CBDC Round Up
CBDCs a Low Priority in Africa
A paper published by the Munich Personal RePEc Archive has carried out secondary research on Africa’s adoption of CBDCs 1. While 38 of Africa’s 54 central banks have not made announcements about CBDCs, Nigeria has issued one and Ghana, Mauritius, South African and Tunisia have pilot projects. In addition, Angola, Eswatini, Kenya, Madagascar, Morocco, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe are studying and researching CBDCs.
The paper attributes the relatively low level of interest in CBDCs to a lack of a robust payment system, low use of digital payments, central banks’ focus on other priorities, fear of failure, lack of government interest in digital currency and concerns about CBDC privacy risk and security threats.
It is interesting that while the paper identifies only four countries as having robust payment systems (Ghana, Kenya, Nigeria and South Africa), two of the pilots are not in these countries.
More To Do To Increase the Usefulness of China’s CBDC
Arxiv has published a paper by two Chinese students investigating the impact of China’s CBDC on monetary policy and some of the variables of the money multiplier 2.
Their conclusion, based on modelling and empirical results, was that a CBDC has a certain impact on the cash leakage rate, the excess reserve ratio and the fixedto-live ratio. Changes in the fixed-to-live ratio are more complicated and difficult to determine, which will increase the difficulty of the central bank in formulating monetary policy.
Based on these conclusions, the paper makes a number of comments about China’s CBDC. For example, a well- functioning CBDC will improve the timeliness and precision of macroeconomic policies and realise real-time sharing of financial market information. There was concern that currently the CBDC has limited take-up and that a wider range of uses is needed across daily consumption, payment, transportation, education and medical care, culture, sports and tourism. To be adopted, paying with a CBDC needs to simplify the payment process, offer diversified payment options for different groups of people, including the elderly population, to narrow the digital divide.
Although it is likely to require changes to the legislative landscape, in order to create a smooth and sensitive monetary policy interest rate transmission mechanism and ultimately achieve the monetary policy objectives through the regulation of market interest, the central bank should enhance the market benchmark interest rate system with the Shanghai Interbank Offered Rate as the core.
It should also gradually switch the monetary policy control mode to one that is interest rate oriented.
Stakeholder Engagement Key for Peru’s CBDC Investigations
The IMF has published its report on its assistance to the Central Bank of Peru (BCRP) to create conditions for the success of a CBDC and the role of stakeholders such as the banking sector, payment service providers, and the Fintech and technology sector 3.
BCRP has completed a Preparation phase, clarifying the context, key questions, and potential approaches to study a CBDC, and a Proof of Assumptions phase which outlined the context, goals and challenges related to a potential CBDC in Peru. The next phase will be the Prototyping phase.
Recommendations focused on adopting inclusive, agile, and transparent project management practices and governance, establishing the central bank’s role in leading a ‘baseline product’ with market participants and viewing the CBDC as a national product which existing elements and participants at the government level should support.
Specific recommendations included building strategic roadmaps of use cases to reduce the risks of misalignment with market infrastructure and value chains, studying CBDC end-to-end value chains and the roles and responsibilities of relevant stakeholders – taking into account regional differences and identifying potential business models and services that can be facilitated by a well- designed CBDC.
HKMA Identifies Three CBDC User Cases
In May 2023 the Hong Kong Monetary Authority (HKMA) began six first-round e-HKD pilot projects supported by 16 banks, payments and technology firms.
In the first phase, HKMA identified three use cases where the adoption of a CBDC could facilitate faster, more cost-effective and inclusive payments and enable new types of economic transactions based on programmability, tokenisation and atomic settlement.
Programmability. HKMA believes a programmable e-HKD would give payers and payees in some circumstances an incentive to complete transactions faster. This would be useful where consumers are used to paying in advance and might allow new types of transactions for consumers and businesses, by facilitating conditional settlements for retail transactions. If this allowed ‘open loop system’ conditional settlements, the transaction could take place regardless of the means used to make the payment.
Programmability could also enable businesses, whatever their size, to integrate and automate payment-related services such as vouchers, rewards and loyalty schemes and to facilitate the ring fencing and tracking of funds for specific uses.
Tokenisation. HKMA has been thinking about the trend towards assets being represented in the form of a digital token, as well as the use of cryptocurrencies and stablecoins. It believes an e-HKD could increase liquidity and accelerate the development of innovative token-based systems within the industry.
In one pilot relating to tokenised real estate assets, a hypothetical e-HKD was shown to enable faster approval of loans and consequently real-time, round-the-clock availability and automatic disbursement of funds.
Atomic settlement is the instant exchange of two assets that are linked. HKMA sees an e-HKD allowing more consumers and businesses to access instant payments across a greater range of transactions using existing payment systems. It believes this may allow this in offline settings where perpetual access to the online network is not possible. This could make an e-HKD to function as closely as possible to ‘digital cash’.
SNB Test Wholesale CBDC Settlement
The Swiss National Bank (SNB) is running a pilot wholesale CBDC project with Kantonalbank, Banque Cantonale Vaudoise, Basler Kantonalbank, Commerzbank, Hypothekarbank Lenzburg, UBS and Zuercher.
It will use a Swiss franc denominated wholesale CBDC on a regulated and productive Distributed Ledger Technology platform to settle transactions.
1 - MPRA_paper_118794.pdf (uni-muenchen.de).
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