DFC

This paper explores the coexistence possibilities of Central Bank Digital Currencies (CBDCs) and blockchain-based cryptocurrencies within a post-quantum computing landscape. It examines the implications of emerging quantum algorithms and cryptographic techniques such as Multi-Party Computation (MPC) and Oblivious Transfer (OT). While exploring how CBDCs and cryptocurrencies might integrate defenses like post-quantum cryptography, it highlights the substantial hurdles in transitioning legacy systems and fostering widespread adoption of new standards. The paper includes comprehensive evaluations of CBDCs in a quantum context. It also features comparisons to alternative cryptocurrency models. Additionally, the paper provides insightful analyses of pertinent quantum methodologies. Examinations of interfaces between these methods and blockchain architectures are also included. The paper carries out considered appraisals of quantum threats and their relevance for cryptocurrency schemes. Furthermore, it features discussions of the influence of anticipated advances in quantum computing on algorithms and their applications. The paper renders the judicious conclusion that long-term coexistence is viable provided challenges are constructively addressed through ongoing collaborative efforts to validate solutions and guide evolving policies.

The European Central Bank (ECB) published its third progress report on the preparation phase of a digital euro. Since the second report, the ECB has made progress on the draft digital euro scheme rulebook, which aims to harmonize digital euro payments across the euro area. The ECB has also conducted extensive user research and experimentation engaging with market participants, merchants, and consumers through various sessions and focus groups, to ensure the digital euro meets the needs of end users and provide technical input to support the legislative process. The project's next steps include finalizing tender procedures to select providers for the digital euro platform and infrastructure, drafting the scheme rulebook, and testing and implementing the digital euro's technical specifications.

[October 1, 2023] Central Bank of Mongolia (CBM) Governor shared his thoughts on the country's potential adoption of a central bank digital currency (CBDC) through a dedicated project, reflecting a forward-thinking approach to adapting to the changing landscape of payments and finance. The central bank has examined both decentralized models utilizing blockchain and distributed ledger systems and centralized systems, highlighting certain limitations of decentralized models regarding their agility for payment applications. On the other hand, centralized systems are like the existing real-time payment mechanisms like ACH (Automated Clearing House) and RTGS (Real-Time Gross Settlement) systems. The CBM will continue researching and exploring potential CBDC-based solutions that align with the country's needs and objectives.

Bank Negara Malaysia (BNM) published a paper that explores the fundamental nature of modern money—characterizing it as a credit relation and a promise to pay abstract value—and examines its implications for Shariah (Islamic law) analysis, particularly in the context of central bank digital currency (CBDC). It argues that modern money, unlike classical commodity-based money, is constituted by social, economic, and political relationships among individuals, banks, central banks, and the state. The authors highlight that traditional Shariah conceptions, which treat money as a tangible commodity, do not fully capture the essence of modern money. They propose a hybrid Shariah approach that recognizes modern money as both a means of payment and a credit instrument, suggesting that the rules of riba (usury) should apply to modern money in its various forms, including CBDCs, to ensure alignment with Islamic principles.

The Oesterreichische Nationalbank published a paper that argues that digital euros and euro-denominated stablecoins can work together as "complementary pillars" of the future European digital finance landscape. The digital euro can provide a secure, universal payment infrastructure backed by central bank trust, with euro-denominated stablecoins offering programmable, cross-border capabilities that extend beyond the euro area. The authors contend that Europe has a strategic opportunity to lead in digital currency innovation by enabling this coexistence, potentially strengthening the euro's global role and reducing reliance on non-European payment systems. Based on detailed analyses of use cases, business models for banks, regulatory frameworks under MiCA, and macroeconomic implications, the paper concludes that well-designed digital monetary instruments can enhance financial stability while promoting innovation if supported by appropriate regulatory safeguards and strategic implementation.

The Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC) provided an update on Project Acacia. It will explore how different forms of digital money and associated infrastructure could support the development of wholesale tokenized asset markets in Australia. 19 pilot use cases, and 5 proof-of-concept use cases, have been conditionally selected for this next stage of the project to take place over six months. The use cases involve a range of asset classes, including fixed income, private markets, trade receivables and carbon credits. Proposed settlement assets for the use cases include stablecoins, bank deposit tokens, and pilot wholesale central bank digital currency (CBDC), as well as new ways of using banks’ existing exchange settlement accounts at the RBA. Issuance of pilot wholesale CBDC for testing use cases will occur on a range of private and public-permissioned distributed ledger technology (DLT) platforms. The Australian Securities and Investments Commission (ASIC) will provide regulatory relief to participants to support and streamline the pilot.

