It is becoming increasingly difficult to keep up with all of the announcements from a raft of central banks and think tanks but here are some that caught my attention:
The minutes of the July meeting of the Bank of England’s CBDC Technology Forum were released. Key discussion areas included:
The Bank of England explained that they were now at the start of the design phase of the digital pound roadmap, during which they would conduct experiments and proofs of concept, and develop a detailed digital pound blueprint. They noted that the design phase was expected to last for 2-3 years, after which a decision would be made on whether or not to proceed to the build phase.
The creation of time limited sub-groups focused on:
technology options to ensure privacy in a digital pound, and design of the alias service
models of interaction between PIPs
core ledger technology
requirements for providing a platform for innovation. Members were supportive of those topics
The Bank for International Settlements (BIS) released a short Executive Summary on CBDCS that looks at their benefits and challenges, architecture and cross-border aspects.
The BIS issued a “Lesson learnt on CBDCs” report to the G20 Finance Ministers and Central Bank Governors. The Innovation Hub conducted 12 CBDC projects that covered retail and wholesale, both in a domestic and cross-border context. For domestic use cases, two projects investigated wholesale CBDC (wCBDC) and five looked at retail CBDC (rCBDC). Across borders, four experiments looked at wCBDC and one looked at rCBDC. For each category, the key insights and lessons learnt are presented from the perspectives of desirability, feasibility and viability.
For the different types of CBDC the report found:
Wholesale CBDCs will be driven by the public and private sector's quest to shape the future of trading and settlement.
A retail CBDC is a complex undertaking, and not only for the central banks. The Hub's projects focus on individual aspects to shed light on these complexities. In particular, they are experimenting with (i) the most promising CBDC model, a two-tier model with public-private partnership; (ii) the most fundamental feature, privacy, and (iii) the greatest challenge, cyber security.
Cross-border CBDC arrangements are novel territory, and more complicated than their domestic counterparts. Common platforms are likely to have more upside and bring potential operational efficiencies compared with current arrangements but hub-and-spoke designs provide more flexibility for domestic systems and are thus easier to contemplate at least in the short run. By leveraging new technologies, central banks can provide new solutions to many "old" operational challenges and policy questions.
The BIS issued the results of its 2022 survey on central bank digital currencies and crypto. It found that:
Most central banks are exploring central bank digital currencies (CBDCs), and more than half of them are conducting concrete experiments or working on a pilot. The responses from 86 central banks show that the proportion engaged in some form of CBDC work has risen to 93% and that the work on retail CBDC is more advanced than on wholesale CBDC.
Most central banks see potential value in having both a retail CBDC and a fast payment system, and that there could be 15 retail and nine wholesale CBDCs publicly circulating in 2030.
To date, stablecoins and other cryptoassets are rarely used for payments outside the crypto ecosystem.
In its white paper - Central Bank Digital Currency Global Interoperability Principles, the World Economic Forum recommended that:
Central banks are to foster public-private cooperation, engage in thought leadership and advocacy, and education and awareness on CBDCs
Policy-makers aim for regulatory consistency, participate in international forums and foster innovation and research in CBDC
The private sector, should increase participation in regulatory sandboxes and innovation hubs, interoperability testing and pilots, and participation in standards development
Financial market infrastructure players should focus on interoperable clearing and settlement systems, standardisation of messaging formats, and sharing insights from interoperability work.
The BIS and the central banks of Hong Kong and Israel released the results of Project Sela. The project was a public-private partnership that used private intermediaries to create a retail central bank digital currency (rCBDC) combining the desirable characteristics of cash and the advantages of digitalisation. In the Sela ecosystem, the central bank that issues an rCBDC maintains the ledger for it with pseudo-anonymous end-user accounts and provides instantaneous settlement with a real-time gross settlement (RTGS) system. Funding institutions manage users’ accounts and convert the rCBDC into and out of bank deposits and cash. An intermediary called an access enabler handles all customer-facing services, including Know Your Customer compliance, endorsements and routing, while end users maintain control over their electronic wallets with cryptographic keys.
SWIFT announced that three central banks have joined the beta phase of its interoperability project by integrated their infrastructure with SWIFT’s “CBDC connector solution” for direct testing. The first phase of sandbox testing began in March with over 18 participants, including Royal Bank of Canada, Banque de France, Société Générale, BNP Paribas, Monetary Authority of Singapore, HSBC, Deutsche Bundesbank and NatWest. The sandbox had over 5,000 transactions in the course of 12 weeks.
The Regulated Liability Network (RLN) completed its UK discovery phase and is preparing to a use case with a retail CBDC. The RLN project seeks to accommodate central bank, commercial bank and regulated non-bank transactions operating within “partitions” on a single network. The RLN is a regulated financial marketplace infrastructure in the UK with contributors from financial institutions worldwide. The RLN discovery phase examined three potential use cases for the network — consumer domestic payment, wholesale cross-border payment and securities settlement — and settled on the first case to pursue a proof-of-concept (PoC). The report noted many domestic payment uses that could be tested and cited the list presented in the results of Project Rosalind as examples. The report found that the RLN provided several benefits for domestic payments. It helped provide consistency between CBDCs and commercial bank money, thus helping preserve the singularity of the currency. It could also help reduce authorised push payment fraud and give consumers more control in case of undelivered goods. Additionally, it would improve settlement time.
