DFC

The English version of the Interim Report on Japan's "Design Outline of central bank digital currency (CBDC)", initially published in Japanese only in April 2024, has been published. The joint work by the Bank of Japan (BoJ), Ministry of Finance (MoF) and other relevant ministries identifies the basic considerations on main design issues and possible options for CBDC introduction. The report does not prejudge whether or not to introduce CBDC in Japan, but this preparation will help Japan introduce CBDC in the future without delay if the decision were made after discussions with the Japanese public.

Banca d'Italia published a paper in July 2003 that uses a theoretical model to study how the introduction of a central bank digital currency (CBDC) by a systemic economy can affect the choices of residents in a small open economy. It finds that an increase in the preference for the foreign CBDC induces a banking crisis and has a negative impact on GDP, the greater the more the foreign CBDC is perceived as deposit-like. Public authorities can mitigate these effects with multiple tools: by taxing the CBDC, by easing macroprudential requirements, or through FX interventions. A higher stock of foreign CBDC held by households can shield the small economy from an increase in the interest rate on external debt, if the remuneration of the CBDC remains constant.

Worldline has published a white paper to serve as a resource to guide stakeholders through the multifaceted CBDC landscape. It provides insights and guidance to navigate the complexities and opportunities of this transformative financial technology.

The Bank of Korea (BOK) published a paper on the macroeconomic impact of introducing retail central bank digital currency (CBDC). What sets this paper apart from the many other papers that focus on the same question is that it pays more attention to the precise bank-issued instruments that the CBDC competes with - non-interest-bearing demand deposits and interest-bearing savings and term deposits. CBDC directly competes with physical cash and debit, but only indirectly with demand deposits. According to the paper's theoretical model, CBDC introduction can lead to significant negative impact on demand deposit holdings, but this is accompanied by offsetting increases in holdings of interest-bearing deposits. This implies that the efficacy of CBDC on output and welfare, if any, is quantitatively only marginal, relative to the findings in the previous studies with only one type of deposit.

"As part of the Saudi Central Bank’s (SAMA) pursuit to build a robust and innovative cross-border payments infrastructure in collaboration with various international financial institutions and central banks, SAMA has joined the Bank for International Settlements’ (BIS) mBridge project as a participant in the Minimum Viable Product (MVP) platform."

The Bank for International Settlements (BIS) Project mBridge is accepting value added products and new use cases as it reaches minimum viable product stage (MVP). The project aims to explore multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks, built on distributed ledger technology (DLT) to enable instant cross-border payments and settlement. The project was launched in 2021 by the BIS Innovation Hub, in collaboration with the Bank of Thailand, the Central Bank of the United Arab Emirates, the People's Bank of China and the Hong Kong Monetary Authority. The Saudi Central Bank is now joining mBridge as a full participant. There are also now more than 26 observing members.

The Bank for International Settlements (BIS) will collaborate with several central banks to explore how instant cross-border payments could be improved using a modular foreign exchange component combined with settlement in wholesale central bank digital currencies (CBDCs). Project Rialto will explore a new automatic FX settlement layer using wholesale CBDC as a safe settlement asset that could be deployed for interlinked instant payment systems or digital asset systems. Project Rialto is named after the famous bridge in Venice which connects two sides of the Grand Canal.

Chinese news outlets have reported that the digital yuan app no longer carries the ‘pilot’ label. It dismissed the reason as an administrative one, saying the pilot mode persists. However, even if the digital renminbi is still in pilot mode, we believe this may indicate the central bank digital currency (CBDC) might be nearing the end of its pilot phase and starting preparation for production.

The Qatar Central Bank (QCB) has completed the development of the infrastructure for its wholesale central bank digital currency (CBDC) project. In the next phase which will extend to October 2024, the central bank will test and develop selected applications of distributed ledger technology (DLT) based wholesale CBDC to settle large payments with a group of local and international banks in a trial environment. The project will focus on applications that increase access to capital markets for operating banks in the country, enhance domestic settlement, and improve the efficiency of securities transactions.

Crunchfish has recently implemented and patented a novel approach with balance reconciliation. Private transactions are encrypted and sent to the backend, but where the keys used for the transaction are wallet keys, in contrast to prior art using public keys controlled by either the issuer or an escrow agent. In this way the payer is in full control of the privacy of their transactions even if all private transactions are sent to the online ledger encrypted. In this innovative way, regulatory requirements for transactional traceability are balanced with requirements for privacy where the payer is in full control of the encrypted transactional data for amounts below defined thresholds, defined by the issuer and the regulator. If the issuer suspects an attack by the payer, the issuer can contact the payer for permission to decrypt the data. In case the payer is not willing to grant access, the issuer may decide to lock the wallet or disallow any more private transactions.

The Bank of Israel (BOI) is inviting anyone (from Israel or abroad) interested in studying or experimenting with the use of a digital shekel to submit a request to join the Digital Shekel Challenge. Preference will be given to uses with innovative characteristics in the payments market, whether they are improvements to existing applications, or completely new applications. Contestants will be asked to technologically develop various use cases for the digital shekel, by using the application programming interface (API) layer at the center of the proposed two-tier central bank digital currency (CBDC) model. The API layer provides functionalities that enable service providers to connect to the digital shekel system and offer end users among the public a wide and innovative range of services, while maintaining end users’ privacy and the security and reliability of the payment system.