The Central Bank of Myanmar (CBM) reportedly plans to introduce a central bank digital currency to reduce the use of banknotes. The CBM has formed a committee of 13 members, including a deputy governor, to study and analyse the best methods, technologies, and regulatory frameworks to use in ensuring the successful introduction of the CBDC into the economy, as well as assess its potential impacts on payments systems and monetary policy. The committee will also be responsible for overseeing and maintaining the infrastructural foundations, funding, and regulation of the digital currency after it is introduced.

Ousmène Jacques Mandeng argues that the current foreign exchange settlement system perpetuates the dollar's dominance in international payments and proposes that transitioning to digital central bank currencies (CBDCs) could facilitate greater currency diversification. Mandeng contends that the U.S. administration's policy stance "seems geared towards undermining the very foundations of the unique international role of the dollar," making the quest for alternative models more urgent , while noting that the dollar represents "one leg in 9 out of 10 foreign exchange transactions" in a market with $7.5 trillion daily turnover. He identifies a fundamental problem in current settlement mechanisms: the reliance on multilateral netting to reduce funding requirements creates incentives for concentration around major currencies, as "the lower the number of counterparties and currencies, the greater the scope for netting" , which reinforces market concentration and discourages diversification. Mandeng proposes that the mBridge CBDC project's architecture—which enables instant payment-versus-payment settlement in digital central bank money—could eliminate settlement risk while reducing the need for netting, thereby lowering barriers for smaller currencies and promoting a more multipolar monetary system.

[July 2023] The Banque Centrale des Etats de L'Afrique de L'Ouest (BCEA) launched a research project, under the aegis of its FinTech Committee, to assess the utility of issuing central bank digital currency (CBDC) in the West African Monetary Union (WAMU) region (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo). The mandate of the project group is to identify the objectives, challenges, and risks related to the CBDC issuance within WAMU, conduct a feasibility study, including the identification of use cases, prerequisites, key success factors, risk control mechanisms, and design options for CBDCs, assess the potential impact of CBDCs on the roles and activities of the BCEAO, and review potential impact on credit institutions, microfinance institutions, other financial ecosystem players, and financial inclusion.

The United Nations Development Programme (UNDP) published a five-stage methodology for implementing central bank digital currencies (CBDCs) to advance financial inclusion in emerging economies. The methodology progresses through: (1) understanding financial inclusion barriers and user needs, (2) CBDC preparation including cost-benefit analysis and stakeholder coordination, (3) user-centric design and prototyping with emphasis on privacy protection and accessibility, (4) piloting to test assumptions and gather feedback, and (5) full implementation with ongoing monitoring and capacity building. The paper emphasizes that retail CBDCs, when properly designed with features like offline functionality and simplified identification requirements, can address persistent barriers such as high transaction costs, limited documentation, and poor connectivity that exclude underserved populations from traditional financial services. However, the authors stress that CBDCs should be viewed as one component of broader Digital Public Infrastructure rather than standalone solutions, and successful implementation requires robust stakeholder engagement, regulatory frameworks, and continuous adaptation to ensure these digital currencies effectively serve vulnerable populations while maintaining security and sustainability.

The U.S. National Bureau of Research (NBER) published a paper that develops a calibrated New Keynesian DSGE model featuring monopolistic banks to assess the macroeconomic impact of introducing a remunerated central bank digital currency (CBDC). The analysis shows that households gain from enhanced liquidity services and higher deposit interest rates due to reduced bank market power, while banks experience lower profits and lending volumes. Exploring economies across different interest rate regimes, the authors identify significant welfare improvements from remunerated CBDC adoption, especially in economies with high interest rates where banks have substantial market power in deposit markets. They propose a practical CBDC interest-rate setting rule—setting it as the greater of zero and the policy rate minus one percentage point—which closely approximates the optimal rate found in their model.

