BIS Innovation Hub to expand to new locations in Europe and North America
The Bank for International Settlements (BIS) is expanding its BIS Innovation Hub with the establishment of new Hub centres across Europe and in North America in cooperation with member central banks. In the next two years, the BIS will open centres in collaboration with the Bank of Canada (Toronto), the Bank of England (London), the European Central Bank/Eurosystem (Frankfurt and Paris) and four Nordic central banks (Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank) in Stockholm. The BIS will also form a strategic partnership with the Federal Reserve System (New York).

Wirecard’s U.K. Subsidiary Gets Approval to Resume Activity
The U.K. Financial Conduct Authority said Wirecard AG’s British unit will be allowed to resume activities after the subsidiary of the troubled German fintech was able to meet “certain” conditions.

Zimbabwean central bank clarifies measures on phone-based money transfer platforms
The Reserve Bank of Zimbabwe clarified the measures taken to deal with illicit trading on phone-based money transfer platforms, assuring the public that “bona fide” transactions will be processed normally. It was money agents who had been suspended from mobile banking transactions, and emphasized that all mobile money liquidations should be done through the banking system.

ASX further delays launch of its blockchain settlement system — this time by one more year
Australian Securities Exchange (ASX) has delayed by a year the launch of its blockchain-based settlement system to April 2022. ASX is reportedly under pressure from users to delay the launch because the new system lacks clarity. The CHESS (clearing house electronic subregister system) replacement project has been under development since 2016 and has faced several delays to date.

Digital on-boarding policy to enable account opening anytime, anywhere
Bank Negara Malaysia issued a policy document on Electronic Know-Your-Customer (e-KYC). The policy document aims to accelerate and streamline practices of industry players in their adoption of e-KYC technology.

Virtually everywhere? Digitalisation and the euro area and EU economies
This ECB paper concludes that: (i) there is significant country heterogeneity across the EU in terms of the adoption of digital technologies, and most EU countries are falling behind competitors, particularly the United States; (ii) digitalisation is affecting the economy through a number of channels, including productivity, employment, competition and prices; (iii) digitalisation raises productivity and lowers prices, similarly to other supply/technology shocks; (iv) this has implications for monetary policy and its transmission; and (v) structural and other policies may need to be adapted for the euro area and EU countries to fully reap the potential gains from digitalisation, while maintaining inclusiveness.

Soramitsu Starts Testing ‘White Tiger’ Digital Currency in Japan
Japanese blockchain company Soramitsu will start testing a new “White Tiger” digital currency for retailers at the University of Aizu. It will run on the company’s native Hyperledger Iroha blockchain. Testing is starting with the university’s cafeterias and shops before gradually being utilized at locations off campus. Soramitsu is one of the blockchain startups behind the development of Cambodia’s blockchain-based Project Bakong retail payment system.

Introducing Free Float Supply
Coin Metrics’ free float supply takes many of the best practices from traditional capital markets and applies them to cryptoassets to identify supply that is highly unlikely to be available to the market in the short to mid-term. In doing so, free float supply provides a better approximation of a cryptoasset’s liquidity and market capitalization. Index weighting can benefit from using free float supply – free float supply reflects the liquid market more accurately and reduces potential manipulability.

And now for some catching up to stories I previously missed, with a big thanks to the Milken Institute FinTech in Focus:

Vanguard Wraps Phase 1 of Digital Asset-Backed Securities Pilot
Vanguard completed the first phase of a blockchain pilot to issue digital asset-backed securities (ABS). This pilot was done in collaboration with blockchain startup Symbiont, BNY Mellon, Citi, and State Street. Vanguard’s end goal for the pilot is to improve the process of securitization with blockchain.

Nomura launches Bitcoin and crypto custody for institutional investors
Japan’s Nomura launched its “Komainu” large-cap crypto-asset custody service for institutional investors. It has partnered with crypto firms Ledger and CoinShares.

AFI and Mastercard Foundation partner for COVID-19 Policy Response in Africa
The Alliance for Financial Inclusion (AFI) partnered with the Mastercard Foundation to implement a COVID-19 Policy Response program in Africa. The two-year project will focus on micro, small and medium enterprises and digital finance. It will target 49 financial sector regulators and policymaking institutions across the region to strengthen their capabilities to effectively respond to the economic consequences of COVID-19. Gender and youth policy considerations will be integrated into all policy interventions.

