DFC

"Transcending the division between banknotes and digital money through a hybrid banknote will bring many advantages to central banks and cryptocurrency advocates. Such banknotes will use a universally accepted and robust payment technology, cash, to deliver the cutting-edge benefits of digital money, passing hand to hand until used to access an electronic network to transfer value."

"This paper – drawing on interviews with twenty-two senior payments professionals – documents the business processes employed in the execution of international payments and discusses how international payments might be improved through the adoption of central bank digital currencies (CBDC). This was a substantial exercise resulting in a lengthy research paper."

"The Federal Reserve Bank of Kansas City revoked the so-called master account of a payments firm that came to prominence earlier this year when Republican senators raised questions over how that account had been granted, according to a letter sent by Sen. Pat Toomey (R., Pa.). In that letter, obtained by The Wall Street Journal, Mr. Toomey asked for more details about the Kansas City Fed’s decision to terminate the account for the Colorado-based Reserve Trust. The decision to grant that account had faced scrutiny earlier this year after Mr. Toomey and other Republicans questioned Sarah Bloom Raskin, then President’s Biden nominee for a seat on the Fed’s board of governors, over her possible role in helping Reserve Trust to secure the master account when she served on its board."

"The UK is looking at the case for issuing digital currency alongside cash. This type of money is known as central bank digital currency or CBDC."

An IMF paper explores the main components and technological options that determine digital currency (DC) energy profiles. It finds that the energy consumption of non-proof-of-work (non-PoW) distributed ledger technology (DLT) platforms is orders of magnitude lower than that of PoW platforms. Also permissioned networks that exercise more control over who can join as a validator, are more energy efficient than unpermissioned networks. The paper concludes that DCs could be designed to use infrastructures that are less energy intensive than the current payment system.

The New York State Department of Financial Services (DFS) issued new Regulatory Guidance, setting foundational criteria for USD-backed stablecoins issued by DFS-regulated entities. Such stablecoins will have to be fully backed by reserves consisting only of U.S. Treasury securities and deposits at U.S. federal or state chartered banks,  held in segregated accounts and marked to market daily. Also, redemption at par must be guaranteed for all stablecoin holders.

The objective of this third meeting of the Bank of England CBDC Engagement Forum was to discuss opportunities CBDC could potentially present for retail payments, were one to be introduced in the UK.

According to a Ventures Africa poll only 4% of Nigerian respondents have used the eNaira, and 64% haven't even heard of it. Retail merchants and traders felt the same way. Plus only 30% of merchants and traders interviewed had heard of the eNaira, and none had used it. One of the factors contributing to this may be Nigeria’s digital divide. According to the Alliance for Affordable Internet only 12% of Nigerians have access to 4G-like Internet speeds or the capacity to use the internet on a daily basis. Although the CBN has said that Nigerians without smartphone internet access will be able to transact in eNaira using basic featurephones, apps have been the predominant form of transaction.

"In addition to a difference in asset quality, I'd argue that USD Coin and Binance USD have better legal protections for users in the event of failure. Binance USD in particular operates under the New York stablecoin regulatory framework, which obliges Binance USD's issuer, Paxos, to operate as a trust. Trusts are effective mechanisms for ring-fencing customer funds from an issuer's other creditors."

"Created as an algorithmic stablecoin, Justin Sun’s Terra-like stablecoin USDD is now shifting gears towards a hybrid model with improved transparency. USDD is now reportedly over-collateralized with a collateral ratio of 226.1%, according to data from Tron DAO, the organization responsible for maintaining the collateral of USDD."

A delegation from Bank of Uganda (BOU) went on an "experience sharing tour" of the Central Bank of Nigeria's central bank digital currency (CBDC) e-Naira project. The BoU announced its intention to explore CBDC earlier in 2022, with key questions revolving around the rationale, for example "what issues it is going to help resolve."

His Excellency Taher bin Salem Al Omari, CEO of the Central Bank of Oman, confirms in his speech at the New Age of Banking Conference that work is underway on the bank’s digital currency and open banking services.

"The Reserve Bank of New Zealand (RBNZ) considering launching a central bank digital currency (CBDC) is in part a defensive move to protect it and NZ's monetary sovereignty, says RBNZ Director of Money and Cash Ian Woolford."

The Bank of Jamaica has been given the authority to issue CBDC with the Senate’s passage of the Bank of Jamaica (Amendment) Act, 2022 at Gordon House on June 3, 2022.

"Paying with a mobile phone is a cutting-edge innovation transforming the global payments landscape. Some developing countries have surprisingly overtaken advanced economies in adopting the mobile payment innovation. We construct a dynamic model with sequential payment innovations to explain this puzzle, which uncovers how advanced economies' past success in adopting card-payment technology holds them back in the mobile-payment race. Our calibrated model matches the cross-country adoption patterns of card and mobile payments and also explains why advanced and developing countries favor different mobile payment solutions. Based on the model, we conduct quantitative exercises for welfare and policy analyses."

A U.S. Richmond Fed article examines alternative arguments for considering a CBDC for the U.S. It points out that introducing a CBDC is unlikely to substantially improve the current U.S. money and payments system. A more compelling reason to consider a CBDC is to prepare the U.S. system against future threats, especially those associated with the rise of private and foreign digital currencies. Therefore, there appears no immediate need for the U.S. to issue a CBDC, but the U.S. needs to explore the CBDC technology now for potential future use.

