"There has been a widespread assumption that central bank digital currencies (CBDCs) would be built on blockchain — or at least the distributed-ledger technology (DLT) it’s based on. However, a growing number of central bankers and CBDC designers are casting doubt on the need for the technology built for Bitcoin, noting that existing technologies may serve just as well and that blockchain does bring some weaknesses to the table."

This article, written by European Central Bank (ECB) staff, is a nice summary of recent research on the possible implications for financial stability and monetary policy of retail central bank digital currency (CBDC). It concludes that careful design will be crucial in maximizing the benefits of CBDCs while managing any unintended consequences. The article also identifies avenues for further research that could usefully inform future policy decisions on such currencies.

"Joachim Samuelsson, CEO of Crunchfish Group, presented Digital Cash security and described how Crunchfish protects against double spending. Johan Wester moderated an open forum with Chiangkai Er, CTO at V-Key, and Magnus Lagesson, CPO at Crunchfish Digital Cash as panelists."

"We propose a two-phased approach. In the first phase, the BoC introduces a centralized platform as a public-good infrastructure that establishes digital cash and ensures global/domestic interoperability. In this phase, e-KYC-based authentication leverages existing private/public sector solutions but also safeguards users' privacy/data against third-party commercial interests while complying with AML/CFT. In the second phase, the BoC will expand the platform to an enterprise-level permissioned blockchain. This shared resource will transform CBDLs into "programmable e-money" within a “social operating system” that will enable Canadians to operate, innovate, compete, and thrive in this new global digital economy."

Circle, the issuer of USD stablecoin, is pushing forward with its plans to submit an application to operate as a U.S. crypto bank, CEO Jeremy Allaire told Bloomberg. If approved, the startup would be the fourth federally chartered crypto bank in the U.S. Allaire added that his company and the U.S. Office of the Comptroller of the Currency, which facilitates bank charters, have been talking about Circle's digital asset banking prospects among other related topics such as the interoperability between blockchains.

Tether plans to reduce its holdings of commercial debt in its reserves, Chief Technology Officer Paolo Ardoino told CNBC. Tether holds short-term corporate debt but does not disclose from which companies, which has raised transparency concerns. But Ardoino said Tether, the issuer of the USDT stablecoin, will cut its holdings of commercial paper further than the current 30% of total reserves, and move the money to U.S. Treasurys.

"This feature–making electronic transactions using a liability of the Federal Reserve–is central to why Congress should make sure that the Fed never issues a retail CBDC. The problem is that the federal government, not privately owned commercial banks, would be responsible for issuing deposits. And while this fact might seem like a feature instead of bug, it’s a major problem for anything that resembles a free society. (Paper currency is also a liability of the Fed, but that fact means very little with freely circulating fiat money, especially when private banks issue deposits.)"

Circle Internet Financial, a global internet finance firm and the issuer of USD Coin (USDC) has entered into an agreement for a $400 million funding round with investments from BlackRock, Fidelity, Marshall Wace LLP and Fin Capital. The funding round is expected to close in the second quarter. In addition to its corporate strategic investment and role as a primary asset manager of USDC cash reserves, BlackRock has entered into a broader strategic partnership with Circle, which includes exploring capital market applications for USDC.

Central Bank of Brazil President Roberto Campos Neto confirmed that the Digital Real central bank digital currency (CBDC) pilot launch will go live later this year. [Read more]

Three African country governments are working on a cross-border stablecoin-based payment system with The Open Network (TON), a blockchain designed by the founders of the Telegram messaging platform. The three countries are Republic of Congo (Ministry of Posts, Telecommunications and Digital Economy) Cameroon (Ministry of Posts and Telecommunications), and the Democratic Republic of Congo (Ministry of Digital Economy). Cameroon and the Republic of Congo are part of the Central African Economic and Monetary Community (CAEMC), a six-nation union that shares a common currency (CFA franc) and central bank

The Depository Trust and Clearing Corporation (DTCC) is developing a prototype to test the ability of US clearing and settlement infrastructure to support a Fed-issued CBDC using a distributed ledger technology (DLT) platform. Project Lithium will measure the benefits of a CBDC and inform the future design of the Depository's clearing and settlement offerings. It will also explore how a CBDC could enable atomic settlement, a conditional settlement that occurs if delivery and payment are both received at the same time.

The Bank for International Settlements and World Bank published a paper on potential central bank digital currency (CBDC) impacts on financial inclusion. It concludes that a CBDC alone may not address financial inclusion challenges, but it could play a role as part of a broader suite of tools. The development of an acceptance ecosystem will be required, which will allow for the seamless exchange between digital and physical forms of currency. Significant and wide-reaching financial and digital literacy activities will also be required if a CBDC is to be afforded the same levels of trust currently enjoyed by other forms of central bank money. Also relevant are including the entry of non-banks and new business models, and applying tiered user onboarding approaches, introducing fast payment services, the use of open banking and APIs to enable efficient interfaces, and ensuring fair, transparent and risk-based access criteria for access to payment systems and financial infrastructures.

The Central Bank of Iran (CBI) reportedly informed banks and other credit institutions about regulations related to the minting and distribution of the crypto riyal central bank digital currency (CBDC). The distributed ledger technology based system will be maintained by authorized financial institutions and capable of implementing smart contracts.

Bangko Sentral ng Pilipinas (BSP), in its 2021 Annual Report, reiterated its assessment that a wholesale central bank digital currency (CBDC) may be more helpful in addressing frictions that affect the efficiency and safety of wholesale payments involving cross-border fund transfers, equity securities transactions settlement and intraday liquidity facilities.

"Dynamics designs and manufactures intelligent, battery powered payment cards."