Industry Leaders Launch PayID, the Universal ID for Payments
A multinational alliance of industry leaders are collaborating on the development of PayID universal payment ID through the Open Payments Coalition. PayID aims to simplify the process of sending and receiving money globally – across any payment network and any currency. PayID is open-source, free, and simple to integrate into existing payment platforms. In addition, it provides an end-to-end travel Rule compliance solution for satisfying both FinCEN requirements and FATF recommendations.

Taiwan’s FSC signs fintech cooperation accord with Canadian regulators
Taiwan’s Financial Supervisory Commission (FSC) signed a fintech cooperation agreement with eight of the members of the Canadian Securities Administrators (CSA). It aims to facilitate cooperation in fintech development by gaining access to the work of the CSA Regulatory Sandbox Initiative and the FSC FinTech Regulatory Sandbox.

Israel Securities Authority and the Israeli Innovation Authority Introduce “Data Sandbox” Program for Fintech Firms
The Israel Securities Authority (ISA) and the Israel Innovation Authority (IIA) have introduced a “Data Sandbox” program for Fintech firms that will help them work cooperatively with regulators, licensed entities, and other financial services providers based in the country.

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A Survey of Research on Retail Central Bank Digital Currency
This paper examines key considerations around central bank digital currency (CBDC) for use by the general public, based on a comprehensive review of recent research, central bank experiments, and ongoing discussions among stakeholders. It looks at the reasons why central banks are exploring retail CBDC issuance, policy and design considerations; legal, governance and regulatory perspectives; plus cybersecurity and other risk considerations. This paper makes a contribution to the CBDC literature by suggesting a structured framework to organize discussions on whether or not to issue CBDC, with an operational focus and a project management perspective.

Celo Dollar (cUSD) Stablecoin Launches
Celo Dollars (cUSD) stablecoins are now live on the platform’s mainnet, barely two months since the mainnet went live. The project has been making aggressive moves in both development and community growth. With cUSD now accessible, the foundation is optimistic that its vision of an all-inclusive financial ecosystem will be realized. Currently, the 75+ member Alliance’s focus is on remittances and international aid.

FCA says Wirecard making ‘good progress’ as fintechs work overtime on migration plans
Following the U.K. Financial Conduct Authority (FCA) suspension of business at Wirecard Card Solutions (WCS) in the wake of its German parent’s insolvency filing, the FCA reports good progress in meeting conditions for a return to operational activity. Although the freeze was designed to protect consumers and its suddenness presumably to prevent tipping off any fraudsters still employed by Wirecard, customers at all the agent businesses that use WCS to process payments found that payments were blocked and they were unable to access their money. Among U.K. fintech who were likely affected by the freeze were Revolut, Pockit, Soldo, ANNA, Tymit and Curve, although to differing degrees as many including Curve and Revolut had begun migrating away from Wirecard’s services. In fact, Curve was already back to normal operations within a business day, although it advised customers to carry another card with them for the next few days. Forbes is keeping a running list of banking services currently known to be suspended here.

Germany missed chances to put Wirecard on watchlist, source says
German regulators twice looked into tightening the supervision of collapsed payments firm Wirecard and discussed it with the German and European central banks but no action was taken. In 2017, officials from BaFin and the Bundesbank, considered placing Wirecard on a list of financial companies to supervise but decided against it. In the second half of 2019, there were discussions for months, which involved the European Central Bank (ECB), about putting Wirecard on a watchlist to give authorities more power to investigate it. But the talks dragged into 2020 and were still inconclusive when they were “overtaken by events”!

Wirecard… the biggest accounting fraud? Is the customer’s money safe? The end of Banking-as-a-Service?
The Wirecard debacle begs fundamental questions about regulation, audit and more. How can BaFin say the bank is fine and not check the balance sheet of the holding company? How would EY sign off accounts for years, without any checks and balances? And how come no one listened to the FT and, instead, took them to court? Another big issue is that the ecosystem model of Banking-as-a-Service could implode because of Wirecard. When you have a company within a company within a company dealing with financial service, and no one can point at which company actually has the money: that’s a problem.

