DFC

In a recent blog post, the world’s largest stablecoin issuer Tether mocked its smaller competitor, Circle (which issues USD Coin), for being unprofitable. In Circle’s first quarter of 2022, it was $113 million in the red, whereas according to JP Koning’s estimates based on an analysis of Tether’s six attestation reports, Tether earned $13 million over the twelve months ending March 31, 2022. Going forward, both Circle and Tether can be expected to earn much more interest income on their base of non-interest-paying customer deposits, but Tether may face losses on its possibly riskier investments, including $62.8 billion in the collapsed lender Celsius, which is probably worthless now.

Many industry participants have commented on how the gap in marketcap between Tether and its largest competitors has narrowed. However, the difference between USD₮’s 24hr trading volume and its competitors tells a clearer and more important story. For example, rather than catering to the traditional banking industry, Tether is focused on being the most used currency for peer-to-peer exchanges, remittances, a tool of freedom and inflation hedge for developing countries. This is why, while Tether’s marketcap has decreased due to the billions of cash redemptions that it's effortlessly facilitated over the past several weeks, Tether’s 24hr trading volume remains roughly 10x that of its closest competitor. This points to the utility of Tether in daily trading and is the true measure of adoption. The sheer scale of the integration of USD₮ into the financial plumbing of the crypto industry is an order of magnitude greater than its nearest competitor.

"Not applying a digital bearer paradigm to currencies of the United States - or for that matter other nations, is no more reasonable than withholding electronic mail systems from citizens, or insisting on maintaining networks of human phone operators, with outsized and entirely unnecessary frictions and costs added to all functions of the economy." (Christian Kameir)

In September 2021, Denis Pitcher, chief fintech adviser to the Premier of Bermuda said “we’re not particularly interested in creating a unifying technical solution that’s going to solve all problems at digitizing money for a country, because it’s hard to see how that really can exist."

"This consultative report – issued as part of the G20 cross-border payments programme – focuses on facilitating increased adoption of payment versus payment (PvP) to reduce foreign exchange settlement risk and improve cross-border payments. The report analyses the causes of non-PvP settlement, takes stock of existing and proposed new PvP solutions and suggests roles for the private and public sectors to facilitate PvP adoption."

"Currently, there is no overarching regulatory framework for stablecoins in Canada, and no authority has asserted jurisdiction over the operations of their issuers. This article is the first scholarly work to provide a detailed assessment of the jurisdictional perimeter, and risk-informed regulatory design principles, for fiat-backed stablecoins in Canada. It provides two unique and vital contributions to policy formation in stablecoin regulation. First, it analyzes whether stablecoins are securities, investment funds, or derivatives based on statutory definitions and interpretive jurisprudence. Second, it assesses whether a securities-based regulatory framework is sufficient to mitigate the risks that stablecoins pose, or if it leaves gaps that must be filled by banking, payments, and systemic risk regulators. While securities authorities have a reasonable case for legal jurisdiction over stablecoins based on how they are currently used, there are several “gaps” if stablecoins are exclusively regulated under securities law, and while many protections are provided, the full breadth of risks will not be mitigated. If Canadian securities regulators move forward with a stablecoin policy framework, they must do so with an eye to resulting gaps. Ultimately, a comprehensive framework will require inter-agency cooperation, across the financial regulatory landscape, to adequately address all stablecoin risks. It must apply “same risk, same regulation” principles, contextualized to support innovation, financial inclusion, and competition, using tiered parameters, and parallel and complementary inter-agency oversight. It must seek international regulatory cooperation, data-sharing, and contemplate contagion, interconnection, and the consequences of the potential failure of a global stablecoin issuer."

