The European Central Bank (ECB) published a presentation on the digital euro compensation model. The digital euro is seen as a public good and should be free for basic use by private individuals, but there should be economic incentives for payment service providers (PSPs) to distribute the digital euro in order to generate network effects. PSPs will be allowed to charge merchants, as with cash and other payment methods today, and such fees could be determined by market forces. However, legislation might establish an expectation on merchant pricing considering the current levels for comparable retail payment solutions.
Brazil announces pilot for digital currency seeking to leverage financial services
Banco Central dos Brasil (BCB) announced the start of a (wholesale?) central bank digital currency (CBDC) proof-of-concept (PoC) project aimed at providing payment rails executed on distributed ledger technology (DLT) to support the provision of retail financial services, including the purchase and sale of tokenized government bonds, settled through tokenized bank deposits. The PoC is not aimed at leveraging digital payments, as this is already being done on a large scale with Pix, which was launched at the end of 2021 and has been widely adopted. https://www.bcb.gov.br/detalhenoticia/17848/nota
China’s Wechat integrates digital yuan into payment platform
WeChat has reportedly added China's central bank digital currency (CBDC) to some of its payment services, following rival Alipay in offering support for the digital yuan since December 2022. WeChat Pay now allows digital yuan payments on certain apps, such as ordering food from McDonald’s and paying bills. Direct CBDC transactions between WeChat users are expected to follow.
"In principle Tether has a very good and easy business, but in practice it is weirdly difficult, and issuing USDT in exchange for Bitcoin collateral might in fact be easier and safer than issuing USDT in exchange for dollars in the bank. To get dollars in the bank, you need a bank."
Nigerians’ Rejection of Their CBDC Is a Cautionary Tale for Other Countries
"CBDCs may be popular among central bankers, but money is ultimately a tool for the people. So long as the risks outweigh the benefits, it's unlikely any CBDC will gain traction in Africa or elsewhere."
Project Icebreaker: breaking new paths in cross-border retail CBDC payments
The Bank for International Settlements (BIS) Innovation Hub and the and the central banks of Israel, Norway and Sweden, concluded Project Icebreaker, which studied the potential benefits and challenges of using retail central bank digital currencies (CBDCs) for cross-border payments. In the Icebreaker model, a cross-border transaction is broken up into two domestic payments, one in each domestic system, so the CBDC never leaves its own domestic system. Foreign exchange (FX) providers buy one currency in one system and sell the other currency in the other system. Settlement is via a coordinated payment-versus-payment (PvP) arrangement using hash time locked contracts (HTLC), going a long way towards eliminating counterparty risk in the FX transaction. FX providers submit FX rates to the Icebreaker hub, which selects the best rate to be presented to the payer for each payment request. The number of connections between retail CBDC systems are kept to a minimum by the hub-and-spoke approach. The Icebreaker hub only routes payment messages and does not act upon them. The only information it acts upon is the data from FX providers, which are used when identifying and selecting the best FX rates for the payer.
Iran completes pre-pilot phase of central bank digital currency
Iran has reportedly completed preliminary research for the launch of a potential digital rial, including a pre-pilot development phase, according to the central bank's Monetary and Banking Research Institute. However, this should be taken with a big "grain of salt" because there have already been two, apparently false, reports that pilot launches were imminent, e.g., in January 2022 and February 2023. So I will be "demoting" the Iranian central bank digital currency (CBDC) from "piloted/launched" to "proof-of-concept" in my next retail CBDC update.
Reputaction patent for secure transactions between terminals
"SECURE TRANSACTION SYSTEM BETWEEN TERMINALS [001] The invention relates to a secure system and method for transactions between terminals. The invention also relates to a payment terminal for the production of this system as well as an information recording medium for implementing this process."
"Comments on why offline CBDC would be a welcome addition to the payment landscape usually revolve around three main arguments: financial inclusion, preparedness, and innovation. At closer inspection, none of them are particularly convincing."
The Digital Euro Association (DEA) published a paper on the the potential of stablecoins in the European internet-of-things (IoT) and machine-to-machine (M2M) economies. The paper examines the benefits and drawbacks of M2M payments, provides industry use cases that highlight the potential benefits of stablecoin-enabled IoT and M2M payments, and discusses the need for further guidance from regulators to spur M2M payment growth.
Paths Toward an Acceptable Public Digital Currency
The American Civil Liberties Union (ACLU) published a paper that looks at some of the central bank digital currency (CBDC) design options that are being discussed and which would be good for privacy and accessibility. It argues, for a "digital bearer instrument in which money is stored on a device with no party keeping track of balances on a ledger [with] offline and peer-to-peer transactions enabled to the greatest extent feasible." Also, it's important that the CBDC be fully fungible and subject to the rules that apply to physical cash, and not the rules that apply to bank accounts. In addition, the software and hardware infrastructure behind a CBDC should be transparent and subject to external, independent audits (e.g., open source).
