DFC

The European Central Bank (ECB) published a request for proposals for digital euro design and business model consultancy services. A pre-qualification phase will select 10 candidates to be invited to tender, after which five successful bidders will be awarded with a framework agreement. The total value of the contracts, excluding value-added taxes is EUR20,000,000.

Wyoming-based Avanti Financial Group has changed its name to Custodia Bank, and announced plans to launch in Q2 with U.S. dollar deposit accounts for business customers, initially providing ACH and Fedwire services. Its post-launch roadmap includes digital asset custody, Avit™ (a payment instrument akin to a digital cashier’s check) and prime services, facilitated by customer-facing APIs to enable the programmability of payments by customers.

The Arab Monetary Fund (AMF) published “Central Bank Digital Currencies: A Practical Guide for Arab Central Banks” to support Arab central banks in their journey exploring CBDCs that matches best each jurisdiction and their central bank objectives, available resources, targeted implications. The framework takes into consideration country-specific conditions, infrastructure and as well as respective legal and regulatory frameworks.

"Tether has produced its latest attestation report, and it shows the stablecoin issuer has cut its reserve's commercial paper and cash holdings while beefing up its holdings of money market funds and treasury bills. "

"Today I will argue that in a digital world CBDCs are necessary to preserve the role of central bank money as a stabilising force at the heart of the payments system and to safeguard monetary sovereignty. But CBDCs will need to be carefully designed. To be successful, they will need to add value for users, support competition rather than crowd out private innovation, and avoid risks to financial intermediation."

Sweden's central bank has extended its contract with Accenture as supplier for its central bank digital currency (CBDC) experimental project for a further year following the completion of Phase 2 technical trials. Phase 2 examined issues such as offline function, performance and integration of external participants, such as a bank, into the e-krona network. The conclusions from phase 2 will be presented in a report to be published in spring 2022. No decision has yet been taken on issuing an e-krona.

The Eastern Caribbean Central Bank (ECCB) DCash has been offline since January 14, and it could take several more days to fully restore service, bank officials told Bloomberg News. The “interruption” didn’t compromise any data but it stopped all transactions. The problem was related to an expiring certificate on the version of the Hyperledger Fabric that hosts the DCash ledger.

The Bank of Uganda is reportedly considering CBDC issuance, and exploring legal options for future amendments in financial laws that will facilitate it. Details are sketchy, and it's not clear whether the central bank is considering retail or wholesale CBDC, or both, but it sounds like they're focused on a blockchain-based and/or mobile money platforms.

"The Board recently issued a discussion paper that outlines the Federal Reserve's current thinking on the potential benefits, risks, and policy considerations of a U.S. CBDC.12 The paper does not advance any specific policy outcome and does not signal that the Board will make any imminent decisions about the appropriateness of issuing a U.S. CBDC. It lays out four CBDC design principles that analysis to date suggests would best serve the needs of the United States if one were created. Those principles are that a potential CBDC should be privacy-protected, so consumer data and privacy are safeguarded; intermediated, such that financial intermediaries rather than the Federal Reserve interface directly with consumers; widely transferable, so the payment system is not fragmented; and identity-verified, so law enforcement can continue to combat money laundering and funding of terrorism."

Making Payments Faster and Modernizing the Payment System: While perhaps relevant in some countries, this rationale looks increasingly inapt in the United States, where a real-time payment system grows in use, consumers happily pay each other with Zelle or Venmo, and PayPal and Square thrive. Thus, Federal Reserve Governor Waller has observed, “What problem would a CBDC solve? Alternatively, what market failure or inefficiency demands this specific intervention? After careful consideration, I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives.”

Wyoming lawmakers have proposed the Wyoming Stable Token Act (SF0106), which paves the way for the crypto-friendly state to launch its own dollar-pegged token. The act would allow Wyoming treasurer Curtis Meier Jr. to create a state stablecoin pegged to the U.S. dollar. The token would be redeemable for a single dollar held in trust by the state.

Bank of Jamaica’s central bank digital currency (CBDC) now has a name - Jamaica Digital Exchange or JAM-DEX for short, with the tagline “no cash, no problem!” The pilot was completed in December 2021 and launch is expected during the first quarter of 2022.

The Financial Stability Board (FSB) published its 2022 policy plans to promote global financial resilience, including on safely harnessing the benefits of digitalization:

The Financial Stability Board (FSB) published an examination of developments and associated vulnerabilities relating to unbacked crypto-assets, stablecoins; and decentralised finance (DeFi) and other platforms on which crypto-assets trade. The report notes that although the extent and nature of use of crypto-assets varies across jurisdictions, financial stability risks could rapidly escalate, underscoring the need for timely and pre-emptive evaluation of possible policy responses.

"Earlier this week, the House Committee on Financial Services held a hearing on stablecoins or digital assets tied to fiat currency. The Hearing was driven by the recent report by the President’s Working Group (PWG) on Financial Markets. While stablecoins are not (yet) systemically worrisome, the market has grown to $174 billion in market capitalization. Stablecoins currently represent more than 75% of trading on all digital asset trading platforms."

