DFC

The Bank of Canada published a paper that explores how programmability affects the uniformity and social utility of money using a stylized theoretical framework. It shows that programmable digital currencies emerge naturally when users value the ability to commit to future payments, which they find useful privately. However, this programmability can lead to fragmenting money into different forms with varying liquidity, posing public costs when informational frictions impede their use. The authors find that banning programmability could reduce welfare if informational frictions are minor—but may help if commitment frictions are low. Their results imply that programmable currencies could offer greater social benefits in decentralized, permissionless blockchain environments than in centralized systems.

The IMF published a paper that examines the benefits of interoperability in retail digital payment systems, focusing on India’s Unified Payments Interface (UPI). It highlights how interoperability allows users to transact seamlessly across different apps, enhancing user choice by enabling them to select preferred apps based on trust, features, or reliability. This freedom fosters competition among providers, incentivizing innovation and quality improvements. The paper presents evidence consistent with this framework using granular UPI payments data. It shows that interoperability has indeed led to higher adoption of digital payments, reduced reliance on cash, and prevented market dominance by a single provider. The study also underscores the importance of regulatory vigilance to maintain a competitive and open system.

JD Supra published an article that analyzes the proposed GENIUS Act of 2025 and its exclusion of payment stablecoins (PSCs) from the definition of "commodity" under the Commodity Exchange Act. The author argues this exclusion would prevent futures trading on PSCs, eliminate regulatory oversight by the CFTC and SEC over PSC derivatives markets, and create enforcement gaps since banking regulators lack market regulation expertise. The article warns that removing PSCs from commodity status could paradoxically create an unregulated retail derivatives market while preventing legitimate hedging opportunities. The author suggests a simple fix: removing the commodity exclusion provision to allow proper regulatory oversight while maintaining the Act's other protections for stablecoin issuers and users.

The Daily Economy published an article by Peter C. Earle that argues that while the GENIUS Act is styled as a stablecoin regulation measure, it effectively enables a “shadow retail CBDC” system, allowing federally chartered commercial banks—with full federal oversight—to issue digital dollar tokens that mimic the functional characteristics of a central bank digital currency, such as instant settlement, programmability, and 1:1 dollar backing . By restricting issuance to regulated banks and excluding nonbank entities, the Act embeds digital dollar issuance within the traditional banking system, preserving bank intermediation, deposit insurance, and regulatory control—while potentially limiting fintech innovation and reinforcing incumbent banks’ dominance. Earle warns this model could blur lines between public and private monetary instruments, granting many of the benefits of a retail CBDC without requiring the Federal Reserve’s direct involvement—raising questions about competition, inclusion, and potential global spillover effects—just as the bill heads to the House.

JD Supra published a succinct summary of the GENIUS Act (S.1582), a comprehensive federal framework for U.S. dollar‑pegged “payment stablecoins”, passed by the U.S. Senate on June 17, 2025. The Act would close regulatory loopholes and define who can issue stablecoins—namely, insured banks, federal non‑bank entities under OCC jurisdiction, and state‑regulated issuers—while criminalizing non‑authorized issuance. It would mandate full 1:1 reserve backing in low-risk highly-liquid assets, prohibit rehypothecation, and require stringent transparency (monthly reserve disclosures, annual audits for large issuers), redemption rights, and no interest payments to holders. The GENIUS Act also bolsters consumer protection, AML compliance, and technical capabilities for freezing assets if ordered by regulators. Additionally, it amends the Bankruptcy Code to prioritize holders' claims on reserves in issuer insolvency.

In collaboration with the Bank for International Settlements Innovation Hub (BISIH), the Bank of England (BoE) has launched the DLT Innovation Challenge to engage with the private sector to better understand the implications of incorporating distributed ledger technology (DLT) into wholesale central bank settlement, and demonstrate how to securely transact and settle central bank money on an external ledger that is not controlled by the Bank. In particular, it will explore environments where trust is not inherent—where participants must rely on mechanisms other than central bank control of the ledger to ensure security, finality, and integrity. This framing allows us to test how trust can be established in decentralized or externally governed infrastructures, and to draw insights that may inform the wider wholesale experimentation program.

The European Commission (EC) has launched a study to assess existing technology and technology preferences for offline electronic proximity transactions. The study has three objectives: (1) conduct a market analysis and forecast future trends for offline payments; (2) perform a technology assessment of currently available solutions and explore future innovation scenarios and; (3) identify barriers to innovation. The study is kicking off with a survey conducted by Bearing Point to seek opinions from a consumer perspective to help understand current end user preferences on electronic payments in terms of devices, value transfer technologies but also possible hurdles that may serve as barriers to adoption of potentially innovative payment solutions.

