Round-Up of CBDC News

Cross Border CBDC Projects Underway

Project Dunbar involves the central banks of Malaysia, Singapore, South Africa and Australia. The project, initiated by the Bank for International Settlements (BIS), is to test the use of CBDCs for international settlement.

Dunbar involves the development of a prototype shared platform for cross-border transactions that will be able to handle the different CBDCs created by the participants, irrespective of their underlying technologies, operating models and governance. If it works, the goal is to eliminate the need for intermediaries required today, saving both time and money.

The project is working to tight timelines since it aims to demonstrate the technical prototypes at the Singapore FinTech Festival in November 2021.

The BIS is running a separate project also looking at cross border payments with the central banks of China, Hong Kong, Thailand and the UAE.

CBDC Tracker

The Atlantic Council has launched an interactive CBDC tracker that is freely available. The tracker, originally launched in April 2020, has now been updated to show launched, pilot, development, research, inactive and cancelled projects. It also has filters for purpose, architecture, infrastructure and access for the different projects.

As at 1 July, it recorded five launched CBDCs, 15 in development and 33 research projects. Its research raises the issue of standards and international co-ordination of financial systems if future currency interoperability issues aren’t to arise.

See the tracker either via Digital Currency New’s web page, cashpaymentnews.com, or directly at www.atlanticcouncil.org/cbdctracker/. 

Roll Out of Digital Yuan Continues

Beijing’s subway system is now compatible with China’s digital yuan. Passengers can buy tickets and all-purpose cards and top them up. People who already had digital yuan wallets can use them at automatic ticket machines. The payment process for digital yuan is similar to using Alipay and WeChat Pay.

A further extension of the digital yuan is the ability of customers of the Industrial and Commercial Bank of China (ICBC) to exchange cash for digital yuan, and vice versa, at over 3,000 deposit and withdrawal all-in-one ATMs in Beijing. This makes the ICBC the first bank to fully launch the digital yuan cash exchange.

The Agricultural Bank of China has deployed ten ATM machines in the Wangfujing area which can exchange digital renminbi and cash. The bank had tested tested digital yuan ATMs during a digital currency pilot in Shenzhen in January.

ICA Responds to Bank Consultation

The International Currency Association (ICA) has submitted its response to a consultation issued by the Bank of England on ‘New Forms of Digital Money’, in particular as it relates to cash.

The main arguments made centred around social and financial inclusion, the store of value function of cash and resilience in the face of electronic system failure. Cash is a public good, and in that context the ICA sees CBDCs as a true innovation in public payment. The submission points out that consumers and merchants face high charges to transact digitally and so a public digital currency would be welcome if it is low cost.

The ICA suggested characteristics of physical cash a CBDC should have in order to be true ‘digital cash’ and conditions to allow physical cash and a public digital currency to exist together.

Countries Looking at CBDCs

Nigeria

The Central Bank of Nigeria (CBN) is due to unveil its e-Naira digital currency later in 2021 according to a press release.

It has selected Bitt Inc as its technical partner. CBN’s press release said Bitt Inc had been chosen due to its ‘technological competence, efficiency, platform security, interoperability, and implementation experience.’ Bitt’s technology is being used by the Eastern Caribbean Central Bank pilot that started in April 2021.

In the announcement, CBN’s governor listed increased cross-border trade, accelerated financial inclusion, cheaper and faster remittance inflows, easier targeted social interventions, as well as improvements in monetary policy effectiveness, payment systems efficiency, and tax collection as benefits.

The CBDC pilot is known as Project Giant. The decision to proceed with a digital naira was made in 2017, with research and exploration ever since.

Vietnam

Prime Minister Decision 942 has laid out a strategy to digitise the government by 2030. The strategy assigns to the State Bank of Vietnam the requirement to research, ‘develop, and pilot the use of virtual currency based on blockchain technology.’ It is illegal to use cryptocurrency as money in Vietnam.

The State Bank is expected to form a task force to collect information and the government is said to be planning a fintech regulatory sandbox and a digital currency pilot.

UAE

The Central Bank of the United Arab Emirates (UAE) plans to launch a CBDC within the next five years, according to its recently published 2023-2026 strategy. It has an ambition to be among the world’s top ten central banks. To achieve this, in addition to a CBDC, it plans to drive digital transformation in the private sector based on using artificial intelligence and big data solutions.

Korea

In May 2021 the Bank of Korea launched a tender for a blockchain simulation project for a digital won. The tender required a primary operator. The project will run through to December involving trialling basic functions such as creating, issuing and redeeming a digital won along with a secret keys and wallet function.

A second phase will follow on to look at more advanced functions including cross-border payments, off-line payments and integration with digital asset systems. This will require programmable money and technology to safeguard privacy.

India

Bloomberg has reported that the Reserve Bank of India is also looking at running a series of pilot programmes for a possible CBDC. It is considering a phased introduction to allow time for necessary legal changes to the country’s foreign-exchange rules to be made.

Ukraine

The President of Ukraine, Volodymyr Zelensky has signed a bill that allows the National Bank of Ukraine (NBU) to issue its own CBDC. NBU started work on CBDCs in 2018, building a prototype on the Stellar blockchain and issuing a report on this work in 2019.

The bill, ‘On Payment Services’, regulates payment services, particularly digital payments. It allows the NBU to create a testing environment for fintech start-ups.