DFC

"The European Central Bank (ECB) is offering a big chunk of cash to contractors who can enable offline payments for a retail digital euro. In calls to find providers for a range of features, including risk management, information security and a user application, the ECB revealed plans to allocate as much as 1.2 billion euros ($1.3 billion) to potential contractors. More than half is earmarked for the offline payments service."

The European Central Bank (ECB) published an update on its explorations of central bank money settlement of wholesale transactions on distributed ledger technology (DLT) platforms. Together with interested market players, the Eurosystem intends to test three cross-platform settlement solutions: The first is a "trigger" solution developed by the Deutsche Bundesbank, in which euro central bank money settlement would take place on the existing TARGET settlement system. The second is a "TIPS Hash-Link" solution developed by the Banca d’Italia, in which settlement would take place in an infrastructure based on TIPS, which is currently used for settling instant retail payments. The third is a full-DLT solutions developed by the Banque de France, in which euro central bank money settlement would take place on a DLT platform, operated by the central bank or jointly with other parties.

The U.K.-based Royal United Services Institute (RUSI) published a paper on the potential adverse international security effects of the development of foreign central bank digital currencies (CBDCs). Concerns center on (1) the possibility of China dominating the CBDC market, (2) implications of first-mover advantage (and conversely the implications of the Bank of England delaying domestic development of a CBDC), (3) he role of CBDCs in international sanctions, and (4) the impact of foreign CBDCs on the United Kingdom as a financial center.

"We examine the impact of a Central Bank Digital Currency (CBDC) on bank lending, emphasizing the role of different financial frictions. Within a stylized general equilibrium model, we integrate a banking sector characterized by market power on deposits and leverage constraints, together with liquidity in households' utility. Calibrating the model to US data and simulating a CBDC introduction as a shift in households' preferences for public money, our results indicate that a CBDC increases bank lending when market power is the primary operating friction in the banking sector. However, this outcome reverses when leverage constraints are binding for banks."

The European Commission (EC) published a paper [in June 2023] that analyzes the potential effect of a digital euro on banks’ profitability. It uses a large sample of European Union (EU) banks that span the period from 2007 to 2021 to assess the sensitivity of banks’ profits to the loss of deposits. The results show that, for a large take-up of CBDC, there might be substantial challenges for banks' profitability, especially for small banks, that mostly rely on deposits as a source of funding. The paper recommends that digital euro holdings be capped (e.g., at EUR 3,000) to preserve the inherited profitability that comes from banks' cheap deposit funding.

The Bank of England (BOE) published the minutes of the October 2023 retail CBDC Technology Forum meeting. The four subgroups presented their objectives, expected outputs and timelines. Subgroup 1 will look at privacy-enhancing technologies and aliases. Subgroup 2 will focus on alternative models of interaction between payment infrastructure providers (PIPs). Subgroup 3 will explore options for the core ledger design in general terms, rather than the technology or solutions provided by specific vendors. Subgroup 4 will assess what a platform for innovation might look like and explore the possible technology requirements for one.

The British Retail Consortium’s (BRC) Payments Survey 2023 shows that cash transactions grew in 2023 for the first time in a decade, both by volume and value. According to the Bank of England (BOE), cash in circulation has declined very slightly (-0.45%) in 2023, but the value of the £20 denomination which is the most widely used transactional note increased by 3.6%. The BRC says that “this reflects a choice by many households to use cash to budget more carefully during the onset of the cost of living crisis, as well as a natural return to cash usage following the move to contactless during Covid.”

"Yesterday the European Central Bank issued five calls for vendor applications for services relating to digital euro components. A key takeaway is the framework budget is €1.1 billion ($1.2bn) for these five components. That does not include the core central bank digital currency (CBDC) settlement system which will be ‘sourced internally’. "

The European Central Bank (ECB) has published a report summarising the progress made by the digital euro scheme’s Rulebook Development Group (RDG). Since the last update in June 2023, the RDG has drafted the first chapters of the digital euro rulebook in line with the legislative proposal and the digital euro design decisions approved by the Governing Council of the ECB. This first draft of the rulebook is an intermediate version which covers: (i) the functional and operational models, including the end-to-end flows describing the functioning of all use cases and services relating to a digital euro; (ii) the technical scheme requirements depicting a high-level architecture and standards which should potentially be considered in a digital euro landscape; and (iii) the adherence model setting out the rights and obligations of scheme members in accordance with the draft legislation.

The European Central Bank (ECB) has issued five calls for applications to establish framework agreements with potential providers of digital euro components and related services. At this stage the ECB is not making a commitment to launch any of the development work listed in the calls for applications. The purpose of the selection process is to establish framework agreements with the most suitable external providers to ensure that the Eurosystem is prepared to start developing a digital euro in the future if warranted.

According to Martin C W Walker, privacy fears may not turn out to be the greatest obstacle to the rollout of retail central bank digital currencies (CBDCs). What if the simple inconvenience of using CBDC is enough to stop widespread adoption? The evidence from Transport for London (TfL), the body that controls London’s public transport, suggests that convenience is a very powerful force in retail payments. Having to top up an Oyster pay-as-you-go card is considerably less convenient than paying directly from a bank account (via a debit card) or using a credit card. So who would bother to top up the CBDC wallet to pay for things for which they could already use their credit or debit cards?

The Reserve Bank of India (RBI) has achieved its target of recording over one million daily e-rupee transactions. The milestone was accomplished on December 27, 2023. The pilot project for the retail e-rupee was launched on December 1, 2022. Since its initiation, there's been a significant surge in daily transactions, rising from an average of 20,000-25,000 in July to over a million by the close of the year. Commercial banks have been instrumental in this achievement, offering incentives such as cashbacks to promote the use of the e-rupee and attract new users.

