Latest Work on CBDCs

Central banks making statements about investigating or working on Central Bank Digital Currencies (CBDCs) this month include Brazil, Georgia, Japan, Kazakhstan, Norway, Pakistan and Russia.

Digital Dollar Project Launched

A not-for-profit ‘Digital Dollar Project’ has been set up in the US with the aim of setting standards for a future CBDC to ‘balance the complex issues of a CBDC and how to incorporate key societal values, like privacy rights, financial inclusion and rule of law’, according to Chris Giancarlo, who is one of the founders of the project.

The project will run five pilot programmes over the next year to explore different designs and user cases for a possible retail and wholesale CBDC.

The Digital Dollar Foundation is working in partnership with Accenture, who is funding the first phase, and intends to match the funds necessary to launch the first five pilot programmes.

The results will be made public for consideration by Congress and use in academic studies.

Thailand Consults on a Future Retail CBDC

The Bank of Thailand is consulting about its plans for a future retail CBDC. It has published a paper, ‘The Way Forward for Retail CBDC in Thailand’, and invited comments up until 15 June.

The Bank ran a wholesale CBDC project (Intahon 2018-2020) as a proof-of-concept based on Distributed Ledger Technology (DLT). It explored a number of user cases, including enabling automated regulatory compliance processes in an attempt to tackle high fees relating to cross-border payments. It was extended to investigate business applications such as invoice financing and conditional payments.

The need for a retail CBDC is to respond if a privately issued digital currency were widely adopted in Thailand. This might bring risks both to the users and the nation’s financial and monetary stability. The goal, therefore, is to see if a CBDC can be created that is safe, reliable and accessible by the public. It will need to work as an open digital payment system delivering financial inclusion and innovation.

To mitigate against a range of identified risks, the paper suggests the Thai solution would be based on a two-tier distribution model that gives the private sector an active role in payments. Initially, it would be non-interest bearing, with limited holdings, transactions and conversion allowed.

The Bank wants to harness the advantages of both centralised and decentralised (DLT) technology. Centralised technology is good for scalability and performance, while DLT offers great resilience, and its cryptography techniques can enhance security. As with cash, the user should have little or no costs using the CBDC. The Bank wants the system to be open so that the private sector can innovate, for example using programmability to drive innovation.

Finally, to achieve success, the Bank believes it will need to get three elements right - user accessibility, the digital infrastructure and the legal and regulatory framework. Putting those in place will need a high level of co-operation.

The implications of a retail CBDC are wide ranging and significant. The decision will need the government, regulatory agencies, the public and a wide range of stakeholders to support it, hence this consultation.

Bank of Israel Consults on a Digital Shekel

The Bank of Israel will also consult on a future retail CBDC with a closing date of 31 July. It has published a draft model along with possible benefits and issues that need examination.

Like Thailand, the model is for a two-tier framework where the central bank issues the digital shekels to private sector payment providers and they manage the interface with the public.

The Bank will run a light infrastructure based either on DLT or a centralised ledger and the private sector will be left to compete on innovation.

G+D Create a ‘Public Currency’ Cluster Combining CBDCs and Currency

Dr Wolfram Seidemann, CEO at G+D Currency Technology, has published a paper about CBDCs.

His argument is that money is important, it belongs to us all. Currencies are crucial to maintain stability, reduce risks and ensure growth and prosperity to society. Given that the world is going digital, it makes sense to have currency in a digital format. G+D is looking to contribute to this evolution with an innovative concept for digital cash called Filia.

G+D is working with a number of proof-of-concepts and pilot projects with central banks around the world. Its vision for Filia is that it is a CBDC issued by central banks, distributed by banks and fintechs and available to all in multiple formats. The goal is for Filia to offer privacy and meet the regulatory requirements of ‘Know Your Customer’ etc. It will be compatible with DLT infrastructure.

G+D believes that cash and CBDCs are similar, both need to be trusted by the public and deliver financial stability, security, accessibility and privacy. Ultimately the public need to have a choice between using physical or digital currency.

As a result, G+D has announced that it is putting physical and digital currency into one portfolio cluster, ‘Public Currency’.

China’s DCEP Pilot Continues to Develop

China’s pilot for its Digital Currency Electronic Payment (DCEP) continues to evolve.

In China, Alipay and WeChat Pay are the main electronic payment tools. To use them you need to link a local bank card and local phone number to the payment account. This is not possible for foreign visitors.

In readiness for the 2022 Beijing Winter Olympics, the latest developments are two commercial banks unveiling prototype ATMs designed to allow foreign visitors to try DCEPs. The ATMs allows foreigners to exchange up to 17 different foreign currencies and issues a DCEP hardware wallet in the form of a bank card.

The Industrial and Commercial Bank of China (ICBC) is testing a similar ATM which allows people to deposit cash and receive digital yuan chip wallets. It is believed to accept foreign currency, although there are no details about this at present.

Local media reported that at a Digital China Summit held in the Fujian provincial city of Fuzhou, JD.com, announced that it is paying employees in five cities with digital yuan.