This blog covers the growing world of CBDCs and includes two helpful trackers on which countries are doing what and when. It highlights what has caught my attention from the raft of announcements from central banks and think tanks.
The Economic Affairs Committee of the House of Lords in the UK released its report into CBDCs concluding that there was no convincing case for why the UK needed one. The committee found that while a CBDC could provide some advantages, it could also present significant challenges for financial stability and the protection of privacy.
There are two useful sites that track the development of CBDCs across the world:
- Atlantic Council
- An open-source CBDC tracker
Project Jura – a public-private collaboration involving the Banque de France, the BIS Innovation Hub Swiss Centre, the Swiss National Bank and a private sector consortium concluded in December 2021. Jura explored a new approach including subnetworks and dual-notary signing, which may give central banks comfort to issue wholesale CBDC on a third-party platform and to provide non-resident financial institutions with access to wholesale CBDC.
Phase II of Project Helvetia - a multi-phase investigation by the BIS Innovation Hub, the Swiss National Bank (SNB) and the financial infrastructure operator SIX was concluded in January 2022. It demonstrated that a wholesale central bank digital currency (wCBDC) could be integrated with existing core banking systems and processes of commercial and central banks. Furthermore, it showed that issuing a wCBDC on a distributed ledger technology (DLT) platform operated and owned by a private sector company was feasible under Swiss law. The experiment – conducted together with five commercial banks – explored the settlement of interbank, monetary policy and cross-border transactions on the test systems of SIX Digital Exchange (SDX), the Swiss real-time gross settlement system – SIX Interbank Clearing (SIC) – and core banking systems.
Fabio Panetta of the ECB made a number of speeches in November 2021 including:
- A speech on the present and future of money in the digital age
- A blog on the ECB’s case for central bank digital currencies
- A speech on Designing a digital euro for the retail payments landscape of tomorrow
- A presentation on Digital currencies around the world – what are the policy implications?
WeChat said it will begin accepting digital yuan payments through WeChat Pay, its digital wallet. As many as 1.4 billion people use WeChat and Alipay digital wallets to send and receive mobile payments. The central bank has already released its digital yuan wallet on the Google and Apple app stores within China.
Visa announced a partnership with ConsenSys, a blockchain technology company, to develop new infrastructure that can help central banks and traditional financial institutions come together and build simple, user-friendly services on top of CBDC networks.
Minutes of the CBDC Technology Forum - November 2021 were released. The meeting had discussed operating models and the issue of privacy. Key messages included:
- Token-based models were noted to have challenges with extensibility, whilst the account based models might present additional considerations with regard to privacy
- A standard set of architecturally-significant use cases and customer personas, which could be used to evaluate different models and clarify how they may meet customer needs could help facilitate more detailed technical discussions
- Members assumed that some actor in the CBDC system would need to know with an appropriate degree of confidence who controls a CBDC wallet in order to comply with regulations. Some Members thought that delivering a guarantee of privacy for a non-anonymous CBDC would be technically challenging and require advanced cryptography. It would be useful to lay down the policy expectations on privacy to facilitate more in-depth discussions around the potential technology solutions.
Minutes of the CBDC Engagement Forum- November 2021 were released. Key messages included:
- Future agenda should include:
o Importance of financial inclusion
o Co-existence and interoperability of CBDC with other payment rails, both domestically and cross-border, as well as with other forms of digital money such as privately issued stablecoins and, more widely, with DeFi.
o Exploring the interaction between CBDC and other innovation initiatives such as Open Banking.
- If the Bank and HMT should first define use cases and consumer needs for CBDC and then design CBDC accordingly or whether design should come first and use cases would follow
- The Bank should consider conducting behavioural research as an alternative to traditional surveys to gauge consumer appetite for innovation
