2020 — make the next 10 years count
It took me nearly a month to write this blog post because so much has been going on.
Dateline — from Singapore while circuit breaker measurements.
I guess it’s appropriate to start with COVID-19, as it seems that’s what everyone is talking about and affected by right now. I was watching the numbers in Wuhan since February, took a break for a while ignoring it until Singapore stepped up the measurements to see the timeline here.
I can remember when my friend told me, “You get your ass to Europe when it’s getting worse “down” there!” (He meant Singapore) 30 days before Italy and Spain happened and even in the hometown where I grew up (Vorarlberg), we had 872 cases alongside Liechtenstein, with 81 cases as of 20.04.2020.
While COVID-19 itself is critical for our elderly people, it seems as though no one saw the economic impact of a pandemic like this coming — although some prominent people (Bill Gates’ famous TedX talk) warned politicians to act, and not just talk.
But as politicians might be more interested in how to get re-elected, they completely failed in some jurisdictions, thinking “it will just go away”. Many news outlets are praising Singapore, South Korea, etc., and I have to admit, I’m pretty happy I can observe this pandemic from Singapore. And you know what? We will overcome this one too — it will hurt, but we will have to overcome this. Singapore’s recent 3x budget adjustments and solidarity spending is remarkable. Along with the fact that one of the nation’s secret is how many reserves there are, neither MAS nor GIC disclose that number, but some portals tried to estimate it; according to the Finance Minister, Heng Swee Keat, “well over 100 billion” of reserves, meaning that Singapore is well-established to survive the economic impact, which is remarkable for such a small nation without any local resources like oil and gas. So, Singapore has every right to praise themselves as SmartNation, not just for technology, but also economically. I hope this will remain as per Lee Kuan Yew’s wish — Singapore can’t stand still, it always has to improve and never settle, with a mix of foreign talent, mixing with different races which are living harmoniously together and building value at the same time for the nation and its citizens.
I found it interesting Ray Dalio from Bridgewater Associates mentioned in his recent book “Principles” that Lee Kuan Yew was his preferred choice as leader of a state, followed by Angela Merkel and Putin. Since then, I dedicated a lot of my time to watching old interviews of Mr. Lee Kuan Yew — that and finishing The Singapore Story. His vision was remarkable and it seems that Singapore will also be a global player in the next 100 years — at least I hope so. Especially when I look back at 2015, where I landed in Singapore for the first time with a one-way ticket to Asia to evaluate what was going to be next for me in my life. I can still say Singapore is the best place to incorporate your company as a tech entrepreneur.
So, we are two weeks into circuit breaker and it seems based on the latest numbers from today, with 596 new cases, that the Singapore government did exactly everything right; it’s great to see a whole nation sticking together in tough times. (We don’t even want to compare that to Austria, where the politicians are providing confusing and inaccurate statements, perhaps a little like in the US?) Here it’s clear, sharp and something everyone cares about: the son of Mr. Lee Kuan Yew, the current PM, Lee Hsien Loong has 6 public appearances.
- https://www.youtube.com/watch?v=OBEPIbxtXvw
- https://www.youtube.com/watch?v=jVkV9GOfmHU
- https://www.youtube.com/watch?v=jvGSEfIC-8I
- https://www.youtube.com/watch?v=3mYs1Uyx3c8
- https://www.youtube.com/watch?v=C49HV89bMn4
- https://www.youtube.com/watch?v=lhr9RsUTUE0
Times — each of them sharp, constant, and clear. Leadership in crisis is never easy, the act of showing emotions is something that many political leaders are lacking. I was amazed that Finance Minister Heng Swee Keat was overwhelmed by emotions in this speech. As residents, we’re only seeing 30% of what’s happening behind the scenes, especially now where dormitories of foreign workers are popping up as clusters; MOH is busy alongside MOM, as I guess many employers are evaluating how business travel is affecting their employees’ travel schedules. I’m also waiting for a reply with regards to a question about my EntrePass, since it’s now over a month; however, I understand that the team @ MOM is definitely overwhelmed by this situation, so as long as I get the reply before my EntrePass expires, I’m happy. :)
Sidenote: Today, more than 22m Americans lost their jobs.
The next important topic after health, and the government is the economic impact.
Stimulus packages compared:
USA
- 2.3 trillion USD (Donald Trump’s name to be printed on Covid-19 stimulus cheques — report)
- The Federal Reserve balance sheet just surpassed 6,3 trillion USD.
