DFC

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A successful CBDC implementation depends on solving the “CBDC Design Trilemma”
A successful CBDC implementation depends on solving the “CBDC Design Trilemma”
The “Blockchain Trilemma” is a term used to describe the challenge of increasing performance, security, and decentralisation at the same time. Current enterprise blockchains are not truly decentralised. They may be structurally decentralised, but are operationally centralised. By reversing this, having structurally centralised, but operationally decentralised architecture, a CBDC can achieve a high-performance blockchain. However, any blockchain-based CBDC should not only solve the blockchain trilemma, but also the CBDC design trilemma, which notes that identity, privacy, and programmability cannot be easily enhanced at the same time. A CBDC cannot ignore privacy for the sake of achieving legal compliance and implementing programmable money. From an expertise point of view, the answer to this trilemma is the use of a decentralized identity system such as self-sovereign identity (SSID) to find the perfect equilibrium for the CBDC design trilemma. Self-sovereign identity is very popular for its advanced privacy protection. By having an SSID-based blockchain system, a CBDC can incorporate both privacy and transparency into the blockchain-based CBDC system. Additionally, a use of zero-knowledge encryption to protect the transaction privacy of blockchain data is highly recommended for any CBDC implementation.
#Fintech#CBDC#DFC
·blog.digital-euro-association.de·
A successful CBDC implementation depends on solving the “CBDC Design Trilemma”
Macroprudential Considerations for Tokenized Cash
Macroprudential Considerations for Tokenized Cash
"This paper examines the financial stability risks associated with tokenized cash, a subset of stablecoins fully reserved with cash and cash equivalents. Using a combination of on-chain data together with uniquely collected wallet address labels, we construct empirical measures of liquidity ratios and run off rates on the largest cash token and characterize its users and their behavior. The overall circulation of tokenized cash is largely insulated from crypto price movements, though price changes correlate with re-balancing between smart contracts and private wallets. A liquidity ratio calculation, similar in concept to Liquidity Coverage Ratio (LCR), indicates that tokenized cash has at least two times the amount of High-Quality Liquid Assets (HQLA) when compared to the worst observed gross outflow over 30-day ahead periods. We discuss the implications of tokenized cash on safe asset creation, credit supply, and monetary policy transmission. The adoption of tokenized cash can reduce moral hazard risks from public guarantees and expand credit provision through market-based lending enabled by smart contracts."
#Fintech#CryptoAssets#Stablecoins#MacroPru#DFC
·papers.ssrn.com·
Macroprudential Considerations for Tokenized Cash
Towards CBDCs in Asia and the Pacific: Results of a Regional Survey
Towards CBDCs in Asia and the Pacific: Results of a Regional Survey
"Drawing on survey responses from 34 Asian economies and country case studies, this note takes stock of recent developments related to central bank digital currencies (CBDCs) and crypto assets in Asia. The survey finds that there is significant heterogeneity in terms of stage of development, but the emergence of private crypto assets has created an impetus to consider CBDCs. While most countries are engaged in research and development, with some at advanced stages of testing and pilots, very few countries are likely to issue CBDCs in the near-to-medium term, reflecting the still considerable uncertainties. Still, country experiences so far provide some key insights for others in their journey in this area."
