DFC

The Utility Settlement Coin (USC) project — led by some of the world’s largest banks — has announced the creation of a new firm (Fnality International) and closure of an accompanying £50 million Series A financing round.

Darrell Duffie examines key issues around the introduction of digital currencies and faster payment systems, including financial inclusion, payment system efficiency, control by central banks of monetary policy transmission, privacy and anti-monetary laundering, and competition for banking services.

There needs to be a more seamless transition between fiat and digital assets, so that customers do not risk losses as they switch back and forth. One solution would be for central banks to issue a crypto fiat, which would support product manufacturing. It would also enable real-time peer-to-peer payments and potentially cross-border interbank clearing and settlement.

One idea as to how officials might keep CEO Mark Zuckerberg’s dreams grounded in reality is to get under the hood of what goes into the digital currency in the first place. Given Libra wants to back every digital cent with a mix of real-world reserve currencies, that might be the best place to start. Bank of England boss Mark Carney hinted at this in his Mansion House speech on Thursday, proposing that tech firms and other non-banks be allowed to hold funds directly at the central bank.

The Swiss stock exchange SIX wants the Swiss National Bank to issue a wholesale central bank digital currency to settle payments on its new digital securities trading platform. The SNB has been cool on retail CBDC, but the proposed SDX stablecoin would apply only to inter-banks payments.

Global central banks may have to issue their own digital currencies sooner than expected, the general manager of the Bank for International Settlements has said, after Facebook recently unveiled plans to create its own stablecoin.

Former deputy governor at the Banque de France Jean-Pierre Landau argues that central banks should issue digital currencies of their own to protect financial stability, monetary policy and access to public money.

Riksbank's Hanna Armelius: Central banks need to consider issuing digital currencies or leave citizens vulnerable to market power. Cashless societies could leave payment systems vulnerable to “increasing monopoly power … if there’s no sort of competition from central bank money.”

Facebook’s plans to create its own cryptocurrency have forced China’s central bank into stepping up research into creating its own digital currency as Libra could potentially pose a challenge to Chinese cross-border payments, monetary policy and even financial sovereignty, Wang Xin, director of the PBOC’s research bureau.

The Bangko Sentral ng Pilipinas (BSP) remains lukewarm to the idea of issuing its own digital currency despite the decision of Facebook to unveil its own cryptocurrency, Libra.

This report offers an analytical framework that allows for more systemic assessments of distributed ledger technology (DLT) and its applications. It examines the evolution and typology of the emergent technology, its existing and projected applications, and regulatory and policy issues that they entail. This report highlights the trends, concerns, and potential opportunities of DLTs, especially for Asian markets. It also identifies the benefits and risks to using DLT and offers a functional and proportional approach to these issues.

This blog by ex-IMFer (1976-2003) Warren Coats suggests that the IMF get to work developing a digital SDR, to build the foundation on which the SDR can become a more important international reserve asset.

Trump Fed nominee Judy Shelton: "An approach that permits the issuance of virtual currencies in tandem with government-issued currencies, adapting legal tender laws to permit healthy currency competition—should be put forward."

The Fed's offering, called FedNow, will challenge a competing service already offered by The Clearing House, a private company owned by many of the country's largest banks. The Fed, which expects to launch its service in 2023 or 2024, said a publicly run offering is needed to ensure the entire nation can reap the benefits of real-time payments.

The Federal Reserve Board has announced that the Federal Reserve Banks will build and operate the FedNowSM Service, a new interbank 24x7x365 real-time gross settlement (RTGS) service with integrated clearing functionality to support faster payments in the United States. The decision to develop the new RTGS service (Off-site) was based on an assessment of public input and policy criteria regarding the Federal Reserve’s role in the payment system.

The IMF's Dong He and Yan Liu talk about central bank digital currency: the current level of interest among central banks in issuing them, what concerns they need to address when designing them, and how commercial banks might be affected, depending on the design of the CBDC. We discuss how privacy could be built into such a currency while also fulfilling anti-money laundering and counter terrorist financial regulations and how a CBDC could affect the IMF’s ability to achieve its goal of financial inclusion. Plus, we also cover how crypto assets being widely adopted could influence economies, as well as Facebook’s Libra.

The creation of a vibrant market in SDR linked to commodity prices could create a powerful new monetary anchor, argues former IMF SDR chief Warren Coats.

Blockchain technology and digital currencies — seen today as a risk by the establishment, the authorities and others — could be an opportunity to relaunch the migration of the SDR's monetary architecture similar to the supranational currency “bancor,” conceptualized by the economist John Maynard Keynes.

"There are really quite stark differences between what Libra’s proposing and what we see as a central bank digital currency. On our side it is important to be regulated. You can with a central bank digital currency tell clients that it’s legal tender—meaning it has to be accepted and is regulated and backed by assets on a central bank balance sheet. This is really key."

BoE Governor Mark Carney is suggesting that more thought should be given to creating a global electronic currency that could act as “synthetic hegemonic currency provided perhaps through a network of central bank digital currencies”.

The Bank for International Settlements’ Agustín Carstens has expressed concern over the use of retail central bank digital currencies (CBDC), suggesting a wholesale option might be a better approach.

Whether central banks adopt CBDC at all is another matter and will result from carefully weighing pros and cons. But to the extent central banks wish to offer a digital alternative to cash, they should consider sCBDC as a potentially attractive option.

“Central Banks should champion sCBDC. Let private providers compete in providing some sort of central bank–sanctioned version of digital currency to the masses. The central bank can limit itself to maintaining the back end and offering a degree of regulation.”

"Central bankers should work to develop digital currency interoperability, and a system of decentralized exchange through which businesses in different countries can use smart contracts to create automated escrow agreements and protect themselves against exchange rate volatility."

Changchun Mu, new head of the PBOC's Digital Currency Research Institute. He has said that China’s CBDC will be supported across major e-payments platforms such as WeChat and Alipay.

This paper compares the financial account implications of CBDC with stable coins and narrow bank digital money, noting the similarity and differences in terms of implications on the financial system.

By taking the status quo option off the table, Libra or its next best replica will force monetary authorities and regulators to choose between central bank-managed digital currency and riskier private digital tokens.

“Instead of embracing Facebook’s Libra, we should be rallying for a public option for digital currency.”

French Finance Minister Le Maire said “a common framework” on digital currencies was needed for the 28 EU countries and urged the creation of a European “public digital currency”, without giving more details.