- In case you want to know who “owns” the Fed — Who owns the Federal Reserve?
Singapore
- General Budget 160.000.000.000 SGD (Unity, Resilience, and Solidarity budgets combined)
- Highlights: DPM Heng Swee Keat delivers a statement on the COVID-19 stimulus package
- Here’s a very interactive chart of the breakdown of the budget
- https://www.mof.gov.sg/Newsroom/Media-Articles/askST-Why-does-Singapore-have-an-external-debt-of-US1-766-trillion- (spoiler, it’s common sense)
- As of March this year, the total outstanding government borrowings stood at S$436 billion.
- The government issues three types of domestic debts:
- Singapore Government Securities to develop the domestic debt market;
- Special Singapore Government Securities to meet the investment needs of the Central Provident Fund, and
- Singapore Saving Bonds to provide individual investors with a long-term saving option that offers safe returns.
What is also important to note is that unlike some countries which have to raise funds in currencies such as the US dollar or euro to balance their books, the government does not have any foreign currency debts.
Personally, I’m a big fan that a government is able to run its state more like a business, instead of benefiting only the rich. Based on a friend’s input, it seems that NEOS in Austria is also made up of people who know how to run a business. I think this is critical for “politicians” in the future, to make sure that the state is not just making more and more debt, especially when we consider the off balance sheet obligations as well, an example would be the US 22–77 trillion, or if you want to take a deep dive, check the treasury report of March 2020.
So, if your government is AAA rated and has a good government, you can see that it has a lot of similarities to running a business; of course, the bigger the country the harder it gets, but some countries are simply taking “spending” to a complete other level.
Liechtenstein (https://www.llv.li/files/as/liechtenstein_in_figures_2019.pdf) is also a great example of how a monarchy (https://en.wikipedia.org/wiki/List_of_current_monarchies) can sustain itself in the current environment.
So, what is the right form of government? Maybe a topic for my next post — I will do some research on it, promise! ;-)
With airlines being grounded, unemployment at an all-time high, and central banks printing more and more money or tapping into existing reserves, this brings us to the next question: what is the future of money and when will the economic impact become so substantial that SMEs collapse? Or potentially, even whole countries default?
I have to admit, I haven’t yet done any research about when countries may default on debt and whether technically they really could, or not — they own their own money policies; but the more interesting part here is how we will see the future of money?
There are three interesting articles which I will also link below from JP Morgan, OECD, IMF.
- Here’s a summary of my take-away understanding after reading these documents. 1. money will move away from cash over to e-money
- there is public and private money
- wallets are increasingly popular and therefore, potential interoperability is needed
- stablecoins and CBDC (central bank digital currency) could become a reality.
Is this good news for Blockchain? As if we assume increasing numbers of wallets will also generate a huge need to allow interoperability between wallets, this could result in a stablecoin or CBDC to manage the settlement between wallet providers.
And will this also cause increasing adoption rates for tokenized investments? As we already learned, users like wallets, so we could technically just offer them another wallet — either Ethereum or Bitcoin — and provide them tokenized investments through the same channels as well. I think COVID-19 showed a lot of people that money policies in certain countries are broken, even though they try hard with quantitative easing, but inflation — the silent thief — is still there where normal people like you and me should sooner or later recognize that diversification is king, and not to hoard cash because its “safe”?
Especially when we take a look at potential pension obligations: if states or companies, as for normal people like you and me, it’s very important to understand that maybe 10 years down the road we will not have a pension like we know it today. Personally, I will be 40 years old by then and to be honest, it took me the last 5 years to properly step up my financial education — which sadly, you don’t learn early enough in school how money works.
I think as the world is observing every day the impact COVID-19 will have on their business, supply chain, customers and other relationships, we’ve already seen for ourselves what it looks like to have more “time” as we work from home; we are under quarantine and our brain automatically has a lot of more “time” to think. We literally have the same hours as before, just different priorities and maybe a totally different schedule. You think it’s fascinating? We do too, especially Anna Jelen — half Swiss, half Swedish. Check her out at www.annajelen.com; you might want to subscribe to her podcast.
