DFC

"CBDC architecture provides central bank economists and regulators with a wealth of near real-time information on the CBDC balances of financial institutions, along with metadata that could tag which industry each CBDC is spent in, allowing real-time CPI measuring and even triangulated inflation fighting, while maintaining robust privacy of all transactions for all users. A central bank doesn’t need to wait for institutions to report its CBDC assets and liabilities; instead, central bank staff can query the CBDC balances directly."

The Bank for International Settlements (BIS) published a paper that compares the key characteristics of stablecoins ("private tokenized monies that circulate as bearer instruments") and tokenized commercial bank deposits. It claims that stablecoins violate the "singleness of money" principle because their relative exchange values can and do depart from parity. The problem could be solved by the introduction of clearing houses to support par exchange for the stablecoins issued by its members. However, according to the paper, this is a step backwards because the problem has already been solved by the existing two-tier monetary system. Also, tokenized deposit functionality can be expanded to allow for programmable ledgers, contingent execution and composability of transactions.

The Central Bank of Montenegro (CBCG) is working with Ripple to develop a strategy and pilot program to launch a national stablecoin, in a follow-up to Prime Minister Dritan Abazovic's related Tweet in January. The CBCG will work with Montenegro's government and academia to create a practical digital currency or secure currency solution to test blockchain functionality and potential. Montenegro uses the EUR, despite not being a member of the Eurozone, although it is a candidate country for European Union (EU) membership.

The Digital Currency Monetary Authority (DCMA) announced their official launch of an international central bank digital currency (CBDC) at the 2023 International Monetary Fund (IMF) Spring Meetings. The press release implies that their Universal Monetary Unit (UMU) algorithmic stablecoin has the IMF's blessing, including quoting IMF Financial Counselor Tobias Adrian from a November 2022 speech that implies nothing about DCMA engagement. Also,  the following quote from the DCMA's legal counsel appears designed to mislead:  "although the IMF has not officially endorsed UMU, in reviewing the DCMA's whitepaper and in weekly team discussions, the IMF has yet to state any objections to UMU's FX premium rates and its monetary sovereignty approach."

"Former senior officials at digital-asset exchange Gemini are rolling out a token backed by US Treasury Bills with around 5% yield in response to a gulf in returns between traditional finance and decentralized crypto lending. OpenEden, a DeFi platform, is offering the token known as TBILL against stablecoins, which will in turn be invested in short-term US Treasury Bills."

Caitlin Long had high hopes of bringing crypto into the mainstream financial system. Long’s Custodia Bank in Cheyenne, Wyoming, a state-charted special purpose depository institution, or SPDI, was spearheading those dreams for all of cryptocurrency. Those dreams crashed into the concrete bollard of reality on January 27, 2023, when the Federal Reserve Board denied Custodia’s application to be a Federal Reserve member bank, and the Federal Reserve Bank of Kansas City denied its application for a master account. The Board’s full 86-page order, made public on March 25, details how Custodia failed to address “the heightened risks associated with crypto activities, including its ability to mitigate money laundering and terrorism financing risks.” (The Kansas City Fed’s denial letter was not made public.)

The FedNow is an instant payments service provided by the U.S. Fed, launching in July 2023. It will be available to U.S. depository institutions, such as banks and credit unions, and will enable individuals and businesses to send payments through their depository institution accounts 24/7, so that the receiver of a can use the funds almost instantly.  FedNow is like other Fed payments services, such as Fedwire and FedACH. To be absolutely clear, FedNow is neither a form of currency nor a step toward eliminating any form of payment, including cash.

Sweden's Riksbank published an update on its technical work aimed at examining how an e-krona could work if a decision is taken in the future to issue central bank digital currency (CBDC). The focus during Phase 3 has been to examine how the Riksbank could interact with other actors in the payment market to give the general public access to, and the possibility to pay with, an e-krona, how conditional payments can be made and whether a digital central bank currency can simplify cross-border payments.

The Digital Euro Association (DEA) published a summary of the key takeaways from its Digital Euro Conference held on March 31, 2023, that brought together experts, policymakers, and industry leaders in a hybrid format. Both on-site and remote participants engaged in insightful discussions, presentations, and panel sessions centered around central bank digital currencies (CBDCs), stablecoins, and tokenized commercial bank deposits.