#Fintech#CBDC#Asia-Pacific#IMF#DFC
·imf.org·
Towards CBDCs in Asia and the Pacific: Results of a Regional Survey
ECB provides update on its digital euro work
ECB provides update on its digital euro work
The European Central Bank (ECB) provided a status report on its central bank digital currency (CBDC) work. It confirmed that a digital euro would incorporate individual user holding limits to slow the possible conversion of bank deposits into digital euro  (disintermediation risk). A digital euro would also bear interest calibrated to make digital holdings above a certain threshold unattractive compared to other highly liquid low-risk assets.  Offline payments will only be allowed for low value, low risk, close proximity transactions. [Read the report here] In addition, ECB board member Fabio Panetta set out a plan for a digital euro scheme involving a set of rules, practices and standards with plans to start working on a rulebook. https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220929~91a3775a2a.en.html
#Fintech#CBDC#Eurozone#DFC
·ecb.europa.eu·
ECB provides update on its digital euro work
Yuan: Digital Currency: Yuan comes with an expiry date: Spend or it will vanish
Yuan: Digital Currency: Yuan comes with an expiry date: Spend or it will vanish
China is reportedly exploring putting expiration dates on its e-CNY retail central bank digital currency (CBDC), which could force holders to use it up by a certain date. This idea has most recently been explored in a Celo working paper that advocated using expiration dates to increase the "velocity" of money, based on an an unconventional monetary policy instrument known as a Gesell money.
#Fintech#CBDC#Gesell#China#DFC
·bfsi.economictimes.indiatimes.com·
Yuan: Digital Currency: Yuan comes with an expiry date: Spend or it will vanish
Non-euro stablecoin transaction cap revived in MiCA
Non-euro stablecoin transaction cap revived in MiCA
"A daily transaction cap for non-euro stablecoins has been reinserted into the European Union’s draft rules for cryptocurrencies. The cap will limit transactions using stablecoins denominated in other currencies, like the U.S. dollar, to €200 million transacted per day,  multiple sources confirmed to The Block. "
#Fintech#CryptoAssets#Stablecoins#Europe#Regulation#DFC
·theblock.co·
Non-euro stablecoin transaction cap revived in MiCA
Project Icebreaker: Central banks of Israel, Norway and Sweden team up with the BIS to explore retail CBDC for international payments
Project Icebreaker: Central banks of Israel, Norway and Sweden team up with the BIS to explore retail CBDC for international payments
The Bank for International Settlements (BIS) and the central banks of Israel, Norway and Sweden are launching Project Icebreaker, a joint exploration of how central bank digital currencies (CBDCs) can be used for international retail and remittance payments. using a hub-and-spoke model. The project will run through the end of the year, with a final report expected in the first quarter of 2023.
#Fintech#CBDC#CrossBorder#Payments#BIS#DFC
·bis.org·
Project Icebreaker: Central banks of Israel, Norway and Sweden team up with the BIS to explore retail CBDC for international payments
Russia plans to use digital rouble in settlements with China, says lawmaker
Russia plans to use digital rouble in settlements with China, says lawmaker
After launching a digital rouble early next year, Russia plans to use the currency in mutual settlements with China as it seeks to reduce Washington's global financial hegemony, according to Anatoly Aksakov, head of the financial committee in Russia's lower house of parliament.
#Fintech#CBDC#CrossBorder#Payments#Russia#China#DFC
·reuters.com·
Russia plans to use digital rouble in settlements with China, says lawmaker
France’s CBDC Projects to Manage DeFi Liquidity, Settle Tokenized Assets
France’s CBDC Projects to Manage DeFi Liquidity, Settle Tokenized Assets
The Banque de France reportedly announced two new wholesale CBDC projects. The first will look at improving CBDC market liquidity management in decentralized finance (DeFi), such as via automated market makers. The second will focus on issuing and distributing tokenized bonds on a blockchain.
#Fintech#CBDC#wCBDC#Settlement#Tokenization#Eurozone#DFC
·blockchain.news·
France’s CBDC Projects to Manage DeFi Liquidity, Settle Tokenized Assets
CBDC pilots and research, lessons for the digital euro
CBDC pilots and research, lessons for the digital euro
The Digital Euro Association published a very nice summary of the current state of play in the central bank digital currency (CBDC) space. It's part of a series of articles, this first one providing a general overview of global CBDC projects, motivations, with a particular focus on the Bahamas, China, Eastern Caribbean, Nigeria and Russia. The subsequent articles in this series will provide a deeper understanding of CBDC research and development in countries with different challenges and policy objectives. The articles will highlight that there is no one-size-fits-all approach to CBDC, but that CBDC solutions must be based on the needs and challenges of each country.