This paper by McGill University's Katrin Tinn proposes an "asymmetric privacy" design for central bank digital currencies (CBDCs) to resolve the trade-off between consumer privacy and regulatory efficiency. Traditional payment systems face a dilemma: fully private systems (like cash) protect privacy but create costly auditing problems for taxation and financing, while transparent digital systems enable efficient oversight but cause privacy concerns that distort consumer behavior. The proposed "P-Hybrid CBDC" solution makes consumer spending private (protecting money senders) while keeping firm revenues publicly observable (revealing money receivers), implementable through technologies like Zero-Knowledge proofs or anonymized cards. The theoretical model shows this asymmetric design achieves optimal outcomes by enabling efficient financial contracting and tax collection while minimizing privacy-related market distortions, with welfare benefits increasing at scale. Central banks are well-positioned to implement such systems that maximize utility across all stakeholders while maintaining compliance and privacy.

Crunchfish outlined its Digital Cash solution that uses a modular, packet-switched layer-2 (L2) architecture to enhance existing layer-1 payment systems. The company's approach augments any underlying L1 payment system by enabling multiple design objectives including resilience, privacy, scalability, and interoperability through off-chain processing while maintaining reconciliation and settlement on the underlying L1 system. The solution addresses vulnerabilities in traditional online payment systems by providing load balancing and congestion avoidance during peak usage, enables new offline payment use cases, and maintains a modular design that separates wallet, terminal, and gateway components for flexibility and healthy ecosystem competition. By integrating packet-switching architecture similar to how the internet revolutionized communication layers, Crunchfish's system ensures survivability and load balancing for high-volume payment networks while offering universal interoperability across devices, geographies, and payment systems.

The Swiss National Bank (SNB) is extending and expanding Project Helvetia, which examines various approaches to settling tokenized assets in central bank money, for a further year and continue the pilot until at least mid-2027. (The project was slated to end a two-year extension on June 2026.) Additionally, the SNB is expanding Project Helvetia to include the settlement of tokenized assets with traditional central bank money through a real time gross settlement (RTGS) link, providing BX Digital with a production environment to test this approach alongside the existing wholesale central bank digital currency (CBDC) settlement on the SIX Digital Exchange platform. The extension allows for a direct comparison between the two settlement approaches in a production environment to provide further insights into their respective advantages and disadvantages.

Danmarks Nationalbank published a paper that examines how distributed ledger technology (DLT) could transform financial market infrastructure while maintaining the critical role of central bank money in interbank settlements. The paper explains that while DLT platforms offer potential benefits like streamlined capital markets, automated smart contracts, and reduced intermediaries, they currently cannot integrate with central bank money systems, creating risks of market fragmentation and reduced monetary policy effectiveness. To address this challenge, central banks are exploring two main approaches: connecting existing central bank systems to DLT platforms through interoperability solutions, or developing new systems where central bank money and digital assets operate on the same DLT platform. The analysis emphasizes that regardless of technological advances, maintaining central bank money as the primary settlement asset is essential for financial stability, and Denmark will collaborate with the European Central Bank (ECB) through the TARGET Services platform to ensure future settlement infrastructure developments benefit the Danish financial system while preserving the unique safety and liquidity properties of central bank money.

Banco Central de Bolivia (BCB) reported that crypto-asset (most likely all USDT stablecoin) transactions soared from $46.5 million in the first half of 2024 to $294 million in the same period of 2025. Crypto-assets were outlawed in Bolivia until June 2024. but since the ban was lifted, transaction volumes have reached $430 million across more than 10,000 individual operations. This is occurring amid Bolivia's severe economic crisis, which includes near-zero dollar reserves, 40-year high inflation, fuel shortages, and a currency that has lost half its value on the black market despite an artificially maintained official exchange rate. The central bank noted that these digital payment tools have facilitated access to foreign currency transactions, including remittances and small business payments, benefiting micro and small business owners and families nationwide during the ongoing dollar scarcity crisis.

The IMF published a paper that takes stock of developments and policy issues related to digital payments innovations across sub-Saharan African (SSA) drawing on insights from a recent IMF survey of SSA central banks. The paper highlights the critical role of robust digital infrastructure and promotes a competitive, interoperable ecosystem with active private‑sector participation. Mobile money and fast payment systems (FPS) are encouraged as the cornerstone of financial inclusion. Central bank digital currency (CBDC) is seen as a complementary tool but only justified when clear market failures exist.

The European Parliament ECON Committee published a paper that analyses whether dollar-denominated stablecoins pose risks to European monetary policy and assesses the potential of the digital euro as a countermeasure. It concludes that large-scale adoption of foreign stablecoins in Europe is unlikely due to strong trust in the euro, advanced local payment systems, and regulatory barriers like MiCA. Although stablecoins could theoretically disrupt interest rate transmission, bank lending channels, and exchange rate dynamics, these impacts are minimal under current conditions. The paper argues that the digital euro could offer a credible public alternative to stablecoins, but warns its effectiveness depends on design choices such as holding limits, privacy guarantees, and costs to merchants. Ultimately, while stablecoins currently pose little threat, continuous monitoring is recommended, and the digital euro’s success will hinge on addressing user needs and competitive functionality.