Circle's Chief Financial Officer explains the difference between stablecoin audits and attestations. An audit is an assurance engagement that verifies the accuracy of financial statements and is typically performed annually by a public accounting firm. The audit verifies the accuracy, completeness and composition of the reserve and tests the internal controls over financial reporting that ensure financial statement accuracy. In an attestation – the accounting firm “attests” to the accuracy of a set of statements. It is different from an audit (it makes little sense to test financial controls monthly, for example), but it provides the same standards of assurance over the statements.

Circle's Chief Financial Officer explains the difference between stablecoin audits and attestations. An audit is an assurance engagement that verifies the accuracy of financial statements and is typically performed annually by a public accounting firm. The audit verifies the accuracy, completeness and composition of the reserve and tests the internal controls over financial reporting that ensure financial statement accuracy. In an attestation – the accounting firm “attests” to the accuracy of a set of statements. It is different from an audit (it makes little sense to test financial controls monthly, for example), but it provides the same standards of assurance over the statements.

This Central Bank of Brazil (BCB) note discusses the development of its central bank digital currency (CBDC). The main objective is to provide entrepreneurs with a safe and reliable environment to innovate through the use of programmability technologies, such as programable money and smart contracts. In the context of a modern payment system, already available to the Brazilian population, a full-fledged CBDC must enable new functionalities, beyond those brought by an instant payment arrangement. Therefore, the innovation tool for which the BCB envisions the greatest potential is the development of a platform for smart payments. [It will be a wholesale central bank digital currency (CBDC), transacted exclusively between the BCB and commercial banks banks to support the provision of retail financial services settled through tokenized bank deposits.]

"Many central banks around the world have been researching, experimenting, or developing central bank digital currencies (CBDCs). Although central banks in several emerging markets and developing economies have implemented or plan to implement a general-purpose, or retail, CBDC to promote financial inclusion and improve their payment systems, central banks in many advanced economies have not yet found a compelling case for a retail CBDC."

"In conclusion, design flaws in the no-arbitrage mechanism contributed to the failure of the IRON stablecoin. That said, the design flaws we uncover in this paper are not easily fixed. For instance, using the spot price as opposed to the ten-minute weighted-average price of TITAN in the creation of IRON is susceptible to manipulation of the spot price. It remains to be seen whether future generations of algorithmic stablecoins can improve these issues. For now, our results serve as useful reminder that some stablecoins are not stable at all, particularly for the users of smaller accounts who bought into the falling knife when IRON was tumbling."

Japan’s parliament passed a bill that classifies stablecoins as digital money that must be linked to a currency that is legal tender and guarantee holders the right to redeem them at face value. The legal definition means stablecoins can only be issued by licensed banks, registered money transfer agents and trust companies. The new legal framework will take effect in a year, and Japan’s Financial Services Agency will introduce regulations governing stablecoin issuers in coming months.

The Bank of Thailand (BoT) has been working on a retail central bank digital currency (CBDC), with an initial six month pilot planned for the second quarter of 2022, but it has been postponed to the fourth quarter of this year, to make sure the central bank gets it right. In terms of rationale, the BoT sees CBDCs offering more potential for the private sector to get involved and innovate, compared to the existing fast payments system. For example, programmability can't be built on a fast payment system.

A recent European Central Bank (ECB) paper analyzes how the introduction of a remunerated CBDC might affect financial stability. It validates the commonly held view that higher CBDC remuneration increases depositor withdrawal incentives and thus bank fragility. Second, it identifies a contrarian force when banks raise deposit rates in response to higher CBDC remuneration to retain deposits that, in turn, reduces fragility. These opposing effects can lead to a U-shaped relation between CBDC remuneration and bank fragility.

The Bank of England's Andrew Hauser argues that a central bank digital currency (CBDC) could have a big impact on the the size, composition and risk profile of the central bank's balance sheets; for the monetary policy transmission mechanism, and for monetary control. He argues for the need to understand these impacts, and build them into the design of CBDCs and central bank operational toolkits.

The U.K. government proposes to amend its Financial Market Infrastructure Special Administration Regime to bring crypto-assets within the jurisdiction of the Bank of England while giving the institution the reins in the event of a collapsing stablecoin. One proposed amendment includes broadening the legal definition of a “payment system” to include crypto-assets, providing the central bank with regulatory powers under Part 5 of the 2009 Banking Act. The government clarified that the central bank will only step in during “systemic” collapses, which it defines as any “deficiencies in [a system’s] design or disruption to its operation may threaten the stability of the U.K. financial system or have significant consequences for businesses or other interests.”

"This paper discusses how a Federal Reserve issued retail central bank digital currency (CBDC) could affect U.S. monetary policy implementation. Using a stylized balance sheet analysis, we analyze the effect a retail CBDC could have on the balance sheets of the Federal Reserve, commercial banks, and U.S. households. Then we consider how these balance sheet changes could affect monetary policy implementation for the Federal Reserve. We illustrate that the potential effects on monetary policy implementation from a retail CBDC are highly dependent on the initial conditions of the Federal Reserve’s balance sheet. Moreover, the analysis demonstrates how the Federal Reserve may use its existing tools to manage the effects of a retail CBDC on monetary policy implementation."

"Chainlink Proof of Reserve enables the reliable and timely monitoring of reserve assets using automated audits based on cryptographic truth."

"Stablecoins aren't stable. So-called algorithmic stablecoins crash and burn when people behave in ways the algorithm didn't expect. And reserved stablecoins fall off their pegs - in either direction. A stablecoin that does not stay on its peg is unstable. Not one of the stablecoins currently in circulation lives up to its name. "