DFC

On February 12, 2023, the Central Bank of the United Arab Emirates (CBUAE) published its Financial Infrastructure Transformation (FIT) Programme to accelerate the digital transformation in the financial services sector. It comprises implementation of nine key initiatives, including the issuance of central bank digital currency (CBDC) for cross-border and domestic uses.

And speaking of Banca d'Italia, according to ThePaypers, Associazione Bancaria Italiana (ABI) has brought together 18 commercial banks to collaborate with the central bank in a CBDC pilot. In this Project Leonidas the banks use a shared private ledger to streamline interbank payments using a pretend DLT-based wholesale CBDC. This sounds very similar to the ABI's Project Punta, a DLT-based platform now in production that  is used to settle small interbank transactions, with Project Leonidas being a scaled up version to handle large interbank transactions. However, it doesn't seem to actually be CBDC-based, even though it's been accepted into the Banca d'Italia's Milano Hub innovation facilitator. In other words, the "wholesale CBDC" used is not tokenized CeBM.

"There is a widespread misconception that wholesale CBDC does not yet exist. In fact, central bank money has been available in digital form for wholesale transactions between banks for decades. This misconception is fuelled by the commonly held assumption that wholesale CBDC needs to be operated using DLT. But wholesale CBDC is not synonymous with DLT, as it can be based on any digital technology. In the euro area, the Eurosystem offers banks the possibility of settling wholesale digital transactions through its TARGET Services using a centralised ledger."

The European Central Bank (ECB) "new technologies for wholesale settlements contact group" held its first meeting on June 21, 2023, marking the start of the Eurosystem’s exploratory work on how wholesale financial transactions recorded on distributed ledger technology (DLT) platforms could be settled in central bank money. Exploratory work is expected to begin in 2024 with trials or experiments to launch later in 2024. Initially, three types of interoperability solutions will be explored; the Deutsche Bundesbank's trigger, Banca d'Italia's TIPS Hash-Link, and the Banque de France's wholesale central bank digital currency (WCBDC) based full-DLT interoperability solutions.

The World Economic Forum (WEF) published a report that analyses CBDCs from a regional perspective, identifying unique aspects and areas of alignment among jurisdictions. It highlights key CBDC principles that will facilitate interoperability with various types of payment systems, technical standards, regulatory standards and legacy payment architecture and infrastructure, that will allow participants in different systems to conduct, clear and settle payments or financial transactions across systems without participating in multiple systems. The report calls for public-private cooperation, regulatory consistency, innovation and participation in standards development.

The Bank for International Settlements (BIS) published an interim report on Project Mariana, which investigates combining FX trading and settlement in cross-border transactions into a single instantaneous step using automated market makers (AMMs) and wholesale central bank digital currencies (CBDCs) to eliminate credit and settlement risk. The project also examined cross-border interoperability using wholesale CBDC based on a uniform technical standard, as a way to future-proof CBDC developments. In addition, Mariana investigated asset mobility between different blockchain-based networks using bridges.

The European Commission published proposals, one aimed at ensuring continuing access to euro banknotes and coins across the euro area, and the other establishing the legal framework for a possible digital euro. If the latter is adopted by the European Parliament and Council, it will ultimately be for the European Central Bank (ECB) to decide if and when to issue the digital euro. According to the digital euro proposed legislation, the digital euro would not be required to have a bank account, and it could be used to transfer funds while offline as long as there is physical proximity between the devices of the payer and the payee. Also, it would be possible to hold digital euro locally stored on electronic devices up to a certain threshold. Basic services, including when making purchases in digital euro, whether nationally or across border, will not incur fees. However, commercial banks could charge customers for their accounts to which the digital euro may be linked, and for voluntary, non-basic services such as conditional payments.

Dollar-pegged stablecoin TrueUSD (TUSD) is trading at a discount relative to Tether (USDT), hitting a low of 80 cents on June 28, 2023. TUSD is the #5 stablecoin in terms of market capitalization ($3.1 billion versus Tether's $83.4 billion and USD Coin's (USDC's) $28.2 billion on June 28, according to CoinGecko.com). The spike is being attributed to questions around TUSD's reserves, some of which is purportedly being held and/or managed by troubled Prime Trust Bank, and rumors regarding holders' inability to redeem TUSD.

Congress members introduced legislation in the House and Senate to ban businesses from rejecting cash for in-person retail purchases. They are designed to protect Americans who are unbanked and underbanked and who rely on cash to pay for necessities, as well as to preserve the right of consumers to choose to pay with cash, say the bills’ authors. “Cash is the only option available for millions of Americans to pay for food, housing and other essentials,” Payne said in a June 14 press release regarding the introduction of the Payment Choice Act.