The Bank of Canada published a paper that explores how programmability affects the uniformity and social utility of money using a stylized theoretical framework. It shows that programmable digital currencies emerge naturally when users value the ability to commit to future payments, which they find useful privately. However, this programmability can lead to fragmenting money into different forms with varying liquidity, posing public costs when informational frictions impede their use. The authors find that banning programmability could reduce welfare if informational frictions are minor—but may help if commitment frictions are low. Their results imply that programmable currencies could offer greater social benefits in decentralized, permissionless blockchain environments than in centralized systems.

The IMF published a paper that examines the benefits of interoperability in retail digital payment systems, focusing on India’s Unified Payments Interface (UPI). It highlights how interoperability allows users to transact seamlessly across different apps, enhancing user choice by enabling them to select preferred apps based on trust, features, or reliability. This freedom fosters competition among providers, incentivizing innovation and quality improvements. The paper presents evidence consistent with this framework using granular UPI payments data. It shows that interoperability has indeed led to higher adoption of digital payments, reduced reliance on cash, and prevented market dominance by a single provider. The study also underscores the importance of regulatory vigilance to maintain a competitive and open system.

In collaboration with the Bank for International Settlements Innovation Hub (BISIH), the Bank of England (BoE) has launched the DLT Innovation Challenge to engage with the private sector to better understand the implications of incorporating distributed ledger technology (DLT) into wholesale central bank settlement, and demonstrate how to securely transact and settle central bank money on an external ledger that is not controlled by the Bank. In particular, it will explore environments where trust is not inherent—where participants must rely on mechanisms other than central bank control of the ledger to ensure security, finality, and integrity. This framing allows us to test how trust can be established in decentralized or externally governed infrastructures, and to draw insights that may inform the wider wholesale experimentation program.

The European Commission (EC) has launched a study to assess existing technology and technology preferences for offline electronic proximity transactions. The study has three objectives: (1) conduct a market analysis and forecast future trends for offline payments; (2) perform a technology assessment of currently available solutions and explore future innovation scenarios and; (3) identify barriers to innovation. The study is kicking off with a survey conducted by Bearing Point to seek opinions from a consumer perspective to help understand current end user preferences on electronic payments in terms of devices, value transfer technologies but also possible hurdles that may serve as barriers to adoption of potentially innovative payment solutions.

Banco Central del Uruguay (BCU) published a paper that investigates the financial stability implications of introducing a central bank digital currency (CBDC). It addresses concerns about "slow" disintermediation (where CBDC crowds out bank deposits) and "fast" disintermediation (where CBDC facilitates digital bank runs). The authors find that a simple, non-interest-bearing CBDC, designed as a digital equivalent of cash, does not inherently cause disintermediation, as it primarily substitutes physical cash for transactions. Additionally, they demonstrate that a well-implemented emergency liquidity assistance (ELA) policy, enabled by real-time CBDC transactions, can prevent bank runs by providing timely liquidity to illiquid banks, thereby eliminating the conditions for equilibrium bank runs. The study concludes that a properly designed CBDC can enhance financial stability in a cashless economy by mitigating both forms of disintermediation while maintaining trust in the central bank and the banking system. [Read more at the BCU]

Kevin Dowd posted a paper that examines the global implementation of central bank digital currencies (CBDCs) and concludes that, to date, all such initiatives have been unsuccessful in improving the well-being of the population. The paper highlights two abandoned CBDC experiments in Finland and Ecuador, noting their low public adoption rates and lack of tangible benefits compared to existing alternatives. It also analyzes ongoing CBDC programs in the Bahamas, the East Caribbean Currency Union, Jamaica, China, and Nigeria, categorizing them as "abandoned experiments, embarrassing flops and monumental exercises in policymaker hubris". The author argues that public demand for CBDCs has been consistently low in cases where data is available, suggesting that central banks are not adept at retail-facing activities and cannot effectively compete with private payment providers. The Nigerian e-Naira is presented as a "major disaster," where a forced cashless policy aimed at promoting the CBDC led to widespread economic disruption and public suffering, ultimately failing to increase e-Naira adoption.