Introduction of central bank digital currency – necessary legislative amendments
Norges Bank, as part of the fourth phase of its central bank digital currency project (CBDC), published a memo that assesses the legislative amendments that are expected to be required in order to introduce CBDC. Other parts of the fourth phase experimental testing of technical solutions in combination with further analysis of the need for and consequences if a CBDC is introduced.
Call for expressions of interest to participate in scheme compatibility digital euro workstream
The European Central Bank (ECB) is inviting experts in payments schemes to contribute to the scheme compatibility workstream for the digital euro scheme Rulebook. The main objective of the workstream is to develop a proposal for the Rulebook design in order to facilitate the compatibility of the digital euro with existing scheme solutions. Applicants should be market participants and Eurosystem representatives, nominated by their respective payment stakeholder associations. They are expected to be senior experts in scheme management, preferably with managerial responsibilities in a European payment or payment-related scheme. Participation will not be remunerated, and all intellectual property rights, copyright and rights to development and disposal related to the deliverables of the workstream reside exclusively with the ECB.
China's CBDC gets cold reception from Hong Kong visitors
"Local authorities in Luohu, a district of Shenzhen on the crossing between Hong Kong and the mainland, installed China’s first digital yuan hard wallet dispenser machines on Feb. 18, which are open only to Hong Kong residents, according to the local government’s social media. Luohu launched the project in collaboration with the Bank of China and Octopus Cards, a smart card for payments in Hong Kong. The goal was to issue 50,000 digital yuan hard wallets from Feb. 22 to Mar. 31, but as of Feb. 26, only 625 visitors had taken up the offer, local media reported on Tuesday."
Nigeria's central bank digital currency: one year after
The IMF's Staff Report for the Nigeria 2022 Article IV Consultation noted that the uptake of the Central Bank of Nigeria's eNaira in the first year has been slow with retail wallet downloads amounting to 942,000 at end-November 2022—only 0.8 percent of active bank accounts. Also, the total number of eNaira retail transactions since the inception (around 802,000) is less than the number of eNaira wallets, which indicates that wallets are not actively used. The IMF report recommended that the eNaira be integrated into the existing mobile payment system to facilitate interoperability between mobile money operators, and optimize the last-mile delivery of social assistance.
The Reserve Bank of Australia (RBA) and Digital Finance Cooperative Research Centre (DFCRC) announced 14 use case proposals, along with their providers, that will participate in RBA/DFCRC central bank digital currency (CBDC) pilots. The cases include offline payments, tax automation and a CBDC for “trusted Web3 commerce,” with participants ranging from banks — such as Commonwealth Bank and Australia and New Zealand (ANZ) bank — to payment providers like Mastercard. According to the September 2022 RBA white paper, use case end users will be selected by the use case providers. A report on the project is expected to be published around the middle of the year.
"In general, the digital euro — as is the case with digital money in general — is desired as many benefits can be envisioned. There are substantial benefits for having digital cash as long as key principles of privacy and freedom rights are not affected. Given this, the digital euro is generally desired — be it in the form of the ECB’s digital euro or in the form of euro-denominated stablecoins. These topics need more investigation, also because the market share of US dollar-denominated stablecoins yields more than 95%. In other words, other currencies besides the US dollar do not play a significant role today with regards to stablecoins."
Reputaction patent for offline cryptocurrency transactions
The compatibility of a CBDC with other ERC-20 cryptocurrencies will open it to the world of programmable money. Already one country has patents for offline CBDC transactions, i.e., China, any other country with a patent for transacting its CBDC offline will give a significant financial strategic advantage to this country. https://patents.google.com/patent/FR3077151A1
Financial interoperability requires a stable price as means of value exchange. The first implementation of wrapcbdc is Convexity eNaira(CNGN) which is currently available on the Bantu Network as well as Binance Smart Chain. CNGN creates possibilities in payments, lending, investing, trading and trade finance.
A central bank digital currency for offline payments
The Bank of Canada (BoC)published an article that considers the pros and cons of offline central bank digital currency (CBDC). An offline CBDC would allows users to transact while none of them are connected to the internet and could complement bank notes. A balance must be struck between compliance, security requirements and user needs, for example, by limits on holdings, transaction amounts and the duration of offline functionality. The article mentions that, while some central banks have deployed offline devices as part of pilots, no commercial, turn-key solutions are available to implement lengthy and indeterminate ("extended") offline functionality. I don't know what is meant by "commercial turnkey solutions" but a number of production-ready solutions offer extended offline functionality, such as those of Crunchfish, G+D, IDEMIA and WhisperCash. Also, those firms would disagree with the article's assertion that "adopting a security posture in terms of limits, controls and functionality, where risks are sufficiently mitigated, is still a challenge for technology available today"! But otherwise it's good to see a G20 central bank advocating for offline CBDC functionality, which I view as essential to successful CBDC take-up in many countries.
