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 May meeting of the Bank of England’s CBDC Technology Forum were released. Key areas of discussion included:
Exploring technology options to ensure privacy in a digital pound and the design of the alias service which concluded that although there would be trade-offs between privacy and other considerations, such as functionality and usability, there were techniques that could be used to support privacy. They also encouraged the Bank to consider separating the roles of ledger operator and alias service operator in the digital pound architecture
Whether a locking functionality was desirable from a user’s perspective (which would allow users to earmark funds based on a series of conditions being met
The IMF provided a market update to the Board. It included the following observations:
CBDC’s key value lies in its property as public money in an increasingly digitalised economy. Retail CBDC could address medium-term issues such as maintaining monetary sovereignty, bolstering trust in domestic money and payments, and ensuring interoperability of public and private money in the digital age
Central banks should address existing pain points in payment systems while preserving capacity to adapt to a multi-instrument multi-infrastructure future landscape, where a CBDC system could coexist with fast payment systems and emoney networks
The transition path will be country specific. While some central banks position themselves as leaders in exploring CBDC, others may opt to be observers due to various constraints
Delivering a cyber-resilient CBDC requires appropriate designs, foundational principles, and good practices that should be built into it at an early stage
As country experiences indicate, CBDC adoption could face hurdles, including the classic chicken-and-egg problem wherein adoption by consumers is dependent on the participation of merchants and vice versa. Adoption requires a strategic approach adapted to country circumstances based on four elements—regulation, education/communication, design, and incentives
CBDC offers an opportunity to improve the trade-off between data use and privacy protection as compared to private digital payment systems, including through robust institutional arrangements and technological solutions. CBDC can be designed to cater to the privacy needs of different users
When CBDC is issued and adopted, it will substitute for other forms of money and change reserve balances in the banking system, which in turn may influence short-term interest rates. They may affect central banks’ ability to forecast liquidity, draw market rates away from the policy target, and complicate banks’ liquidity management. CBDC may therefore affect how central banks conduct monetary policy operations
When designing and implementing CBDC systems, it is beneficial to factor in cross-border implications from the start. By doing so, central banks can diminish risks of having to redesign or adjust their domestic CBDC system at a later stage. They could help overcome frictions in crossborder payments if they are designed bearing five interrelated elements in mind: access, communication, currency conversion, compliance, and settlement
The Governor of the Bank of England delivered a speech about “The future of money and payments. In it he noted that “Absent innovation in commercial bank money, central banks may be left as the only game in town insofar as retail payments innovation is concerned.”
The European Central Bank issued a Call for expressions of interest in innovation partnerships for the digital euro. The objectives are:
To explore innovative use cases in retail payments, specifically for conditional payments, to prepare for the possible issuance of a digital euro
To share information about the current draft design of the digital euro with those who could become part of the digital euro ecosystem. Raising awareness in this way will be another step towards establishing how the digital euro would work on a technical level
A new study by Juniper Research has forecast that, by 2031, the number of global payments made using CBDCs will reach 7.8 billion, up from 307.1 million in 2024. This growth will be driven by central banks seeking to safeguard monetary sovereignty in the face of card-network dominance and growing stablecoin popularity. Collaborative projects such as mBridge and Project Icebreaker, which seek to connect national CBDCs, will leave nations less reliant on established payment rails. An extract from the new report can be found at Global CBDCs and Stablecoins Market 2024-2031.
It has been reported that the Bank for International Settlements (BIS) is considering whether to shut down Project mBridge, the cross border CBDC payments platform developed in collaboration with the central banks of China, Hong Kong, Thailand and the UAE. In June Saudi Arabia joined at the same time as mBridge launched as a minimum viable product. A concern is Russia’s ongoing enthusiasm for developing a similar sounding BRICS Bridge.
In a speech by Mr Leong Sing Chiong, Deputy Managing Director (Markets & Development) of the Monetary Authority of Singapore, the following requirements were identified in order for tokenisation to gain critical mass:
Enhancing liquidity
Developing foundational digital infrastructure
Common industry standards to facilitate broad based industry adoption of tokenised assets
common settlement assets (such as CBDCs).
The BIS issued an update on Project Mandala. Its key objective is to increase the efficiency, transparency and speed of large-value cross-border transactions without compromising the quality and soundness of regulatory checks. The project explores a technological solution to automate compliance procedures, enhance transparency on country-specific policies, and provide real-time reporting and monitoring for regulators and supervisors