So, how about relationships? How is COVID-19 affecting our loved ones? For me, it’s interesting how many times I FaceTime with family back in Austria and how deep the conversations are and how easily they go as we have a common topic we can exchange thoughts about on nearly a daily basis as COVID-19 gives that base for communication (whether good or bad). Also, my goal for 2020 is to work on my personal relationship with my girlfriend, as you always try to be the perfect version of yourself in business, but are we trying the same also for our partner? I thought I did, but after browsing through some contents of NOT FAKE TEACHERS, I realized there is so much more to learn. This is actually one of those once in a lifetime opportunities to use the current pandemic as “time” won, to think about things you simply ignored before. And it’s interesting to listen to the key learnings of a couple therapists across a decade. So, you start listening to not just business-related YouTube talks or podcasts, but also how you could apply learnings to your relationships and you begin to recognize that you should treat it completely differently.
If you find yourself lacking the motivation to get all these things going, maybe you want to check your nutrition levels or do some hormone testing? www.medicross-group.com will satisfy you, mailing your hair from Singapore costs only 6 SGD, so it’s totally worth it! (If you subscribe to their newsletter, you get 10% off, which is technically paying for your delivery from Singapore to Germany. ;-))
PS: We offer free work for Singapore entrepreneurs (design, marketing, software development and tokenizing assets) during COVID-19. Reach out to us so we can start doing work together.
Some articles which I came across during the Covid-19 time in case you are bored at home. (German and English)
https://www.finews.ch/news/finanzplatz/40647-schweiz-snb-corona-staatskapitalismus-sieg-regulierung
https://www.youtube.com/watch?v=GRcRmmqByjc
https://www.youtube.com/watch?v=f5vfCT_T_us
https://www.aljazeera.com/amp/ajimpact/coronavirus-economy-recession-depression-200324161905531.html
https://cointelegraph.com/news/billionaire-optimistic-on-bitcoin-as-a-flight-to-safety
https://www.dealstreetasia.com/stories/luckin-accounting-probe-182744/
Some publications which I came across during the Covid-19 time about Blockchain and the future of money.
Tokenizing real estate document
Tokenisation is the process of representing fractional ownership interest in an asset with a blockchain-based token (Domus)
In January 2020 Placetech (2020) publicised the flotation of IPSX’s first asset, The Mailbox in Birmingham, UK, the home of Harvey Nichols and the BBC’s Birmingham’s home, and one of the largest mixed-use property assets outside London, with 700,000 sq ft of shops, restaurants and offices. In the same month, it was reported that BrickMark purchased a prime commercial building from RFR Holding in Zurich in a share deal in which a significant part of the purchase price of around €120m was paid in BrickMark tokens.
improves liquidity
Crowdestate stats
On average: 20.54%
Min. investment: € 100
Buyback guarantee: No — but loans are secured with a first-rank mortgage
Started: 2014
Loan types: Real estate, corporate finance, and mortgage loans
Surely wider distribution of a product offering should be both fair and effective in producing a better selling price; and if at the same time we can split the asset into smaller pieces, we will increase effective demand. A wider secondary market will also increase effective demand in the primary market and improve the perceived quality of the asset.
There is little doubt that the primary market through which first-time capital is raised for funds is hugely inefficient. One well-known fund manager reported that in the process of raising around $900m for the platform’s fourth fund, he attended 497 meetings. Another held 160 meetings before any capital was committed to his (eventually successful) fund. There is little or no automation of this process.
We can also infer that a key issue influencing or limiting the physical fractionalisation scheme is control of the entire non-divided asset. If a property is divided into 1,000 parts, who pays for repairing the roof? Who pays for maintenance of the elevator — does that include those on lower floors? What happens when the value of the whole is bigger than the sum of the parts and one person refuses to sell?
In a trust, we will see trustees (managers) appointed to act in the best interests of beneficiaries (investors). This structure facilitates the split of the legal interest in land from the beneficial ownership. As an example, the Belgian Real Estate Certificate splits legal and economic ownership, which is unusual in civil law jurisdictions. In a PAIF and other fund structures, a trustee or depositary holds the legal title.
In the German KAGB, open-ended and closed-ended investment funds and their managers are regulated under a special body of law.
The second Markets In Financial Instruments Directive (MiFID2), which came into effect in 2018, imposes more reporting requirements and tests on exchanges in order to increase transparency and reduces the use of dark pools (private financial exchanges that allow investors to trade without revealing their identities) and over-the- counter (OTC) trading. IPSX appears to be approved for the purposes of MiFID2. IPSX is also subject to the takeover code (the blue book), insider trading rules and so on, and to that extent is a fully regulated exchange that can trade shares in single property assets, as long as at least 25 per cent of the shares to be admitted to the exchange are in public hands (a minimum free float)
This is the first and only regulated securities exchange — anywhere in the world — dedicated entirely to real estate. It will be the venue for investors to trade shares in single-asset-owning real estate companies, or multi-asset real estate companies where there is commonality in the assets. For simplicity, we refer in this document to single-asset real estate companies as SARCs. The unique benefits of SARCs are increased transparency and cost efficiency, in contrast to wider-ranging REITs (Real Estate Investment Trusts). IPSX has explicit and robust requirements of issuers as regards initial and ongoing disclosure, as well as transparency and board governance. Investors and issuers will be excited by the new opportunity that IPSX will provide. In short, IPSX reimagines real estate investing.