#Fintech#CBDC#DFC
·blog.digital-euro-association.de·
CBDC pilots and research, lessons for the digital euro
Former IMF official believes CBDCs need to function offline to gain mass adoption
Former IMF official believes CBDCs need to function offline to gain mass adoption
"A former International Monetary Fund (IMF) official, John Kiff, believes that CBDCs need to function offline and that such technology already exists in the form of stored-value cards, which were introduced in the 1990s, according to a blog post published on the IMF website on Sept. 26."
#Fintech#CBDC#IMF#Offline#Kiffmeister#DFC
·cryptoslate.com·
Former IMF official believes CBDCs need to function offline to gain mass adoption
Project mCBDC Bridge Pilot Complete
Project mCBDC Bridge Pilot Complete
Project mBridge is a prototype real-time cross-border payments platform based distributed ledger technology (DLT) and multiple central bank digital currencies (CBDCs) developed by the Bank for International Settlements Innovation Hub and four central banks. The first pilot is now complete, with over $12 million in value issued onto the platform facilitating over 160 cross-border payments and FX transactions totaling more than $22 million in value between 20 participating commercial banks over the course of a month. A detailed report will be released in October. https://www.bis.org/about/bisih/topics/cbdc/mcbdc_bridge.htm
#Fintech#CBDC#mCBDC#wCBDC#CrossBorder#Payments#BIS#DFC
·linkedin.com·
Project mCBDC Bridge Pilot Complete
DLT Options for CBDC
DLT Options for CBDC
The Swiss National Bank's Thomas Moser was one of the authors of a paper on the options for designing CBDCs using distributed ledger technology (DLT). It analyzes the various structures for implementation offered by DLT - public, permissioned and private - and the implications that each has for the central bank and the existing financial system. While a CBDC built on an open, permissionless system would provide the full functionality offered by DLT, it is also far more disruptive to the existing financial system and consequently requires more new infrastructure on the part of the central bank. Within the current DLT landscape, public-private partnerships offer the most practical and efficient means of building a DLT-based CBDC. A selection of existing DLT providers able to support a CBDC is also discussed.
#Fintech#CBDC#Blockchain#DLT#DFC
·papers.ssrn.com·
DLT Options for CBDC
Regulating the Crypto Ecosystem: The Case of Stablecoins
Regulating the Crypto Ecosystem: The Case of Stablecoins
The International Monetary Fund (IMF) published a Fintech Note that provides key elements that should feature in any stablecoin regulatory arrangement. Stablecoins have experienced periods of rapid growth, accelerated links with traditional finance. Without proper regulation, contagion risks to wider financial sector will increase. Global regulation for stablecoins should be comprehensive, consistent, risk-based, flexible, and focus on their structural features and use. Requirements on stablecoins should cover the entire ecosystem and all its key functions, and there should be additional oversight for systemic stablecoin arrangements. In markets where risks are growing quickly, authorities should take immediate action by using all the tools at their disposal. For effective implementation, domestic and international collaboration are key.
#Fintech#CryptoAssets#Stablecoins#Regulation#IMF#DFC
·imf.org·
Regulating the Crypto Ecosystem: The Case of Stablecoins
Central Bank Digital Currency: Financial Inclusion vs. Disintermediation
Central Bank Digital Currency: Financial Inclusion vs. Disintermediation
The Dallas Fed published a working paper that analyzes the impact of introducing a central bank digital currency (CBDC) on financial inclusion, and its potential adverse effect on bank funding. We highlight the role of two design parameters: the fixed cost of CBDC usage and the interest rate it pays, and derive principles for maximum inclusion and for mitigating the inclusion-intermediation trade-off. Agents’ choice of money instrument is endogenously driven by income heterogeneity. Pre-CBDC, wealthier agents adopt deposits, while poorer agents adopt cash and remain unbanked. CBDCs with low fixed costs (and low interest rates) are adopted by cash holders and directly increase inclusion. CBDCs with high fixed costs (and high interest rates) are adopted by deposit holders and increase inclusion by raising deposit rates. The former allows for more favorable inclusion-intermediation trade-offs.