The IMF's Dong He published an update on ongoing work being undertaken by the IMF's Monetary and Capital Markets Department on the implications of central bank digital currency (CBDC) for monetary policy. He argued that universally convertible and interoperable CBDC could bolster the role of central bank money as both the ultimate settlement asset and the unit of account, and preserve the central bank's capacity to implement monetary policy effectively in the digital age. An important challenge will be to figure out how the demand for reserves would be affected by the introduction of CBDC. The operational framework may need to be reconfigured to deal with increased volatility in the demand for reserves, and central bank capital buffers may also need to be revisited if balance sheet materially increases in size and in financial risks because of CBDC adoption. An interest-bearing CBDC could amplify the passthrough from policy interest rates to broader monetary conditions, albeit at the risk of disintermediating banks if the interest rate is set too high. But even a non-interest-bearing CBDC could enhance the channels of monetary policy transmission, although the magnitude of this effect is anticipated to be modest and heavily reliant on country characteristics, such as the capacity of CBDC to advance financial inclusion or diminish the appeal of currency substitution.

According to Ledger Insights, the wording of the CBDC Anti-Surveillance State Act (H.R. 5403) recently passed by the U.S. House of Representatives is too broad and will have unintended consequences. The bill will require the Federal Reserve to obtain congressional approval before issuing a central bank digital currency (CBDC). However, the wording is very sloppy, particularly by blurring the lines between retail and wholesale CBDC. For example, it could prohibit the current practice of using remuneration on commercial bank reserves held at the Fed as a policy tool, by not recognizing that those reserve balances are already wholesale CBDCs, albeit not on a distributed ledger. However, hopefully that can be sorted out as it moves through Congress.

"The aim of this study is a systematic presentation and brief analysis of (the majority of) the provisions of the proposal for a Regulation of the European Parliament and of the Council “on the establishment of the digital euro”, which was submitted by the Commission on 28 June 2023 as part of its “Single Currency Package” (taking in particular into account its Explanatory Memorandum and most of its recitals). The key concerns raised and proposals for amendment made by the European Central Bank (ECB) in its related Opinion of 31 October 2023 are also discussed."

The NBER published an empirical analysis utilizing detailed transaction data from India's digital rupee pilot to explore the dynamics between central bank digital currency (CBDC) and existing digital payment methods, as well as the implications of increased CBDC usage on traditional bank deposits. It finds that policies that increase transaction costs for current digital payment methods catalyze a substitution effect, bolstering CBDC adoption. Furthermore, an uptick in CBDC usage is associated with a notable decline in bank, cash, and savings deposits, suggesting potential paths to bank disintermediation.

The Bank of England (BOE) has assessed the technical feasibility of using existing point-of-sale (POS) hardware, as currently used in the UK, to initiate digital pound payments. This involved a proof of concept (POC) that used EMV standards to send payment instructions from smart cards to POS devices, and then to an application programming interface (API). It demonstrated that, while existing POS terminals may not need to be modified to make online digital pound payments, they might need to be modified for offline payments.

The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) are expanding the scope of the e-CNY pilot in Hong Kong to facilitate the set up and the use of e-CNY wallets by Hong Kong residents, as well as the top-up of e-CNY wallets through the Faster Payment System (FPS). This marks the world's first linkage of a faster payment system with a central bank digital currency (CBDC) system. Users can now set up e-CNY personal wallets in Hong Kong, which requires only their Hong Kong mobile phone numbers. The e-CNY wallets can then be used for cross-boundary payments to merchants, but not person-to-person (P2P) transfers.

The IMF published a paper that draws lessons from ongoing experimentation and research to identify design and policy considerations when developing retail CBDC systems so they may be compatible for cross-border payments. The paper provides an analytical framework through the lens of five interrelated elements: access, communication, currency conversion, compliance, and settlement. For each element, the paper identifies key CBDC design choices, many of which can be tackled in the initial preparation phases.

Early adopters of Kazakhstan’s digital tenge central bank digital currency (CBDC) who are customers of Altyn Bank, Eurasian Bank and Halyk Bank can apply for virtual and plastic CBDC cards and use them for purchases across Mastercard and Visa global networks. Additionally, they can withdraw cash at ATMs, link their cards to Google Pay, Apple Pay and Samsung Pay, monitor their CBDC card balance and transaction history through mobile banking; and access other related services.

The World Bank will issue the first CHF digital bond by an international issuer to settle in Swiss Franc wholesale central bank digital currency (CBDC) provided by the Swiss National Bank (SNB). The coupon and redemption payments on the seven-year CHF 200 million bond will be made using tokenized CHF on the SIX Digital Exchange (SDX). The SDX connects to conventional settlement systems such as Euroclear and Clearstream, via SIX SIS, allowing investors to hold the digital bond through their traditional custodians.

Sveriges Riksbank published a paper that assesses the impact of a European Commission legislative proposal to open up the possibility for non-euro countries to allow their citizens and businesses to access digital euro services. It concludes that the impact will be minimal, but a digital euro could increase the need for an e-krona to safeguard the role of the Swedish krona and may have positive effects on the work on an e-krona. By taking advantage of the technology and regulatory framework being developed for a digital euro, the costs and complexity of the work on an e-krona can be reduced. Together with an e-krona, a digital euro could also improve and simplify cross-border payments.