CBDC News

Wholesale CBDCs Used for Cross-Border Settlement

The Banque de France, the Swiss National Bank and the Bank for International Settlements (BIS) Innovation Hub have completed a cross-border wholesale CBDC experiment. Known as Project Jura, the experiment used tokenised assets on a distributed ledger (DLT) platform to settle cross-border transactions. The DLT platform used was operated not by the commercial banks who carried out direct fund transfers denominated in both euro and Swiss francs, but by a third party.

The experiment was conducted in near-real time, complying with current regulations. Payment versus payment and delivery versus payment mechanisms were used.

The project partners believe this use of multiple wholesale CBDC settlements between different commercial banks in different countries was a first. The use of a third-party platform to give non-resident financial institutions access to another country’s wholesale CBDC using separate sub-networks was also new.

Benoît Cœuré, Head of the BIS Innovation Hub, commented that ‘Project Jura confirms that a well-designed wholesale CBDC can play a critical role as a safe and neutral settlement asset for international financial transactions.’

BIS Publish Latest CBDC Activity Overview

The BIS has made available its latest overview of CBDC activity around the world. There are nearly 100 wholesale and retail CBDCs underway and the majority of central banks are active in this area. Just under 60 central banks are in the research phase, nearly 15 are running pilots and there are three live retail CBDCs (the Bahamas, Eastern Caribbean and Jamaica).

BIS also reports on the approaches central banks are taking to the architecture, infrastructure, access and interlinkages being chosen.

In each area the ‘undecided’ category leads the way, although there are indications of what is preferred. Using what central banks have published about CBDCs, it is clear that the sentiment is increasingly positive about them. Since the start of 2020 the overall sentiment has been positive.

Finextra, based on the Atlantic Council website that tracks CBDCs, has also issued a useful list of what 80 central banks are doing related to CBDCs.

Update on the e-CNY Pilot

China’s e-CNY pilot continues to make progress, with a steady stream of reports of milestones and developments ready.

For example, cumulative e-CNY transactions have reached 87.57 billion yuan ($13.68 billion). The number of digital yuan users reached 261 million by the end of 2021, up from 240.13 million at the end of June. About 10 million businesses had e-CNY wallets at the end of October. The e-CNY is accepted by internet giants, including JD.com, Meituan and Trip.com, and can be used online to buy plane tickets or pay mobile phone bills.

This month the People’s Bank of China (PBoC) started to allow the public to download a pilot version of the e-CNY app from the Android and Apple app stores in ten cities.

Tencent, who own WeChat, will start supporting the e-CNY, allowing it to reach the billion users of WeChat Pay. Alipay began trialling the e-CNY last year.

PBoC, who started work on the e-CNY in 2014, has said it is part of the country’s transition to being a digital economy, due to the decline in cash usage and as a response to the rise of cryptocurrencies such as bitcoin. It has been working to have the e-CNY ready for the Winter Olympic Games in Beijing, where it will allow those attending to use their digital wallets and coupons to pay for transportation, goods and food from local as well as foreign-owned retailers.

CBDC Plans

A number of central banks have announced plans for CBDCs in the last couple of months. The Governor of the Bank of Mexico tweeted that it would issue a CBDC by 2024. Brazil and Peru are also working on developing CBDCs.

Iran’s Financial Tribune has reported that the central bank will pilot a CBDC in March, working with its subsidiary Informatics Services Corporation. It reported they have been working on the CBDC for two years and that the infrastructure is ready.

At the start of December, the National Bank of Kazakhstan announced that it had completed a prototype digital tenge platform.

The central bank will publish preliminary results of its test and plans for a pilot project. The project involves both local financial companies and international partners. A final decision won’t be made until December 2022.

Thailand plans to test its retail CBDC in late 2022, which is later than planned. The trial will involve transactions such as deposits, withdrawals and fund transfers by financial institutions and around 10,000 users.

The President of the Central Reserve Bank of Peru (BCRP), Julio Velarde, has said the central bank is working on a CBDC in cooperation with the central banks of India, Singapore, and other countries.

Central Banking Publications has reported that the Japanese fintech firm Soramitsu is to research whether CBDCs could work in four Pacific island states, including Fiji, Vanuatu and the Solomon Islands.

UK Second Chamber Sceptical about CBDCs

The Economic Affairs Committee of the House of Lords, the UK parliament’s second chamber, has published a report on CBDCs, ‘Central bank digital currencies: a solution in search of a problem?’.

The detailed report says in its summary: ‘We have yet to hear a convincing case for why the UK needs a retail CBDC. While a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy.’ It goes on to pose a number of questions that the Joint Taskforce investigating CBDCs should answer, starting with to what problem is a CBDC the answer? The committee is unclear about the precise threat posed by privately issued digital currencies and how a CBDC might offset those threats. Privacy was also raised, along with monetary policy, disintermediation, national and international security risks and more.