The Österreichische Nationalbank (ONB) published a paper that summarizes the results of a survey of 2006 Austrian residents about their central bank digital currency (CBDC) design preferences and their likelihood of using a digital euro. Respondents were satisfied with the existing payment options, and only about half expressed at least some interest in a digital euro. In terms of CBDC design, high importance was placed on security against fraud and theft, but less than a third considered privacy important

"Recently, the subject of seigniorage - the revenues deriving from the monetary monopoly - has attracted the attention of academics and policy-makers. The authors discuss the reasons for this interest before undertaking a survey of the implications of a large-scale introduction of electronic money products on the seigniorage revenues and financial independence of central banks in the group of G10 countries. In countries with decreased seigniorage revenues and a high percentage of e-money the financial independence of central banks are negatively affected as a result of their inability to compensate for increasing operational expenses. Measures such as the limitation of e-money issuance and the imposition of requirements on e-money help in curtailing operational costs related to salaries, pensions, publications and banknote circulation, among others."

The Financial Services and Markets Bill 2022 has been introduced into the U.K. Parliament. Section 22 of the Bill contains a new power for the government to introduce bespoke rules on the regulation of payments, payment systems and service providers in relation to the payments that include “digital settlement assets”, which includes any digital representation of value or rights that “(a) can be used for the settlement of payment obligations; (b) can be transferred, stored or traded electronically, and (c) uses technology supporting the recording or storage of data (which may include distributed ledger technology).” The Chancellor of the Exchequer said that HM Treasury will be working to understand how distributed ledger technology could be applied to a U.K. sovereign debt instrument.

"This paper offers a discussion on the challenges analysts, technicians, and interested members of the public face when discussing how interoperation in a payment system can support goals of efficiency, security, and accessibility. We deconstructed elements of the payment system and defined these elements to support a deeper analysis of where and how the term interoperation can be appropriately applied. The fit-for-purpose framework offers a simple, four-step approach to increasing the depth and clarity of discussions about payment system interoperability and how it may be used as a tool to support various goals. The approach focuses on defining the boundaries of a system within the context of the discussion, adopting common terminology, describing the degree of interoperation required, based on agreed-upon descriptions, and mapping the current state of existing structures (where applicable). Finally, we sketched preliminary results of a hypothetical discussion where participants used our framework to discuss the topic of interoperation with respect to how a potential CBDC and stablecoins could technically co-exist in payment systems."

This paper by Bank of Indonesia staff attempts to explain the differences in central bank digital currency (CBDC) interest across emerging and advanced market countries. Based on a cross-country dataset, it shows that wholesale CBDC work is more advanced in countries with developed financial markets and greater cross-border transactions. Retail CBDC work is more advanced in countries with lower financial inclusion and a large informal economy. It further shows that different factors affect retail CBDC adoption across emerging and advanced countries

The Bank of Central African States has reportedly been urged by its board to introduce a common digital currency for its six member states (Cameroon, Chad, the Republic of Congo, Gabon, Equatorial Guinea and the Central African Republic). The proposal comes after the central bank’s strong opposition for the Central African Republic’s adoption of Bitcoin as legal tender this year.

In June 2022, the New York Department of Financial Services (NYDFS) issued formal guidance for NYDFS-approved stablecoin issuers, including upgrades to the amount and quality of information that issuers must provide to the public. With the new guidance, management's assertions must now be tested and published no later than 30 days after the end of the month, but also on one randomly selected business day during the month. Secondly, stablecoin issuers will be required to submit their internal controls to audit. However, the new regulations apply to Gemini dollar (GUSD) Binance USD (BUSD) and Paxos dollar (USDP).

Barclays will host the "CBDC Hackathon 2022" on September 27 and 28, 2022. It will consist of a series of coding challenges that will simulate the use of central bank digital currency (CDBC) and commercial bank money. Teams of four will develop coding solutions to multiple challenges including connecting to Barclays simulation of central and commercial bank application programming interfaces (APIs). The tasks will be drawn from the Bank of England’s CBDC platform model.

Reserve Bank of India (RBI) Executive Director Ajay Kumar reportedly said that the central bank is working on a phased implementation of both retail and wholesale CBDC. He also said that the necessary amendment to the relevant section of the RBI Act 1934 had been made enabling the RBI to conduct pilot and subsequent issuance of CBDC.

Bank Indonesia Governor Perry Warjiyo reportedly said that the central bank will release the conceptual design of digital rupiah by the end of 2022. The central bank will distribute the CBDC to large banks and payment service companies to sell to smaller banks for various retail transactions. It is also considering ways to ensure it would be exchangeable across borders.

