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

💲 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.

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.

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

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?

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

Let’s talk about how the world’s financial system evolved: 1️⃣ Barter System: People traded goods directly—like wheat for cattle—but it wasn’t practical. 2️⃣ Commodity Money: Gold, silver, or salt became money. Easier to trade, but still bulky. 3️⃣ Coins & Paper Money: Governments introduced standardised coins and notes, often backed by gold or silver. 4️⃣ Banking: Banks stored money, gave loans, and charged interest, boosting trade and business. 5️⃣ Gold Standard: Currencies were tied to gold, giving them fixed value for international trade. 6️⃣ Fiat Money: In 1971, money stopped being backed by gold. Its value now depends on trust in governments. 7️⃣ Digital Money: Today, most money is just numbers on a screen—credit cards, online banking, even crypto. Money has evolved over centuries, but here’s the uncomfortable truth: is what we use today truly “real money”? Real money must do three things: 1️⃣ Serve as a medium of exchange (for buying and selling). 2️⃣ Act as a unit of account (a measure of value). 3️⃣ Hold its worth as a store of value over time. Fiat money—the currency we use daily—fails the last test. Its purchasing power crumbles year by year as inflation chips away at it. It’s not backed by anything tangible, just paper—or worse, numbers on a screen. Central banks print it endlessly, devaluing every dollar, pound, or euro already in circulation. Compare that to gold and silver. For thousands of years, they’ve been the foundation of economies. They don’t rely on trust in governments or central banks. They can’t be printed into oblivion. Gold and silver endure—they hold their value, immune to the tides of inflation and manipulation. So why did we abandon real money? And why do we continue to place faith in a system designed to keep us working harder, saving less, and staying dependent? Perhaps it’s time we looked back at what money was always meant to be: a store of value that preserves our wealth, not erodes it.

Very happy that my new article on #CBDC (specifically, U.S. CBDC – a #digitaldollar) will appear in the summer 2025 issue of New York University's Journal of Law and Business. In the article, I argue that a digital dollar would serve as a “monetary anchor”, enabling the Federal Reserve to sustain its pivotal role within the financial system. That role is currently challenged by (1) the anticompetitive behavior of payment infrastructure operators, (2) the successful efforts of fintech firms to disintermediate banks, and (3) the declining use of currency in the form of Federal Reserve notes, which have served as a monetary anchor for bank deposits for nearly a century. The monetary argument, inspired by the ongoing legislative work on the #digitaleuro, provides a novel perspective to the debate on a digital dollar, which is otherwise focused on the macroeconomic and technical ramifications of the issuance of CBDCs, neglecting a political economy perspective on the role of central banks in the monetary and payment systems. Incidentally, last month, the International Monetary Fund published an interesting note comparing CBDC to existing payment infrastructures and e-money. The main conclusion of the note is that, for certain objectives, such as speed, there may be little difference between outcomes achieved by a CBDC and other payment infrastructures and instruments. But a CBDC can provide unique benefits in terms of access to central bank money and monetary sovereignty. My article underscores this point through a historical and institutional analysis of the role of the Fed in the payment system. Looking forward to revising this piece in the coming months and working with the editors of the NYU Journal of Law & Business to make the final version available just in time for your next summer vacation! The most recent version is available here https://lnkd.in/dBFdZv_g

Broken Money - or the question of central or decentralized ledger technologies Lyn Alden, a former Wall Street analyst, published Broken Money last fall.. Lyn is asking a number of questions about the elephant in the room. Why Our Financial System is Failing Us and How We Can Make It Better - the subtitle already lets us know that she is after the root-causes for the failures, some of them still invisible. Money, according to Lyn Alden, entails the magic of credit, and credit is giving the possibility to move the fulfillment of needs through time from tomorrow to today. So we are expanding the opportunity space. We can buy stuff which we could not afford to buy today. A simple example is credit cards. but also houses, apartments or even shares, you can buy today and pay later. In this way of thinking, money is credit. In another school of thought, money is a super commodity and has the function of store value, allowing transactions in the future as the value store of money is not diminishing. Lyn says "We are living in a centralized ledger system of accounts. So finally, there is a ledger that people use to trade with each other. With the central bank being the final ledger, we are living in a centralized ledger system." In contrast to this central ledger we have decentralized currencies like bitcoin, which is becoming more and more adopted in the market also by banks and by politicians. Broken Money explores the history of money through the lens of technology. Politics can affect things temporarily and locally, but technology is what drives things forward globally and permanently. Let’s listen to Lyn Alden’s own words: When we analyze the long-term potential of digital assets like bitcoin today, either from a bullish or a bearish angle, history can indeed be one of our strongest teachers. Although technology is inherently futuristic in nature, the problems that technology can solve (or fail to solve) come from the past. Therefore, understanding monetary history helps us understand how to approach the potential market size of these new technologies. From papyrus-based bills of exchange to double-entry booking and paper banknotes, the main purpose of banking was to enable transactions to move more quickly and frequently than the transportation and verification of physical gold would allow. Read the full article here: https://buff.ly/3Q5xzjs #FinTech4her #shesinvesting