The note goes on to
Liquidity and volatility
These are complex issues, and the big unknowns. Daily pricing coupled with real liquidity (buyers and sellers prepared to trade and thereby to make gains and losses) should lead to pricing volatility. Pricing volatility can then support more liquidity, as sellers will cash in trading gains. However, the history of similar ventures (see, for example, SPOTs, SAPCos and PINCs in the UK) suggests a red flag here. Will the psychology of buyers, sellers and market makers lead to a large bid-offer spread and/or a persistent pricing discount? Is a fraction of an asset worth more or less than its fair share of the whole? Will information asymmetry (sellers knowing, or perceived to know, more than buyers) move all IPSX assets to discounts to the net asset value (NAV) of the undivided share? IPSX is unlikely to thrive if potential buyers see the value of previously floated assets fall to a discount to the advertised NAV.
We interviewed a London-based expert on these topics, whose edited (and so
“The problem with fine art as an asset class is that, although it’s very interesting from an investment perspective — given its performance over the last decade, and the fact that it is uncorrelated to almost every other asset class you could name — until now, the only way anyone could participate was if they happened to have a couple of million dollars available to buy a painting,” explained Scott Lynn, the founder and chief executive of Masterworks, a fine art fractional investment house based in New York. “What we’re doing is making it possible for anyone to invest in what we call blue chip artwork, by buying up and securitizing some of the world’s greatest pieces of art, filing them with the Securities and Exchange Commission, and then selling shares to both larger institutional investors as well as retail investors,” Lynn added.
Around 12 months ago Masterworks became the first company ever to file a painting with the SEC when it listed Andy Warhol’s ‘Colored Marilyn’. Masterworks offered 99,825 shares in that painting, at a price of $20 each, with around 87% spoken for at the time of going to press; shares in a Claude Monet painting, “Coup de Vent,” are
also on offer through Masterworks, also for a minimum investment of $20. The
Real estate tokens are digital securities — financial instruments represented using blockchain tokens — granting exposure to an underlying real estate asset or real estate development project. With real estate tokens have all the benefits of digital securities: they are cheap to issue, can be sold directly to investors, and help provide much needed liquidity. We’re working with selected companies to help them issue their Digital Security and raise capital from retail and accredited investors internationally. Our clients have access to our full expertise in digital securities, get legal documents & KYC services from our partners, and access to the Tokenestate Platform to efficiently raise funds from thousands of investors.
page 27
Raise
A security token is a digital representation of a real-world financial asset (such as a share certificate, loan or land title). They are built with blockchain-based technology, making them highly secure digital assets. Security tokens dramatically improve the security of digital assets, ease fundraising and reduce the costs of cross-border transfer and compliance. Security tokens are gaining in popularity around the world — for their potential to improve capital markets and financial inclusion. NASDAQ recently referred to 2019 as the “Year of the Security Tokens”.
Raise’s platform is targeted for the private capital markets industry and is working with a list of companies, private funds and law firms for the launch of the stable software later this year. Raise previously announced partnerships with an association of 16 corporate law firms, the Africa Legal Network, to create a continental regulatory framework for security tokens and launched the African Digital Asset Framework, a project to create open source standards for blockchain technologies. The Framework project is supported by Ambassadors from the
Aspencoins are tokens which represent the fractional equity ownership of the luxury St. Regis Aspen Resort in Colorado, U.S. These digital assets were sold to investors through a security token offering (STO) which was originally promoted by crowdfunding business Indiegogo and issued by Templum. The offering — an SEC compliant regulated security — had a reported valuation of $18 million. This single asset transaction is often cited as the first real estate security tokenisation. After the Aspencoin capital raise in October 2018, tokenisation quickly became the talk of the town.
