DFC

The Latin American (LATAM) Journal of Central Banking published a paper on central bank digital currencies (CBDCs) in Latin America and the Caribbean, by staff from the Bank for International Settlements (BIS), Central Bank of Colombia, and American Enterprise Institute (AEI). The paper draws heavily from the Committee on Payments and Infrastructures (CPMI) annual survey of central banks regarding interest in, and motivations for, exploring CBDC in their jurisdiction.

Banca d'Italia published a paper on the FROSTed Byzantine Fault Tolerance (FBFT) protocol, an approach to DLT proof of authority (PoA) validation meant to strengthen the security of the ledger, its tolerance to faults or attacks, and the confidentiality of validators. It combines the practical byzantine fault tolerance (PBFT) algorithm with the flexible round-optimized Schnorr threshold (FROST) signature scheme. The resulting system is an alternative platform for a distributed, resilient transactional system. Operated by a set of trusted actors, distributed at geographic scale, it holds potential for mission-critical applications, such as wholesale and retail CBDC, and asset tokenization schemes.

"Over the past year, Lund says he's met with 20 central banks exploring the potential benefits of issuing their own fiat cryptocurrency on a blockchain."

"The new patent outlines how the proposed digital wallet could be used to track transaction data in coordination with a centralized digital currency issuance registration agency. The wallet would enable multi-signature security and manage digital assets that are encrypted - as existing cryptocurrencies - with private keys. Transaction queries would yield results including the digital currency type, amount, source currency, as well as identification of the source and destination wallets."

urrently, the Bahaman archipelago on the east of Florida in the Atlantic Ocean has two fiat currencies, the USD and the Bahamian Dollar, both of which are simultaneously used. While the Bohemian dollar is currently pegged at a 1:1 ratio with the USD, the Bahamas actually do not have its own currency. With the development of a native cryptocurrency, the archipelago could finally have a truly state-owned dollar that would represent its gross domestic product worth 9 billion USD.

"Stating he hopes Grand Bahama becomes the digital paradise of the region, the Deputy Prime Minister said, “The production of a modern fully digital payment service is the way forward for this era of governance. A digital Bahamian currency is especially important for the many Family Islands as they have seen many commercial banks downsize and pull out of their communities, leaving them without banking services. As an island nation, where transportation can be an inconvenience for many, especially the elderly, and costly, we must offer financial services digitally and securely."

"The Bank of Jamaica is beginning to explore the issues related to a central bank-issued virtual currency. There have been talks among some Caribbean countries about launching a regional cryptocurrency. There is no realistic prospect of that at the moment. So a Caribbean cryptocurrency would have to address the common currency issue first. How do you do that when some countries have fixed rates, others have floating rates, and there is a variety of monetary regimes? I am not against discussing it, but it does not seem realistic for the Caribbean as a whole. I do not think cryptocurrencies are a better answer to a common currency than a common currency, and I do not think either of them is practical for the English-speaking Caribbean."

"The Venezuelan Minister of Habitat and Housing Ildemaro Villarroel has announced that the country’s government is planning to fund the construction of houses for the homeless with the national cryptocurrency Petro, Criptotendencia reports Thursday, June 5."

Ultimately, I think that stablecoins will play an important role in bridging traditional financial markets with the emerging, programmable financial tools enabled by cryptocurrencies. Reducing the friction between the crypto and fiat financial systems will help increase access to new kinds of assets and opportunities, which is critical for projects and companies currently building in the crypto space.

"Powell clearly stated on Wednesday that the Federal Reserve is not considering a digital currency, saying, “That’s not something we’re looking at.”"

"Many central banks are contemplating whether to issue a central bank digital currency (CDBC). CDBC has certain potential benefits, including the possibility that it can bear interest. However, using CBDC is costly for agents, perhaps because they lose their anonymity when using CBDC instead of cash. I study optimal monetary policy when only cash, only CBDC, or both cash and CBDC are available to agents. If the cost of using CBDC is not too high, more efficient allocations can be implemented by using CBDC than with cash, and the first best can be achieved. Having both cash and CBDC available may result in lower welfare than in cases where only cash or only CBDC is available. The welfare gains of introducing CBDC are estimated as up to 0.64% for Canada."

"Iran is preparing to launch its own “indigenous” state cryptocurrency that authorities envision will help the country circumvent the latest economic sanctions enforced by U.S. President Donald Trump. According to Iran’s state-affiliated news outlet Press TV, domestic authorities have already initiated “a plan to create an indigenous cryptocurrency” that will function both as a domestic currency and an international settlement token for global trade and commerce while evading western financial sanctions."