"The RBI is hoping to conduct offline transactions by testing the use of wearables, cards like debit and credit, bluetooth technology, and a smartphone. Another key concern the RBI is looking to address is the risk of double spending. More than 50 proposals have been submitted to the RBI on the closing date of March 24, 2023 to solve the problem of offline transactions, one source said."

An article by Circle Chief Economist Gordon Liao distinguishes stablecoins’ use in trading versus payment activities and their impact on financial stability. Payment stablecoins like Circle's USDC have lower speculation exposure than trading stablecoins like Tether's USDT, MakerDAO's DAI, and Binance's BUSD. Two measures are presented as evidence; the total crypto trading volume facilitated by the stablecoin in question versus the amount of it in circulation, and the correlation between the change in stablecoin circulation and crypto-asset returns. Dai shows the highest correlation with crypto-asset returns because it is collateralized with crypto-assets, so a decrease in the asset collateral’s value can prompt the forced redemption of the stablecoin.

Bills introduced in the Texas House and Senate would require the state comptroller to establish a digital currency that is fully backed by gold and fully redeemable in cash or gold. The comptroller would be required to create a mechanism to use this digital currency in everyday transactions. In practice, individuals would be able to purchase digital currency from the state. The state would then use the money to purchase gold that would be held in the Texas Bullion Depository or another secure vault. The bills must next be assigned to committees, after which they must get a hearing and pass by a majority vote before moving forward in the legislative process.

G+D has compiled a handy checklist of aspects that constitute a successful central bank digital currency (CBDC) exploration and implementation strategy.  It starts with finding the proper balance between pain points, motivations, and opportunities for all stakeholders in that particular ecosystem. Successful implementation could be based on an innovative use case that solves one or more pain points, or it could also offer an opportunity that was previously unavailable. Also, all ecosystem stakeholders - consumers, financial service providers, and merchants – should feel that their interests are kept in mind. Finally, CBDC should not be just a solution to a particular problem in itself, but rather, it is should also provide a platform for innovation that enables new business models.

"Had Circle been as opaque as its competitors, no one would have known that Silicon Valley Bank was its banker and the weekend run on USDC probably would never have occurred. The lesson would seem to be: Don't be transparent or, if you need to be transparent, don't be transparent about your shortcomings."

Wyoming's governor has signed SF 127 enacting the Wyoming Stable Token Act, creating the Wyoming stable token commission, and authorizing the issuance of stable tokens in the state. Under the Act, a Wyoming stable token is “a virtual currency representative of and redeemable for one United States dollar held in trust by the state of Wyoming” that may only be issued in exchange for a USD. The Act also outlines criteria relating to liability limitations and requires that the commission issue at least one Wyoming stable token no later than December 31, 2023.

Banco Central de Reserve del Peru (BCRP), with technical assistance from the International Monetary Fund (IMF), is actively investigating the benefits and risks of central bank digital currency (CBDC). Possible benefits include lowering financial inclusion barriers, as well as strengthening monetary and financial stability, and the security and efficiency of payment systems. A survey has been issued to learn the views of the stakeholders, including market agents, on key aspects contained accompanying white paper.

Central Bank of Kuwait (CBK) Governor Basel Al Haroon in an interview published in the Banker discussed the central bank's ongoing central bank digital currency (CBDC) research. The bank has formed a team of experts from various fields within the CBK to study the topic. According to Al Haroon, any such issuance would need to be accomplished in a way that preserves monetary and financial stability, while maintaining confidence in Kuwait’s payment system.