#Fintech#CBDC#DFC
·dallasfed.org·
Central Bank Digital Currency: Financial Inclusion vs. Disintermediation
Demystifying wholesale central bank digital currency
Demystifying wholesale central bank digital currency
According to European Central Bank (ECB) executive board member Fabio Panetta, the ECB is looking at the potential of DLT in improving the efficiency of interbank settlements. However, after listing the many benefits of DLT, Panetta highlighted some drawbacks, and made a case for a system that builds on the ECB's existing infrastructure for wholesale settlements, instead of building a new one based entirely on DLT. Panetta also makes the point that, since central bank money has been available in digital form for wholesale transactions between banks for decades, wholesale CBDC is nothing new. The misconception that it is new "is fueled 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 centralized ledger."
#Fintech#CBDC#DLT#Blockchain#PaymentSystems#Europe#wCBDC#DFC
·ecb.europa.eu·
Demystifying wholesale central bank digital currency
Nomura invests in Fnality institutional blockchain payments platform
Nomura invests in Fnality institutional blockchain payments platform
Nomura is investing in Fnality, the interbank payment and settlement platform that uses "synthetic" wholesale central bank digital currency (CBDC) to settle transactions on distributed ledger technology (DLT) based financial market infrastructures (FMIs). (A "synthetic CBDC" is essentially a stablecoin backed by central bank deposits.) Fnality is expected to launch its first such synthetic CBDC in October 2022, pegged to the British Pound and backed by deposits at the Bank of England.
#Fintech#CryptoAssets#Stablecoins#CBDC#sCBDC#Fnality#UnitedKingdom#DFC
·ledgerinsights.com·
Nomura invests in Fnality institutional blockchain payments platform
The European Union is stifling stablecoin adoption
The European Union is stifling stablecoin adoption
Europe's Markets in Crypto-Assets (MiCA) regulation framework, as of the latest draft, limits the volume for stablecoin payments to $200 million per day. This is too low of a cap to gauge its success and is ultimately only helpful in stifling innovation and hindering what these assets can offer. Take the perspective from Belgium, where, as of July 1, 2022, all merchants must offer at least one digital payment solution. But, here’s the catch — cryptocurrency and stablecoins are not accepted as valid forms of digital payment under this provision.
#Fintech#CryptoAssets#Stablecoins#Europe#Regulation#DFC
·cointelegraph.com·
The European Union is stifling stablecoin adoption
White Paper on RBA CBDC Research Project
White Paper on RBA CBDC Research Project
The Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC) published a white paper that explains in detail the objectives and approach of their central bank digital currency (CBDC) project. They also invited interested industry participants to make submissions on CBDC use cases that have the potential to deliver benefits to the functioning of the Australian economy and financial system. Participants can also express interest in operating their use case in a pilot project to test and demonstrate the value proposition.
#Fintech#CBDC#Australia#DFC
·rba.gov.au·
White Paper on RBA CBDC Research Project
Financial Inclusion and Central Bank Digital Currency in The Bahamas
Financial Inclusion and Central Bank Digital Currency in The Bahamas
The Central Bank of the Bahamas (CBOB) published a paper that attempts to assess the introduction of central bank digital currency (CBDC) in the Bahamas. It uses a theoretical model that assumes that CBDC will lead to a decrease in the number of unbanked. As these individuals acquire access to financial institutions, the fraction of hand-to-mouth agents in the economy falls. If the number of unbanked individuals is cut in half, the economic benefits include: a reduction in the volatility of all shocks; monetary policy is more effective at controlling inflation and contributes less to the volatility of the overall economy; fiscal policy becomes more Ricardian, mitigating the size of fiscal shocks.
