The Bank for International Settlements (BIS) Innovation Hub, Banque de France, Monetary Authority of Singapore (MAS) and Swiss National Bank launched Project Mariana, to investigate the use of decentralized finance (DeFi) protocols to automate FX trading and settlement. The project will explore the use of automated market makers (AMMs) for the cross-border exchange of hypothetical CHF, EUR and S$ wholesale central bank digital currency (CBDC). AMM protocols combine smart contracts with pooled liquidity to price and transfer digital assets automatically.

"Effective AML: Thoughts, stories, and ideas about effectiveness and outcomes"

"This paper uses anti-money laundering as a case study to illustrate the benefits of cross-disciplinary engagement when major policymaking functions develop separately from public policy design principles. It finds that the anti-money laundering policy intervention has less than 0.1 percent impact on criminal finances, compliance costs exceed recovered criminal funds more than a hundred times over, and banks, taxpayers and ordinary citizens are penalized more than criminal enterprises. The data are poorly validated and methodological inconsistencies rife, so findings cannot be definitive, but there is a huge gap between policy intent and results. The scale of the problem not addressed by “solutions” repeatedly “fixing” the same perceived issues suggest that blaming banks for not “properly” implementing anti-money laundering laws is a convenient fiction. Fundamental problems may lie instead with the design of the core policy prescription itself. With an important policymaking function operating largely as an independent silo of specialist knowledge, this paper suggests that active engagement with critical, diverse perspectives, and deeper connections between the anti-money laundering movement and other disciplines (notably, policy effectiveness, outcomes and evaluation principles of public policy) should contribute to better results."

We build a stylized, nominal Diamond-and-Dybvig (1983) model, a consolidated central bank conducts maturity transformation, issuing on-demand, nominal liabilities in the form of an account-based central bank digital currency (CBDC) to citizens and investing the funds in a real asset. We show, the central bank's classic role as the guardian of price stability is in fundamental conflict with its role as a financial intermediator. Implementation of the socially optimal allocation requires a commitment to inflation. Commitment to price stability jeopardizes the real return on currency, and causes runs. Central bank runs manifest themselves as a `run on the price level'.

"This paper discusses a decentralized finance (DeFi) application called MakerDAO. The Maker Protocol, built on the Ethereum blockchain, enables users to create and hold currency. Current elements of the Maker Protocol are the Dai stable coin, Maker Vaults, and Voting. MakerDAO governs the Maker Protocol by deciding on key parameters (e.g., stability fees, collateral types and rates, etc.) through the voting power of Maker (MKR) holders. The Maker Protocol is one of the largest decentralized applications (DApps) on the Ethereum blockchain and is the first decentralized finance (DeFi) application to earn significant adoption. The objective of this paper is to analyze and discuss the significance, uses, and functions of this DeFi application."

The European Central Bank (ECB) published an article that provides an overview of the economics of central bank digital currency (CBDC). It first outlines the economic forces that shape the rise of digital money and motivate the current debate. It then looks at the implications for monetary policy and financial stability before discussing policy issues and challenges. Finally, it highlight several areas where the understanding of digital money could be improved by further research.

"Surely it would be possible for Scotland to embrace the next wave of change in the technology of money (digital currency) and generate yet more innovation. The regulatory environment has been changing to encourage competition in Europe, the Scots could build on this. The European Commission’s Directive on Electronic Money, the Payment Services Directives have already created the institutions — the Electronic Money Institutions (ELMI) and the Payment Institution (PI) to allow Scotland to drive innovation forward."

In a Hong Kong Fintech Week 2022 speech, Yi Gang, Governor of the People’s Bank of China (PBOC), described the “delicate balance between protecting privacy and combating illicit activities" in developing its  e-CNY central bank digital currency (CBDC).  "The e-CNY operates on a two-tiered system. At tier one, the PBOC supplies e-CNY to the authorized operators and processes inter-institutional transaction information only. At tier two, the authorized operators only collect the personal information necessary for their exchange and circulation services to the public. Transaction-related data is encrypted for storage. Sensitive consumer information is de-identified to non-transacting parties. Entities and individuals are prohibited from arbitrary inquiry or information usage without rigorous legal authorization. There are small-amount soft wallets and hard wallets to meet the need for small-value anonymous transactions, both online and offline."

Most Latin American consumers remain conspicuous cash users. Thus, CashTech could be very successful as specialists are looking for ways to bridge the gap between the digital economy and the cash economy, and many incumbents and startups have launched CashTech solutions in the region. For examples, banks have implemented cardless cash withdrawals through their apps, Amazon allows users in the region to pay for goods with cash through Amazon PayCode and Amazon Cash, and retail chain OXXO, which provides cash and correspondent banking services in its more than 19,000 stores in Mexico, has partnered with BBVA and Santander to offer cash-withdrawal services and with Ria Money Transfer to delivers cash remittances.

An unrolled Twitter thread on CBDC since 2012

"This paper was a joint a response from Martin Walker (Center for Evidence Based Management) and Izabella Kaminska (Financial Times) was a response to the inquiries request for information and analysis on the topic. The paper discusses the definitions of the term “Digital Currrencies”, the role of cryptocurrencies in the UK and explains the potential and the risks of more widespread adoption. It also provides an overview of Distributed ledger technology, its history, technical characteristics and potential applications in modern banking."