The IMF published feedback on the Central Bank of Kenya central bank digital currency (CBDC) discussion paper published in February 2022. The IMF recommended that the paper emphasize that CBDC will “do no harm” to existing private-sector digital payment solutions. A poorly designed CBDC risks taking away customers of banks and other digital finance providers, increasing the cost of financing for banks, and depriving banks of valuable information they obtain through establishing customer relations.

Recently, Deutsche Bundesbank published a study on the payment behavior and habits in Germany (for 2021). The study is very, very detailed and provides data for all kinds of questions around payments. The main takeaway is that cash is still king in Germany

Nigerian lenders are reportedly impeding the use of the nation’s central bank digital currency (CBDC) because they are concerned about losing revenue from traditional banking services, according to central bank Governor Godwin Emefiele. Only about 700,000 customers have created an e-naira wallets since its introduction in October last year. E-naira-based transactions have also failed to pick up. Currently, the e-naira wallet is available to only bank customers, but the central bank is close to concluding tests with MTN Group's Nigeria unit to provide a channel to enable Nigerians without bank accounts to open e-naira wallets.

It will not be enough for central banks to develop an online digital currency transaction network while treating cash as the offline back-up. It should be offline digital cash that is the backup that continues to work when there is no internet, no mobile network and no electricity network. This is one of the aspects of central bank digital currency (CBDC) design that most interests me. Now, obviously, there must be limits on the amount that can be stored in wallets or transferred between them (for all sorts of reasons, ranging from security to consumer protection) but it is entirely feasible to implement schemes that allow for offline device-to-device transfer so that people can still buy a cup of tea when the internet is down or still buy food at the supermarket when the electricity is out. This is the smart way forward for digital currency.

This European Central Bank (ECB) article analyses the role played by stablecoins for everyday payments. Transaction speeds differ by blockchain but are slow for stablecoins issued on the predominant blockchain. As an example, during testing for a central bank digital currency, the Federal Reserve Bank of Boston showed that a non-blockchain payment technology can perform ten times more transactions per second than a high-performance blockchain technology. Transaction costs of stablecoins vary depending on a number of factors, such as the complexity of a transaction or the congestion of the network, leading to higher fees. Analysis of stablecoin transaction fees by Mizrach (2022) shows that, for a large portion of stablecoins, the transaction costs are higher than those of ATM transactions or the average costs of Visa or Mastercard schemes in Europe.

"The Saudi Central Bank, better known as SAMA, has appointed Mohsen AlZahrani, former Managing Director of Financial Services at Accenture KSA as Virtual Assets and CBDC (Central Bank Digital Currency) program Lead. AlZahrani recently announced this on his LinkedIn profile."

A survey conducted by Ipsos MORI on behalf of OMFIF and G+D which provides insights into consumers’ attitudes towards new digital forms of payments, including CBDC, in four countries: Germany, Indonesia, Nigeria and the US. The survey findings reveal a sharp difference in attitudes towards CBDCs between consumers in developed and developing countries. In Nigeria – where a pilot CBDC project was launched in October – 91% of respondents say they are likely to use CBDCs, with 60% of consumers saying so in Indonesia. However, these figures fall to just 24% in the US and 14% in Germany. This suggests CBDCs could offer a ‘leapfrog’ moment in payments in emerging markets, where systems are less developed, compared to countries such as the US and Germany, where consumers have many established payment options already.

El Banco Central de la República Dominicana is exploring the benefits of a CBDC and the IMF stands ready to offer capacity development support.

Côte d’Ivoire authorities are "cautiously exploring the benefits of a CBDC and the IMF said it stands ready to offer capacity development support. [Read more] However, it's unclear how that would work because Côte d’Ivoire doesn't have it's own central bank. It's part of the West African Monetary Union whose currency is the CFA Franc, issued by the Banque Centrale des États de l'Afrique de l'Ouest.

The Banque de la République d'Haïti has requested technical assistance from the IMF to help address the risks associated with CBDC deployment. Support has been received from specialized foreign firms and collaboration has been initiated with countries that have already launched a CBDC, particularly in the Caribbean.