"The Digital Dollar Project (DDP) today released the first in a series of risk- and privacy- focused working papers, "Secure Adoption of a Digital Dollar – Operational and Compliance Risks for the U.S. Banking Sector." This working paper offers a draft unified risk framework outlining possible impacts on the private sector, specific to federal and state-chartered banks, in consideration of a potential U.S. central bank digital currency (CBDC). The working paper is meant to be a catalyst for broad public discussion and can be accessed here."

The Swiss National Bank (SNB) will reportedly to issue a wholesale central bank digital currency (CBDC) on Switzerland's SIX digital exchange as part of a pilot. "This is not just an experiment, it will be real money equivalent to bank reserves and the objective is to test real transactions with market participants." This sounds very much like the next phase of Project Helvetia, which explored how the SNB could offer settlement in central bank money in a future with more tokenized financial assets based on distributed ledger technology (DLT).

While some regulations (e.g., GDPR, FCRA, and CCPA) help to prevent institutions from freely sharing clients' sensitive information, some regulations (e.g., BSA 1970) require FIs to share certain financial data with government agencies to combat financial crime. This creates an inherent tension between the privacy and the integrity of financial transactions. In the past decade, significant progress has been made in building efficient privacy-enhancing technologies that allow computer systems and networks to validate encrypted data automatically. In this paper, we investigate some of these technologies to identify the benefits and limitations of each, in particular, for use in data sharing among FIs. As a case study, we look into the emerging area of Central Bank Digital Currencies (CBDCs) and how privacy-enhancing technologies can be integrated into the CBDC architecture. Our study, however, is not limited to CBDCs and can be applied to other financial scenarios with tokenized bank deposits such as cross-border payments, real-time settlements, and card payments.

"Democratic concerns must be a part of the discussion about a national digital currency. Similar worries about privacy, surveillance and national digital currency were also raised in the European Union, the United States and elsewhere. Launching the digital Canadian dollar is a political decision, not a technological one. Ensuring freedom is the same. For the digital Canadian dollar and the Bank of Canada to be trusted, these worries must be addressed and mitigated. If the decision to issue this digital money is made, it needs to be done in a responsible manner"

The Central Bank of Nigeria (CBN) has introduced the eNaira as a payment option for inbound remittances in an effort to help increase the adoption of the central bank digital currency (CBDC). It's part of the CBN's efforts to liberalize the payout of diaspora remittances and promote the adoption of the eNaira.  International money transfer operators (IMTOs) will need to apply for a one-time “no-objection” and open Merchant Wallets through the central bank to offer customers the possibility of using the eNaira for cross-border remittances.

JPM Coin, which JP Morgan launched in 2019 to move dollars, has gone live with euro transactions. Germany’s Siemens AG conducted the first euro payment on the platform. JPM Coin can only move money between JPM branches or to other JP Morgan clients. Hence the bank refers to the solution as blockchain-based bank accounts. JPM Coin is a tiny part of JPMorgan’s payments business. The bank has used it to process about $300 billion of transactions since its launch, versus the nearly $10 trillion of payments it processes overall on a daily basis.

"Starting today, you can get a first impression on this new approach for cross-border payments as SAP is launching a pre-view of the SAP Digital Currency Hub that showcases how easy cross-border payments with Digital Money will become in the future. (Rather than using traditional payment rails, business partners agree on settling a cross-border transaction with USDC or EUROC.)

"Most central banks in LAC are analyzing the potential introduction of CBDCs, with some island nations having already issued their own. According to our survey with government officials in the region, half of the respondents were considering both retail (i.e., designed for the general public) and wholesale (i.e., intended for use by financial institutions) CBDC options."

"The viability of CBDC initiatives depends on adoption. CBDCs must meet users’ preferences – eg, the need for privacy and usability – and address commercial banks’ concerns around disintermediation. At the same time, new functionalities – eg, offline access – could enhance CBDCs’ appeal, while interoperability could broaden payment channels, both of which help boost user adoption."

The Monetary Authority of Singapore (MAS) published a paper proposing a common protocol to specify conditions for the use of digital money such as central bank digital currencies (CBDCs), tokenized bank deposits, and stablecoins on a distributed ledger. The whitepaper was supported by the release of open source software prototypes that demonstrate the concept of purpose bound money (PBM), which enables senders to specify conditions, such as validity period and types of shops, when making transfers in digital money across different systems.

The European Commission is back on track to publish legislation on a digital euro on June 28, after the controversial topic was previously removed from the executive's agenda, the bloc's lead financial services official said on Tuesday.

