Archive for March 5th, 2019

Regulations needed after CEO of cryptocurrency exchange in Canada takes passwords to his grave

March 5, 2019

I had blogged about how an economist benefits from cryptocurrency in Venezuela. I was reminded that perhaps Cryptos are useful in cases where State has failed just as in case of Venezuela. This is rare and does not really justify the need for cryptos.

I came across this fascinating article by Prof Lisa Cramer of Univ of Toronto which points issues with both, crypto and digital world. Apparently, a CEO of crypto exchange in Canada died and he was the only one who knew passwords to the deposits:

A high-stakes legal drama featuring cryptocurrencies has been unfolding in a Canadian court recently.

The antics that led to the litigation almost defy credulity, and they highlight the need for new regulations to better suit a financial marketplace that includes virtual currencies.

News broke in early February that Canadian cryptocurrency exchange QuadrigaCX was seeking creditor protection, leaving in financial limbo about 115,000 people who had entrusted the firm to maintain their deposits of cash, Bitcoins and other digital tokens worth an estimated C$250 million.

The company’s need for bankruptcy protection arose when its founder and chief operator, Gerald Cotten, died suddenly in December while vacationing in India. Normally, if a financial institution’s executive officer meets an untimely demise, he or she doesn’t bring to the afterworld the only keys to the vault. And thus clients maintain continued access their deposited funds all the while.

In the case of Quadriga, unfortunately, Cotten was the only living soul who knew the password to an encrypted offline repository, known as cold storage, where the firm had enshrined the vast majority of clients’ cryptocurrency deposits. Without the password, no one can access those holdings.

Phew!

Passwords are already ruling our worlds in many ways. This is only going to become more complex even without cryptos.

How bitcoin has saved a Venezuelan economist’s family?

March 5, 2019

Nice piece by Carlos Hernández who is a Venezuelan economist.

On Tuesday, I went shopping for milk. With the chronic food shortages in Venezuela, that errand already is very complicated, but there’s an extra layer of difficulty for me: I don’t own bolívars, Venezuela’s official currency.

I keep all of my money in Bitcoin. Keeping it in bolívars would be financial suicide: The last time I checked, the rate of daily inflation was around 3.5 percent. That’s daily inflation; the annual inflation rate for 2018 was almost 1.7 million percent. I don’t have a bank account abroad, and with Venezuela’s currency controls, there’s no easy way for me to use a conventional foreign currency like American dollars.

Things just keep getting crazier here. Venezuela now has two presidents. One of them, Nicolás Maduro, wants to take on the British billionaire Richard Branson in a competition of charity concerts. While we Venezuelans are going hungry, there have been violent standoffsover humanitarian aid piling up at the borders with Colombia and Brazil. And before I can buy milk, I need to convert Bitcoins into bolívars.

Actually, that part is easier than you might think. I go through the listings on LocalBitcoins.com, the exchange that most Venezuelans seem to use, looking for offers to buy my Bitcoins from people who use the same bank I do; that way the wire transfer can go through immediately. Once I accept the offer, the Bitcoins get deducted from my wallet and are held in escrow by the site. I send my banking information to the buyer and wait.

Atleast some people are using bitcoin for the very purpose it was invented. And what better than an economist using bitcoin and showing its value…

Lessons from India’s first elections..

March 5, 2019

Fascinating piece by Karthik Venkatesh and Sara Sohail.

There was a time when political leaders wrote articles worried about rise of their own power and personality cult.

From Real Bills to Too Big to Fail: H. Parker Willis and the Fed’s First Century

March 5, 2019

Nice piece on Federal Reserve history by Jeff Lacker, former President of Richmond Fed.

It is a great honor to be a part of this lecture series commemorating H. Parker Willis, who, in addition to helping create the Federal Reserve System, also served as the first secretary to the Federal Reserve Board and later as the first research director. As most of you probably know, early in his career, Dr. Willis was a professor of economics here at Washington & Lee. What you might not know is that, according to some accounts, the president of the university at the
time thought Dr. Willis spent too much time in Washington, D.C., consulting with Congress and forced his resignation. The students
protested—evidence of the abiding wisdom of your student body.

Tonight, I would like to discuss Dr. Willis’s wisdom and his original vision for the Federal Reserve. I will also talk about how the Fed’s role has evolved and the ways in which the founders’ intentions continue to be relevant to policy discussions today. The Fed was founded to manage monetary conditions in the United States, and Reserve Bank  lending to member banks was central to accomplishing that goal. In accordance with the “real bills doctrine,” of which Willis was a leading proponent, monetary policy would be appropriate if the Fed was permitted to lend only against certain classes of assets. But within a decade of its founding, the Fed shifted toward conducting monetary policy via outright purchases and sales of Treasury securities, as we do today, and
over time, lending became entirely divorced from monetary policy.

Nonetheless, the Fed’s lending powers have persisted and have been used in ways Willis and the other founders likely never envisioned—or intended. This lending contributed to the most recent financial crisis, I would argue, by making our financial system more fragile. A re-examination of the origins of the Fed’s lending authorities and the evolution of their use thus seems well warranted. Before I begin, I should note that the views I express are my own and might not be shared by my former colleagues in the Federal Reserve System.

Central Bank of Bahamas’s digital currency: Project Sand Dollar

March 5, 2019

Bahamas is taking steps towards a fiat digital currency:

The Central Bank of The Bahamas is pleased to announce the selection of NZIA Limited as the preferred technology solutions provider to design and implement the digital fiat currency system for The Bahamas. “Project Sand Dollar” is the official name for this payments system modernisation initiative. The Bank will commence negotiations with NZIA Limited to agree the final terms and scope of the engagement.

The selection of NZIA Limited reflects the company’s expertise in resilient Internet of Things networks solutions. NZIA Limited brings together the collective know-how and expertise of IBM, a leader in enterprise blockchain, along with Zynesis Pte. Ltd., a Singapore-based software development company specializing in blockchain solutions.

The Central Bank expects that at the conclusion of this project all residents in The Bahamas will have equal, expanded access to modernised digital payments capabilities. A concurrent reduction in cash transactions is also expected. The evolved Bahamian payments infrastructure should reduce service delivery costs, increase transactional efficiency and improve the overall level of financial inclusion in communities throughout the archipelago.

Appropriate policy and legislative reforms will accommodate the functional aspects of a digital currency. The draft Central Bank of The Bahamas Bill, 2019, now before the Government, anticipates this framework, and will provide for the development of regulations to govern the instrument. The regulatory framework will include safeguards to satisfy Exchange Control Regulations; monitoring and controls against money laundering and terrorist financing, and specifications to ensure complementarity as opposed to material substitutability for existing banking services.

More details about Project Sand Dollar, including announcement of the Family Island communities chosen for the pilot phase, will be revealed in the coming weeks.

Noted..


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