CBDC Round Up

Mastercard Questions Logic of CBDCs

Mastercard’s Asia-Pacific lead for blockchain and digital assets has spoken about CBDCs in the region. He argues that consumers are so comfortable with existing payment options that a CBDC is not justified. Adoption will, therefore, be the key challenge for CBDCs.

He does suggest one caveat. In countries where the domestic payment system is not robust, a CBDC may well make sense.

For a CBDC to work, people will need to be able to spend it anywhere they want, as is the case with cash today.

Digital Tenge Debit Card Launched in Kazakhstan

The National Bank of Kazakhstan started its pilot CBDC project in June 2021. In 2022, it tested its digital tenge in the real world environment, and 2023 and 2024 are being spent exploring use cases for the digital tenge beyond just being used for retail payments. The first public issuance of a digital tenge is planned for late 2025.

In this context, Kazakhstan’s Eurasian Bank has launched a digital tenge card, in collaboration with Mastercard, to enable consumers to make purchases using the country’s CBDC. For the user, the payment experience is simple: the debit card converts digital tenge held in accounts to the traditional tenge currency that is then used on existing payment rails in-store and online. Merchants don’t have to change their infrastructure and the usual fraud and security payment guarantees enjoyed with any Mastercard card payment exist.

Eurasian Bank anticipates the next stage of the partnership to be wallet openings to QR transfers and loyalty programme tokenisation.

The National Payment Corporation (NPC), a subsidiary of the National Bank, is responsible for developing the digital tenge, and its infrastructure, and has recently started talking about it, including offering thoughts on possible use cases. One of these is that the digital tenge can be earmarked for specific uses. Once the money has been spent, the marking against those funds ends, ensuring public and government control over budget spending.

The plan is that a digital tenge will be able to be used for payments when either the buyer or seller, or both, are offline, a particularly important attribute for areas where mobile signals are weak to non- existent.

NPC has stressed that the government would not use the platform to track personal expenditure and use of money. It says holders of the digital tenge will be able to control and vet how it is being used. For example, parents would be able to programme digital tenge to control their children’s spending, including setting prohibitions on the purchase of cigarettes and alcohol.

There may be some scepticism about this given the experience with e-wallet apps in the country.

One lender, Kaspi Bank, is the dominant supplier. To stop the practice of traders evading paying tax by categorising payments incorrectly, 2021 legislation required traders to split their mobile cash transfers between personal and business accounts. Bank were obliged to divulge information on cash transactions to the tax authorities. It may prove hard to convince people that a digital tenge will be truly private.

Visa has also launched a digital tenge payment card in collaboration with the NPC, HalykBank, CenterCredit Bank and AltynBank.

The new Visa-based digital tenge payment cards can be used wherever Visa cards are accepted. CBDC cards will be available to NPC employees in the first step of adopting digital tenge.

Digital Yuan Heads Overseas

There has been an assumption that China’s CBDC project would move beyond being purely domestic. This may be happening sooner than anticipated.

Four foreign-funded banks now have clearance from the People’s Bank of China (PBoC) to take part in China’s pilot programme. Although it is the Chinese arms of these banks – Standard Chartered, HSBC, Fubon and Hang Seng Bank – this potentially prepares the way for cross- border payments.

HSBC is allowing customers to link their bank cards to the digital yuan app so that they can top them up. HSBC says this integration will support off- and on- line payment functions, strengthen local payment ecosystems, and introduce the digital yuan to foreign markets. Standard Chartered has joined the pilot to explore new use cases in cross-border trade, supply chain financing and trade financing.

Singapore’s Thunes is now a partner of China Construction Bank for CBDCs to allow the collection of payments and outbound cross border remittances for Chinese students who are overseas.

Recently, the Monetary Authority of Singapore (MAS) began a project with PBoC to allow tourists to use the e-CNY in Singapore and China.

Details of Korea’s 2024 CBDC Pilot Emerge

South Korea is planning a three month trial of a CBDC in the last quarter of 2024. The trial is being run by three institutions – the central bank, the Financial Services Commission, and the Financial Supervisory Service.

The Bank of Korea (BoK) has said that a CBDC could help high transaction fees and slow settlement processes associated with government voucher systems for things like childcare payments, limitations of post- transaction verification and concerns over fraudulent claims.

Selected commercial banks will choose participants in September or October next year. The CBDC will only be allowed to be used for payments at this stage. The trial is to test the feasibility and effectiveness of issuing and distributing CBDCs.

The Korea Times reports that the Korea Exchange will also be involved, integrating the digital currency into a simulation system for carbon emissions trading. It will test delivery compared with payment transactions between carbon emissions rights and the payment tokens.

Solomon Islands Launch Proof of Concept CBDC

The Central Bank of the Solomon Islands is to launch a CBDC proof of concept, working with Soramitsu. The pilot currency will be known as Bokolo Cash. Bokolo is a native currency made from shells. It will operate at par with the Solomon Islands dollar.

The proof of concept will explore a wholesale CBDC to support interbank transactions using blockchain technology. The bank is also looking at future cross- border payments.

In addition to the Solomon Islands, other island states such as Palau, the Marshall Islands, Mauritius and, possibly, Tonga are also investigating CBDCs.