Square Is Withholding Up To 30% Of Payments Made To Some Merchants
Payments firm Square recently began holding back between 20% and 30% of the money it collects from some customers — claiming that it does so to protect against risky transactions — in a move that has sparked an outcry from small businesses in financial distress during the pandemic. The firm described the withholdings as part of its “rolling reserve”  policy, adding that it had started the practice late last year and expanded it after the pandemic began to “protect buyers.” The company claimed that it applied the reserves policy on more “risky” sellers who sell goods or services more prone to disputes or who take prepayment for a service to be delivered at a future date.

Bitcoin Is Not Dead: Get Yours At Your Local Post Office
On June 24th, Australia Post announced that bitcoin will be available for purchase at all postal service outlets. In partnership with Bitcoin.com.au, customers will be able to purchase Bitcoin and other cryptocurrencies at 3,500 locations using the Post Billpay feature. Both cash and credit card payments will be accepted.

Posted from Diigo: https://www.diigo.com/user/kiffmeister/Fintech

Kenya’s central bank extends mobile payments relief by six months
The Central Bank of Kenya extended the mobile money COVID-19 relief measures introduced in March by a further six months. The central bank also tweeted that before the COVID-19 crisis, 88% of Kenyan transactions by number (50% by value) were being conducted outside bank branches. In the pandemic period, 94% are being conducted outside branches. Before, 44% of transactions were being transacted on mobile phones. Now, 61% are on mobile.

Zimbabwe has banned all mobile money services as its currency troubles worsen
Mobile money platforms have been banned in Zimbabwe as the country’s local currency continues to lose value, with authorities desperately hoping to arrest the decline. But the move has left subscribers and users stranded in an economy which sees a huge portion of transactions flow through mobile money platforms due to long-term cash shortages at the banks.

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Is our money about to spout memories?
“Fears over privacy are a massive obstacle to switching to CBDCs. The problem is only amplified by suspicions that central banks will, despite claims to the contrary, use the switch to CBDCs to abandon what is by far the most reliable and private form of money available to the public right now – cash. After all, we all have memories we would rather were forgotten.”

Distributed Ledger Technology Experiments in Payments and Settlements
A new IMF Fintech Note discusses recent explorations into the use of distributed ledger technology (DLT) in payment and settlement systems. It is intended to help inform policymakers and the industry on DLT’s potential benefits and risks, which could have implications on international standards for financial infrastructures to ensure safety and efficiency in the public’s interest. The analysis points to key issues that could require further attention.

Compendium of Practices for Central Bank Digital Currencies for Multinational Financial Infrastructures
This paper surveys DLT-based wholesale CBDC experiments with completed proof-of-concept prototypes from across the world for which there is publicly-available information. It also seems to cover projects that go beyond CBDCs into private-sector projects. But it looks to provide a possibly useful classification framework for CBDCs and use cases in the financial services industry.

Toward a Cash-Lite Ghana: Building an Inclusive Digital Payments Ecosystem
The Government of Ghana is seeking to harness the benefits of a shift from cash to digital payments by developing a national inclusive digital payments ecosystem where everyone can make – and receive – payments digitally. A Digital Payments Roadmap has been drawn up by the Ministry of Finance with support from the Better Than Cash Alliance.

Signature Bank Blockchain Integration Increased Transaction Volume By 15%
New York-based Signature Bank announced a new client service – a blockchain-based digital payments platform called Signet, with Fireblocks. Fireblocks is an enterprise-grade platform that settles digital security transfers between members and exchanges. Fireblocks serves digital asset exchanges, custodians, banks, trading desks and hedge funds like SWIFT serves the currency markets. Signature Bank can now enable their commercial clients to access its blockchain-based, real-time payments platform through the Fireblocks network.

Blockchain Accounting Issues Could Be Preventing Mainstream Adoption
The financial reporting process and conversation is, by its very nature, a complicated process that involves inputs, reviews, and comments from an array of market actors. Blockchain based applications have the potential to streamline and improve financial reporting, but before that can occur there are several fundamental issues that must be resolved.

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Wirecard: the cryptocard consequences
Wirecard Card Solutions, Wirecard’s UK subsidiary, supports a number of crypto cards, among them those issued by TenX and Crypto.com. With most of these cards being rendered unusable by the Wirecard revelations, many of these entities will once again be “looking for alternative solutions to ensure customers can continue using their cards”. Whether any other corporate will be as keen to step in to bridge the gap this time around, is harder to determine.

