The National Bank of Georgia (NBG) reportedly plans to launch a retail central bank Digital currency (CBDC) pilot next year, following up on their April 30, 2021 request for fintech companies to cooperate in the digital lari project.
Challenges to the International Role of the U.S. Dollar
According to a new paper by the Federal Reserve, the US dollar's dominant role in global markets should continue, but that status could be threatened by increased European integration, the continued rapid growth of China, or cryptocurrencies. However, absent any large-scale political or economic changes, it concludes that the dollar will likely remain the world's dominant international currency for the foreseeable future. For example, even with more European fiscal integration, remaining political separation will continue to cause policy uncertainty that would undermine the Euro as a viable competitor. And there are significant roadblocks to more widespread use of the Chinese renminbi, including it not being freely exchangeable, the Chinese capital account being closed, low investor confidence in Chinese institutions and the rule of law. As for cryptocurrencies, the paper's assessment is that it is unlikely that technology alone could alter the landscape enough to completely offset the long-standing fundamental reasons the dollar has been dominant.
The Central Bank of Nigeria published a white paper that provides detail on the critical dimensions of its eNaira central bank digital currency (CBDC). It provided more detail on the individual wallet tiers and limits (Table 2 and 3 below) and the two-tier, apparently "hybrid", architecture (Figure 7). The local press is reporting that the launch of the pilot is imminent.
"EMTECH, an award-winning software company modernizing central banking infrastructure for financial inclusion and resilience, with blockchain-based platforms, and Hedera Hashgraph, provider of the most used, sustainable, enterprise-grade public network for the decentralized economy, announced today a partnership to develop an enterprise-grade, highly performant, highly secure and energy efficient CBDC (Central Bank Digital Currency) infrastructure product."
OFS and AUGENTIC GmbH reveal the design of the offline "Smart Banknote CBDC" prototype
"A smart banknote is a physical banknote that interacts with a CBDC solution and acts as a transitional device between traditional and CBDC based payment systems. A smart banknote can be used like a classic banknote; however, the owner can redeem his cold wallet (physical banknote) and transfer the note’s value to a digital wallet by scanning the QR code with the private key. Our smart banknote includes a public and a private key represented by QR codes of which the private one is sealed. When the cover of the private key is removed, the QR code scanned, the value of the banknote can be transferred to a digital wallet. Conceptually after this procedure, the smart banknote cannot be transferred anymore."
G7 Set to Release the Guidelines for the Creation of CBDCs
The Group of Seven (G7) industrialized nations are reportedly discussing a draft document that sets out standards for the creation and issuance of central bank digital currency (CBDC). Among issues considered “essential” for any CBDC, the document cited appropriate national regulatory and oversight frameworks for the new payment system, as well as “rigorous” standards of privacy and accountability for the protection of users’ data and transparency on how information will be secured and used. The paper also pointed to concerns over a significant use of any CBDC by residents of a foreign country, which could lead to currency substitution and loss of monetary sovereignty in both the issuing and foreign country.
"This article digs into general-purpose CBDC design features and challenging technological decisions that digital architects, policy-makers and bankers are currently working on. Arguably, the paper could be many pages longer, but we wanted to offer more of a stock-take review so that you, the reader, could see the larger design picture more easily. We expect that the inventory of features and issues will continue to change over time as evaluations and testing proceeds. "
FSB publishes targets for enhancing cross-border payments and progress under its Roadmap
The Financial Stability Board (FSB) published a progress report on the first year of the G20 Roadmap for Enhancing Cross-Border Payments, bringing together in one place the work under the wide-ranging, but interconnected, set of initiatives. Most of the milestones set for 2021 have been successfully completed or are close to finalization. The breadth of the work underway and the recognition of the importance of conducting sufficient external outreach has led some of the timelines to be extended. But the end-goals of the overall Roadmap remain firmly on track. The next stage of work in 2022 includes the development of specific proposals for material improvements of underlying systems and arrangements, as well as the development of new systems.
G7 Public Policy Principles for Retail Central Bank Digital Currencies
The G7 published a set of public policy principles for retail central bank digital currency (CBDC) alongside a G7 Finance Ministers and Central Bank Governors’ Statement on CBDCs and digital payments.
Digital yuan's anonymity is misunderstood, says China's digital currency leader
Mu Changchun, the Director General of the People's Bank of China (PBOC), clarified how the managed anonymity of China’s digital yuan works. Wallets come in multiple tiers, with small transaction value tiers supporting anonymity by requiring only a phone number as identity, but larger-value tiers requiring conventional proof of identity. Under China's Personal Information Protection Law, the telecom companies cannot release identity information to any third parties, including the central bank. However, if it’s suspected that some anonymous transactions are illicit, law enforcement agencies can present a legal warrant to the phone company to get the user’s identity. Also, all wallets have a sub wallet function in which each merchant can have a separate wallet to avoid linking a person across merchants.