Household mobility data can improve our measurement of access to cash. The existing literature typically assumes that households visit their nearest ABMs or financial institution branches from their homes, without combining cash withdrawals with other activities (i.e., on their way to shopping). However, the typical approach neglects two realistic features: The first is that, due to spatial agglomeration, cash access points could be co-located with popular points of interest, such as retail service centers; and, second, households could combine multiple trips, via trip-chaining, to reduce travel costs. Our paper employs smartphone data to construct an improved cash access metric by accounting for both spatial agglomeration and households’ travel patterns. We find that incorporating trip-chaining into the travel metric could show that travel costs are from 15% to 25% less than not incorporating trip-chaining and that the biggest decrease is driven by rural residents.

Banco Central del Uruguay (BCU) published a paper that investigates the financial stability implications of introducing a central bank digital currency (CBDC). It addresses concerns about "slow" disintermediation (where CBDC crowds out bank deposits) and "fast" disintermediation (where CBDC facilitates digital bank runs). The authors find that a simple, non-interest-bearing CBDC, designed as a digital equivalent of cash, does not inherently cause disintermediation, as it primarily substitutes physical cash for transactions. Additionally, they demonstrate that a well-implemented emergency liquidity assistance (ELA) policy, enabled by real-time CBDC transactions, can prevent bank runs by providing timely liquidity to illiquid banks, thereby eliminating the conditions for equilibrium bank runs. The study concludes that a properly designed CBDC can enhance financial stability in a cashless economy by mitigating both forms of disintermediation while maintaining trust in the central bank and the banking system. [Read more at the BCU]

Kevin Dowd posted a paper that examines the global implementation of central bank digital currencies (CBDCs) and concludes that, to date, all such initiatives have been unsuccessful in improving the well-being of the population. The paper highlights two abandoned CBDC experiments in Finland and Ecuador, noting their low public adoption rates and lack of tangible benefits compared to existing alternatives. It also analyzes ongoing CBDC programs in the Bahamas, the East Caribbean Currency Union, Jamaica, China, and Nigeria, categorizing them as "abandoned experiments, embarrassing flops and monumental exercises in policymaker hubris". The author argues that public demand for CBDCs has been consistently low in cases where data is available, suggesting that central banks are not adept at retail-facing activities and cannot effectively compete with private payment providers. The Nigerian e-Naira is presented as a "major disaster," where a forced cashless policy aimed at promoting the CBDC led to widespread economic disruption and public suffering, ultimately failing to increase e-Naira adoption.

Bank of England (BoE) Governor Andrew Bailey expressed doubts that there is a need for the central bank to introduce retail central bank digital currency (CBDC). Instead, he thinks that "commercial banks need to step up to the challenge of digital money provision... [because] if there are real benefits to digital technology in payments, we should want to see them in commercial bank money". He also mentioned tokenized deposits as a way to apply digital technology to the form of money that we have today, with the challenge being to apply them to both domestic and cross-border payments.

SUERF published a paper by David Llewellyn, Charles Goodhart and Alistair Milne that critically examines the potential benefits, costs, and risks of introducing a retail central bank digital currency (CBDC). The authors argue that while proponents highlight advantages such as maintaining trust in the monetary system, enhancing competition, and promoting financial inclusion, these benefits may not outweigh the drawbacks or be uniquely addressed by a CBDC. The authors highlight risks like disintermediation of banks, financial instability, cybersecurity threats, and privacy concerns. Plus, retail CBDC could struggle to become a significant payments mechanism with the necessary critical mass unless it can offer additional or better payments mechanisms than are already available with commercial bank money and the wide range of other payment mechanisms. The paper emphasizes the need for a thorough cost-benefit analysis.

Noelle Acheson published an exploration of the criticisms and risks associated with stablecoins while acknowledging their potential benefits. She addresses common anti-stablecoin arguments, such as their use in crime, lack of transparency in reserves, potential destabilization of treasury markets, and the ethical concerns around non-interest-bearing models benefiting issuers over taxpayers. Acheson refutes some claims as exaggerated or simplistic, like comparisons to fiat currency risks, but agrees with others, such as the need for better reserve transparency and the risks of depegging. The paper also highlights how stablecoins challenge traditional notions of money and financial control, emphasizing the importance of addressing valid criticisms to ensure their sustainable growth amid rapid adoption.

The U.S. National Bureau of Economic Research (NBER) published a paper that investigates the trade-off between price stability and run risk in stablecoins, focusing on the role of arbitrage concentration. It document that stablecoin issuers, such as Tether (USDT), limit the number of arbitrageurs who can redeem stablecoins for cash, leading to concentrated arbitrage. They argue that while more efficient arbitrage improves price stability by reducing secondary market price deviations, it also increases run risk by lowering the price impact of investor sales, thereby encouraging panic selling. The study develops a theoretical model showing how issuers balance these trade-offs and analyzes policy implications, such as the unintended consequences of regulations promoting unconstrained redemptions. The findings highlight the need for coordinated policies addressing both arbitrage efficiency and reserve asset liquidity to mitigate systemic risks in the stablecoin ecosystem.

