DFC

The Bank of Russia is expanding its central bank digital currency (CBDC) pilot programme. The new phase, which started on September 1, 2024, will involve up to 9,000 people and 1,200 companies, versus the 600 people and 22 firms that took part in the previous stage. The latest phase will enable dynamic QR code payments and business-to-business transfers. Digital ruble transactions will be available to the customers of the same 12 banks that have been participating in the pilot testing since its start in August 2023, and more banks will be added.

The Bank of Japan (BOJ) published a survey of global deposit tokenization projects. With the emergence of stablecoins, these initiatives seem to seek an extension of functionality in payment and settlement systems by applying new technologies, such as distributed ledger technology (DLT), to bank deposits as a traditional means of payment. The main reason such initiatives prefer leveraging deposit money is said to be its affinity with the two-tier monetary system and possibly with existing laws or regulations. However, there remain some issues that require further clarification on how payments with tokenized deposits are categorized in the private law system, and how smart contracts provide implications for non-functional requirements and legal certainty.

The IMF published a Fintech Note that offers a framework to help countries navigate, as well as tools to help them manage, the trade-offs between central bank digital currency (CBDC) data use and privacy protection. It addresses retail CBDC, as data access and privacy-preserving considerations in a wholesale environment are similar to those of the traditional real-time gross settlement (RTGS) systems. It emphasizes the role of institutional arrangements, data collection, access and storage policies, design choices, and technological solutions. At a given level of preference for privacy, central banks can facilitate better use of CBDC data through robust transparency and accountability arrangements, sound policies, and judicious adoption of privacy-by-design approaches including the use of privacy-enhancing technologies.

LVGA are a local stablecoin. They can be purchased within the MyLugano app and collected through the cashback while shopping at local affiliated shops. Unlike other cryptocurrencies such as Bitcoin LVGA can be used only in Lugano and once obtained they cannot be exchanged or traded for other currencies. LVGA are not subject to fluctuation being "pegged" to the Swiss franc. Thus, they have no speculative intent but exists solely and exclusively as a form of incentive for local spending in Lugano.

The IMF published a paper on retail central bank digital currency (CBDC) ecosystem cybersecurity considerations. It is based on experiences from live CBDCs and informed by experiments conducted by central banks and international institutions for domestic use. It also draws from standard-setting body cybersecurity and resilience frameworks. It introduces digital risks and their impact on an interconnected CBDC ecosystem. It then describes CBDC attributes and examines pros and cons of commonly considered design options, and suggests potential mitigations. It concludes by delving into best practices for developing a cyber-resilient CBDC ecosystem.

The International Monetary Fund (IMF) published a technical assistance report that helped the Banco Central de la República Dominicana (BCRD) to assess a CBDC’s potential macro-financial, legal, and financial integrity implications, and shared lessons from other countries’ CBDC and digital money projects, technology considerations, practices for stakeholder engagement, and how CBDC can increase financial inclusion, among others. The mission advised the BCRD to continue the exploration of macro-financial implications of a CBDC, conduct the legal framework revisions should a positive decision of CBDC be taken, assess risks to financial integrity once a firmer design choice is made, and build up technology knowledge and capacity meanwhile.

The Reserve Bank of Malawi is looking to engage a consultant to further its central bank digital currency (CBDC) proof of concept work. The initiative aims at exploring the feasibility, benefits and challenges associated with the implementation of a CBDC in Malawi.

The European Central Bank (ECB) is hosting a virtual digital euro design focus session on September 9, 2024. The "digital euro design for the European payments market” is a technical forum aimed at payment service providers and professionals from the financial sector with an interest in the design of the digital euro and its impact on the European payments market. The entire focus session will be live streamed, recorded and published on the ECB’s website shortly after the event, together with the slides presented.

The U.S. Federal Reserve Board (FRB) published an assessment of the offline digital payment payment services and analyzes their potential to mitigate internet outage risks and bolster digital payment resilience. It finds that many services branded as offline payment solutions are more accurately classified as hybrid solutions because they ultimately require internet access for clearing and settlement. Truly offline digital payment systems that exchange digital bearer instruments for instant, in-person settlement are still in early development stages. The note lays out a variety of risks associated with offline payment models, including risks related to double spending, security, user privacy, and merchant liability. It concludes that certain offline payment models are promising, but more research and wider uptake is needed for the technology to drive incremental gains in payment system resilience and reliability.

The U.S. Consumer Financial Protection Bureau (CFPB) published a report on consumers’ use of "cash back" services. While people use various means of getting cash, one common method is to get “cash back” at a store when making a purchase with a debit or prepaid card. This option may be particularly important in banking deserts and in areas where banks and ATM operators charge significant fees. Retailers are essentially filling a void in access to cash, which has historically been supplied by banks and credit unions in an affordable way, and some retailers charge a fee for these transactions.