"This article was very challenging to write, as technical details had to be presented in a condensed way without losing too many of the nuances. The main thrust is what this project means for the story of money in the United States and globally, especially to interested generalists. Sometimes technical material has overwhelmed the telling of the story. However, comments on the presentation especially in social media are welcome, so that the text can be altered to make it more accessible to the general public."

"Following up on the Hamilton Project CBDC reporting, here is a summary of how a transaction is executed. The different components are in CAPS."

"The writing is on the wall: Cryptocurrencies are likely going to play a significant role in the future financial system. The U.S. Federal Reserve has called for a comprehensive regulatory framework for stablecoins and is exploring a central bank digital currency. While a complete overhaul of the system of money is an extremely complex endeavor, there are three measured approaches — different, but not incompatible — that have serious potential: 1) true stablecoins, which are non-interest bearing coins designed to have stable value against a reference currency; 2) demand coins, which are demand deposit claims against insured commercial banks, on blockchain rails; and 3) central bank digital currencies, which are cash on digital rails and could represent the public sector’s response to decreasing demand for physical cash.c"

The European Commission is reportedly planning to propose a bill for a digital euro early next year. The bill will serve as the legal foundation for the European Central Bank’s ongoing technical work on the virtual version of a euro banknote or coin.

Three UK Fintechs and two major European banks have successfully conducted a proof of concept showcasing the benefits of distributed ledger technology (DLT) in offering near-instant settlement in capital markets and payments. It was the first cross-chain pilot debt transaction on the public Ethereum and the Fnality Payment System (FnPS). Fnality expects to launch the FnPS, which is to be based on a wholesale synthetic CBDC (sCBDC), sometime in 2022. (However, I'll believe that when I see it, because issuing that sCBDC will require some hard-to-get central bank cooperation.)

Hong Kong will reportedly launch a pilot program for the retail cross-border use of China's e-CNY central bank digital currency (CBDC) soon after the Spring Festival, which ends on February 15, 2022. It will link with the city’s Faster Payment System (FPS), a payment infrastructure the HKMA introduced in 2018. The FPS allows instant cross-bank payments in the Hong Kong dollar and the Chinese yuan by simply entering the mobile phone number or email address of the recipient.

"The narrow stablecoin alternative is a middle course: instead of having the Fed enter the retail CBDC business, it would have it offer its wholesale accounts and services to a broad set of retail digital currency or stablecoin providers—and not just to insured banks and thrifts."

The IMF published a Fintech Note that shines a spotlight on six CBDC projects, discussing their key characteristics and lessons. Although the sample of countries remains small and country circumstances differ widely, the insights in this paper may inspire further investigation and allow countries to gain time by building on the experience of others. Unless a specific published source is cited, all information stems from interviews and workshops with members of CBDC project teams in each jurisdiction. (I was one of the authors.)

The Reserve Bank of Zimbabwe announced that it is actively exploring the feasibility of issuing CBDC, including specific design considerations, opportunities and risks to the monetary and financial system. In this context, the Bank is developing a roadmap for adopting CBDC, encompassing the feasibility and assessment stage currently taking place, policy design stage based on results of the feasibility study and implementation modalities.

The Bank of England published the minutes of the January 24 CBDC Technology Forum meeting. The Forum operates alongside the CBDC Taskforce which coordinates the exploration of a potential UK CBDC. It consists of senior stakeholders from industry, civil society and academia to gather strategic input on CBDC functional requirements. This meeting discussed different ledger data structures across a range of design areas to understand advantages and disadvantages of each, and the trade-offs and risks associated with introducing programmability.

The Reserve Bank of New Zealand (RBNZ) is commencing CBDC proof-of-concept design work, based on public feedback received during a recent consultation. The work will be a multi-stage and multi-year effort, and no specific design decisions have yet been made. The high-level design principles include providing a platform for economic and financial innovation, including competition in the payments and settlement sector, cross-border transfers, and financial inclusion and capability building tools. Also, the RBNZ believes that a CBDC can be designed so that privacy can exist alongside design features that make it hard to be used for nefarious or illegal purposes.

The Bank of Zambia reportedly expects to complete research on issuing central bank digital currency (CBDC) aimed at cutting transaction costs and boosting participation in the formal financial system by the fourth quarter. “The results of the research will form part of the input in the policy considerations on whether to introduce a central bank digital currency in Zambia,” Nkatya Kabwe, acting assistant director of communications at the regulator, said in response to Bloomberg's emailed questions.

The U.S. Congressional Research Service (CRS) published a report on central bank digital currency (CBDC) is and how it would alter the current U.S. financial landscape, what steps the rest of the world is taking to develop CBDCs, the range of potential design features for a CBDC, and what policy issues are raised by CBDCs. The CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.