The e-cedi, which the Bank of Ghana is set to pilot, reportedly seeks to facilitate transactions without the need for power or connectivity." This is a core functionality of the Filia central bank digital currency (CBDC) platform of the Bank of Ghana's technical partner G+D.
France tests CBDC issuance in treasury bond blockchain trial
A consortium of institutions led by Euroclear have completed a test run of the use of wholesale central bank digital currency (CBDC) for settling French treasury bonds on a blockchain. The experiment, using technology from IBM and commissioned by the Banque de France included Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, Societe Generale. The trial is part of a wider Banque de France initiative commissioned in March 2020, to test the integration of a central bank digital currency for the exchange and settlement of tokenised financial assets between financial intermediaries.
Open questions on the international dimension of central bank digital currencies
"This column identifies open research questions around the international macro-financial dimension of central bank digital currencies, including what is different about them, and what the implications for international central bank cooperation are. Addressing these questions would not only push the frontier of knowledge, it would also provide the conceptual backbone and evidence that could usefully inform future policy decisions on CBDCs. "
Central bank digital currency in an historical perspective
"My overview of the history of monetary transformations suggests that technological change in money is inevitable, driven by the financial incentives of a market economy. Government has always had a key role in the provision of currency (outside money), which is a public good. It has also regulated inside money provided by the commercial banking system. This held for fiduciary money and will likely hold for digital money."
An innovative digital payment solution, PaySe is a financial inclusion enabler created to address the key challenges faced by banks and other financial institutions to make banking services accessible even in the remotest geographies across India. As the world's first offline solution, PaySe can be used to accept and make payments even when completely offline. It does this by using a secured smart card and an NFC enabled device. PaySe also provides financial institutions with the capability to acquire customers efficiently by capturing customer data, verifying documents, conducting KYC / AML checks and creating customer accounts. For us PaySe is more than just a business – we see it as something we should do for the society.
Bank of England mulls CBDC models in technology engagement forum
The Bank of England published the minutes of its first central bank digital currency (CBDC) Technology Forum meeting held on September 28, 2021. The Forum consists of senior stakeholders from industry, civil society and academia to gather strategic input on policy considerations and functional requirements pertaining to the practical challenges of designing, implementing and operating a CBDC. The meeting featured a discussion around alternative "platform" models for CBDC provision. In one model, the Bank would hold a record of every payment amount, and in another, it might just record the gross transactions with payment service providers (PSPs) in a ‘pooled model’. And they discussed a variant of the pooled model to allow delayed net settlement by the PSPs, even though customer payments would be real-time. Some meeting attendees suggested an alternative anonymous cash-like model without either the PSPs or the Bank keeping a ledger. However, other Members queried the feasibility of this approach, both in terms of the viability of the technology, and in relation to resilience, and prevention of tampering and “double spending” of CBDC units.
Iran to Pilot ‘National Cryptocurrency,’ Amend Central Bank Law
"The central bank of Iran is gearing up to begin the pilot phase of its digital currency project in the near future, its new head announced to representatives of local media. The monetary authority is also preparing to move forward with a plan to reform the legislation that governs its own activities."
Central bank targets large merchants for digital wallets
The Bank of Jamaica's push to deepen the mobile money market forms part of the central bank's CBDC drive to reduce cash usage. Governor Byles reportedly appealed to banks and other deposit-taking institutions to encourage their merchant customers to set up CBDC wallets. In particular, he wants to see cash-intensive industries to set up digital wallets to pay pensioners, enable toll road payments, and facilitate remittance flows. The test phase of the Jamaica CBDC, to assess the smoothness of transactions and get a read on the potential market receptivity to a digital currency, is under way and should wrap up by year end, with a public roll-out scheduled soon after.
RBA is exploring wholesale CBDC applications to securities DVP settlement
The Reserve Bank of Australia (RBA) revealed, in its submission to the Australian Senate Select Committee on Financial Technology and Regulatory Technology, that it has been conducting research on wholesale CBDC, in its in-house Innovation Lab. This included the development in 2019 of a limited proof-of-concept of a distributed ledger technology (DLT) based interbank payment system using a tokenized form of CBDC backed by exchange settlement account (ESA) balances held at the RBA. Currently, the RBA is close to finalising a project with a number of external parties that extends the earlier proof-of-concept in a number of ways, including to incorporate tokenized financial assets. The project explores the implications of delivery-versus-payment (DVP) settlement on a DLT platform as well as other programmability features of tokenized CBDC and financial assets.
