DFC

Russia’s parliament reportedly published a draft law as part of an experimental regime to support the use of digital assets for cross border payments to help evade sanctions, and reduce the FX risk associated with settling dollar and euro transactions in other currencies. Russia already has a legal framework for tokenized assets for domestic usage, but additional legislation is needed to allow their use for cross border settlements.

As further evidence of how flakey the "legal tender" concept is, this article documents the great difficulties the author had in paying his income tax in cash to the U.S. Internal revenue Service (IRS). It highlights some of the challenges faced by Americans without bank accounts, likely among the poorest taxpayers, who would either have to follow the arduous process followed by the article's author, or pay fees for various end-arounds.

Changshu city will reportedly start paying civil servants and people who work for public institutions with e-CNY central bank digital currency (CBDC) starting in May 2023. The move marks a major step to promote the use of the digital currency, in the face of many hurdles, including its limited use cases, and the public’s preference for popular digital payment platforms such as WeChat Pay and Alipay.

For digital rupee users, SBI has allowed Rs 100,000 holding limit for the wallet. Users can load or unload up to Rs 25,000 per day, as per the website. Up to 20 transfers including inward and outward payments are allowed in a day. Users can pay or collect up to Rs 10,000 (versus Rs 200,000 for UPI transactions). However, the upper limit may vary from one bank to another.

Societe Generale subsidiary SocGen Forge unveiled the EUR-pegged EURCV stablecoin (EUR CoinVertible), which is initially being issued on the Ethereum public blockchain with plans for other blockchains as well. This is the first public blockchain stablecoin issued by a subsidiary of a global systemically important bank (G-SIB). Access to the fully-backed stablecoin is restricted to investors that have been through SocGen KYC and AML procedures. The motivation for the issuance includes using it as a robust settlement asset for on-chain transactions, corporate treasury, on-chain liquidity funding and an asset for margin calls.

"Nexus or Icebreaker? Two competing ideas are jostling for attention, each promising to reshape the inefficiency-ridden landscape of moving money from one country to another. Instead of trying to choose between them, central banks ought to give both a shot. The European payment system recently did a trial linkup with Malaysia and Singapore under the Bank for International Settlements’ Nexus protocol, designed to transfer funds between bank accounts in different countries under 60 seconds. Meanwhile, the monetary authorities of Israel, Norway and Sweden have tested a separate BIS-backed initiative that achieves the same goal of fast cross-border retail payments. Project Icebreaker uses central bank digital currencies, or CBDCs, instead of bank accounts."

Tether's USDT opened the year at a market cap of $66.2 billion, but has grown 22% to $81 billion. Circle's USDC has moved the opposite way, losing 21% of its market cap. USDT’s share of the stablecoin space is up to 61.5%, its highest mark in two years. The collapse of TerraUSD in May 2022 and shutdown of BinanceUSD (BUSD) in February have increased concentration in the stablecoin market. USDC is struggling amid regulatory concerns in the United States and fallout from banking chaos, when Circle revealed it had 8.25% of its USDC reserves in Silicon Valley Bank. Meanwhile, concerns persist exist around USDT over its underlying reserves.

US Federal Reserve Board Governor Michelle Bowman" gave a speech on her thoughts regarding U.S. central bank digital currency (CBDC). The whole speech is worth a read, but here is her key takeaways" "A potential U.S. CBDC, must be viewed through the lens of whether and how the payment system would be improved beyond what instant payment services will achieve. We should ask what current frictions exist or may emerge in the payment system that only a CBDC can solve, or that a CBDC can solve most efficiently? ...There could be some promise for wholesale CBDCs in the future for settlement of certain financial market transactions and processing international payments. When it comes to some of the broader design and policy issues, particularly those around consumer privacy and impacts on the banking system, it is difficult to imagine a world where the tradeoffs between benefits and unintended consequences could justify a direct access CBDC for uses beyond interbank and wholesale transactions."

The Digital Currency Monetary Authority (DCMA) has innovated a best-in-class design for CBDC leveraging a digital economic union. This paper outlines the blueprint for a best-in-class CBDC design and discusses how a digital economic union and an international CBDC could complement and strengthen the international monetary system. Several sovereign states have collaborated with the DCMA on a Model Law for an international CBDC, or money commodity, and have provided draft legislation for such outlined in Appendix 1.

The Bank of Israel outlined potential scenarios for deciding to issue a digital shekel central bank digital currency (CBDC), although a decision has not yet been made as to whether the Bank intends on doing so. One scenario would be if  the United States or the European Union were to decide to issue CBDC, or a significant number of other developed economies. Other scenarios include a decline in the legitimate use of cash and its acceptance in transactions in Israel, significant penetration of stablecoins or other private means of payment that would be broadly used, and continued and growing concentration in key segments of the domestic payments system.

"This post describes a simple but foundational new cryptographic primitive – called LimitedUseKey or LUK – introduced in Android 12 (aka Android S, to be released later this year). This crypto primitive has far reaching implications on secure detection of decentralized double-spend in mobile devices. Hopefully this primitive and its variants enable new applications that are decentralized, peer-to-peer, faster and work offline (without Internet connectivity). Examples include digital ticketing, coupons, payments systems and Central Bank Digital Currencies (CBDCs)."

"In this article, we discuss the key benefits and potential of CBDCs, provide an overview of the current landscape of projects in early 2022 and present some of the challenges that CBDC deployments will face. One such challenge is the support of offline CBDC payments, and the article is complemented with a position paper from Thales describing how offline CBDC payments could be designed."