EU opens Apple antitrust investigations into Apple Pay practices
The European Commission is opening an antitrust investigations into Apple’s Apple Pay practices to assess whether Ait violates EU competition rules. Apple has limited access to the Near Field Communication (NFC) functionality of its iPhone and Apple Watch devices, a move that means banks and other financial service providers can’t offer NFC payments through their own apps. It also reserves the ‘tap and go’ functionality of iPhones to Apple Pay.  Apple Pay accounts for about 5% of global card transactions and is on pace to handle 1-in-10 such payments by 2025.

The true cost of killing off cash
Cash use is in decline, a trend that has been accelerated by the coronavirus pandemic. Advocates for physical cash argue that the demise of physical cash risks leaving vulnerable members of the population behind. A University London College study suggests that CBDCs will need to replicate the privacy and anonymity of physical cash to achieve widespread acceptance. It argues that CBDCs incorporating privacy by design will be seen as more free and business-friendly than those that rely upon data protection by third parties.

Brussels to call for probe into German regulator over Wirecard
Brussels will call for a probe into whether BaFin, Germany’s banking regulator, failed in its supervision of Wirecard, warning that the payment company’s collapse poses a threat to investor trust in the EU. Valdis Dombrovskis, the EU’s executive vice-president in charge of financial services policy, said the EU should be prepared to pursue a formal investigation into the German regulator for “breach of union law” if the preliminary probe by the European Securities and Markets Authority discovered shortcomings in BaFin’s upholding of EU rules on financial reporting.

Customer funds frozen at Wirecard UK after FCA steps in
The U.K. Financial Conduct Authority (FCA) ordered Wirecard UK to cease all regulated activity after the parent company filed for insolvency in Germany. Wirecard Card Solutions Limited is authorised and supervised by the FCA to issue e-money and provide payment services including, issuing e-money onto prepaid cards. The FCA immediately placed requirements that it should not pay out or reduce any money it holds for its customers except on their instructions.

EY failed to ask for Wirecard bank statements for 3 years
EY failed for more than three years to request crucial account information from a Singapore bank where Wirecard claimed it had up to €1bn in cash — a routine audit procedure that could have uncovered the vast fraud at the German payments group. EY said that there were “clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception”. The company argued that “even the most robust audit procedures may not uncover this kind of fraud”.

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Wirecard collapses into insolvency
Wirecard collapsed on Thursday as the once high-flying German payments service provider announced it would file for insolvency following revelations of a multiyear accounting fraud. The Aschheim-based technology company, which a week ago had a market value of €13bn, said in a regulatory statement that it faced “impending insolvency and over-indebtedness”.

Designing a CBDC for universal access
The Bank of Canada is exploring how a central bank digital currency (CBDC) could be designed for universal access. One potential concept the it is investigating is a custom universal access device (UAD) to securely store and transfer CBDC. The device could incorporate attributes of cash and take advantage of specialized technologies. Such a device should be manufactured at a low cost and issued by the Bank to ensure maximum inclusion. A UAD could embed a local, secure store of value, be network-independent and operate for long periods on a local power source. If there is an infrastructure failure, a UAD may prevent the interruption of digital transactions.

Security of a CBDC
This Bank of Canada paper explores the security aspects involved in constructing and deploying a central bank digital currency (CBDC). It proposes a taxonomy to categorize and analyze the many CBDC solutions available in the marketplace. It concludes that a public distributed ledger technology (DLT) platform remains unsuitable for CBDC. The integrity of a CBDC is a core risk and must be managed across all CBDC use cases. Local store-of-value solutions offer extreme resilience in times of crisis but carry local integrity risks. A hybrid system maximizes access across all CBDC use cases while remaining available during times of crisis. An operational CBDC system would be a prime target for organized crime and other nation states. Proper safeguards are required to minimize risks, and threats must be continuously monitored.

