How does CBDC work in cross-border payments
The diagram below shows an example between BOT (Bank of Thailand) and HKMA (Hong Kong Monetary Authority). The whole process can finish
CBDC: building trust to foster adoption
Adoption of CBDCs can be fostered through multiple approaches. While the strategy may differ, two fundamental components should remain as the foundational pillars of CBDC launch: trust and transparency. The adoption of CBDC will rely on central banks’ ability to address privacy concerns effectively and ensure individual’s rights are protected. The issue of privacy surrounding CBDCs is closely tied to the public's trust in public institutions, which is why commercial banks could play a crucial role. As trusted partners of the public, commercial banks can help promote CBDC adoption by offering assurance regarding the safety and security of CBDC holding. Not limited to trusted partners, commercial banks will also have an active role in CBDC adoption. Finally, it is essential to consider both end-user and merchant perspectives when evaluating CBDC adoption. Merchant and public adoption are two sides of a coin, being interconnected and interdependent.
Digital marketplace for Jamaica's Jam-Dex CBDC
Jamaica's Ministry of Industry, Investment, and Commerce has confirmed the development of a digital marketplace for merchants and residents to interact using the country's central bank digital currency (CBDC). Its aim is to provide a platform for underserved merchants, who do not have access to processing debit and credit transactions, to exclusively use Jam-Dex as a means of exchange. The digital marketplace will also facilitate merchants advertising their products. Onboarding merchants has already started and the platform should be operational by the beginning of summer (2023).
OFS and AUGENTIC GmbH reveal the design of the offline "Smart Banknote CBDC"
"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."
KAIME : Central Bank Digital Currency with Realistic and Modular Privacy
"In this study, while we offer a solution to the privacy conflict between the user and the regulatory agencies, we also provide a solution to the privacy conflict between the user and the banks. Our solution, KAIME has also a modular structure. The privacy of the sender and receiver can be hidden if desired. Compared to previous related research, security analysis and implementation of KAIME is substantially simpler because simple and well-known cryptographic methods are used."
BC publishes list of selected to participate in the Real Digital Pilot
Banco Central do Brasil (BCB) selected 14 financial institutions to test digital real privacy and programmability functionalities through the implementation of a delivery versus payment (DvP) protocol for tokenized federal government bonds between customers from different institutions, in addition to the services that make up this transaction. The BCB received 36 proposals of interest from more than 100 institutions. The testing will involve no real transactions (so it isn't the pilot that the BCB claims it to be).
Russia's digital ruble pilot faces delays
Russia's digital ruble pilot, originally scheduled to commence on April 1, 2023, has reportedly experienced delays due to legislative processes. The latest legislative amendments indicate a significant focus on enabling non-resident access. Other legal changes raise questions about data encryption and enforcement actions. The legal approval for the central bank digital currency (CBDC) is now anticipated by the end of July.
Central bank digital currencies: ongoing policy perspectives
In a follow-up to their October 2020 paper, the Bank for International Settlements (BIS) and seven advanced economy central banks have published a new paper that shares perspectives on how central banks can best engage industry and the public, what are the key legal issues related to retail CBDC, what tools may be needed to manage stressed conditions, and what could be the implications of using blockchain technology and associated concepts in CBDC. It also suggests that central banks consider cross-border payments use cases for wholesale CBDC.
The Potential of CBDC for Transforming Public Finance: A Focus on VAT Systems
The Japan Ministry of Finance's Michi Kakebayashi distributed a paper that explores the potential benefits of retail central bank digital currency (CBDC) for value added tax (VAT) systems. These benefits include streamlining and automating transaction, record-keeping, filing, tax payment, refund processes, and auditing reducing compliance and administration costs. While e-invoicing and e-payment may also achieve similar outcomes, the success of such alternatives would depend heavily on the financial institutions. The paper concludes that CBDC can address challenges faced by the VAT system while preserving simplicity, fairness, and effectiveness.
Secretarium
"Secretarium's Secure-Enclave Distributed Ledger Technology is powered by a Proof-of-Processor consensus mechanism built upon Trusted Execution Environment (TEE) capabilities. This mechanism ensures instant finality and processes orders of magnitude quicker than other consensus mechanisms, while always protecting the confidentiality and integrity of data in memory."
Thales - Secretarium Offline CBDC Platform
"Here is a demo of peer-to-peer offline payments as an introduction - a solution developed by Thales and Secretarium, already selected by two G20 central banks. As you can see, the UX looks pretty familiar, apart from the fact that any modern smartphone with NFC replaces the payment terminal."