"We propose an offline payment system (OPS) protocol for CBDC that allows a user to make digital payments to another user while both users are temporarily offline and unable to connect to payment intermediaries (or even the Internet). OPS can be used to instantly complete a transaction involving any form of digital currency over a point-to-point channel without communicating with any payment intermediary, achieving virtually unbounded throughput and real-time transaction latency. "

"DigiTally is an overlay payment scheme for use on mobile phones, whose goals are to extend mobile phone payments to areas with poor connectivity and reduce transaction fees. DigiTally enables two people to do a payment transaction by simply copying short strings of numbers between their phones. This doesn't need either smartphones or a network connection. Either phone can upload the transaction later, once it gets a network connection. A short-term goal was a pilot project to explore the factors that affect payment service uptake."

"Although FedNow is not a CBDC, that’s not to say there is no reason to object to it. Faster payments are needed in the United States, but FedNow is not the only option. FedNow was announced in 2019, but that was two years after the Clearing House (TCH) introduced the Real‐​Time Payments (RTP) Network. In fact, while not offering instant payments, even just expanding the operating hours of Fedwire and the National Settlement Service (NSS) to run 24x7x365 would have improved the U.S. financial system. Yet, the Federal Reserve seems to have chosen to ignore the simpler option and walk over the private sector. Both choices are grounds for fair and longstanding objections to FedNow."

"Circle's Gordon Liao recently sketched out a new distinction between 'payment stablecoins' and 'trading stablecoins,' and then places Circle's stablecoin, USD Coin, in the former category, while confining competitors Tether, Dai, and Binance USD to the trading bucket. For the time being, I think that a payments stablecoin is a fable. Everyone wants to be in that category, but an actual payments stablecoin, one who's main use-case is remittances and POS payments, doesn't exist. Stablecoins remain primarily used for trading, gambling, and speculation."

The European Money abd Finance Forum (SUERF) published a paper that disputes the European Central Bank (ECB) two of the three "monetary anchor" digital euro issuance rationales. First, to be an anchor for commercial bank deposits, guaranteeing their convertibility into central bank money, the ECB would have to allow unlimited access to digital euros as a store of value, whereas the ECB envisages very limited CBDC holdings as a means of payment. Second, to be an anchor for maintaining the central bank’s control over the financial system, it is crucial that banks need central bank money as a means of payment and settlement. Thus, it is the holding of central bank money by banks, and not by non-banks, that is required as the ultimate monetary anchor for the financial system. Finally, the experience of several major central banks shows that the appropriate response to the declining use of cash in retail payments is not a CBDC, but the orchestration of competitive national retail payment systems.

The IMF reported that over 40 countries have approached with requests for CBDC capacity development assistance. Countries’ questions range from objectives and design choices to pilots and analysis of macro-financial implications. In the past two years, the IMF has started to engage with almost 30 countries. The IMF will also publish a Handbook that will be the basis for CBDC capacity development and help countries make well-informed decisions when taking the major step to design and issue their own CBDC. The Handbook chapters will provide mostly a framework for structuring CBDC exploration and cover five priority areas: (1) policy objectives and operational framework of CBDC; (2) foundational requirements and readiness to issue CBDC, such as legal considerations, cyber resilience, central bank governance, and regulation and supervision; (3) CBDC design processes, considerations, and choices; (4) project approaches and technology; and (5) potential macrofinancial impacts of CBDC. The initial wave of chapters, slated for publication around the 2023 Annual Meetings, will (1) provide a methodological framework for conducting CBDC exploration; (2) address the most common requests that IMF staff encounter in capacity development engagement; and (3) be based on relatively well-established knowledge and experiences. [

According to Island Pay's Jeffrey Beckles it is critical to increase the number of merchants embracing Sand Dollars as a means to settle transactions beyond the present 1,500 given that there were some 50,000 Business Licence applications submitted this year.

The Central Bank of the Bahamas (CBOB) published an update on the uptake of its Sand Dollar central bank digital currency (CBDC). At present, only about 100,000 Sand Dollar wallets have been downloaded usage remains low when compared to the overall size of the domestic payments system. In order to bump up usage, a new version of the wallet will be introduced that will allow digital payment providers to offer fee-based merchant services from within the core Sand Dollar platform. Financial institutions will be able to customize the appearance of the app to display their individual brand identities, including logos and branding color preferences. Also the CBOB will ramp up promotional activities at civic and cultural events, and it has has committed to a giveaway of $1 million in Sand Dollars to early adopters through 2024.

British banknote printer De La Rue has warned that its profits will miss full-year forecasts as demand for fresh cash fell to its weakest level in 20-years. It also said it was in discussions with its lenders to seek “an amendment to its banking covenants”. Last year, De La Rue found itself in a fight with its auditor after a “going concern warning” because of what EY said was a “severe but plausible downside scenario” where if the group lost key currency contracts, it would breach a debt covenant on the group’s credit facility.

The IMF published a paper that models the financial inclusion impact of introducing a retail CBDC in a developing country context.  It finds that CBDC issuance can increase bank deposits from the previously unbanked by incentivizing the opening of bank accounts for access to CBDC wallets (offsetting potential flows from deposits to CBDCs among those already banked). Second, data from CBDC usage allows for the building of credit to reduce credit-risk information asymmetry in lending. However, if non-bank payment system providers can distribute CBDC, fewer funds will flow into deposit accounts from the unbanked, but if CBDC data is shareable with banks, those without bank accounts can still build credit and access lower interest rate loans. This design is optimal for welfare if the gains from greater access to CBDC outweigh the contraction in lending.