DFC

McKinsey published its 2024 Global Payments Report which documents the continuing displacement of cash and checks by instant payments, especially in developing markets with low credit and debit card penetration. Despite the underwhelming uptake of retail central bank digital currencies (CBDCs) where they have been launched or piloted, McKinsey foresees them setting the minimum base level of functionality, cost, and services that users can expect from a digital currency, providing an alternative to help keep the price of commercial offerings in check, and serving as an alternative to large private-sector stablecoins.

The European Banking Authority (EBA) published its final Guidelines on the orderly redemption of token holders in case of crisis of the issuer. The Guidelines, which are addressed to competent authorities designated under the Markets in Crypto-Assets Regulation (MiCAR), cover issuers of asset-referenced tokens (ARTs) and of e-money tokens (EMTs). The Guidelines specify the content of the redemption plan to be developed in going concern, including the liquidation strategies of the reserve of assets, the mapping of critical activities, the content of the redemption claims, the main steps of the redemption process, and the elements that may lead to the trigger of the plan by the competent authority.

The U.S. Federal Reserve Bank of Kansas City published a paper by Franklin Noll on "cash bill pay" services that allows consumers to make digital (e.g., bill) payments with cash at participating retailers. A recent Atlanta Fed survey found that American consumer preferences to pay with cash remain pervasive for various reasons, including the costs and other impediments involved in moving to digital payments, lack of needed identification, former credit or banking problems, and the desire for privacy. The article goes on to describe the two main cash bill pay service (“walk-up” and “barcode") consumer experiences, and the costs that may make the service expensive for some.

As part of the Eurosystem exploratory work to test new technologies for the settlement of wholesale transactions in central bank money, from May to November 2024, Eligible Market Participants and Eligible Market DLT Operators will have the opportunity to explore the interoperability solution(s) of their choice offered by the Eurosystem. The Deutsche Bundesbank (BuBa) Trigger Solution is one of these three available solutions. It links DLT platforms operated by the market with the traditional Eurosystem payment system (TARGET), thus enabling the direct settlement of DLT-based wholesale transactions on participants’ existing RTGS accounts in central bank money. The exploratory work comprises both trials in the participants’ production systems and experiments in the test environments. The BuBa maintains a list of all such use-case experiments here.

In 2024, the ECB invited market participants to test how new technologies like distributed-ledger technologies (DLT) would work for central bank money settlement. The so-called ECB trials and experiments are aimed at exploring the potential of digital payments targeting a wholesale central bank digital currency (CBDC). Together with leading institutions, infrastructures and fintech businesses, Deutsche Börse Group contributes to this transformative endeavor with its Clearstream and Eurex Clearing businesses. The Deutsche Börse maintains a list of all such use-case experiments here.

The Health Employees Superannuation Trust Australia (HESTA) and ANZ are examining whether the bank’s A$DC stablecoin could allow HESTA to streamline pension payment reconciliation. Currently, HESAT member firms contributing to staff pensions pay the money across and separately send data about what it relates to. ANZ’s idea is for the data to accompany the stablecoin payment as part of a smart contract. This could eliminate the entire reconciliation process and employees would be able to see their contributions in real time.

This paper highlights the growth and importance of stablecoins since they were launched 10 years ago. We outline their impact on the cryptocurrency ecosystem as well as the financial system as a whole, while also summarising the main findings in the literature. Finally, we outline future research directions.

Banco Central do Brasil (BCB) is calling for new companies to participate in its Drex wholesale central bank digital currency (CBDC) project aimed at the tokenization of the Brazilian financial system. There is no initial limitation on the number of business cases that can be selected. The number of selected proposals will be determined on the set of applications received and considering the central bank’s technical and operational capacity.

Mu Changchun, Director of the Digital Currency Institute of the People's Bank of China (PBOC), provided an update on the digital renminbi (RMB) pilot. As of the end of July 2024, there were 180 million personal digital RMB wallets, and the cumulative transaction amount was 7.3 trillion yuan, including high-value securities and trade transactions.

