DFC

Noelle Acheson published an article that details mounting challenges facing the European Central Bank's digital euro initiative, highlighting significant delays and cost overruns that cast doubt on the project's viability. She notes troubling signs including prolonged reporting delays, stalled legislative progress following the resignation of key EU officials who oppose the project, and ongoing tender processes that should have been completed months ago. While the ECB allocated approximately €1.2 billion just for initial development tenders in January 2024, with over half dedicated to offline functionality that is proving more complex than anticipated, the banking industry faces an estimated €18 billion in adaptation costs for a service that could threaten their deposit base. Noelle expresses particular skepticism about the €154 million allocated for app design, questioning why a central bank is developing retail-focused applications, and suggests that despite ECB President Christine Lagarde's public pressure on lawmakers, the project appears increasingly unstable with potential for significant scaling back of ambitious features.

Western Union’s CEO, Devin McGranahan, announced that the company sees stablecoins as an innovation opportunity and is considering partnerships with major crypto firms to offer stablecoin-based transfers, conversions, and digital wallet services. The company is already testing stablecoin settlements in Africa and South America and has a history of crypto-related initiatives, including past partnerships with Ripple. This renewed interest comes as the U.S. passes the GENIUS Act, which establishes clear regulations for stablecoin issuers, requiring one-to-one reserves and stricter oversight, aiming to foster competition and prevent dominance by large tech or financial firms.

Tether will soon offer USDT legally in the U.S. under the newly signed GENIUS Act, allowing the El Salvador-issued stablecoin to circulate domestically. CEO Paolo Ardoino confirmed Tether will comply with the foreign issuer pathway, including anti-money laundering laws and audited reserves—a first for the company—within the three-year deadline. Despite this, Tether also plans to launch a separate U.S.-specific stablecoin to meet local compliance standards, alongside USDT. The two coins will serve different audiences: USDT will primarily support immigrants sending remittances abroad, while the new U.S. stablecoin will cater to businesses and institutions requiring full regulatory alignment.

Five major U.S. banking associations, including the American Bankers Association (ABA), have submitted a formal letter to the Office of the Comptroller of the Currency (OCC) expressing strong opposition to recent national trust charter applications filed by digital asset companies including National Digital TR CO (Protego Trust), Fidelity Digital Assets, First National Digital Currency Bank (Circle), and Ripple National TR Bank. The associations argue that these applications present significant policy and legal concerns because the proposed business models—primarily involving digital asset custody services for cryptocurrencies, stablecoins, and other digital assets—do not constitute the traditional fiduciary activities historically required for national trust banks under federal law (12 U.S.C. § 92a). They contend that the public portions of these applications contain insufficient detail to enable meaningful public scrutiny, with comment periods closing despite inadequate transparency, and that approving such charters would represent a fundamental departure from established OCC precedent that should require extensive public notice and comment procedures. The associations urge the OCC to postpone consideration of all applications until more complete business plan information is made publicly available, warning that approval could establish a problematic precedent allowing companies to obtain national bank charter benefits without corresponding regulatory oversight, potentially creating systemic risks to the banking system.

The 2025 Diary of Consumer Payment Choice report from the Federal Reserve Financial Services shows that despite increasing digitalization, U.S. consumers continue to use cash and keep it handy. The report found that consumers made an average of 48 payments per month in 2024, with cash use remaining stable at 7 payments per month. Cash was the third-most-used payment instrument after credit and debit cards, and households earning less than $25,000 per year and adults 55 and older relied more on cash.

U.S. President Donald Trump signed into law the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act to establish a regulatory framework for “payment” stablecoin issuers. (A payment stablecoin is a non-interest-paying digital asset that is or is designed to be used as a means of payment or settlement; and the issuer of which is obligated to convert, redeem, or repurchase for a fixed amount of monetary value.) The Act will restrict issuers to subsidiaries of insured depository institutions, federal-qualified nonbank issuers, or state-qualified issuers with stablecoin issuance of $10 billion or less. Issuers must maintain reserves backing the stablecoins on an at least a one-to-one basis. Permitted reserve assets include demand deposits at insured depository institutions, short-term U.S. Treasury securities, money received under Treasury bill-backed repurchase agreements with a maturity of seven days or less, and reverse repurchase agreements with a maturity of seven days or less that are collateralized Treasury securities on an overnight basis. Issuers must also comply with all anti-money laundering regulations. The Act also prioritizes stablecoin holders’ claims in bankruptcy proceedings, and exempts payment stablecoins from securities laws.