Telegram Agrees to Pay $18.5M Penalty in SEC Settlement Over Failed TON Offering
Telegram will pay $18.5 million and notify the U.S. Securities and Exchange Commission (SEC) if it plans to issue any sort of digital currency in the next three years in a proposed settlement with the securities regulator. The settlement ends a six-month court fight with the agency, and also indicates the messaging platform will be responsible for a $1.22 billion disgorgement that is offset by $1.19 billion paid as “termination amounts” in investors’ purchase agreements and the amounts that some investors loaned to Telegram earlier this year. Telegram has 30 days to pay the SEC penalty and up to four years to pay back investors under the settlement. 

The Digitization of Money and Payments
The U.S. Committee on Banking, Housing and Urban Affairs will meet remotely on June 30 starting at 10:00am ET to conduct a hearing entitled The Digitization of Money and Payments.  The witnesses will be: The Honorable J. Christopher Giancarlo, Senior Counsel, Willkie Farr & Gallagher LLP and former Chairman, U.S. Commodity Futures Trading Commission; Mr. Charles Cascarilla, Chief Executive Officer and Co-Founder, Paxos; and Professor Nakita Q. Cuttino, Visiting Assistant Professor of Law, Duke University School of Law.

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Brazil central bank bars Visa and Mastercard from WhatsApp payments
Banco Central do Brasil’s ruled that Visa and Mastercard must suspend launching payments and transfers on Facebook’s WhatsApp in the country, or must cease such operations immediately. Facebook rolled out WhatsApp payments service in Brazil on June 16. The central bank is concerned about an “adequate competitive environment” in the Brazilian mobile payments market with the entrance of a giant like Facebook. The Administrative Council for Economic Defense, Brazil’s antitrust regulator, also blocked Facebook’s partnership with Cielo, citing the market dominance of the two “which can guarantee significant market power upon its entry.” Cielo is the largest Brazilian credit and debit card operator, and the biggest payment system company in Latin America by revenue and market value.

Bafin says it did not supervise scandal-hit Wirecard
Senior officials at Germany’s Federal Financial Supervisory Authority (BaFin) say the institution is not responsible for supervising Wirecard, the financial services firm accused of major fraud. Although in 2019 Bafin imposed a two-month ban on shorting Wirecard shares, and fined Wirecard €1.52 million for failing to file annual accounts on time they were measures under the Securities Trading Act. However, BaFin’s website implies the regulator would have responsibility for a firm with Wirecard’s involvement in financial services, and according to the Bundesbank, Germany’s “payment services supervision act”, makes BaFin responsible for companies like Wirecard.

Central Banks and Payments in the Digital Era
According to a special chapter of the BIS Annual Economic Report, digital innovation is radically reshaping the provision of payment services, and central banks are embracing this innovation. They promote interoperability, support competition and innovation, and operate public infrastructures – all essential for easily accessible, low-cost and high-quality payment services. And central bank digital currencies (CBDCs) can foster competition among private sector intermediaries, set high standards for safety and risk management, and serve as a basis for sound innovation in payments.

Thinking Big on Fed Accounts, Digital Dollars and Financial Inclusion
Chris Brummer gets the sense that most financial experts and economists support the release of a digital dollar, at least of some sort, that would comprise a liability of the Federal Reserve carrying the full faith and credit of the U.S. government. The disagreements appear to lie in what kind of technology should support it. For Chris Giancarlo and Dan Gorfine, a digital dollar would be tokenized, meaning that digital dollars would operate as bearer instruments that could be transferred instantaneously. Meanwhile Morgan Ricks supports an account-based path for digitization that would comprise just one component of a larger, explicit strategy of enabling financial inclusion through the buildout of digital individual accounts at the Fed.

Former U.S. CFTC Timothy Massad weighs in on Facebook’s Libra 2.0.
Former U.S. CFTC Timothy Massad finds that Libra’s 2nd white paper deals with many of the concerns previously raised. While Libra may not succeed in improving access to financial services for the underserved, he believes we should let it try. That is, we should create a reasonable regulatory framework under which the Libra proposal can be developed and implemented. The competition in payments will be a good thing, but regulators around the world need to work together to construct the proper framework for Libra. The financial regulatory challenge in the United States would be best addressed if Congress created a comprehensive framework for the regulation of payment systems, but that seems unlikely to happen in the short term. He belives that for many the potential benefits Libra might bring to our payment options outweigh the risks associated with an increase in Facebook’s power and its collection of data.