"The electronic purse, a new payments instrument offering advantages to both consumers and merchants, may soon replace currency in many routine transactions. Widespread use of the electronic purse could, however, raise concerns about consumer protection and the safety and soundness of the instrument. "

The Swiss National Bank (SNB) plans to continue with the wholesale central bank digital currency (CBDC) securities settlement experimentation (Project Helvetia) that was concluded in January 2022. That had tested the issuance and settlement of tokenized securities with wholesale CBDC on the SIX Digital Exchange (SDX). In the next phase, the SNB will issue wholesale CBDC on SDX and test selected transactions with market participants. They will also test the use of "synthetic" wholesale CBDC (privately-issued stablecoins backed by SNB deposits) in a similar context. The SNB will also experiment with the processing of tokenized securities in which the payment leg is synchronized via a link to the Swiss Interbank Clearing (SIC) real-time gross settlement (RTGS) system, which also tested in the first phase of Project Helvetia. Such synchronization turned out to be technically possible but clunky compared to integrated processing, since the DLT functionalities had been restricted. As part of the new project, it will be investigated whether these disadvantages can be minimized by making adjustments to the SIC system or to the link itself.

The European Banking Federation (EBF), which represents the vast majority of the European banking sector, published a paper on a digital euro ecosystem. It argues that a retail digital euro could be envisaged in the mix of new tools and solutions to meet evolving payment needs, as long as it adds value to consumers, is appropriately designed, in close cooperation with the private sector, and mitigates ex ante the accompanying risks. a retail digital euro could – if properly designed – support the strategic autonomy of Europe and ensure a monetary anchor role of the euro. A wholesale digital euro based on distributed ledger technology (DLT) for the settlement of interbank transfers and related wholesale transactions in central bank reserves, would support the international role of the euro, enhance global cross-border payments and match the needs arising from digital finance.

According to a Swedish government-appointed investigation “too many people are stuck outside the digital system” and suggested pressuring banks in Sweden to offer so-called “low-risk accounts” with limited functions (such as, for example, limits on international payments). It also calls on the government to to develop and run its own digital ID system, or to put out a tender for one which would be run by a private provider, to replace the private bank-run BankID system that excludes foreigners, such as refugees, foreign students, and people working on short-term contracts, making it impossible for them to identify themselves and use digital payment systems.

To understand how a CBDC could provide a good user experience, the Kansas City Fed's Franklin Noll analyzed recent surveys in the United States and in other countries that have asked consumers about their wants and needs for a potential CBDC. Overall, a majority of polled consumers prefer a CBDC to be dependable, secure, and convenient—a reliable and secure digital payment method that is simple, fast, and makes their lives easier. U.S. respondents indicated that they were generally comfortable with government access to their transactional and financial data if it was clear what information the government could access and under what circumstances. European consumers responded similarly, indicating that they do not have particular concerns about an issuer of a payment instrument knowing their transaction details and that a “medium level of financial privacy” is acceptable. At this level of privacy, non-detailed transaction data is stored by the bank and only shared with the government as legally required.

The bulk of euro-denominated cash is held for store of value purposes, with such holdings sharply increasing in times of high economic uncertainty. We develop a Diamond and Dybvig model with public money as a store of value and heterogeneous beliefs about bank stability that accounts for this evidence. Consumers who are sufficiently pessimistic prefer to hold cash. In our model, the introduction of a central bank digital currency (CBDC) as a store of value that is superior to cash leads to bank disintermediation as some depositors opt for switching to CBDC based on their beliefs. While CBDC partially replaces deposits, long-term lending decreases less than proportionally as remaining depositors are, on aver-age, more optimistic about bank stability and banks re-balance their portfolio accordingly. The appropriate calibration of CBDC design features such as remuneration and quantity limits can mitigate these effects. We study the individual and social welfare implications of introducing CBDC as a store of value.

The Bank for International Settlements (BIS) Innovation Hub Eurosystem Centre, a joint effort by the BIS and all Eurosystem central banks, opened on March 28, 2023. The Centre will have offices in Frankfurt and in Paris, hosted and supported by the Deutsche Bundesbank and the Banque de France. The European Central Bank will coordinate the interactions of the Eurosystem with the Centre. The Centre's project focus areas will be decentralized finance (DeFi), wholesale central bank digital currency (CBDC), cyber security and green finance. Projects include Atlas, which will create an open-source data platform to provide information on DeFi and crypto-asset market capitalization, economic activity and international flows of crypto-assets, and Mariana, which will explore automated market-makers (AMM) for the cross-border exchange of Swiss franc, euro and Singapore dollar wholesale CBDCs.