DFC

A joint paper from SWIFT and Accenture looks at the CBDC opportunities and challenges for international payments, sets out practical requirements for the adoption of CBDC at scale, and outlines how SWIFT can support the financial community as new solutions are developed. SWIFT is planning a host of trials over the next few months to test how its platform could interact with the cross-border use of CBDCs.

The Central Bank of Bahrain (CBB) is collaborating with J P Morgan and Bank ABC in a pilot scheme to introduce instantaneous cross border payment solution leveraging state of the art technology and digital currency. Bank ABC and J.P. Morgan will pilot the transfer of funds from and to the Kingdom of Bahrain in US-Dollars for payments from buyers to suppliers. The CBB will act as a close partner in the pilot and going forward would look to extend the collaboration to central bank digital currencies (CBDCs).

Shenzhen digital yuan trial participants interviewed by Bloomberg showed little interest in switching from AliPay or TenPay, some balking at the possibility a digital yuan might give authorities easier access to real-time data on their financial lives. Some merchants may also be wary of their transactions flowing directly into a government database to help police tax collection compliance. The People's Bank of China has tried to quell those concerns by making the digital yuan free to use for merchants and by pledging that most payments will remain anonymous.

"In this article, we unpack the key aspects of China’s CBDC from an onshore and offshore perspective as it continues to unfold, and provide insight into the key issues to consider in engaging with this refreshed and reimagined currency infrastructure."

A new smart card that features biometrics specifically designed to work with the People's Bank of China (PBOC) digital currency/ electronic payment (DC/EP) central bank digital currency (CBDC), is reportedly being created. Smart card maker Chutian Dragon is reportedly working with IDEX Biometrics, a Norwegian provider of advanced fingerprint identification and authentication solutions, on a new card-based DC/EP digital wallet solution for the DC/EP.

The Central Bank of Azerbaijan and VISA signed an agreement on strategic cooperation to expand digital payments in Azerbaijan. The new strategic agreement will accelerate the development of non-cash payments in the Azerbaijani market, the introduction of innovative payment solutions, as well as through mobile devices, as well as the implementation of initiatives to expand financial literacy and inclusiveness.

"Having just emerged from the fiasco of last year's coin shortage (which I wrote about here and here), the U.S. Mint has a new problem on its hands. The melt value of the nickel, or five cent coin, has suddenly moved higher than the coin's face value."

The U.S. Federal Reserve proposed guidelines for what sorts of financial institutions can have access to accounts at the central bank and its related payment services. "With technology driving rapid change in the payments landscape, the proposed Account Access Guidelines would ensure requests for access to the Federal Reserve payments system from novel institutions are evaluated in a consistent and transparent manner that promotes a safe, efficient, inclusive, and innovative payment system, consumer protection, and the safety and soundness of the banking system."

The National Bank of the Republic of Kazakhstan plans to conduct a comprehensive study of the benefits and risks of issuing retail central bank digital currency (CBDC). It will start with the definition of the tasks solved by the digital currency, the method of its emission and distribution, the technology used, the impact on monetary policy, financial stability and the payment ecosystem.

"The People’s Bank of China (PBOC) and the Industrial and Commercial Bank of China (ICBC) have unveiled prototype hardware devices that support the use of the digital yuan central bank digital currency (CBDC) across a range of different use cases."

"It took a month and a day, but the FEI stablecoin has finally hit its target price of $1. Since its debut on April 3, FEI has mostly traded below its goal of parity with the U.S. dollar. From April 7 to April 20, it stayed below $0.80, more than 20% off its peg. Things started to turn around on April 20, when the price began to rise toward the goal. Tuesday morning, FEI finally hit $1. It remains to be seen if FEI can hold this price."

The Digital Dollar Project (DDP) will launch at least five pilot programs over the next 12 months with interested stakeholders and DDP participants to measure the value of and inform the future design of a U.S. central bank digital currency (CBDC), or “digital dollar.” The selection process is already underway, with the first three to be announced within the next two months. The DDP intends to make its CBDC test ground transparent and accessible to all stakeholders, public and private.

This historical study shows that the bank run risk associated with central bank digital currency (CBDC) is quite real, but it can be mitigated with holding limits. The study looked back to the Great Depression of 1930-1931, when French savers had a safe alternative to banks in the form of government-backed savings institutions (caisses d’épargne ordinaires, or CEOs). CEOs were not allowed to lend nor to provide payment services - they were effectively a source of funds for the government. Interest rates paid on CEO deposits were regularly higher than those paid by commercial banks to their depositors, and perversely, in March 1931, the limits on CEO deposits was increased from 12,000 to 20,000 francs for individuals and 50,000 to 100,000 for firms. Not surprisingly there were bank runs that the study suggests explaned one-third of the drop in real GDP in 1930-31.

Tether must now report on the assets backing the coin by May 19, after the operator and the related trading platform Bitfinex pledged to offer more transparency on its reserves under the terms of its $18.5m settlement with the New York attorney-general’s office in February.