The Centre for International Governance Innovation (CIGI) published a paper that explores the democratic governance required to make an informed decision on whether to issue a CBDC and, if one is to be issued, how to develop and implement it responsibly. It reveals a disconnect in Canadian CBDC discussions: while the government is responsible for the decision to issue such a currency, political engagement on the topic has been limited. Policy recommendations aimed at fostering democratic oversight, public engagement and the protection of rights in light of the potential development of a digital Canadian dollar are provided. For example, the paper suggests that Canada could leverage existing collaborative initiatives, such as the Canadian Digital Regulators Forum, to create a more comprehensive and inclusive CBDC governance framework.

The Central Bank of Eswatini (CBE) published a paper co-written with Giesecke+Devrient (G+D) on the design characteristics of a potential domestic retail central bank digital currency (CBDC). It also reported on proof of concept (POC) tests of online and offline payment use cases involving selected CBE staff members. A digital lilangeni would be fully interoperability with the existing payment methods and wholesale and retail infrastructures, and be available 24/7/365 in (near) real-time manner. Also it would be unremunerated, as it will be primarily aimed to be a means of payment and not a savings vehicle. Although it would not be run on a distributed ledger technology (DLT) platform, it would be built on a distributed database, operated and permissioned by the CBE.

The Bank of Canada (BOC) published a paper that uses a general equilibrium monetary model to explore the impact of introducing "tokenized money" (central bank digital currency (CBDC) or tokenized deposits) on stablecoins. It finds that when tokenized monies pay a high interest rate and guarantee a high degree of anonymity, they crowd out stablecoins. Conversely, with low anonymity and low interest rates, tokenized monies become collateral, promoting stablecoin development. CBDCs dominate tokenized deposits because a central bank can better economize on scarce collateral assets, and banks face incentive problems and do not internalize the societal cost of their activities, generating negative externalities.

Wirtschafts und Infrastrukturbank Hessen (WIBank), the Helaba owned German development bank, issued a registered bond on a public blockchain. It was settled in a delivery versus payment transaction (DvP) using the Bundesbank’s Trigger solution, which initiates settlement on the TARGET2 payment system. The transaction was part of the Eurosystem’s wholesale DLT settlement trials.

The European Central Bank (ECB) published a paper that documents the very different short-term (12-week) responses of stablecoins and money market funds (MMFs) to crypto and U.S. monetary policy shocks since 2019. It shows that crypto shocks are inconsequential for MMFs and traditional financial markets but negatively affect stablecoins. In contrast, U.S. monetary policy shocks significantly affect MMFs and stablecoins, but in opposite directions. While prime MMF assets grow after contractionary monetary policy shocks, stablecoin market capitalization significantly declines.

[September 27, 2024] Central Bank Payment News (CBPN) published an article by Aigul Bakesarieva, Head of the Digital Som Project Group, National Bank of the Kyrgyz Republic on central bank digital currency (CBDC) developments at her central bank. On May 25, 2022 the Board of the National Bank launched the digital som concept based on a two-tier retail model. The digital som will be a unique digital token that will be stored in a special digital wallet, with transfers . occurring directly from one digital wallet to another.

ABN AMRO and Rabobank issued €1.1 million of one-month digital commercial tokenized on the Deutsche Börse Clearstream D7 distributed ledger technology (DLT) based platform. The Luxembourg transaction was settled atomically using a wholesale central bank digital currency (CBDC) issued by the Banque de France, as part of the Eurosystem’s DLT trials for wholesale settlement using central bank money. This is Clearstream‘s 5th use case at the European Central Bank (ECB) trials on the D7 platform.