The Swiss National Bank (SNB) published a paper that examines how payment choice affects consumer discretionary spending using a proprietary dataset that links a payment-methods survey, a payment-diary survey and a behavioral survey for a representative sample of 1,138 Swiss consumers. It finds that "present-biased" consumers spend more, the more often they use cashless payment instruments. (Present-based consumers are those that score high on indicators of impulsivity and procrastination.) For consumers with low levels of present bias, we find that spending is unaffected by payment instrument usage. This suggests that designers of instant payment services and central bank digital currency (CBDC) wallets consider offering prepaid payment cards or of mobile-payment applications that allow consumers to manage and restrict their liquidity in a convenient manner.

The Türkiye Cumhuriyet Merkez Bankası (CBRT) published an English version of the report on the first phase of its digital Turkish lira testing (originally published in Turkish in December 2023). The project started in 2020 with a proof-of-concept (POC) that tested the applicability of various distributed ledger technologies (DLTs) to the digital currency. The study was successfully completed and followed by the establishment of the Digital Turkish Lira Collaboration Platform with the participation of technology stakeholders. The first phase of the project focused on retail payments and involved the preparation of the technical work environment, the design and development of the digital currency system, the integration of a prototype digital identity system, the creation of a digital wallet application, and the simulation and testing of different scenarios for the issuance, distribution, online payment/transfer and redemption of the digital currency. The first phase also included pilot tests in selected locations to measure the system performance and user experience. The tests were successfully completed in the first half of 2023 and the first phase was finalized. The findings of the first phase will inform the next phases, which will involve more extensive pilot tests and the expansion of the collaboration platform with new participants.

The National Bank of Cambodia (NBC) and UnionPay launched cross-border QR code payments between the NBC’s Bakong and UnionPay’s global payments platform. UnionPay cardholders will be able to use their UnionPay-enabled wallets to scan Bakong KHQR codes to complete payment transactions at merchants in Cambodia, and by early 2024, Cambodian residents will be able to use their Bakong wallet to make payments at UnionPay QR code accepting merchants in China and globally.

The National Bank of Cambodia’s (NBC's) Bakong online banking and mobile payments app has seen its adoption levels surpass 10 million accounts (about 60% of Cambodia’s population. Bakong allows Cambodians to transfer and receive digital funds using their smartphones without traditional bank accounts. The NBC has also established cross-border payment connectivity with Thailand, Laos, and Vietnam, and signed MOUs with the Central Bank of Solomon Islands, the Reserve Bank of Fiji, and the National Bank of Rwanda, to expand the reach of Bakong to these countries. In addition, the NBC has signed a memorandum of cooperation with Japan’s Ministry of Economy, Trade and Industry, to facilitate QR code-based payments between Cambodia and Japan.

The Bank of England (BOE) and HM Treasury (HMT) formed a central bank digital currency (CBDC) Academic Advisory Group (AAG) of experts from a range of disciplines related to the BOE/HMT work on the digital pound. The AAG will serve as a platform for knowledge exchange and research collaboration during the design phase, and will include academics from a range of disciplines including monetary policy, finance, competition economics, industrial organization, behavioral science, law, innovation theory, marketing, and business.

[August 6, 2021] Banco Central de Costa Rica (BCCR) has been studying the topic of central bank digital currency (CBDC) in depth and, for the moment, does not consider it necessary to launch one. The reason is that the main objectives of doing so (financial inclusion and provision of secure, agile and low-cost digital payments) have been achieved in the country, thanks to the successful Sistema Nacional de Pagos Electrónicos (SINPE). This platforms has reduced transaction costs and increased efficiency, safety, and reliability. In other words, through SINPE, Costa Rica already has a digital colon. In any case, if there comes a time when it is necessary to launch a CBDC, the BCCR will have the technological infrastructure base on which it was developed, through the Central Direct online services platform.

[June 17, 2022] The Bank of Botswana (BoB) is studying the possibility of introducing a digital currency and says a unit is in place assessing the impact on the bank’s mandate and functions, as well as prospective responses. The assessment is looking at the impact of a digital currency on price and financial stability, monetary policy transmission, regulation and oversight of the financial and payments system as well as promotion of financial sector development.

The Eastern Caribbean Central Bank (ECCB) issued a Request for Vendor Information (RFVI) seeking input from vendors to shape the discovery process for the commercial deployment of its DCash retail central bank digital currency (CBDC) technology solution. In particular, the ECCB is seeking input from vendors that have "developed a retail CBDC solution or core components of such a solution which is deployment-ready". Upon evaluation of responses vendors may be invited to further participate in a subsequent request for proposals (RFP) exercise. The ECCB, working with technology partner Bitt, has been piloting the DCash across its eight-member island countries since 2021, so this announcement comes as a surprise.

"This paper by Craig Wright proposes implementing a micropayment system to facilitate remittances for migrant workers moving from Central and South America to the United States. Traditional remittance methods often involve high transaction fees that significantly decrease the value of money sent to families in workers’ home countries. The proposed system addresses this inefficiency and fosters a more equitable economic landscape."

The IMF and World Bank published a paper that outlines their multi-year strategy to provide technical assistance (TA) to help member countries meet the G20 Roadmap for Enhancing Cross-border Payments. A stocktaking exercise shows that their TA supports the Roadmap’s three interconnected priority themes: (i) payment system interoperability and extension, (ii) legal, regulatory, and supervisory frameworks, and (iii) cross-border data exchange and message standards. Going forward, the TA will focus on access to payment systems, extending and aligning operating hours, interlinking of payment systems (especially fast payment systems), promoting the access to and use of digital ID and data exchange across borders, ISO 20022 message standards harmonization, and the application of Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) rules.