The European Banking Authority (EBA) published a paper that shows how transparency incentivizes stablecoin issuers to keep a larger share of the reserves in liquid assets, thus reducing the risk of runs and potential bankruptcy ex–ante. In addition, transparency on reserves disincentivizes stablecoin holders from irrationally demanding reimbursement of their funds. The paper’s results also suggest that regulatory interventions after a run has become imminent, in the form of a suspension, can still reduce the negative impact of potential bankruptcy on holders, and that letting assets mature after imposing the suspension can deliver the first–best social welfare outcome. Overall, the paper builds the case for close monitoring by supervisory authorities, overcollateralization, and tight disclosure rules.

Coinmetrics published an update on stablecoin markets. It finds that stablecoin flows have turned positive, pushing total supply above $160 billion towards record-highs. The stablecoin landscape continues to expand in diversity, use cases, and risk profiles, from fiat-collateralized and crypto-backed to interest-bearing and protocol-native stablecoins. With stablecoin collateral increasingly composed of U.S dollar equivalents and real-world assets, changes in the interest rate environment could impact profitability and attractiveness of various stablecoins.

The Latin American Journal of Central Banking published a paper that uses a theoretical model to examine how the introduction of central bank digital currency (CBDC) impacts small open economies. The main results are: (i) CBDC always increases the welfare of financially unconstrained households; however, it increases the welfare of constrained households when the cost of carrying cash is high enough and when the government purchase level is sufficiently low; (ii) CBDC increases the fiscal income by bringing more agents out of the informal economy, improving fiscal sustainability; (iii) CBDC improves the terms of trade as it strengthens the domestic currency.

Tether plans to launch a stablecoin pegged to the United Arab Emirates dirham (AED) fully backed by liquid UAE-based reserves. It will launch in collaboration with UAE-based Phoenix Group and Green Acorn Investments. It will join Tether’s slate of stablecoin products that include USDT, EURT, CNHT, MXNT, XAUT and aUSDT.

G+D’s Lars Hupel published a summary of a Giesecke+Devrient (G+D) and UDPN Alliance cross-border payments proof of concept (POC). It involved connecting the Universal Digital Payments Network (UDPN) multilateral global messaging network and G+D’s Filia® retail central bank digital currency (CBDC) platform. The UDPN network comprises a distributed ledger technology (DLT) based application layer where smart contracts can be deployed and called for core UDPN functions (e.g., transfer, swap). The POC implemented payments from hypothetical EUR (running on Filia®) to Indian Rupee (INR) (running on UDPN). This included transfers between end-user wallets, currency conversion, liquidity management, CBDC issuance, identity, and wallet management.

Starting with iOS 18.1, iOS developers will be able to offer near-field communication (NFC) contactless transactions using the secure element (SE) from within their own apps on iPhones, separate from Apple Pay and Apple Wallet. Using the new NFC and SE, application programming interfaces (APIs), developers will be able to offer in-app contactless transactions for in-store payments, car keys, closed-loop transit, corporate badges, student IDs, home keys, hotel keys, merchant loyalty and rewards cards, and event tickets, with government IDs to be supported in the future. The only catch is that developers will need to enter into a commercial agreement with Apple, request the NFC and SE entitlement, and pay the associated fees. This follows a commitment made by Apple to the European Commission in July 2024 to grant European iOS developers similar NFC and SE access to address antitrust charges. Even the new commitment is not fully global in scope. The NFC and SE APIs will only be available to developers in Australia, Brazil, Canada, Japan, New Zealand, the United Kingdom, and the United States, although additional locations are said to follow.

Crunchfish published a paper that argues that virtual secure elements (SEs) provide better security to retail CBDC offline platforms than hardware-based SEs. It says that hardware-based SEs are less secure due to the separation from payment app that breaks the chain of trust between the two communicating endpoints. This can result in potential attacks by replacing either endpoint with malicious ones or tampering with them and modifying their behavior during runtime. As the hardware-based SE does not have full visibility of the payment app and the mobile operating system (OS), it cannot determine the identity of the app or whether the app has been tampered with, and must “blindly” trust the OS and the app. A trusted client application for offline payments implemented in an app-integrated virtual secure element, on the other hand, has no trust gap issues and runs securely even on rooted/jailbroken mobile devices.

David Birch writes that an offline central bank digital currency (CBDC) is essential for a cash alternative, especially in areas with poor internet connectivity or during emergencies. The article proposes a shift in terminology from online/offline to local/remote and hub/edge transactions. It argues that all transactions should be device-to-device (edge) transactions, regardless of whether the devices are nearby or distant. This would create a more scalable and resilient system, similar to cash. While security concerns exist for a device-to-device system, the article suggests potential solutions like transaction limits, auditing, and field-upgradable security algorithms.