DFC

The Central Bank of Armenia reportedly has been holding internal discussions on the introduction of digital dram that are expected to intensify early next year. The central bank's Chairman said that "we are not in a hurry to introduce digital drams, but certain resources will be invested in opportunities for issuing our own electronic money".

Adhara’s CBDC Suite brings together the key components needed for a Central Bank to model and manage being a direct issuer of their currency on their own distributed domestic network provides end-to-end tools for managing direct issuance, transfers, limits, value dates, bank onboarding and modelling RTGS connections. Benefits to participants include reduced settlement risk, new liquidity options, increased traceability and transparency and simplified reporting and compliance. Ability for Commercial Banks to connect from day one (via DC Commander), helping Treasuries manage intraday funding and the orchestration of settlement flows for new domestic digital platforms.

[December 7, 2023] The Republic of Palau Ministry of Finance (MOF) published the results of its Palau Stablecoin (PSC) proof-of-concept (POC) in which 168 government employee volunteers and three selected retailers tested the platform from June 30 to September 30, 2023. Ripple provided the underlying technology. After being paid in PSCs, retailers were then free to request a redemption of the PSC received for Fiat USD from the MOF custody funds. Both volunteers and retailers responded positively to the value proposition brought by the PSC as a digital payment system. If future phases are approved by the government, they will focus on building a robust ecosystem that integrates financial institutions, regulatory bodies, legal frameworks, businesses and users into the network.

"We develop a two-country New Keynesian model with endogenous currency substitution and financial frictions to examine the impact on a small developing economy of a stablecoin issued in a large foreign economy. The stablecoin provides households in the domestic economy with liquidity services and an additional hedge against domestic inflation. Its introduction amplifies currency substitution, reducing bank intermediation and weakening monetary policy transmission, worsening the impacts of recessionary shocks and increasing banking sector stress. Capital controls raise stablecoin adoption as a means of circumvention, increasing exposure to spillovers from foreign shocks. Unlike a domestic CBDC, a ban on stablecoin payments can alleviate these effects."

The Centre for Economic Policy Research (CEPR) and the European Central Bank (ECB) hosted a joint conference that brought together academics and policy makers to discuss theoretical and practical aspects of central bank digital currencies (CBDCs). Relying on a combination of research presentations, keynote speeches and panel discussions, it was aimed at advancing the understanding of the potential benefits and costs of CBDCs from a macroeconomic and policy perspective. Lots of interesting downloadable papers!

The European Central Bank (ECB) is calling for expressions of interest from financial market stakeholders to take part in trials with central bank money settlement and in experiments with mock settlement in a test environment. The trials and experiments will be conducted with three Eurosystem solutions enabling wholesale financial transactions recorded on distributed ledger technology (DLT) platforms to be settled in central bank money in the T2 real-time gross settlement system (RTGS) operated by the Eurosystem.

London-based Fnality, launched its distributed ledger technology (DLT) based Sterling Fnality Payment System (£FnPS). This digital financial market infrastructure (FMI) and regulated payment system leverage an Omnibus Account held by £FnPS in the Bank of England real-time gross settlement (RTGS) service. The intent is to scale it up to create a seamless global liquidity management ecosystem for payment, payment versus payment (PvP), and delivery versus payment (DvP) transactions in both wholesale financial markets and emerging tokenized asset markets. This is arguably a wholesale central bank digital currency (CBDC) based platform, or at least a synthetic CBDC one, although I'm waiting for more architectural detail to make that determination.

The Basel Committee on Banking Supervision is proposing revisions to various elements of the prudential standard for bank exposures to crypto-assets published in December 2022. They flesh out the criteria on the composition of the reserve assets that back stablecoins, to be eligible for inclusion in the Group 1b category of crypto-assets, and thus benefit from a preferential regulatory treatment. For example, reserve assets should be comprised of central bank reserves, short-term marketable securities guaranteed by sovereigns and central banks with high credit quality, and short-term deposits at high credit quality banks. If longer-term assets are allowed, the issuer would have to overcollateralize the stablecoin holder claims.

Japan's Ministry of Finance (MOF) has published an English translation of the Report of the Expert Panel on CBDC. The Panel asks MOF to coordinate with relevant ministries and Bank of Japan (BOJ) on design, and to clearly explain the rationale behind CBDC to the public. The Panel also recommends that the government and BOJ maintain their commitment to supplying cash as long as there is demand from the public, and it found no strong reason for offline functions to be introduced at the outset considering risks of double spending and counterfeiting. Also, remuneration is not recommended for the time being as it could undermine the convertibility with cash at par.

