchers are now starting to investigate these contagion effects, since they could become more prevalent in the future. #Stablecoins #Regulation Source: https://lnkd.in/dhyDEcHM

From T+2 to T+1 – and Then, Minutes? DLT & The Future of Settlement Times ⏱️ In financial markets, the term 'T+2' refers to the settlement process by which transactions (e.g., a security trade) are finalized two business days after a trade. While common practice, it poses challenges for financial institutions, such as exposure to market/counterparty risk, or just simply restricted liquidity as funds remain tied up and could be used elsewhere. As global markets become increasingly interconnected (and more competitive), the demand for faster and more secure transactions has grown. 𝘌𝘊𝘉, 𝘌𝘚𝘔𝘈 and 𝘌𝘶𝘳𝘰𝘱𝘦𝘢𝘯 𝘊𝘰𝘮𝘮𝘪𝘴𝘴𝘪𝘰𝘯 𝘰𝘯 𝘚𝘦𝘵𝘵𝘭𝘦𝘮𝘦𝘯𝘵 𝘛𝘪𝘮𝘦𝘴 To address this global trend, the European Securities and Markets Authority (ESMA), the European Central Bank, and the European Commission (DG FISMA) issued a joint statement in October 2024 proposing a transition from T+2 to T+1 (settling transactions one business day after a trade date): (https://lnkd.in/e5kDsxSy). The goal is to make European markets more competitive and attractive towards investors while enhancing its resiliency. 𝘞𝘩𝘢𝘵 𝘪𝘧 𝘴𝘦𝘵𝘵𝘭𝘦𝘮𝘦𝘯𝘵 𝘵𝘪𝘮𝘦𝘴 𝘤𝘰𝘶𝘭𝘥 𝘣𝘦 𝘦𝘷𝘦𝘯 𝘧𝘢𝘴𝘵𝘦𝘳? As part of the ECB's DLT Wholesale Trials, the Deutsche Bundesbank's Trigger Solution was tested by market participants to explore same-day (T+0) settlements. The trial demonstrated that settlement times could be reduced to just 40 minutes using productive systems and real central bank money (https://lnkd.in/eyAx5ryv). The trial involved Wirtschafts- und Infrastrukturbank Hessen (WIBank) issuing the digital registered bond, Bankhaus Metzler serving as the investor, and Cashlink Technologies providing blockchain-based tokenization and settlement infrastructure. More details: https://lnkd.in/e77NaiBA Arguably, the #DLT-based Trigger solution aligns and contributes to the overall call and movement towards shorter settlement times for European financial market infrastructures. Photo Credit: William Warby