European Union (EU) legislation needed for the European Central Bank (ECB) to issue a digital euro, originally due to be published June 28, has reportedly been put on hold. The move follows the leaking of the draft bill and a statement by finance ministers that appeared to question the motivation for the plan last week. The timeline for the draft bill, intended to be published ahead of a firm ECB decision on whether to issue the retail CBDC, has shifted out several times.

The Bank for International Settlements (BIS) proposed a new type of financial infrastructure that would combine central bank digital currency (CBDC) with tokenized bank deposits and other tokenized claims, on a programmable platform on a unified ledger. The BIS claims that "eventual benefits would go beyond faster speeds and lower costs, to enable entirely new types of transaction, limited only by the ingenuity of public and private innovators... Examples include new methods for securities settlements that combine all the individual steps into one seamless transaction, tokenized deposits with built-in regulatory checks that simultaneously settle in wholesale CBDC, smart contract-enabled credit that reduces the cost of trade finance for smaller companies, improving global supply chains, enhanced sharing of data on potential borrowers, and using privacy-protecting technology, to expand access to credit for disadvantaged segments of the population."

"The Brazilian central bank does not see a need for a retail digital real due to the success of its Pix retail payment system. Deputy Governor Renato Gomes reportedly pointed out that the motivation for Brazil’s CBDC project has been less about improving retail payments but rather creating a wholesale framework for innovation based on DLT."

"We are delighted to report about our pivotal role in the launch of the Central Bank of Hungary’s (Magyar Nemzeti Bank, MNB) pilot retail Central Bank Digital Currency (CBDC) project. This project is the first live retail CBDC pilot project in the European Union, placing Hungary and Perfinal at the cutting-edge of digital currency innovation."

In September 2021 the BIS published a report that outlines the considerations for designing a retail CBDC that will be widely adopted. Aside from being useful to users and accepted by merchants both online and offline, it should cost less to consumers and merchants, offer more privacy than commercial options and multiple accessibility features. Adoption may be more successful if it fulfilled unmet user needs, achieved network effects, and were implemented with the use of existing, accessible technology and infrastructure (eg at the point of sale). The analysis of specific market segments through user personas and stories could provide an important method for investigating user needs and designing informative consultations with prospective end-users.

The IMF published a paper proposing a new class of platforms to bring interoperability, efficiency, and safety to cross-border payments, and domestic financial markets. It involves a single ledger for settlement and a safe settlement asset, possibly in the form of central bank digital currency (CBDC), as well as programming standards and information management capabilities leveraging encryption. Governments would keep the right to limit user transactions in foreign currency and impose financial integrity checks. It rejected the use of distributed ledger technology (DLT) because it has “important limitations” in terms of validator costs, security, efficiency and privacy.

The Bank of England (BoE) is quietly pushing for approval of a central bank digital currency (CBDC), while our national broadcaster stands idly by and provides little in the way of coverage. The public consultation document for a retail CBDC was initially set to conclude on June 7 2023. It has now been extended until June 30 2023 due to an omission in the questionnaire. There are concerns over the accessibility of the consultation document. Questions arise about the document’s clarity and the intentions behind this intervention in people’s lives. To gain insights, we sought the expertise of a health researcher specialising in health literacy, mainly working with individuals facing mental health challenges and dementia. Their evaluation of the consultation process conducted by the Bank of England and HM Treasury revealed significant concerns regarding the accessibility of the documentation provided to the general public.

Electronic Markets published a paper that explores how to best create a digital euro that will be used by its intended users through an interview-based analysis of attitudes towards established payment solutions and the transfer of these attitudes. Several participants indicated that they currently see no reason for using a digital euro as an additional payment solution given the current benefits of established payment solutions. However, existing payment solutions are also found to possess perceived limitations and concerns by respondents. The paper concludes that a digital euro would need to be privacy-sensitive, offering wide acceptance for national and international online and offline payments in different contexts.

A leaked draft of the proposed Digital Euro Bill, to be proposed by the European Commission on June 28, 2023 will ban remuneration, surcharges and programmability, and make offline payments available from the outset. The regulation aims to ensure a level of privacy equal to taking cash from an ATM during offline, face-to-face interactions, and neither the European Central Bank (ECB) nor the payment service providers will have access to personal transaction data. The draft law also allows the ECB to set holding limits to limit disintermediation risk. Much of this is rather consistent with a slide deck published by the ECB on June 15.

The Bank for International Settlements (BIS) published the results of its Project Rosalind joint work with the Bank of England. It explored how a universal and extensible application programming interface (API) layer could connect central bank and private sector infrastructures and facilitate retail central bank digital currency (CBDC) payments. It demonstrated that a well designed API layer could work with different private sector applications and central bank ledger designs and that a set of simple and standardized API functionalities could support a diverse range of use cases.