Think Twice Before Introducing a Holding Limit for the Digital Euro
"There is a risk that the digital euro will struggle to reach mass adoption, and measures like the holding limit could further undermine its adoption. Most retail depositors may not see a reason to adopt the digital euro due to the presence of deposit insurance and the lack of understanding of the difference between central bank money and commercial bank money. The holding limit could act as an additional barrier to the digital euro's success."
Digital euro technology market research outcome report
The aim of the market research exercise was to obtain feedback from relevant interested parties and to gain non-binding information on potential technical solutions for a digital euro. The feedback received has helped the Eurosystem to better understand the current level of knowledge in the market and the existing experience in building solutions and identifying suitable technologies to potentially implement a digital euro.
Worldline selected by ECB for offline digital euro prototyping
"Worldline has been selected for the specific use case “peer-to-peer offline payments” of a digital euro, which focuses on the payment between individuals."
Results and findings from Bank of Japan CBDC PoC phase 2
The Bank of Japan (BOJ) published the English translation of the results of the second phase of its proof-of-concept (PoC) in which it confirmed the technical feasibility of the basic functions of a central bank digital currency (CBDC). In April 2023 the prototype phase began, in which the end-to-end process flow will be tested, the measures and potential challenges for connection with external systems will be explored, and considerations and solutions indicated as necessary in the PoCs will also be explored. No decision has been made to issue a digital yen, but the BOJ will continue to its technical work, to be prepared to go.
RBI CBDC pilot to be expanded to include more locations and banks
The Reserve Bank of India (RBI) is gradually expanding the scope of its retail central bank digital currency (CBDC) pilot to include more locations and banks. The pilot launched on December 1, 2022 in four cities with four banks. Four more banks were subsequently added, and now four more will be added, along with ten more cities.
Mooney unveils bill to block central bank digital currency pilot program
Alex Mooney of West Virginia introduced in the House of Representatives the Digital Dollar Pilot Prevention Act, which aims to prevent the Federal Reserve from launching a pilot program that would test the operability of a central bank digital currency (CBDC) in the U.S. financial system. According too Mooney, "CBDCs would threaten the liberties of law-abiding Americans and are being used by authoritarian countries right now to crack down on dissent.” https://mooney.house.gov/congressman-mooney-introduces-the-digital-dollar-pilot-prevention-act/
Empowering central bank money for a digital future
SUERF published a paper that suggests that central banks and policymakers start with trigger solutions when considering wCBDC. Trigger solutions connect the distributed ledger technology (DLT) world with conventional settlement systems and enable the settlement of tokenised assets in central bank money. By connecting DLT networks with conventional payment systems, they combine the advantages of decentralised infrastructures with the reliability of the central bank. No new form of (tokenised) money needs to be introduced. The trigger solution can play a neutral role and is agnostic across three dimensions: use cases, payment systems and asset systems. Furthermore, trigger solutions are characterised by comparatively low technical and operational complexity, and are a convenient way to test the case for wCBDC and observe market adaptation.
Kenya central bank says digital currency not a 'compelling priority'
The Central Bank of Kenya (CBK) does not consider the issuance of a central bank digital currency (CBDC) a "compelling priority in the short to medium term" but it will continue monitoring developments in the area to inform future assessments of the need for CBDC in Kenya . In February 2022, the CBK issued a consultative paper on CBDC and the comments have been compiled into a new discussion paper. It also provides an update on key global CBDC developments since February 2022, concluding that "the allure of CBDCs is fading". https://www.centralbank.go.ke/uploads/press_releases/103592893_Press%20Release%20-%20Issuance%20of%20Discussion%20Paper%20on%20Central%20Bank%20Digital%20Currency%20-%20Comments%20from%20the%20Public.pdf
Reforming the Monetary System for the Digital Age
"As recent bank runs (Silicon Valley Bank, Signature Bank, First Republic Bank, Credit Suisse) have highlighted, the current two-tiered monetary system — where both the central bank and private banks create money — is too fragile for the digital age. The State (central bank) should exclusively issue money, thus severing the link between ‘money creation’ and the extension of private bank credit. Central bank digital currencies make possible the design of a monetary system that eliminates bank runs, shields the payment system from the financial system, and reduces the need for government intervention in the financial sector. Monetary policy would likely be more effective and financial cycles dampened."