The Digital Euro Association (DEA) published a position statement that advocates for a balanced and innovative approach to digital money in Europe, focusing on stablecoins, retail and wholesale digital euros, and deposit tokens. The DEA emphasizes regulatory clarity, interoperability, user protection, and privacy, supporting the Markets in Crypto-Assets Regulation (MiCAR) for stablecoins while calling for proportional implementation to foster innovation. For the wholesale digital euro, the DEA highlights efficiency gains through distributed ledger technology (DLT), global interoperability, and collaborative governance. The retail digital euro should prioritize public good, privacy, and user-centric design, ensuring accessibility and legal clarity. Deposit tokens are seen as complementary to public money, requiring regulatory clarity and consumer protection. Overall, the DEA promotes a cohesive digital financial ecosystem that strengthens Europe’s monetary sovereignty, fosters innovation, and ensures trust and inclusivity.

The Bank of Canada (BOC) published a paper that explores the technical architecture for a retail central bank digital currency (CBDC) tailored for basic payments. The authors analyze a micro-partitioned system based on the UTXO (unspent transaction output) funds model, using a two-tiered model based on OpenCBDC 2PC as a representative design. It found that the baseline design handles over 250,000 transactions per second (TPS), though privacy-preserving variants (e.g., Pedersen commitments) reduce performance. Privacy is enhanced by minimizing central bank visibility into user data, with optional anonymity for users. Challenges include integrating with existing retail payment systems, auditing large-scale monetary supplies, and ensuring core system resilience. The study concludes that such architectures are feasible for basic payments but highlights areas needing further research, such as compliance mechanisms and recovery protocols for system outages.

The Asian Development Bank Institute (ADBI) published a paper that examines the impact of central bank digital currency (CBDC) adoption on bank stability in India and China, using a "benefit-of-the-doubt" approach to construct a multidimensional Bank Stability Index (BSI). The index is based on 2013-2022 data from 74 banks across five dimensions; capital adequacy, profitability, asset quality, liquidity, and efficiency. The study finds that CBDC adoption positively affects bank stability, with a stronger impact in India compared to China. The study also reveals a negative moderating role of monetary policy, suggesting that the stabilizing effect of CBDC is enhanced during accommodative monetary policy stances, and diminished when policy is tight. The research concludes that careful management of CBDC alongside appropriate monetary policy can enhance overall financial stability.

Kings College London Business School published a paper that explores the future of stablecoins and outlines key dimensions for their sustainable growth and adoption. It emphasizes the need for a standardized approach across seven critical areas: monetary policy (minting/burning, reserve tracking), reserve asset verification, compliance (identity, regulatory rules), interoperability (cross-chain functionality), privacy (confidential transactions), fees and yield generation (business models), and roles/events (governance and transparency). The author argues that while some aspects, like mint/burn functions, are mature enough for standardization, others, such as privacy and compliance, require further industry consensus. The paper highlights the importance of transparency in reserve assets, the potential for yield-bearing stablecoins despite regulatory skepticism, and the role of interoperability protocols like Chainlink CCIP. Ultimately, it calls for coordinated development to avoid fragmentation and ensure stablecoins can fulfill their promise as a foundational element of on-chain finance.

A16zcrypto published a paper that explores how stablecoins can evolve into a mainstream form of money by addressing three key challenges: ensuring the "singleness of money" (1:1 interchangeability with traditional currency), integrating dollar stablecoins into non-dollar economies without undermining local monetary policies, and managing the collateral and credit implications of large-scale stablecoin adoption. It highlights the need for universal at-par conversion systems, local stablecoin solutions, and innovative collateral models (like tokenized deposits or diversified assets) to maintain economic dynamism. The author argues that stablecoins, with their speed, low cost, and programmability, can revolutionize finance but require careful design and regulatory collaboration to mitigate risks like liquidity fragmentation, reduced monetary sovereignty, and disruptions to credit markets.

Ousmène Jacques Mandeng published an essay that discusses the evolving landscape of international payments in the digital age, focusing on the potential shift from dollar dominance to a more diversified system driven by digital currencies like CBDCs, stablecoins, and tokenized deposits. It highlights how blockchain technology can enhance payment efficiency, reduce settlement risks, and lower barriers for smaller currencies to participate in global transactions. The author notes geopolitical tensions, such as U.S. resistance to BRICS currency initiatives, and argues that digital monies could reshape the international monetary system by altering the relative attractiveness of currencies. The essay concludes that blockchain-enabled financial infrastructures may foster currency competition, aligning with Friedrich Hayek's vision of stability through diversification, despite political challenges.