In March, French startup Lugh launched a new Euro stablecoin (EUR-L) backed by deposits held in a Societe Generale bank account and currently available on the French crypto exchange Coinhouse. EUR-L is issued on the Tezos blockchain, and Lugh reports that users will be able to access monthly reports regarding their reserves, validated by a global accounting firm.

This paper from Digital Asset Holdings co-written by Stanford University's Darrell Duffie provides a high level overview of some central bank digital currency (CBDC) principles and key factors supporting them that should be considered when choosing and implementing a suppporting technology. The challenge of creating and implementing CBDC is large and complex, requiring addressing current challenges, while facilitating future innovation and support yet-to-be known requirements and opportunities. The ability to start small, facilitate wide adoption, evidence controls, and maintain flexibility to maximize growth are essential. The paper particularly emphasizes the key requirements of privacy protection and interoperability.

The National Bank of Georgia (NBG) is considering launching a digital version of its national currency, the Lari (Gel). The NBG will use its Open Regulatory Framework tools, to facilitate the retail central bank digtital currency (CBDC) development process. Rapid live testing in a controlled environment should enable the agile development of CBDC technology and an impetus to develop underlying technology to full potential, enhancing risk management and user experience. Interaction with the RegLab should also help NBG to develop its regulatory approach and update legal framework to enable smooth and sustainable CBDC technology operation.

"Tether Holdings Limited made available its Consolidated Reserves Report for March 31, 2021 and an accompanying assurance opinion by Moore Cayman attesting that the information is accurate. It is our plan to release Consolidated Reserves Reports and related assurance opinions on a quarterly basis."

The National Bank of Kazakhstan has begun to study the introduction of a digital currency of the Central Bank of the Republic of Kazakhstan.

As reported a few days ago, the European Investment Bank (EIB) launched a €100 million digital bond issuance on an Ethereum-based public blockchain platform. The EIB has now confirmed that it paid the three underwriters (Goldman Sachs, Santander and Societe Generale) using Banque de France-issued wholesale central bank digital currency (CBDC). Societe Generale – FORGE provided the end-to-end services to issue and manage the digital-native security tokens.

According to its 2020 Payments and Settlement Report, the Bank of Korea will conduct simulation experiments for its CBDC in the second half of 2021.

m-CBDC arrangements are most effective and efficient if the multiple CBDCs are hosted on the same infrastructure and platform. But this runs into a significant governance challenge: some central banks will be unwilling to share their CBDC infrastructure with certain other central banks, and some central banks may not be willing to share their infrastructure with anyone at all. One possible solution would be to “unbundle” the digital currency stack to improve governability of m-CBDC networks and create a viable path towards making m-CBDC arrangements a reality. This article will briefly explore the concept of a digital currency stack, with the aim of encouraging further discussion, collaboration and co-creation.

The Bank of Jamaica seeks interested persons to propose a suitable name, tagline, logo and image for its new central bank digital currency (CBDC). "The logo and representative design should be distinctive, attractive, and adequately represent the CBDC as a safe and convenient digital alternative to cash."

"In the specific case of a currency engineered for customizable demurrage, pernicious applications come to mind immediately. The extent to which those are realizable, however, pivots upon a degree of theorizing as to how “targetable” the programmed change of purchasing power will be. (Because such a system will ultimately require the elimination of cash to be fully effective, the warnings associated with a closely-related unconventional monetary policy, negative interest rates, apply here as well.)"

"In the crypto markets there are no MMFs. But they have a close equivalent—private sector stablecoins. For cryptocurrency investors, traders and financiers, digital asset tokens like Tether (USDT) and Circle (USDC) perform the same function as dollar-pegged money market funds in the legacy system."

This De Nederlansche Bank surveyed a representative panel of Dutch consumers to determine public preferences regarding central bank digital currency (CBDC) demand. It found that roughly half would open a CBDC current or savings account, suggesting that consumers perceive CBDC as distinct from current and savings accounts offered by traditional banks. Intended adoption is positively related to respondents’ knowledge of CBDC and trust in banks and in the central bank, but the amount respondents want to deposit in the CBDC savings account depends on the interest rate offered. Furthermore, intended usage of the CBDC current account is highest among people who find privacy and security important and among consumers with low trust in banks in general.

"Isn’t decentralization going to put Central Banks’ control of their digital currencies at risk? The answer to this question is no, if the correct design choices of the CBDC governance are put in place. The thing is, only advanced next-gen blockchain technology can support these design features. Under these conditions, the case can be made that the control of the CBDC system, the monitoring capabilities of a Central Bank, as well as the flexibility of policy implementation are even increased by a blockchain based approach."

The market capitalization of Tether (USDT) stablecoin has crossed the $50 billion mark, with the supply on Tron's blockchain ($26 billion) exceeding that on Ethereum's ($24.4 billion), because ransaction fees are lower, and confirmation times faster on Tron. Most of the Tron-based Tether's supply is on the lightly-regulated Binance, Huobi, and OKEx platforms. USDT remains the largest stablecoin by market capitalization, with about 66% market share, followed by USDC (17%) and BUSD (9%).