Another of the first tokenised properties is allegedly a parking space in Tech Park Ljubljana (Slovenia, EU). Taken from the project’s report (Blocksquare, 2019), “the tiny property had been sitting on the market for almost 6 months, while tokenisation allowed the issuer to sell it in 16 days and even create a premium on the valuation. The tokens of this property have been trading on a dedicated decentralized exchange since November 2018, while the 20+ token holders have been receiving monthly dividend payouts deriving from the rents generated, all achieved through blockchain and smart contract technology, without traditional banking
Debt markets are an area of great focus in the security tokenisation space, including debt markets for commercial real estate. According to MIT (2019): 70% of fixed income volume today is traded over the phone (vs. 98% of public trades occurring over centralized in equity markets). Currently, information lifecycle events for debt securities (origination, distribution, tracking ownership, etc.) is scattered across organizations in different data formats using different tools (PDF, Word, Excel, etc.).
Therefore, reference data related to debt securities is prone to error and delay. For commercial real estate debt, there is a 30 to 60 day lag between cash flows from tenant payments and the packaging of payment information that informs the prices of those assets. Programmatically issued dividends via blockchain-based smart contracts could standardize data formats, drastically lowering the administration costs of servicing debt and providing more readily accessible information with respect to real estate securities valuations
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J.P. Morgan Perspectives Blockchain, digital currency and cryptocurrency: Moving into the mainstream?
If you wish to receive my notes of the publication please ping me on LinkedIn or Instagram.
OECD — The Tokenisation of Assets and Potential Implications for Financial Markets
how will future asset classes look like if entry barriers are smaller?
AML could be improved with an approved investor identity accross several potential investment cases
easier access to liquidity but also downside with offchain transactions — for arbitrage trading
could stablecoins or even central bank issued stablecoins be the key to instant settlement of securities. (central bank digital currencies)
switch to DLT solution in developed world is maybe not as fast as in emerging markets. EU Gateway to Asian assets.
Box 2.1. Industry initiatives for standardisation of token protocols: ERC1400, CMTA
The Swiss Capital Markets and Technology Association is planning the issuance of its own standard security token, implementing the minimum requirements under Swiss law and matching the legal tokenisation blueprint it issued in 2018 (CMTA, 2018).
so that interprobability is not an issue
Page 15 29.02
Illiquit assets high entry barrier
Through both processes, illiquid financial assets are converted into liquid marketable securities, funded by and tradable in the capital markets. Some of the main differences lie in the structuring, as bundling is not necessarily the norm in tokenisation; the resulting securities being ring-fenced by originators in securitisation, which is not the case in tokenisation; and the fact that in securitisation there can be credit enhancement while in tokenisation the security’s/token’s credit quality can never be higher than that of the underlying asset. Setting up a structured product is expensive, and these investments are typically buy- and-hold investments with high minimum tickets for investors. In contrast, the possibility of fractionalisation allows for small minimum investments, while the application of DLTs facilitates trading in secondary markets.
The distributed nature of the network with no single ‘point of failure’, the immutability of the ledger and the application of cryptography may add to the resilience and safety of the infrastructure.
The role of registars/transfer agents may thus be rendered redundant and corporate/shareholder registries replaced by the decentralised ledger itself.
Fractional ownership may allow for more inclusive access of small and retail investors to somehow restricted asset classes, while enabling global pools of capital to reach parts of the financial markets previously reserved to large investors. Private placements of equity or debt of small and medium-sized companies (SMEs) are examples of security transactions that are traditionally restricted to large institutional investors and funds.
unlock trillions of euros page 28
go in other jurisdiction like malaysia, indonesia, singapore and enable small sized offerings to take place.
efficient process — page 33 deutsche börse
digital cash by canada and MAS — page 36
oecd smart ups typo lol
make tokens freely tranferrable page 48 but if voting or dividend then make kyc only.
mifid do we need to habe any adjustments?
the rise of digital money (IMF)
https://www.imf.org/en/Publications/fintech-notes/Issues/2019/07/12/The-Rise-of-Digital-Money-47097
In short, the paper argues that the two most com- mon forms of money today will face tough compe- tition and could even be surpassed. Cash and bank deposits will battle with e-money, electronically stored monetary value denominated in, and pegged to, a common unit of account such as the euro, dollar, or renminbi, or a basket thereof. Increasingly popular forms of e-money are stablecoins. E-money may be more convenient as a means of payment, but ques- tions arise on the stability of its value. It is, after all, economically similar to a private investment fund guaranteeing redemptions at face value. If 10 euros go in, 10 euros must come out. The issuer must be in a position to honor this pledge.