Bank of Mauritius launches public survey on a digital rupee
The Bank of Mauritius (BoM) released a consultation paper on the issuance of a digital rupee central bank digital currency (CBDC). The BoM is envisaging the rolling out of a digital rupee pilot phase following a sandboxing exercise and finalization of design attributes in November 2023. Key proposed features include offline capability, 24/7 availability, programmability for specific purposes, and being interest-free like physical cash, with the digital currency intended to complement—not replace—physical banknotes and coins. Meanwhile, the BoM launched an online survey to get public views and suggestions, and will shortly invite members of the public to be part of the pilot.
Strategic Complementarities in a Dynamic Model of Technology Adoption: P2P Digital Payments
The NBER published a paper develops a dynamic model of technology adoption featuring strategic complementarities: the benefits of usage increase with the number of adopters. It studies the diffusion of new means of payments, where such complementarities are pervasive. It shows that complementarities give rise to multiple equilibria, suboptimal allocations, and study the planner’s problem. The model generates gradualism in adoption, as individuals optimally wait for others to adopt before doing so. It applies the theory to the adoption of SINPE, an electronic peer-to-peer (P2P) payment app developed by the Central Bank of Costa Rica. A calibrated version of the model shows that the optimal subsidy pushes the economy to universal adoption.
How to Design a Compliant, Privacy-Preserving Fiat Stablecoin Via Zero-Knowledge Proofs
"This paper explores the feasibility of a fiat stablecoin that provides similar privacy guarantees to cash. We show how individuals in a stablecoin privacy pool can exchange small amounts of value within pre-assigned limits outside the view of third parties, such as banks, central banks, crypto exchanges, regulators, or other parties, in a regulatorily compliant way. High privacy guarantees and compliance with limits are ensured in a trustless way via the use of cryptographic zero-knowledge proofs. "
David Chaum's OFFLINE ECASH 2.0
"A physical card solution to the “double spending problem” that provides a secure fallback in case of network or device failures. Smartphones communicate locally and use onboard cameras to capture barcodes and security features that they then cryptographically verify."
Only 16% of Americans Support the Government Issuing a CBDC
Despite the mangled headline (only a "central bank" can issue central bank digital currency (CBDC)) this Cato survey contains some interesting statistical nuggets. It found that, while only 16% of Americans polled support a digital dollar, 49% haven't even formed an opinion (34% oppose it). A majority opposes a digital dollar that would allow the government to monitor their spending (68%) or control how they spend (74%). On fears that the government could potentially do either of these things, 76% of those polled said that the government should forbid the Fed from issuing a digital dollar. There are interesting differences between CBDC opinions of those who identify as Republicans (right leaning) and Democrats (left leaning) with the former being more wary of CBDC across all of the permutations and combinations of questions.
The Digital Economy’s New Monetary Imperative
Project Syndicate published an article that claims that a full accounting will show that the benefits of CBDCs outweigh their costs and risks. However, a CBDC would need to be accompanied by strong privacy and due-process protections as well as an upfront, forceful prohibition against inappropriate central-bank lending activity (at least outside of major crises such as a war or pandemic).
National Bank of Kazakhstan Digital Tenge Update
Binur Zhalenov, CEO of the Kazakhstan Interbank Settlement Center of the National Bank of Kazakhstan, provided an update on the three-year Digital Tenge project. The plan in 2023 is to deliver a production-grade central bank digital currency (CBDC). Pilots will test various specific use cases, starting with building a scalable platform for social aid distribution for the central bank's government partners. The project aims to provide a scheme that provides business value across the value chain, and there will be several minimum viable products (MVPs) to optimize cross-border payments, wholesale transactions, and distributed ledger technology (DLT) integration
Are congressional Republicans about to greenlight a CBDC?
"But a very different kind of Republican CBDC bill is also making the rounds in Congress. This one, bizarrely, openly allows a CBDC so long so it’s run by a government-chosen company like Ripple or perhaps a Wall Street bank. "
Central Bank Digital Currency: What Is A CBDC?
"However, Adam Jordan, director of investments for Paul R. Ried Financial Group, says any American who uses a debit card can already have their payments tracked. “The concern about privacy is a real one, but only if a government went so far as to try to eliminate physical currencies,” Jordan says. “The government already has the ability to track all our digital electronic payments.”"
Bangko Sentral ng Pilipinas Media and Research - Speeches
Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla provided an update to the central bank's digital payments transformation roadmap in which he underscored the lack of interest in issuing retail central bank digital currency (CBDC). He was particularly concerned about the potential loss of payments privacy ("of course, [retail CBDC] saves a lot of money in printing [but] the government will actually know more about you than your wife. In my case, that is not dangerous; there is nothing to know about me. But for many people, that is a bit of a concern. So, all of those things have to be addressed.")