The Central Bank of Nigeria (CBN) will launch its eNaira central bank digital currency (CBDC) on Monday, October 24. The launch had been originally scheduled for October 1, but it was delayed in deference to other key activities lined up to commemorate the country’s 61st Independence Anniversary. However, Nigerians have been able to download the eNaira app from either the Google Play or Apple App stores since lte September. The CBN also published a white paper that provides detail on the eNaira's critical dimensions.
ECB announces members of Digital Euro Market Advisory Group
The European Central Bank (ECB) announced the members of the Market Advisory Group for the digital euro project. The Eurosystem’s High-Level Task Force on Central Bank Digital Currency called for expressions of interest on 14 July, following the Governing Council’s approval of the digital euro project investigation phase. After assessing applications, the selection committee appointed 30 senior business professionals with proven experience and a broad understanding of the euro area retail payments market. Meetings are to be held at least quarterly, starting in November 2021, and written consultations will be organised between meetings. The issues identified will also be considered in the Eurosystem’s established forum for institutional dialogue on retail payments, the Euro Retail Payments Board (ERPB).
At the dawn of a new age – Money in the 21st century
The Central Bank of Hungary (MNB) has published a book that summarizes the theoretical considerations, the most important practical issues, the motives behind the potential creation of this new instrument and the opportunities offered by central bank digital currency (CBDC). It also covers CBDC monetary policy, financial stability, and cash flow impacts, as well as the issues of infrastructural implementation.
This speech by Tara Rice, Head of Secretariat, Committee on Payments and Market Infrastructures, focuses on three topics related to how CBDCs can help on the international dimension of payments: (i) a taxonomy to describe the different forms and elements of cross-border interoperability; (ii) the conceptual trade-off between cost and complexity on the one hand and benefits on the other (which in this case would be mainly in reducing the frictions of cross-border payments); and (iii) some thoughts on lessons learned and the way forward.
OFS and AUGENTIC GmbH reveal the design of the offline "Smart Banknote CBDC" prototype OFS
"Orell Füssli Ltd. Security Printing and AUGENTIC GmbH announced their partnership on a “Smart Banknote CBDC” solution including trustwise.io´s Distributed Ledger Technology (DLT) a week ago. A smart banknote is a physical banknote that interacts with a CBDC solution and acts as a transitional device between traditional and CBDC based payment systems. A smart banknote can be used like a classic banknote; however, the owner can redeem his cold wallet (physical banknote) and transfer the note’s value to a digital wallet by scanning the QR code with the private key. Our smart banknote includes a public and a private key represented by QR codes of which the private one is sealed. When the cover of the private key is removed, the QR code scanned, the value of the banknote can be transferred to a digital wallet. Conceptually after this procedure, the smart banknote cannot be transferred anymore."
DFW's founding team developed the world's first retail CBDC in production (when the firm was called NZIA). It pioneered numerous groundbreaking innovations that have shaped the evolution of CBDC design; inclusive access, interoperability with legacy systems, policy and regulatory reform, KYC/AML compliance, and systems to guarantee privacy, integrity, governance and trust.
"The really important question that needs to be addressed, and we plan to do so in a follow up post, is what does Nigeria get out of the eNaira system? Africa’s largest economy is frequently been ravaged by fuel and consumer goods shortages. It is used to double-digit inflation levels. Will eNaira help tackle these issues? In that context what problem does the eNaira really solve? And what are the potential unappreciated blind spots in its design? Are emerging markets particularly likely to benefit from these new structures or the opposite?"
"Stellar is an open-source, decentralized blockchain network that was designed with asset issuance in mind. It offers the interoperability and flexibility of a permissionless ledger while possessing built-in capabilities to ensure security, certainty, and control – as with a centralized or permissioned ledger. That combination makes it particularly well-suited for issuance of CBDCs. "
Central Bank estimates ‘north of $300K’ Sand Dollars in circulation
The Bank of Jamaica estimates that in excess of 20,000 individuals are currently utilizing Sand Dollars, with “north of $300,000” of the central bank digital currency (CBDC) currently in circulation. The central bank is nearing the end of ensuring there is interoperability with the automated clearing house (ACH) so there can be a pass-through link between Sand Dollar wallets and deposit accounts. Once that exercise is completed, the central bank along with the financial institutions, is going to be focusing on making an aggressive push to get more businesses enrolled in the infrastructure.