#Fintech#CBDC#DFC
·centralbankbahamas.com·
Financial Inclusion and Central Bank Digital Currency in The Bahamas
How we can regulate stablecoins now—without congressional action
How we can regulate stablecoins now—without congressional action
The Brookings Institution published a paper that proposes a US federal framework for the issuance of stablecoins within the existing regulatory framework for insured depository institutions, a structure that would not require any new legislation. Under current law, the Comptroller of the Currency could authorize a national trust bank charter, organized as an operating subsidiary of an insured depository institution, to create stablecoins through the use of a dedicated trust vehicle. The Comptroller would adopt standards limiting the investment of stablecoin reserves to high quality liquid assets and address redemptions and operational resilience, among other matters. The proposed framework guarantees that holders of a failed stablecoin are paid out rapidly and in full, because it uses the same resolution process by which failed banks are wound up.
#Fintech#CryptoAssets#Stablecoins#Regulation#UnitedStates#DFC
·brookings.edu·
How we can regulate stablecoins now—without congressional action
Privacy and Central Bank Digital Currency in the Digital Economy
Privacy and Central Bank Digital Currency in the Digital Economy
A paper by European Central Bank (ECB) staff studies how the choice of payment instruments affects privacy and welfare in the digital economy. Cash allows merchants to preserve their anonymity but cannot be used for online transactions that generate higher sales from more efficient distribution. By contrast, bank deposits can be used online but do not preserve anonymity: the merchant’s bank learns from payment flows and exploits the underlying information to extract rents. Payment tokens issued by digital platforms allow merchants to hide from the bank but also enable platforms to stifle competition (e.g. by limiting the entry of more efficient competitors by creating a walled garden). An independent digital payment instrument that allows agents to share their payment data with selected parties—a privacy-enhancing CBDC—can overcome all frictions and achieves the efficient allocation.
#Fintech#CBDC#Privacy#DFC
·suerf.org·
Privacy and Central Bank Digital Currency in the Digital Economy
Beijing to expand e-CNY trials to four entire provinces
Beijing to expand e-CNY trials to four entire provinces
The People’s Bank of China (PBOC) will reportedly expand its e-CNY trials to Guangdong, Jiangsu, Hebei and Sichuan provinces. Deputy Governor Fan Yifei, reportedly said the number of users, merchants and transactions is “steadily growing”, but he did not provide details.
#Fintech#CBDC#Asia#China#DFC
·scmp.com·
Beijing to expand e-CNY trials to four entire provinces
Why is Iran turning to a new 'digital rial'?
Why is Iran turning to a new 'digital rial'?
Yesterday I reported that the Central Bank of Iran (CBI) was reported to be launching a central bank digital currency (#CBDC) pilot today (September 22, 2022). The news isn't coming directly from the CBI, but from the Iran Chamber of Commerce. Now Al Jazeera is reporting that the digital rial will run on a platform called Borna, which was developed using Hyperledger Fabric, an open-source permissioned distributed ledger technology (DLT) blockchain platform
#Fintech#CBDC#MiddleEast#Iran#DFC
·aljazeera.com·
Why is Iran turning to a new 'digital rial'?
House Stablecoin Bill Would Put Two-Year Ban on Terra-Like Coins
House Stablecoin Bill Would Put Two-Year Ban on Terra-Like Coins
Legislation to regulate stablecoins being drafted in the U.S. House of Representatives would place a two-year ban on coins similar to TerraUSD, the algorithmic stablecoin that collapsed earlier this year. It would be illegal to issue or create new “endogenously collateralized stablecoins." The definition would kick in for stablecoins marketed as being able to be converted, redeemed or repurchased for a fixed amount of monetary value, and that rely solely on the value of another digital asset from the same creator to maintain their fixed price.
#Fintech#CryptoAssets#Stablecoins#Terra#Regulation#UnitedStates#DFC
·bloomberg.com·
House Stablecoin Bill Would Put Two-Year Ban on Terra-Like Coins