DFC

According to a report published by New York Federal Reserve (NY Fed) and Monetary Authority of Singapore (MAS), wholesale central bank digital currency (CBDC) systems operating on different types of networks can be used for cross-border and cross-currency payments. The study, which used simulated CBDCs and hypothetical payments, found that cross-border transactions could be conducted across different distributed ledger (DLT) and hashed timelock contract (HTLC) technology stacks, with near real-time settlement finality.

The European Parliament published a study that assesses the European Central Bank's (ECB's) first three progress reports on the digital euro from a legal perspective. It looks into what key design choices proposed by the ECB reveal in terms of the legal qualification of the digital euro and discusses legal aspects of the infrastructure supporting it. Overall, the objective of ensuring a strong monetary anchor in the financial system should take centre stage. A simple and cash-like design of the digital euro would not only aid that objective, but also reduce legal risk.

Ripple will reportedly participate in the Hong Kong Monetary Authority’s (HKMA’s) digital Hong Kong dollar (e-HKD) central bank digital currency (CBDC) pilot program by showcasing a real estate asset tokenization solution. Ripple will partner with Taiwan’s Fubon Bank and others to demonstrate equity release with tokenized assets using a retail version of the e-HKD CBDC. The pilot project will run on the new Ripple CBDC Platform, that uses a new private ledger with XRP Ledger technology and enhanced functionality, including offline transactions and non-smartphone use. It's the same platform that may be piloted in Bhutan, Montenegro and Palau.

"This IMF paper reflects on the first year of the eNaira—the first CBDC in Africa. Despite the laudable undisrupted operation for the first full year, the CBDC project has not yet moved beyond the initial wave of limited adoption. Network effects suggest the initial low adoption spell will require a coordinated policy drive to break it. The eNaira’s potential in financial inclusion requires a strategy to set the right relationship with mobile money, given the former’s potential to either complement or substitute the latter. Cost savings from integrating CBDC—as a bridge vehicle—in the remittance process may also be substantial."

A Financial Times (FT) article documented rising public opposition to a digital euro, as the European Central Bank (ECB) struggles to communicate convincing arguments for the central bank digital currency (CBDC) project. The ECB says a digital euro would modernize European payments by giving people an electronic alternative to cash that is riskless and universally accepted. However, detractors don’t see any big market failures that require the public sector to step in, and given that the eurozone’s payment options are already reliable and innovative. There has also been CBDC pushback in other jurisdictions, most notably in the United States, where it has become a political hot potato on account of potential threats to privacy and self control.

"Central bank digital currencies (CBDCs) have the potential to fundamentally alter the current monetary system. Potentially they could bring about a whole range of advantages compared to the status quo, yet they could also introduce a host of disadvantages. This text provides a comprehensive list of the pros and cons of CBDC along with a description of every single positive or negative outcome. Finally, it weighs the benefits and drawbacks of this new form of legal tender against each other. "

"Proof of Concept work and a final report on the feasibility of Offline Payments with a future digital currency."

The European Central Bank (ECB) published a paper on the impact of an interest-bearing central bank digital currency (CBDC) on the economy. It integrates a New Monetarist-type decentralized market that accounts for the means-of-exchange function of bank deposits and CBDC into a New Keynesian model with financial frictions. It concludes that the introduction of an interest-bearing CBDC does not impair monetary policy transmission. Also it stabilizes the liquidity premium, thereby affecting bank funding conditions and the opportunity costs of money, which dampens and smooths the reaction of investment and consumption to macroeconomic shocks.

"On Friday Florida’s governor Ron DeSantis signed legislation that bans the use of a central bank digital currency (CBDC) in the state. Following the bill SB 7054 being signed into law, Florida’s Uniform Commercial Code (UCC) now explicitly forbids the use of a federally adopted CBDC as money."

"Digital cash, just like digital car keys, has to work offline. That is, I need to be able to get into my car and drive off where there is no mobile signal and I need to be able to buy milk if the internet is down or if the power is out at the grocery store. Fortunately, we have the technology and Apple and Google are building with it."

Lipis Advisors published a paper that explores potential enhanced privacy benefits of offline payment functionality. One key takeaway is that it is important that payment system operators consider how other facets of the system design (e.g., security, interoperability) interact with privacy and how these different aspects should be prioritized.

The IMF has reportedly called on the Reserve Bank of Zimbabwe to carefully consider the benefits of issuing a gold-backed digital currency versus the potential macroeconomic, financial stability, governance, legal and operational risks, plus the cost of forgone FX reserves. The IMF urged country authorities to rather use conventional measures to address economic challenges, such as maintaining a tight monetary-policy stance and accelerating the liberalization of the foreign-currency market.

"The European Central Bank published its third progress report on the investigation phase of a digital euro, a #CBDC for the euro area. The report discusses the Eurosystem’s perspectives and recommendations on the digital euro access, holdings and onboarding, distribution and functionalities"

Hungary reportedly sees no urgent need for a widely available retail central bank digital currency (CBDC) but it is exploring possibilities via a series of pilots, and would like to remain in the forefront of CBDC research.

The Asian Development Bank (ADB) published a paper that explores the potential for central bank digital currency (CBDC) to help promote financial inclusion. It considers how CBDC could leverage digital finance technologies and enhance the reach and value of formal financial products and services among the unbanked or underserved. It also looks at the challenges involved and how these could be addressed. The paper provides recommendations for policy makers and regulators on designing CBDCs, establishing preconditions, and managing risk.

"The achievement of policy aims associated with a CBDC will require adoption by end users. The user value proposition relies in large part on frictionless satisfaction of key payments use cases. The associated CBDC transactions necessitate interoperability along — and most crucially between — payment rails. Harmonization of data models, via international standardization efforts, is a necessary underpinning of effective interoperability."

"FINANCIAL AND TECNPOLOGICAL INNOVATIONS LABORATORY (LIFT) is an applied research laboratory, configured as a virtual collaborative environment. LIFT aims to foster technological innovation research projects related to the financial industry and supervisory and regulatory activities carried out by the Central Bank of Brazil with the objective of introducing mechanisms for improvement and innovation. As part of LIFT, the LIFT paper magazine is a biannual publication containing the result of the projects developed in laboratories and articles of experts on topics related to innovation in the National Financial System. "

"The Bank of England presented a summary of the Consultation Paper and the accompanying Technology Working Paper, published on 7 February 2023. The presentation covered the proposed distribution model, technology design considerations and conceptual architecture for a UK CBDC, called the digital pound."

The Bank of Canada (BoC) launched an online public consultation on the features that could be included in a digital Canadian dollar. The BoC is also seeking opinions about how people would likely use a digital dollar, what security features are important, and what concerns they have about accessibility and privacy. The BoC says that, at this time, a digital dollar is not needed, but Canada may need one in the future, so BoC wants to be ready.

What principles should guide the next phase of CBDC development? First, clarity about the value proposition for users. In many countries, there simply isn’t demand for central bank money for retail payments. China’s payment giants (Alipay, WeChat Pay) and India’s Unified Payments Interface have made low-cost digital payments easily and widely available. In the US, the Federal Reserve’s instant payment service FedNow will increase the system’s efficiency and resilience... Still, a well-designed CBDC could play an incremental role in catalysing payments innovation. Other advantages, such as the ability to facilitate payments using near-field communication even when cellular and wireless networks are down, could also be played up.