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Jul 20, 2023Liked by Joel John, Saurabh Deshpande

In India the cost of UPI ~ 3,000 Cr I was told is borne by the banking system with some assist by government. In USA this may not be the norm. Some countries may charge 0.3% for transfers. ( gas fees!)

The commercial banks fear that if they are not the first point of contact for retail users they may be bypassed for many banking services like loan etc. Private credit providers are circling. For example KKR took over the BNPL portfolio of Paypal. Also in high interest environment money may flow away from bank deposits to money market funds .

Many central banks do not want to eliminate commercial banks and become direct service point for retail. They do not have organizational culture and competence for that. Even in India e Rupee is supposed to be a bearer instrument and they are struggling on how to make that . The wallets need to be independent of banks and the technology or the laws need to make tracing small transfers impermissible.

Let me quote from Axios newsletter on the opinions of banks in USA on FedNow

- Instant payments aren't great for banks. They loose interest on floats

- 24/7 payments also exacerbate the risk of bank runs. When you can transfer up to $1 million out of your account instantly, even when the bank is closed, that means "the rate of deposit flight could be much faster,"

- Peer-to-peer payments are also commonly used for illicit activities, which naturally worries banks.

As of now most banks in USA are in receive only mode!!

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Jul 13, 2023Liked by Joel John, Saurabh Deshpande

Good intro to BIS cross country wCBDC. USA is tending towards Regulated Liability Network( RLN) with tokenized liabilities of 'regulated' banks and ECB prefers a 'Universal' Ledger.

The key is role of intermediary commercial banks as CBDC go retail. keeping them in the loop may increase adoption but defeats margin compression by 1/3 to 1/4 on FX payments available otherwise.

Lets see if a new banking and payments eco system emerges due to competition and technology. Narrow banking with 24X7 money transfers is most probable as no central banker can forestall a bank run with Real Time Payment (RTP ) like crypto markets. No off days and 4pm EOD close

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Technically, the model should work without intermediaries. Why do you think intermediaries will still exist? Or is this only the first step and later, we expect the intermediaries to gradually fade away?

India already has the UPI stack that works 24X7 and instant settlements. I wonder how long before something like this becomes ubiquitous.

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