[August 22, 2019] The Rwandan central bank is looking into ways it could potentially issue its own digital currency to make the processing of transactions more efficient and to boost economic growth. “There are still concerns about how exactly you convert the entire currency into digital form, how to distribute that and how fast can you process those transactions,” Financial Stability Director-General Peace Masozera Uwase said. “Challenges come in, if technology is down how do you deal with such issues? “We will join in once we are ready.”

[September 18, 2024] The Reserve Bank of Australia (RBA) announced the launch of Project Acacia to build on the lessons from the previous year's central bank digital currency (CBDC) pilot by focusing on opportunities to uplift the efficiency, transparency and resilience of wholesale markets through tokenized money and new settlement infrastructure. Subsequent phases of the project may involve cross-border applications with regional central banks. In October 2024 the RBA and the Digital Finance Cooperative Research Centre, will publish a consultation paper inviting industry engagement. The project is scheduled for completion in the second half of 2025.

The IMF published a paper that analyzes how the issuance of central bank digital currency (CBDC) could affect monetary operations, which include central banks managing the demand and supply of reserves to achieve a desired stance of monetary policy. The note outlines three scenarios: CBDCs substituting cash, commercial bank deposits, and reserves, with implications varying based on design features and market developments. It discusses how these scenarios influence balance sheets and reserves, potentially drawing short-term interest rates away from the policy target and complicating liquidity forecasting. Furthermore, the note shows how central banks could calibrate monetary operations such as engaging in a fine-tuning operation and provide additional reserves on demand to ensure that central banks can maintain their monetary policy stance. Finally, careful design of CBDCs, such as setting criteria for access, holding quantity, and remuneration, can mitigate adverse effects on monetary operations.

The Bank of Canada (BoC) published a paper how digital payments can be made more cognitively accessible, focusing on removing cognitive barriers present in many digital interfaces and products. It proposes an inclusive approach since involving people with cognitive disabilities in design, testing, and refinement is crucial. The proposed framework centers on system learnability and user workload as the two key measures of cognitive accessibility in digital payment and banking interfaces. A prototype interface is developed and tested for voice payments, which successfully demonstrates that the framework provides an effective iterative design approach to enhance cognitive accessibility and usability.

The IMF published a paper that proposes a framework for comparing retail central bank digital currency (CBDC) with fast payment systems (FPSs) and e-money systems from a payments perspective. A jurisdiction’s evaluation will be dependent on the distinct features and capacity of its current, and emerging, financial landscape. A landscape review is an important tool for central banks when assessing how policy objectives are being achieved today, and if necessary pre-conditions for new systems are in place, or could be established in future. Authorities’ capacity and capability to not only implement but supervise and regulate any system will be important. Any new system will have non-negligible costs, and different systems will potentially have different implications for the distribution of costs between the public and private sectors. Furthermore, a jurisdiction’s mandate and ability to apply their powers around payments may ultimately determine how well any system can fulfill its objectives. Given the early stage of CBDC development, no singular strategy exists in the context of the questions put forward. While central banks will make choices unique to their circumstances, it remains important for central banks to establish a strategy that allows them at minimum to monitor trends and core benefits of multiple solutions as developments occur to allow them to plan, adapt, and drive developments in their payments landscape.

arXiv published a paper by Barclays staff that questions the need for a digital pound to preserve the singleness of money. It makes the case that singleness can be achieved by combining (i) on-demand interoperability between issuers and forms of private money, (ii) settlement finality in wholesale central bank money, and (iii) robust prudent regulations and effective supervision by the Bank of England and the UK Government. The paper concludes that the anchoring of private UK retail digital money is already well supported by all three of the above.

The Asian Development Bank (ADB) is looking is looking for a service partner to implement a digital currency platform with both online and offline capabilities. This platform will support financial inclusion in remote areas with limited internet access and offer an alternative payment method for various users. The project will focus on deploying a modular, "token-based" architecture with programmable infrastructure to facilitate peer-to-peer transactions, strengthen financial resilience, and promote innovation across sectors. The outcome of this project will be an ADB-owned digital asset that can be utilized across its member countries.