S&P Global unveiled ratings for eight stablecoins. On a grading scale of one (very strong) to five (very weak) USDC, Pax Dollar (USDP) and Gemini Dollar (GUSD) scored all scored two strong), while Tether's USDT scored a four (constrained). USDT was penalized for its lack of transparency and for holding some higher risk assets. The ratings are based on an assessment of asset quality risks, including credit, market value, and custody risks, the degree of any risk mitigants like overcollateralization requirements and liquidation mechanisms, governance, legal and regulatory framework, redeemability and liquidity, technology and third-party dependencies, and track record.

Standard Chartered and Giesecke+Devrient (G+D) completed a proof-of-concept (PoC) that tested the feasibility of conducting real-time multilateral cross-currency transfers on the Universal Digital Payments Network (UDPN), involving both distributed ledger technology (DLT) and non-DLT-based technologies. The PoC explored the indirect model, where commercial banks manage CBDC wallets and settlements directly on the UDPN, while the central bank handles wholesale settlement between commercial banks and keeps all transaction records. It also tested the direct model where central banks manage wallets and settlements within a centralized CBDC system

The Bank for International Settlements (BIS) published a report by the Consultative Council for the Americas (CCA) Consultative Group on Innovation and the Digital Economy (CGIDE) that outlines high-level technical requirements for a retail central bank digital currency (CBDC) architecture that will shape a future CGIDE proposal for a CBDC proof of concept. The technical requirements considered include interoperability, scalability, user-centric design, security and data privacy. The proposed CBDC architecture based on these technical requirements aims to serve as a general reference for central banks conducting research on CBDC or developing their own initiatives.

"While proponents of central bank digital currencies argue that the technology would boost financial inclusion and efficiency, critics warn that it poses financial, political, and environmental risks. But these concerns are overblown, especially when also weighed against CBDCs’ potential to strengthen monetary policy."

Bank for International Settlements (BIS) staffer Tirupam Goel posted a paper discusses the pros and cons of reserve-backed tokens (RBTs) - stablecoins issued by well-regulated private entities that are solely and fully backed by central bank reserves. (The IMF calls them "synthetic CBDC") They are safer than, and can crowd out, current stablecoins, they can adopt a more flexible design than retail CBDCs and thus foster greater competition and innovation, and compared to bank deposits, RBTs are immune to runs and unencumbered by legacy features. However, they could disintermediate commercial banks during normal times and exacerbate runs during stress periods.

The digital ruble launch will begin no earlier than 2025, after the completion of the proof-of-concept (POC) that started on August 15, 2023. The first group of participants consists of 600 Bank of Russia employees and 30 businesses in eleven cities. In 2024 the number of participants will expand, but will still remain limited. The POC will continue at least until the end of 2024 and, if necessary, will be extended. The Bank of Russia also noted that, although there are no transaction fees to users, merchants pay a 0.3% commission fee for accepting payments in digital rubles.

Stablecoin issuer Tether initiated a new voluntary wallet-freezing policy designed to combat activity connected with Sanctioned persons on the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List. This adds to the Sanctions controls Tether already enforces for wallets on its platform. Tether has taken additional precautionary measures, including freezing wallets previously added to the SDN List. "The primary objective behind this approach is to proactively prevent any potential misuse of Tether tokens and enhance security measures."

"In our overview of open banking in Europe, we look at what open banking really means in Europe relative to the rest of the world and caveat that its evolution into open finance is more than just about expanded scope. We then justify our choice to focus on the Netherlands, France, Spain and Switzerland instead of on Europe’s top-four open banking performers of Sweden, Denmark, Norway and the UK."

"Stablecoin Standard is the industry body for stablecoin issuers globally. Our objective is to give the industry a shared voice, and engage with external stakeholders to promote the acceptance of stablecoins through education, resources, shared initiatives and the StableCheck™️ scheme. "

According to a BearingPoint survey across seven European countries, cash is the most used payment method overall with contactless debit cards second. Cash use is significantly higher in Austria (79%) and Germany (71%), but respondents from Switzerland (63%), Ireland (61%), the Netherlands (57%), and France (55%) also show a relatively high level of cash use. Finland has a significantly lower frequency of cash usage at 43%.

The U.K. Financial Conduct Authority (FCA) proposed new rules to maintain reasonable access to cash for personal and business customers across the United Kingdom. Under the proposals, designated banks and building societies will need to assess gaps in access to cash. These assessments need to take into account local factors such as demographics and transport. Where firms identify gaps, they will need to act to address these needs, like delivering reasonable additional cash services to fill gaps, and ensuring they do not close cash facilities, including bank branches, until any additional cash services identified are available.