G+D’s Journey to CBDCs

Tanja Heßdörfer was interviewed at the CBDC conference in August for this article. Tanja is Head of Sales and Business Development, Central Bank Digital Currency (CBDC)s, at Giesecke+Devrient (G+D).

She must be doing something right since the Central Bank of Eswatini is the latest central bank to announce they are working with G+D on a CBDC project.

Identifying a market opportunity

G+D formed a team in 2017 to think about the future in the context of the rise of cryptocurrencies and stablecoins and regulated digital payments. The team is made up of people from every part of G+D – banknotes, connectivity, cyber security, mobile payment technology etc.

Technologists and market facing staff were put together with a focus on serving central banks. Tanja joined G+D and this team in 2018.

At this early stage, G+D conducted a series of workshops with central banks to focus on CBDCs. The workshops defined what a CBDC needed to do to be successful. This included design criteria, privacy, legal issues, infrastructure, access, resilience and functionality. The work looked at differences between the needs of emerging and advanced markets. Only then did G+D screen the market for technologies.

The result was one set of requirements for both emerging and advanced markets but a different focus for each. For example, the need for an off-line function was shared but the emphasis was different. Advanced markets prioritised efficiency while emerging markets concentrated on inclusion.

G+D’s market analysis found that no technology satisfied all needs, creating a gap in the market for it to focus on. G+D was confident that its long history of working for central banks and its extensive customer list, combined with its position as a security technology company, meant that it had access to the central bank market and the in-house identity and cyber security hardware and software knowledge to be successful.

Organising to succeed

G+D decided to set up a separate unit to work on CBDC.

A team was brought together with access to the G+D Group resources and its cyber security partners. To create and develop this technology development team, G+D went out to hire talent and consulted with partners, commercial banks and fintech companies.

The focus has been on a retail CBDC. An industry standard crypto technology for a token-based system was chosen. The system is back-end agnostic, meaning that it can work with a distributed ledger technology (DLT) solution, blockchain, a centralised database or a decentralised database as preferred by the central bank.

The CBDC solution is called Filia®, which means ‘Daughter’ in Latin – a reference to its being G+Ds newest member to the payments family.

Steady progress

In June 2021, the Bank of Thailand awarded G+D a contract to develop a prototype of a retail CBDC, a digital Baht. This project is planned to go live at the end of 2022 with 10,000 users and a range of commercial banks involved. It has organised a ‘Hackathon’ to encourage the private sector to add functionality to the digital baht and, therefore, to drive adoption and innovation.

In August 2021, the Bank of Ghana announced that G+D is working with it on its e-cedi project, providing its core technology but not the front-end user- interface. This is being supplied by local companies. G+D is making available software development kits for banks and mobile money operators so that they can integrate the e-cedi into their existing account and payment systems.

This is being piloted in three dissimilar locations, one of which is Accra, but the others are rural. The solution must work with mobile money providers, fintechs and commercial banks. Its offline capability is critical given the lack of infrastructure in rural areas. The e-cedi will allow consecutive offline payments.

Privacy is important, although transactions are not anonymous. The privacy approach ensures the solution is compliant with regulations such as Know Your Customer.

Ghana is pursuing an interesting approach due to the lack of infrastructure and mobile phones in many areas. Filia® was designed from the outset to enable continuous offline payments and can be used via smartphones, smart cards and other forms of digital and hardware wallets without requiring a bank account, network connection, disclosure of private data or fees to the consumer.

The Bank of Ghana is providing smart cards as wallets for the e-cedi. The smart cards include banknote security features such as threads and pigments. The thinking is that the security features on the money in people’s hands and on the smart cards will be similar.

In November 2021, the Monetary Authority of Singapore (MAS) announced G+D as one of the three winners of the Global CBDC Challenge at the Singapore Global Challenge. The judges chose G+D’s solution Filia® for being a means of payment that can be universally used and is truly inclusive, enabling participation in the digital economy even without a smartphone or a bank account.

In March 2022 G+D was successful in the Banco Central do Brasil’s LIFT Challenge Real Digital, having presented an off-line business case for person-to-person, business-to-business and person-to- business solutions based on Filia’s dual offline capability payments, when both the payer and payee are without access to the internet or power supply.

The LIFT challenge was designed to identify the fundamental characteristics of an infrastructure for the Digital Real, which is to be launched as early as 2024.

In June 2022 G+D was selected to advance to the next phase of the Bank for International Settlements (BIS) and Bank Indonesia’s global competition for digital central bank currencies, as part of the third G20 TechSprint.

Indonesia is the G20 presidency and hosted the G20 summit in November on the island of Bali. Ahead of this, the BIS joined forces with Bank Indonesia to launch a global competition for pioneering solutions. G+D’s Filia solution reached the final round of the CBDC Challenge in the ‘Enabling Financial Inclusion’ category.

The challenge required organisations to demonstrate solutions that open up free, secure, non-discriminatory, and state- legitimized access to digital currencies for all people, regardless of their status.

The TechSprint paid particular attention to underserved people and regions that have so far been excluded from digital payments for technical, monetary or social reasons.

In October this year the Central Bank of Eswatini announced that it will work with G+D to research and explore a CBDC. The central bank concluded a CBDC Diagnostic Study in 2020 and now wants an in-depth understanding of the practicalities on implementing a CBDC. It wants to investigate the possibility of issuing a Digital Lilangeni as a complement to cash. This involves developing a design concept having understood the key governance, accessibility, interoperability, security and programmability issues.

In November 2022, G+D’s Filia solution was named as the winner of the Best Technology Award in the Hong Kong Monetary Authority’s (HKMA) Global Fast Track CBDC 2022 competition. HKMA set up this scheme to encourage innovative CBDC technology solutions by recognising companies working in this area.

As an award winner, G+D has the opportunity to work with the HKMA on research and pilot projects to support the future growth of the CBDC ecosystem.