The Bank of England (BoE) published a note on interoperability models for UK-based payments outlined its emerging thinking on how a potential digital pound could seamlessly exchange with other forms of money within domestic UK transactions. The core objective of a digital pound would be to preserve the "singleness of money" - ensuring all sterling forms remain equally valued and interchangeable - while supporting innovation, choice, and efficiency in the payments ecosystem. The note outlines and evaluates three interoperability models—centralized, intermediary-based, and direct provision by payment interface providers—and evaluates their trade-offs for users, participants, and the financial system. It concluded that the centralized model would best provide the capability to ensure uniform access and reduce costs.

The Bank of England (BoE) published a design note outlining its emerging product strategy for a potential digital pound, which would operate under a public-private model where the Bank manages the core ledger while regulated private firms provide user-facing services to individuals and businesses. The strategy proposes a three-stage rollout (Initial, Near, and Later) focusing first on enabling convenient peer-to-peer payments and online commerce acceptance, with more complex features like point-of-sale terminal integration and conditional payment functionality introduced in subsequent phases. The digital pound aims to preserve the "singleness of money" and support payments innovation while complementing physical cash, though business acceptance would not be mandated and adoption is expected to be gradual.

This paper explores the coexistence possibilities of Central Bank Digital Currencies (CBDCs) and blockchain-based cryptocurrencies within a post-quantum computing landscape. It examines the implications of emerging quantum algorithms and cryptographic techniques such as Multi-Party Computation (MPC) and Oblivious Transfer (OT). While exploring how CBDCs and cryptocurrencies might integrate defenses like post-quantum cryptography, it highlights the substantial hurdles in transitioning legacy systems and fostering widespread adoption of new standards. The paper includes comprehensive evaluations of CBDCs in a quantum context. It also features comparisons to alternative cryptocurrency models. Additionally, the paper provides insightful analyses of pertinent quantum methodologies. Examinations of interfaces between these methods and blockchain architectures are also included. The paper carries out considered appraisals of quantum threats and their relevance for cryptocurrency schemes. Furthermore, it features discussions of the influence of anticipated advances in quantum computing on algorithms and their applications. The paper renders the judicious conclusion that long-term coexistence is viable provided challenges are constructively addressed through ongoing collaborative efforts to validate solutions and guide evolving policies.

According to CEO Jane Fraser during a post-earnings call, Citigroup is considering issuing its own stablecoin, as part of the bank’s broader digital assets strategy, which includes reserve management and crypto custody services, aiming to strengthen its position in the digital payments space. Fraser pointed to the supportive regulatory framework under the Genius Act, which enables banks to participate more fully in digital assets.

The European Central Bank (ECB) published its third progress report on the preparation phase of a digital euro. Since the second report, the ECB has made progress on the draft digital euro scheme rulebook, which aims to harmonize digital euro payments across the euro area. The ECB has also conducted extensive user research and experimentation engaging with market participants, merchants, and consumers through various sessions and focus groups, to ensure the digital euro meets the needs of end users and provide technical input to support the legislative process. The project's next steps include finalizing tender procedures to select providers for the digital euro platform and infrastructure, drafting the scheme rulebook, and testing and implementing the digital euro's technical specifications.

[October 1, 2023] Central Bank of Mongolia (CBM) Governor shared his thoughts on the country's potential adoption of a central bank digital currency (CBDC) through a dedicated project, reflecting a forward-thinking approach to adapting to the changing landscape of payments and finance. The central bank has examined both decentralized models utilizing blockchain and distributed ledger systems and centralized systems, highlighting certain limitations of decentralized models regarding their agility for payment applications. On the other hand, centralized systems are like the existing real-time payment mechanisms like ACH (Automated Clearing House) and RTGS (Real-Time Gross Settlement) systems. The CBM will continue researching and exploring potential CBDC-based solutions that align with the country's needs and objectives.