"A research commissioned by the EU states that the crypto markets’ international nature poses a challenge for European regulators because many players (specifically crypto miners) are beyond their jurisdiction. With commercial banks using sly tactics to curb the competition, the researchers expect that bank-issued coins have the potential to reshape the balance of power among cryptocurrencies."

Recently, Informatics Services Corporation (ISC), a big Iranian company specializing in providing "Banking Systems", has declared that it has prepared a blockchain infrastructure for the Central Bank of Iran to launch its own national cryptocurrency.

"Taiwanese company Green World Fintech Services announced last week, that it is introducing a new digital currency into the country's financial markets, and one that will be pegged to the value of the New Taiwan Dollar (NTD). The new digital currency, referred to as a stablecoin, is reportedly being created using the Ethereum network, and will be called the Taiwan Digital Token (TWDT)."

"The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors […] however, the market power of banks in traditional banking services might be used to limit competition in the cryptocurrency market through pre-emptive acquisitions or predatory pricing schemes."

"There seems to be progress for the EURS stablecoin with the recent announcement that an institutional investor had snapped up a $10 million stake in the coin just a few days after it’s launching in Malta. Now, the coin achieved another milestone when it was recently revealed that the world’s first crypto EUR to crypto USD pair was trading live on the crypto exchange HitBtc."

State-Issued Digital Currencies: The Countries Which Adopted, Rejected or Researched the Concept

"But the launch of RCBC’s ePiso, which is being described as a digitized version of the Philippine peso, and how the product works out on the ground could very well determine how the Bangko Sentral ng Pilipinas (BSP) will proceed with the idea of issuing its own digital fiat currency as legal tender in the future."

"In this piece we look over the history of distributed stablecoins, focusing on two case studies, BitShares (BitUSD) and MakerDAO (Dai). We examine the efficacy of various design choices, such as the inclusion of price oracles and pooled collateral. We conclude that while a successful stablecoin is likely to represent the holy grail of financial technology, none of the systems we have examined so far appear robust enough to scale in a meaningful way. The coins we have looked at seem to rely on “why would it trade at any other price?” type logic, to enforce price stability to some extent, although dependence on this reasoning is decreasing as technology improves."

"Cryptocurrencies, unlike government money, are currently mere assets with a constant risk of gaining or losing their value; as a result, they can not be a sound, trustworthy way to store value or to be exchanged for other goods and services. For instance, one might sell a number of goods and receive some coins in return only to find out that prices have fallen in just a couple of minutes, and feel fooled. On the other hand, a buyer might spend some Bitcoin, Ether, or other cryptocurrencies to purchase something and then, figure out prices have skyrocketed in just a few days, and feel a great deal of remorse."

"In order to correctly assess which stablecoin designs have the potential to work — which the industry really needs to be able to do right now — you’ll need to understand some important principles, and be willing to spend considerable time applying them."

Bitt, Inc. announces it has signed a Memorandum of Understanding (MOU) with the Centrale Bank van Curaçao en Sint Maarten (CBCS) to explore the feasibility of the CBCS issuing a digital Curaçao and Sint Maarten guilder to facilitate digital financial payments within the monetary union of Curaçao and Sint Maarten.

Venezuelan President Nicolás Maduro has announced that the national oil-backed cryptocurrency, the Petro, will be used as a unit of account within the country.

We’re two-thirds of the way through the Year of the Stablecoin. Rather than taking yet another look at the many projects still cooking and the theory behind how stablecoins work (here is a good recent overview), I want to take a glance at the projects that are currently live already.

An Australia-based Blockchain startup initially established to provide cross-blockchain payments announced that it is launching its dollar-pegged token to the EOS Blockchain. Announced August 8, the project dubbed Havven disclosed plans of issuing its USD-pegged stablecoin on the EOS Network, slated to go live by the end of 2018. The firm’s token was initially rolled out on the Ethereum Network in June.

Privacy in payments is desired not just for illegal transactions, but also for protection from malfeasance or negligence by counterparties or by the payments system provider itself. Proposals to abolish cash take inadequate account of these legitimate demands for privacy. While central banks can play a useful role in setting standards for payments privacy, they are unlikely to have a comparative advantage at providing privacy. Therefore the replacement of cash by central bank electronic money is likely to spur demand for alternative means of payments to solve specific privacy problems.

"The central bank is determined to address its challenges proactively by exploring the latest technology available, for example, to reduce the level of cash usage within the monetary union, and to facilitate more secure, more AML and KYC compliant, and more efficient financial transactions within and between Curaçao and Sint Maarten," Leila Matroos-Lasten, acting President of the CBCS, said.