DFC

A paper co-written by Federal Reserve Board (FRB) staffer Elena Falcettoni proposes to differentiate individuals without a bank account but would like to have one (the "unbanked") from individuals that do not have a bank account and are not interested in having one (the "out of banking population"). While the unbanked mostly cite financial and past credit or banking history problems as reasons for not having a bank account, the out of banking population cites a growing mistrust toward the traditional banking system. The paper finds that the latter comprises over 70% of U.S. households without a bank account and concludes that to bank the unbanked (the other 30%) policy interventions should be aimed at encouraging financial institutions to offer more accessible and affordable services.

The Swiss City of Lugano issued its third digital bond on SDX, bringing Lugano's digital bond total to CHF 320 million. Aligned with SDX's objectives under Project Helvetia, this bond leverages a wholesale central bank digital currency (CBDC) for settlement. With dual listing on SDX and the SIX Swiss Exchange, this bond also ensures seamless access for investors across both digital and traditional trading channels.

"Most Europeans now juggle different cards, apps and devices depending on each payment situation, finding that the convenience of digital payments doesn’t always live up to the promise. In the euro area, we are stuck in a fragmented system, where digital payment solutions don’t cover all our needs. While you might easily use a card to pay contactless for a meal or a taxi ride in cities like Madrid or Paris, rural areas in Germany or Austria often only accept cash or local debit cards. Similarly, some mobile apps work well for sending money to family or friends but aren’t accepted for online purchases or by local businesses. In a nutshell, we still don’t have a digital payment solution that works effectively everywhere in the euro area in all payment situations." (ECB Executive Board Member Piero Cipollone)

The European Central Bank (ECB) has established a digital euro innovation platform to collaborate with stakeholders. The main goal is to (i) demonstrate how conditional payments could be implemented on a technical level, (ii) provide the opportunity for participants to interact with simulated digital euro interfaces, and (iii) explore additional use cases, ideas and visions that stakeholders may have for the digital euro. The ECB is encouraging all interested stakeholders to contribute, and it will carefully consider all applications before making selections in early January 2025. Selected “visionaries” will be invited to half-day workshops to present their idea to the ECB, and will be asked to provide a summarizing outcome report.

The National Bank of Kazakhstan (NBK) in collaboration with the State Revenue Committee (Tax Authority) of the Ministry of Finance has launched a Digital Tenge pilot project focused on value-added tax (VAT) reimbursement for exporters. This initiative leverages the programmability of central bank digital currency (CBDC) to automatically mark VAT in business-to-business (B2B) transactions. By doing so, the need for manual checks by tax authorities, is eliminated, significantly streamlining the reimbursement process. It reduced the reimbursement time from 70–75 working days to 10–15 days, with the goal of achieving instant reimbursement in the near future. In total, approximately 40 billion worth of Digital Tenge is now in circulation in the various pilot projects.

According to Bloomberg, the Bank for International Settlements (BIS) is debating whether to shut down its wholesale central bank digital currency (CBDC) based mBridge cross-border payment project. The platform initially was developed by the central banks of China, Thailand, Hong Kong and the United Arab Emirates under the BIS’s Innovation Hub, and recently reached the minimum viable product (MVP) stage. The U.S. Federal Reserve has not joined the project. During discussions among central bankers and finance chiefs at the October 2024 International Monetary Fund and World Bank Annual Meetings, concerns were reportedly expressed about the fact that China is supplying the platform’s key technological backbone.

According to Politico, a battle is brewing between the European Central Bank (ECB) and several European Union national governments over the holding limits that would be applied to a potential digital euro. Under the European Parliament's draft digital euro regulation, the ECB would decide on holding limits, consistent with a vision of the digital euro as an expression of European monetary sovereignty. However, at least nine countries, including Germany, France and the Netherlands, are reportedly concerned that allowing the ECB to set the limit would leave the institution with exclusive influence over a new tool that could have outsized effects on banking stability.

The Bank of Canada (BOC) published a paper that explores the consumer value proposition of a hypothetical digital Canadian dollar. It employs a methodology that allows participants to interact with research prototypes of increasing complexity to reveal their preferences, constraints, and adoption influences. Qualitative insights are corroborated using quantitative, large-population surveys and contrasted with results from a Bank of Canada open online public survey. The results show that most participants would support the issuance of a digital dollar, but broad early adoption is unlikely given that available payment methods meet most user needs. Important considerations for appeal and adoption include universal merchant acceptance, low costs, easy access, simplified online payments, shared payment features, budgeting tools, and customizable security and privacy settings. Participants cited these features far more often than offline functionality and the ability to make anonymous payments. The results also show that certain groups may strongly resist a digital dollar if they conflate its launch with the end of cash issuance.

Bank of Thailand (BOT) staff published a paper that analyzes end-to-end transaction data from the central bank's seven-month 2023 retail CBDC pilot. The pilot's three financial service providers (FSPs) appeared to engage in asymmetric behavior between issuance and redemption of CBDC. They generally front-loaded CBDC to absorb uncertainty of future demand and pursued an adaptive strategy to adjust the level of their CBDC reserve balance following retail transaction observed to minimize the opportunity cost of holding unremunerated CBDC. Retail users tend to use CBDC as a means of payment but not as story of value, managing their CBDC holdings to meet the demand for making payments to minimize the opportunity cost of holding CBDC.

Medium published an English language summary by Norbert Gehrke of the October 17, 2024 meeting of the Bank of Japan's (BOJ's) CBDC Forum Plenary. There have been three such meetings, the last one being in January 2024. The BOJ is conducting proof-of-concept (PoC) experiments in stages to verify the technical feasibility of CBDC. Currently, the BOJ's experiments are focusing on performance, scalability, and privacy considerations. The system is designed to avoid handling personal information within the ledger management section, to ensure that user information and transaction details remain confidential.