According to Mastercard's chief product officer, Jorn Lambert, stablecoins have a long way to go before becoming a mainstream payment tool. While stablecoins offer promising attributes like high speed and low costs, they lack essential attributes like a seamless user experience and wide distribution to consumers. Mastercard is positioning itself as a bridge between digital assets and traditional finance, providing infrastructure to make stablecoins usable at scale by leveraging its global network and security safeguards. However, Lambert notes that stablecoin adoption faces significant hurdles, including consumer adoption and friction in online checkout experiences, making it difficult to clear in the near-term.

The BIS published a paper that examines the rapid growth of stablecoins and the resulting policy challenges for financial regulators. Despite promising stability, stablecoins exhibit significant price volatility and rarely trade at exact parity, raising questions about their reliability as payment instruments. The authors identify several critical policy concerns: stablecoins' use in illicit activities due to their pseudonymous nature and cross-border mobility; potential threats to monetary sovereignty as foreign currency-denominated stablecoins could undermine domestic monetary policy effectiveness; and systemic risks arising from stablecoin issuers' substantial investments in Treasury securities, which could impact monetary policy transmission and create fire sale risks during market stress. The bulletin concludes that the traditional regulatory principle of "same risks, same regulation" has limited applicability to stablecoins, necessitating bespoke regulatory frameworks that address their unique characteristics while leveraging blockchain traceability for enhanced oversight, particularly at interfaces with the regulated financial system.

Bank Negara Malaysia (BNM) published a paper that explores the fundamental nature of modern money—characterizing it as a credit relation and a promise to pay abstract value—and examines its implications for Shariah (Islamic law) analysis, particularly in the context of central bank digital currency (CBDC). It argues that modern money, unlike classical commodity-based money, is constituted by social, economic, and political relationships among individuals, banks, central banks, and the state. The authors highlight that traditional Shariah conceptions, which treat money as a tangible commodity, do not fully capture the essence of modern money. They propose a hybrid Shariah approach that recognizes modern money as both a means of payment and a credit instrument, suggesting that the rules of riba (usury) should apply to modern money in its various forms, including CBDCs, to ensure alignment with Islamic principles.

The Oesterreichische Nationalbank published a paper that argues that digital euros and euro-denominated stablecoins can work together as "complementary pillars" of the future European digital finance landscape. The digital euro can provide a secure, universal payment infrastructure backed by central bank trust, with euro-denominated stablecoins offering programmable, cross-border capabilities that extend beyond the euro area. The authors contend that Europe has a strategic opportunity to lead in digital currency innovation by enabling this coexistence, potentially strengthening the euro's global role and reducing reliance on non-European payment systems. Based on detailed analyses of use cases, business models for banks, regulatory frameworks under MiCA, and macroeconomic implications, the paper concludes that well-designed digital monetary instruments can enhance financial stability while promoting innovation if supported by appropriate regulatory safeguards and strategic implementation.

Galaxy Digital published an examination of how stablecoins and decentralized finance (DeFi) are fundamentally restructuring global credit intermediation, driven by three key trends: adoption as savings instruments in emerging markets with weak currencies, use as efficient cross-border payment rails competing with traditional systems like SWIFT, and access to above-market yields through DeFi protocols. The analysis argues that this growth will systematically drain deposits from traditional banks—particularly regional and emerging market institutions—while concentrating assets in US Treasury securities and major US financial institutions, effectively creating enforced credit contraction in certain regions while over-allocating credit to the US government. Galaxy Digital contends this represents a paradigm shift with stablecoin issuers emerging as significant players in government debt markets and potentially new credit intermediaries, ultimately creating an "efficient frontier of digital dollar investments" that could reshape monetary policy, financial stability, and the architecture of global finance.