Banks will feel pressure from e-money
Finally, i-money is a potential new means of pay- ment, though one which may or may not take off.6 I-money is equivalent to e-money, except for a very important feature — it offers variable value redemptions into currency; it is thus an equity-like instrument. I-money entails a claim on assets, typically a com- modity such as gold or shares of a portfolio. Exam- ples of gold-backed i-money are Digital Swiss Gold (DSG) and Novem.
how could we enable the e wallet which is backed by gold?
but there is always if decrease than current treshhold then it converts sum into outstanding chf/eur currency
if increased we take the profits.
Today, however, shares in private investment funds could become i-money. They can be tokenized, meaning they can be represented by a coin of any amount on a digital ledger. The coin can then be traded directly, at low cost, and constitute a payment denominated in the underlying portfolio, valued at the portfolio’s going worth in any currency. For instance, if B owes A 10 euros, B could transfer 10 euros worth of a money market fund to A.
In general, e-money is exposed to four types of risks, in addition to operational risk (including cyber risk), which is common to all means of payment to differ- ent degrees. Liquidity, default , market, and foreign exchange rate risk all potentially undermine the guar- antee of redeemability at face value.
• Liquidity risk means there may be a lag before
redemption requests can be met. Liquidity risk depends on the market liquidity of the assets held by the e-money issuer.
• Default risk captures the scenario in which the e-money issuer defaults, leaving client funds at risk
of seizure by other creditors. Default can occur due to losses on other business activities or the inability to meet one’s debt obligations.
• Market risk emerges from the assets held by the e-money provider. Sufficiently large losses relative to the capital of the e-money provider can put redemp- tions at risk.
• Foreign exchange rate risk is present to the extent that claims held as e-money are denominated in a cur- rency other than the domestic unit of account. That is the case of Libra, for instance which is denomi- nated in a basket of currencies.
E-money issuers are adopting some of the above options. To date, the most popular assets held by e-money providers are bank deposits. These have the advantage of offering redemption on demand at face value, but banks can default. And because e-money issuers are wholesale creditors, their funds are generally not protected by deposit insurance. Other systems will have to be developed to protect e-money providers and their clients from bank defaults, perhaps along the lines of private investment protection plans. To minimize risk that e-money providers default, client funds may be transferred to trusts (illustrated
in Figure 3).11 Trusts have the advantage of segregat- ing client funds from the balance sheets of e-money providers. However, the legal protection of trusts is not watertight in all jurisdictions. As a result, it may not always be possible to protect client funds from other creditors in courts of law. If anything, legal proceedings could delay the re-appropriation of funds. Depending on the country, other legal structures may be more effective in protecting client funds
Complementarity: If assets like stocks and bonds were moved to blockchains, blockchain-based forms of e-money would allow seamless payment of automated transactions (so-called delivery versus payment, assuming blockchains were designed
to be interoperable), thereby potentially realizing substantial efficiency gains from avoiding manual back-office tasks. More generally, e-money function- ality more naturally lends itself to being extended by an active developer community, which may draw on open source codes as opposed to proprietary tech- nologies underpinning b-money. Developers could for instance allow users to determine the goods that e-money could purchase — a useful feature for remit- tances or philanthropic donations.
Tomorrow’s World: What If E-money Providers Could Hold Central Bank Reserves?
What if providing a level playing field also meant offering settlement services to e-money providers? What if these firms could also hold central bank reserves, just like large banks, to the extent that they satisfied certain criteria and agreed to be supervised?
The suggestion is not new. In fact, some central banks, such as the Reserve Bank of India, the Hong Kong Monetary Authority, and the Swiss National Bank already offer special purpose licenses that allow nonbank fintech firms to hold reserve balances, sub- ject to an approval process. The Bank of England is discussing such prospects. Meanwhile, China has gone even further. The central bank requires the country’s large payment providers, Alipay and WeChat Pay, to hold client funds at the central bank in the form of reserves. Despite these examples, many of the details of the proposal to allow e-money providers to access central bank reserves would have to be worked out.
The ability to hold central bank reserves would fill the sails of e-money providers by allowing them to overcome market and liquidity risk, and would trans- form these into narrow banks. Narrow — as opposed to fractional — banks are financial institutions that cover 100 percent of their liabilities with central bank reserves.
We suggest a different approach, one established in a public-private partnership, which we call “synthetic CBDC,” or simply “sCBDC.”20 After all, the cen- tral bank would merely offer settlement services to e-money providers, including access to central bank reserves. All other functions would be the responsi- bility of private e-money providers under regulation as discussed above. This of course assumes that the