Cash Is Alive: How Economists Explain Cash Usage and Holding
Oz Shy, Senior Policy Advisor and Economist at the Federal Reserve Bank of Atlanta, has compiled a spectacularly comprehensive literature review on consumer demand for cash covering 271 papers. Its publication in the Journal of Economic Literature is forthcoming. “Why is economic research on cash needed?” asks Shy. “A short and simple answer to this question is that cash does not seem to be going away.
Emmer Leads Effort to Squash Financial Surveillance State Initiatives
Tom Emmer, a member of the US House of Representatives, has introduced a new bill to prohibit the Federal Reserve from issuing a retail CBDC. “My bill, which prohibits the Fed from issuing a CBDC directly to individual Americans, is a statutory prohibition on a surveillance tool that could be used to kill private sector innovation and deflate the dollar’s dominance.”
Canadian Crypto Trading Platforms Face 'Enhanced' Rules Under New Regulations
The Canadian Securities Administrators (CSA) published new guidance for the local crypto-asset industry, warning crypto-asset trading platforms (CTPs) that they would have to abide by "enhanced investor protection commitments. These include "enhanced expectations" regarding the custody and segregation of crypto-assets held on behalf of Canadian clients and a prohibition on offering margin, credit, or other forms of leverage to any Canadian client. They will also prohibit CTPs from permitting clients to purchase or deposit stablecoins and proprietary tokens without the prior written consent of the CSA. https://www.securities-administrators.ca/news/canadian-securities-regulators-strengthen-oversight-enhance-expectations-of-crypto-asset-trading-platforms-operating-in-canada/?utm_source=pocket_saves
Technology Behind Crypto Can Also Improve Payments, Providing a Public Good
The IMF published a blog post that makes the case for leveraging the technology behind crypto-assets to upgrade payment infrastructures and ensure interoperability, safety, and efficiency in digital finance. It points particularly to tokenization, encryption, and programmability, plus central bank digital currencies (CBDCs) to clear and settle transactions. Payments could be made from one private money to another, through the CBDC ledger or platform. Money could be escrowed on the CBDC platform, then released when certain conditions are met, such as when a tokenized asset is received. And the CBDC platform could offer a basic programming language to ensure smart contracts are trusted and compatible with one another. More detail on these ideas were published in a recent IMF working paper ("A Multi-Currency Exchange and Contracting Platform"). https://www.imf.org/en/Publications/WP/Issues/2022/11/04/A-Multi-Currency-Exchange-and-Contracting-Platform-525445
High-level summaries of sessions on digital euro cross-currency and conditional payments, scheme access, form factor and interface, on-boarding, end-user services and dispute management, compensation model, rollout approach, and rulebook development.
IMF high-level technical assistance report on Jordan's retail CBDC exploration
The IMF published a technical report that analyzes the retail payments markets of Jordan to identify pain points that retail central bank digital currency (CBDC) could address. It found that retail payment systems in Jordan are highly integrated, enabling customers to make interoperable transactions between banks and non-bank payment service providers. The country’s cross-border remittance market was competitive, but could benefit from the reduced transactions cost associated with retail CBDC. Despite generally accessible and appropriate product offerings and an enabling environment, various barriers prevent customers from extensively using digital means of payment. Hence, retail CBDC might create an opportunity to overcome these barriers, thus making a cross-border retail CBDC worth consideration. However, it recommended that the Central Bank of Jordan (CBJ) rigorously evaluate benefits against risks and costs before forging ahead. Meanwhile, the CBJ should develop capacity to address technology, cybersecurity, financial integrity, and legal issues. [IMF]
FSB details actions for the next phase of the G20 Roadmap for Enhancing Cross-border Payments
The Financial Stability Board (FSB) published a report setting out priority actions for achieving the G20 targets for enhancing cross-border payments. They focus on three interrelated priority themes; (i) payment system interoperability and extension, including the extension of real-time gross settlement (RTGS) operating hours and access policies and improving payment system interoperability, (ii) the promotion of an efficient legal, regulatory and supervisory environment for cross-border payments while maintaining their safety, security and integrity, and (iii) facilitating cross-border data exchange and increasing the use of standardized messaging formats. https://www.fsb.org/2023/02/g20-roadmap-for-enhancing-cross-border-payments-priority-actions-for-achieving-the-g20-targets/
Bank for International Settlements (BIS) General Manager Agustín Carstens called for the development of a “unified ledger” that would allow different parts of the digital financial ecosystem to work together seamlessly. More specifically, such a ledger could bundled together central bank digital currencies (CBDCs) and tokenized deposits, linked with smart contracts, to create a "money Lego" ecosystem. And Mr. Carstens claimed that all of a unified ledger's potential benefits could be achieved on permissioned platforms with various degrees of centralization.
Coinbase will add support for Euro Coin (EUROC) on the Ethereum network (ERC-20 token)
Coinbase will support for Euro Coin (EUROC) on the Ethereum network (ERC-20 token) and trading will commence as soon liquidity conditions are met, in regions where trading it is supported. The EUROC token will launch with the "experimental" label, designated for new or low volume tokens on the exchange.