The BIS published a paper that examines the emerging market for tokenized government bonds, analyzing a dataset of 39 tokenized bonds (24 corporate, 15 government/supranational) worth $8 billion total against the backdrop of the $80 trillion global government debt market. The authors find that despite being in early experimental stages, tokenized bonds demonstrate modestly superior performance compared to conventional bonds from the same issuers - specifically exhibiting lower bid-ask spreads (19 vs 30 basis points), comparable issuance costs, and significantly lower minimum investment thresholds ($110,000 vs $185,000). The paper argues that tokenized government bonds could serve as a foundational element of a future tokenized financial system alongside tokenized central bank reserves and commercial bank deposits, potentially enhancing market efficiency through programmable features, faster settlement, and broader investor access. However, the authors maintain a cautious perspective, noting that widespread adoption faces substantial regulatory uncertainty, technological scalability challenges, and infrastructure development requirements, with the ultimate success dependent on addressing these implementation barriers rather than the modest technical advantages observed thus far.

The Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC) provided an update on Project Acacia. It will explore how different forms of digital money and associated infrastructure could support the development of wholesale tokenized asset markets in Australia. 19 pilot use cases, and 5 proof-of-concept use cases, have been conditionally selected for this next stage of the project to take place over six months. The use cases involve a range of asset classes, including fixed income, private markets, trade receivables and carbon credits. Proposed settlement assets for the use cases include stablecoins, bank deposit tokens, and pilot wholesale central bank digital currency (CBDC), as well as new ways of using banks’ existing exchange settlement accounts at the RBA. Issuance of pilot wholesale CBDC for testing use cases will occur on a range of private and public-permissioned distributed ledger technology (DLT) platforms. The Australian Securities and Investments Commission (ASIC) will provide regulatory relief to participants to support and streamline the pilot.

The Atlantic Council published an article by Ashley Lannquist that discusses the growing popularity of stablecoins, while highlighting the risks and frictions. The article points out regulatory gaps, potential financial instability, and the lack of transparency in reserve backing, which could lead to liquidity crises if many users redeem stablecoins simultaneously. It also examines geopolitical concerns, such as the use of stablecoins to evade sanctions, and operational risks like cybersecurity threats. Also, despite their utility in cross-border payments and decentralized finance (DeFi), stablecoins' value for everyday payments remains to be seen.

Falcon USD (USDf), a crypto-backed, overcollateralized stablecoin issued by Falcon Finance, a subsidiary of DWF Labs experienced a depegging event, with its price dropping as low as $0.98 and briefly to $0.9432 before recovering to around $0.995. This incident has raised concerns about the transparency and quality of the collateral backing USDf, as well as the potential risk of a broader stablecoin crisis reminiscent of the Terra (LUNA) collapse. Critics and risk consultants have pointed to a lack of clarity regarding the composition and liquidity of USDf’s reserves, and have questioned its inclusion as collateral on DeFi lending platforms. In response to the depegging and growing scrutiny, DWF Labs’ CEO has pledged to provide a more detailed breakdown of the assets backing USDf.

The Central Bank of Myanmar (CBM) reportedly plans to introduce a central bank digital currency to reduce the use of banknotes. The CBM has formed a committee of 13 members, including a deputy governor, to study and analyse the best methods, technologies, and regulatory frameworks to use in ensuring the successful introduction of the CBDC into the economy, as well as assess its potential impacts on payments systems and monetary policy. The committee will also be responsible for overseeing and maintaining the infrastructural foundations, funding, and regulation of the digital currency after it is introduced.

Ousmène Jacques Mandeng argues that the current foreign exchange settlement system perpetuates the dollar's dominance in international payments and proposes that transitioning to digital central bank currencies (CBDCs) could facilitate greater currency diversification. Mandeng contends that the U.S. administration's policy stance "seems geared towards undermining the very foundations of the unique international role of the dollar," making the quest for alternative models more urgent , while noting that the dollar represents "one leg in 9 out of 10 foreign exchange transactions" in a market with $7.5 trillion daily turnover. He identifies a fundamental problem in current settlement mechanisms: the reliance on multilateral netting to reduce funding requirements creates incentives for concentration around major currencies, as "the lower the number of counterparties and currencies, the greater the scope for netting" , which reinforces market concentration and discourages diversification. Mandeng proposes that the mBridge CBDC project's architecture—which enables instant payment-versus-payment settlement in digital central bank money—could eliminate settlement risk while reducing the need for netting, thereby lowering barriers for smaller currencies and promoting a more multipolar monetary system.