The Bank of England conducted surveys in 2021 to gain further insights into the store of value role of banknotes. They confirm that over the past decade, the fall in transactional cash use in the UK has been accompanied by a rise in the value of notes in circulation. Covid intensified this trend. As Covid restrictions have lifted, there has been a partial recovery in cash use, and more recently, a stabilization in cash use trends. The value of notes in circulation remains elevated, as people are holding more cash as a store of value.  And there remains a sizable share of the population who value cash and for whom cash remains their preferred means of payment. The Bank reiterated its commitment to  to ensure that cash remains available and accessible for those who want to use it.

The IMF published a paper by Adrian Armas and Manmohan Singh that examines the impact of digital money on central bank balance sheets and monetary policy. They show that the impact will depend on the type of substitution into digital money. For example, interest rate and credit monetary policy channels may become weakened by nonbank stablecoins backed by government securities, or if there is substitution out of bank deposits into central bank digital currency (CBDC). The common factor in these cases is a reduction of banking credit. However, when substitution is out of cash into private digital money backed by bank deposits, banking credit could expand.

"Judge Scott Skavdahl of the U.S. District Court for the District of Wyoming said he likely would not dismiss the lawsuit Custodia Bank filed against the [Fed] earlier this year. Following oral arguments from all parties, Skavdahl declined to issue a ruling from the bench on the Fed's motion to dismiss the lawsuit. He noted that the scope of the suit might be adjusted but the matter would likely survive "in some form." Custodia, a Wyoming-chartered special-purpose depository, sued the Fed in June, hoping to compel it to make a decision on the company's roughly two-year-old application for a master account with the Kansas City Fed."

In 2021 the European Central Bank (ECB) launched its first survey on the usage of cash among companies to understand their strategic view on the current and future use and acceptance of cash. It found that almost all businesses surveyed accept cash (even in cash-lite countries, like the Netherlands, 90% accept cash), most businesses prefer customers to pay with card but a quarter prefer cash, security and reliability are the top criteria when deciding on payment type, and very few that accept cash intend to stop accepting it in the future. The ECB concluded that the results provide further support for the Eurosystem’s cash strategy to continue to ensure that cash remains widely available and accepted as a means of payment and store of value.

Heng Wang has written one of the most comprehensive summaries of China's CBDC approach I've seen recently. He argues that the role of the state, the potential cross-border use of e-CNY, and China’s proactiveness in international governance are the core features of China’s CBDC. These features contribute to China’s CBDC approach, a possible selective reshaping of international financial order. He adopts a multifactor analytical framework which explores major economic, political economy, legal and regulatory factors affecting the sustainability of China’s CBDC approach to promote a holistic understanding of e-CNY’s evolution.

US Fed Vice Chair for Supervision Michael Barr shot across the bow of any bank plans to issue dollar-denominated stablecoins on open permissionless distributed ledger technology (DLT) networks. "It remains an open question whether banks can engage in such arrangements in a manner consistent with safe and sound banking and in compliance with relevant law... [Banks] may not be able to track who is holding their tokenized liabilities, or whether they are being used in risky or illegal activity.

The Société Universitaire Européenne de Recherches Financières (SUERF) published a briefing paper that highlights some of the under-researched trade-offs in central bank digital currency (CBDC) design.

Some have asked me for a summary of my central bank digital currency (CBDC) position, but I'm not inclined to be so absolute and dogmatic about the topic, since it's all so jurisdiction specific, but the Digital Euro Association (DEA) CBDC Manifesto comes pretty close to expressing my views on retail CBDC.

"There are more direct and impactful ways that we can address financial inclusion concerns rather than use cryptocurrencies. To address the needs of low-income households, for instance, the U.S. government could offer and encourage the use of a robust, real-time payments solution, as other countries have done.[76] (In fact, the Federal Reserve plans to launch the FedNow Service, an instant payment system, in mid-2023.) The U.S. government should also ensure that outreach efforts related to this instant payment system are focused on engaging underserved communities.[77]  "

"This document describes the proof-of-concept (PoC) developed by the Inter-American Development Bank (IADB), the IDB Lab, LACChain, Citi Innovation Labs, and ioBuilders to demonstrate cross-border payments between entities in different countries that involve currency exchange, using digital money represented by tokens -tokenized money- in the LACChain Besu Blockchain Network. For this PoC, Citi played the role of the bank holding the funds; the IDBs headquarters in the U.S. played the role of the sender of tokenized dollars; an individual in Dominican Republic played the role of recipient of tokenized Dominican pesos; LACChain provided the blockchain infrastructure and developed the back end, the smart contracts and the integrations; and ioBuilders provided technical advice and developed the front end."

"The National Bank of Kazakhstan in cooperation with Payment and Financial Technologies Development Center of the National Bank of Kazakhstan launched #retail #CBDC tests last week."

""Equipped with the lessons from the pilot and earlier phases of the project, Project mBridge will continue its work," the report said. "This includes the technology-build and testing – including improving on existing functionalities and adding new functionalities to the platform – in an effort to move from the current pilot phase towards MVP and eventually a production-ready system.""