CLabs, the organization behind the Celo ecosystem will be working with central bank digital currency (CBDC) platform vendor eCurrency. Through the partnership, central banks that are trialing or launching CBDCs will be able to use the Celo blockchain to allow end users access to decentralized finance (DeFi) products.

Namibia's central bank will be publishing a central bank digital currency (CBDC) consultation paper in order to elicit feedback from interested parties. Bank of Namibia Governor Johannes Gawaxab reportedly said at the launch's Q&A session that surging cryptocurrencies "raised the possibility of a financial world operating outside the control of governments and central banks. There is thus a need for central banks to have a clear digital currency agenda to reinforce central bank  authority over money and maintain control over the payment system."

This article makes a case for community (or complementary) currency backed by a central bank digital currency (CBDC) to democratize money creation. The authors show that community currencies can have higher multiplier effects on local expenditure, allow central banks to control circulation velocity, and help countries in currency crises. For example, communities can build smart contracts into their currencies, incentives to “nudge” users toward green services and other pro-social expenditures.

WeChat can now open digital yuan wallets by registering through Tencent-backed WeBank, so they can make payments and transfer money digital yuan directly within WeChat. The expanded feature comes after the People’s Bank of China (PBoC) recently expanded the e-CNY pilot areas to 23 cities and special zones.

The Riksbank published a request for information (RFI) aimed at gaining an understanding, prior to a potential future procurement of an e-krona system, of what possible suppliers and technical options can form the basis for an operational e-krona.

Phase 2 of the Riksbank's e-krona central bank digital currency (CBDC) project is now complete. Proof of concept work included investigating how banks and other payment service providers could be integrated into an e-krona network (in collaboration with Handelsbanken and Tietoevry) and whether and how an e-krona might function off-line.  The tests have shown, for instance, that it is possible to integrate a potential e-krona into the internal systems the banks have today, and this would make it possible for their customers to exchange money in their bank account for e-kronor, and vice versa. The tests of the R3 Corda-based technical solution have also shown that it would be possible to transact in e-krona when temporarily offline.

The European Commission (EC) is laying the groundwork for the possible introduction of a digital euro, issuing a targeted consultation aimed at collecting information on expected impacts on key industries (financial intermediation, payment services, merchants), users (consumer associations, retailers’ associations), chambers of commerce and other stakeholders in international trade. This is part of a digital euro impact assessment that will inform the development of supporting legislation and regulations.

The UK government announced moves that will see regulated stablecoins recognized as a valid form of payment as part of wider plans to make Britain a global hub for crypto-asset technology and investment. Measures include legislating for a ‘financial market infrastructure sandbox’ to help firms innovate, an Financial Conduct Authority-led ‘CryptoSprint’, working with the Royal Mint on a non-fungible token (NFT), and the establishment of a Crypto-asset Engagement Group to work more closely with industry. The UK government will also explore ways of enhancing the competitiveness of the UK tax system to encourage further development of the crypto-asset market in the UK, including reviewing how DeFi loans are treated for tax purposes.

"This paper presents a multi-period agent-based model for the study of macro-financial effects related to the introduction of a retail Central Bank Digital Currency (CBDC). Calibrating it with aggregate statistics of the German retail payment market, we exemplify how the model can be used to quantify the impact of a CBDC on i) the usage of alternative means of payments, ii) the composition of consumer's wealth, and iii) the banking sector disintermediation. "

Rosa Giovanna Barresi provides a comprehensive analysis of the latest digital euro news from the European Central Bank based on recent speeches by Fabio Panetta, Chair of the Eurosystem High-Level Task Force on Central Bank Digital Currency. The investigation phase of the project started on July 14, 2021, and was intended to run until Q3 2023. Design-related decisions will be finalized by the beginning of 2023 and the following months will be spent in developing a basic prototype.

The People's Bank of China (PBOC) said it will expand its digital yuan trial to more areas from the current 11 cities and regions, and conduct “deep research” of the impact on the country’s financial system. Trials have taken place in Shenzhen, Suzhou, Xiong’an, Chengdu, Shanghai, Hainan, Changsha, Xi’an, Qingdao, Dalian and at the 2022 Winter Olympic Games in Beijing and Zhangjiakou. Tianjin, Chongqing, Guangzhou, Fuzhou, Xiamen, Hangzhou, Ningbo, Wenzhou, Huzhou, Shaoxing and Jinhua will be added to the list of trial cities.

Central Bank of Kenya Governor Patrick Njoroge has reportedly warned that lack of access to smartphones by more than half of mobile users in the country will hamper the rollout of its proposed central bank digital currency (CBDC) that requires access to the Internet. Of course readers of this blog know that the Governor has been misinformed, as there are a number of available CBDC platforms that do not require smartphones, including those of Celo, Roberto Giori and WhisperCash.

European Central Bank (ECB) Executive Board member Fabio Panetta said that, although a fully anonymous digital euro is not a viable option from a public policy perspective, "a greater degree of privacy could be considered for lower-value online and offline payments... which are usually low risk in terms of money laundering, terrorism financing and violations of relevant EU law". The ECB is "therefore exploring an offline functionality whereby holdings, balances and transaction amounts would not be known to anyone but the user [but] these balances and private offline payments would have an upper limit".

"Crunchfish has applied for a Swedish patent protecting Digital Cash by combining two different data integrity schemes. First, payments are negotiated offline by short-range data communication between payer and payee communication devices using a quantum-secure cryptographic key as a shared secret. Successfully negotiated offline payments are stored locally and securely in the devices. Subsequently, payment settlement by broadband data communication is secured by signing the settlement request with another quantum secure cryptographic key."

"Terra’s design for its algorithmic stablecoins such as UST or KRT differs slightly from the coupon coin model and introduces a token called LUNA, with the equivalent function to the coupons or bonds seen in other designs to absorb the price volatility of its stablecoins."