Norges Bank Deputy Governor Pal Longva says that the central bank remains on track to finalize a recommendation in 2025 on whether it should introduce a central bank digital currency (CBDC). He said there’s “no urgency” to accelerate the decision-making process, which is looking at both retail and wholesale versions, with increasing weight being put on the latter. Longva’s remarks come less than a month before a November 15, 2024 deadline for a government task force to submit a report on ensuring safe and simple payments.

As part of the Eurosystem exploratory work to test new technologies for the settlement of wholesale transactions in central bank money, from May to November 2024, Eligible Market Participants and Eligible Market DLT Operators will have the opportunity to explore the interoperability solution(s) of their choice offered by the Eurosystem. The Deutsche Bundesbank (BuBa) Trigger Solution is one of these three available solutions. It links DLT platforms operated by the market with the traditional Eurosystem payment system (TARGET), thus enabling the direct settlement of DLT-based wholesale transactions on participants’ existing RTGS accounts in central bank money. The exploratory work comprises both trials in the participants’ production systems and experiments in the test environments. The BuBa maintains a list of all such use-case experiments here.

In 2024, the ECB invited market participants to test how new technologies like distributed-ledger technologies (DLT) would work for central bank money settlement. The so-called ECB trials and experiments are aimed at exploring the potential of digital payments targeting a wholesale central bank digital currency (CBDC). Together with leading institutions, infrastructures and fintech businesses, Deutsche Börse Group contributes to this transformative endeavor with its Clearstream and Eurex Clearing businesses. The Deutsche Börse maintains a list of all such use-case experiments here.

Banco Central do Brasil (BCB) is calling for new companies to participate in its Drex wholesale central bank digital currency (CBDC) project aimed at the tokenization of the Brazilian financial system. There is no initial limitation on the number of business cases that can be selected. The number of selected proposals will be determined on the set of applications received and considering the central bank’s technical and operational capacity.

Mu Changchun, Director of the Digital Currency Institute of the People's Bank of China (PBOC), provided an update on the digital renminbi (RMB) pilot. As of the end of July 2024, there were 180 million personal digital RMB wallets, and the cumulative transaction amount was 7.3 trillion yuan, including high-value securities and trade transactions.

The Centre for International Governance Innovation (CIGI) published a paper that explores the democratic governance required to make an informed decision on whether to issue a CBDC and, if one is to be issued, how to develop and implement it responsibly. It reveals a disconnect in Canadian CBDC discussions: while the government is responsible for the decision to issue such a currency, political engagement on the topic has been limited. Policy recommendations aimed at fostering democratic oversight, public engagement and the protection of rights in light of the potential development of a digital Canadian dollar are provided. For example, the paper suggests that Canada could leverage existing collaborative initiatives, such as the Canadian Digital Regulators Forum, to create a more comprehensive and inclusive CBDC governance framework.

The Central Bank of Eswatini (CBE) published a paper co-written with Giesecke+Devrient (G+D) on the design characteristics of a potential domestic retail central bank digital currency (CBDC). It also reported on proof of concept (POC) tests of online and offline payment use cases involving selected CBE staff members. A digital lilangeni would be fully interoperability with the existing payment methods and wholesale and retail infrastructures, and be available 24/7/365 in (near) real-time manner. Also it would be unremunerated, as it will be primarily aimed to be a means of payment and not a savings vehicle. Although it would not be run on a distributed ledger technology (DLT) platform, it would be built on a distributed database, operated and permissioned by the CBE.

Wirtschafts und Infrastrukturbank Hessen (WIBank), the Helaba owned German development bank, issued a registered bond on a public blockchain. It was settled in a delivery versus payment transaction (DvP) using the Bundesbank’s Trigger solution, which initiates settlement on the TARGET2 payment system. The transaction was part of the Eurosystem’s wholesale DLT settlement trials.

[September 27, 2024] Central Bank Payment News (CBPN) published an article by Aigul Bakesarieva, Head of the Digital Som Project Group, National Bank of the Kyrgyz Republic on central bank digital currency (CBDC) developments at her central bank. On May 25, 2022 the Board of the National Bank launched the digital som concept based on a two-tier retail model. The digital som will be a unique digital token that will be stored in a special digital wallet, with transfers . occurring directly from one digital wallet to another.

ABN AMRO and Rabobank issued €1.1 million of one-month digital commercial tokenized on the Deutsche Börse Clearstream D7 distributed ledger technology (DLT) based platform. The Luxembourg transaction was settled atomically using a wholesale central bank digital currency (CBDC) issued by the Banque de France, as part of the Eurosystem’s DLT trials for wholesale settlement using central bank money. This is Clearstream‘s 5th use case at the European Central Bank (ECB) trials on the D7 platform.

[August 22, 2019] The Rwandan central bank is looking into ways it could potentially issue its own digital currency to make the processing of transactions more efficient and to boost economic growth. “There are still concerns about how exactly you convert the entire currency into digital form, how to distribute that and how fast can you process those transactions,” Financial Stability Director-General Peace Masozera Uwase said. “Challenges come in, if technology is down how do you deal with such issues? “We will join in once we are ready.”

[September 18, 2024] The Reserve Bank of Australia (RBA) announced the launch of Project Acacia to build on the lessons from the previous year's central bank digital currency (CBDC) pilot by focusing on opportunities to uplift the efficiency, transparency and resilience of wholesale markets through tokenized money and new settlement infrastructure. Subsequent phases of the project may involve cross-border applications with regional central banks. In October 2024 the RBA and the Digital Finance Cooperative Research Centre, will publish a consultation paper inviting industry engagement. The project is scheduled for completion in the second half of 2025.