Digital Currency Round-Up

Latest CBDC Plans

Qatar: The Qatar Central Bank (QCB) is investigating both a CBDC and using a regulatory sandbox to test other fintech solutions. A regulatory sandbox is a space in which fintech firms can test new products, services, business models and delivery mechanisms in a real-world setting while benefiting from an accelerated authorisation process and supervisory monitoring. No decision has been taken about a CBDC.

Uganda: The Bank of Uganda (BOU) has started to explore the viability of issuing a CBDC. This would require a revision to the financial laws. Uganda has 32 million mobile money payment accounts and a population of 45 million people. Two thirds of those accounts are estimated to be active. Uganda has a GDP per capita lower than the other African countries currently exploring CBDCs, ie. Nigeria, Ghana and Kenya.

Ghana: The Bank of Ghana (BOG) is working on an e-cedi which will work on- and off-line. It wants it to be free of transaction charges for consumers in the same way as cash. Equally, it would not pay interest. During its pilot phase the BOG has created two wallets for use with the e-cedi, a hosted and a hardware wallet, on- and off-line. The BOG envisages a retail token-based CBDC.

The background to Ghana’s interest in a CBDC is that, according to Statista, approximately 43% of Ghana’s population do not have a bank account but, in 2019, the World Bank estimated 53% were connected to the internet. Between 2019 and 2020 the BOG data showed mobile money transactions increased 82%. The BOG is said to be working with G+D to introduce a CBDC.

Rwanda: a country usually at the forefront of all things digital, will make a decision on the use of digital currency by the end of the year. The central bank started work in June 2021 looking at the economic, financial and technology aspects involved, as well as the operational model.

The central bank will need to establish the legal and policy frameworks needed to facilitate transparency, distribution, and monitoring of a digital currency.

BOJ to Launch CBDC in First Quarter 2022

The Deputy Governor of the Bank of Jamaica (BOJ) has said it is on track to launch its CBDC in the first quarter of 2022, having completed the pilot in December 2021. At the moment, it is working to increase the number of commercial banks capable and ready to open accounts for CBDC users. The Prime Minister has predicted that 75% of Jamaicans will be using its CBDC within five years.

The BOJ is working to amend the Bank of Jamaica Act to make CBDC legal tender and designate the BOJ as the sole issuer.

It is also working to on an independent third-party quality assurance assessment of the system. The results of this assessment will be made public.

Sweden Enters Phase 3 of Its CBDC Investigation

The Riksbank explored possible design options for a future e-krona in the second phase of its project. It has now announced a third phase, which will be take what has been learned so far and formulate requirements for a possible e-krona.

The second phase investigated areas such as how to work off-line, the performance of the e-krona network and the integration of external participants, such as commercial banks.

Although no decision has been made about the issue of an e-krona, phase three seeks to establish the requirements for an e-krona based both on the Riksbank’s work and lessons learnt elsewhere.

Part of this phase involves talking to technology providers and consultation with the payment market and the public. Accenture has been working with the Riksbank as a technical supplier and this has been extended until January 2023 to allow further technical tests, to a limited extent, to continue.

Phase 2 conclusions will be published shortly.

Bank of Canada to Work with MIT

As with the Federal Reserve Bank of Boston, now the Bank of Canada has signed up for a 12 month CBDC research project with the Massachusetts Institute of Technology (MIT).

The task is for the Bank and MIT to explore possible technology approaches to understand how a CBDC could work.

Good Progress on Multi-CBDC Cross Border Transactions

Singapore’s Bank for International Settlement (BIS) hub has run Project Dunbar with the central banks of Australia, Malaysia, Singapore and South Africa. The project successfully allowed financial institutions to transact with each other on a shared platform using CBDCs issued by their central banks. The benefit is to reduce the role of intermediaries, which should reduce costs and the time taken for cross-border transactions.

Project Dunbar has developed two prototypes for a shared, common platform that could enable international settlements using digital currencies issued by multiple central banks, one based on Corda and one on Partior’s blockchain platforms.

The project also explored the functional requirements and design options for these solutions to achieve the required levels of trust and shared control. It sought to prove governance mechanisms and robust technology.

Panetta Speaks About the Need for Digital Currency

Fabio Panetta, Member of the Executive Board of the ECB, spoke as part of a panel discussion at the US Monetary Policy Forum. He argued that in a digital world, a central bank should issue central bank money to safeguard monetary sovereignty. Clearly, to add real value and to avoid some much talked about risks, it will need to be appropriately designed.

Without the anchor of sovereign money, people would constantly have to monitor the soundness of private issuers in order to assess the value of each form of private money. This would undermine confidence in the singleness of money and impair the functioning of the payments system.

For stablecoins to fulfil this function and be trusted, stablecoin issuers would have to be allowed to invest their reserve assets in risk-free deposits at the central bank, effectively outsourcing the provision of central bank money, which would endanger monetary sovereignty.

He also felt stablecoins would exacerbate the ‘winner-takes-all’ dynamics inherent in payment markets, with adverse consequences for the functioning of the payments system. Their need for safe investments to underpin them may also affect the availability of these assets, which could have an impact on how the market functions and real interest rates. This would have undesirable implications from a monetary policy perspective.

The speech also touched on the risks and implications of digital currency substitution, including the risk of dependence on technologies managed and supervised elsewhere, with limited oversight by domestic authorities.