How Covid-19 has reframed the war on cash
The public still has great trust and appreciation for banknotes, especially when times get tough. But the data suggests people may be turning to digital transactions not because of convenience but because the crisis has made online purchases compulsory for many. But digital versions of cash are something far more abstract than banknote money. In almost all modern monetary systems it equates to the central bank managed real-time gross settlement (RTGS) clearing system. The key incentive banks have to be part of that circular intangible system, however, is the risk their customers will at some point demand to be cashed out with banknote cash whose supply banks do not control. If that risk is removed (say because there are no more vendors who accept cash) public digital cash will become entirely substitutable — and very hard to differentiate — from privately issued alternatives, undermining the control of the central bank on the money supply.

Circle Announces Support for USDC Stablecoin on Algorand Blockchain
The Algorand Foundation has announced that the USD Coin (USDC) stablecoin will be launched on the Algorand (ALGO) blockchain. The integration will allow customers using Circle APIs or Circle Business Accounts to convert funds from their bank account or card network into stable tokens on the Algorand blockchain.

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Honeywell’s new quantum computer edges closer to threatening Bitcoin
Honeywell says that its newly-launched quantum computer is the most powerful in the world. The machine has achieved a quantum volume score of 64—twice as powerful as rivals from IBM and Google. Quantum computers could theoretically be used to attack Bitcoin, although the crypto industry is preparing defenses. A quantum computer would need to have around 2,500 qubits of processing power in order to break the 256-bit encryption used by Bitcoin. If that were to happen, it would theoretically be possible for the owner of the quantum computer to take control of the Bitcoin blockchain.

ING Develops FATF-Friendly Protocol for Tracking Crypto Transfers
The Netherland’s ING Bank has developed a protocol to assist with the Financial Action Task Force’s Travel Rule requirement for crypto exchanges and firms dealing in digital assets. It has also been backed by Standard Chartered Bank, Fidelity Digital Assets and BitGo, and other crypto firms. It was also partly backed by the InterVASP working group which released the IVMS-101 standard, a way VASPs can agree on the format of the message payloads their solutions will transfer.

KPMG launches suite of crypto tools for institutions
KPMG launched Chain Fusion—a suite of analytic tools that help financial institutions manage crypto assets. The service combines data from blockchains and regular financial systems for business, risk and compliance objectives. It will help companies prove that they own cryptocurrency, operate multi-signature wallets, and monitor transactions.

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You’ve Got Money: Mobile Payments Help People During the Pandemic
While scaling mobile cash transfers quickly to help alleviate the impact of the pandemic, governments should take a broad approach that goes beyond the technology and consider the whole ecosystem behind a robust and resilient mobile program. A holistic approach should be considered by policymakers and the industry to integrate all the “building blocks” of a sustainable mobile-money platform, including stakeholders and design and policy elements that help maximize benefits against risks.

PayPal, Venmo to Roll Out Crypto Buying and Selling: Sources
PayPal reportedly plans to roll out direct sales of crypto-assets to its 325 million users. Currently, PayPal can be used as an alternative means for withdrawing funds from exchanges such as Coinbase, but this would be a first in terms of offering direct sales of crypto. They are apparently going to have some sort of a built-in crypto-asset wallet functionality.

Wirecard fights for survival as fraud comes to light
German fintech Wirecard, a major provider of payment processing software and information technology, warned that €1.9 billion of cash on its balance sheet probably does “not exist” acknowledging the potential scale of a multi-year accounting fraud. It withdrew its most recent financial results and said other years’ accounts may be inaccurate. Wirecard’s payments processing business, licensed by Visa and Mastercard, is responsible for tens of billions of euros in annual transaction volume.   

Italian Banks Want to Test Digital Euro
The Italian Banking Association (ABI) published guidelines for a digital euro launch, including ten proposed essential criteria. The ABI also revealed that it is already operating a distributed ledger infrastructure under its Spunta project to speed up the transaction speed between the 700+ member banks. 

Global Demand for Basket-Backed Stablecoins
This Fed paper develops a model where persistent trade shocks create demand for a basket- backed stablecoin, such as Mark Carney’s “synthetic hegemonic currency” or Facebook’s recent proposal for Libra. In numerical simulations, it finds four main results. First, because of general equilibrium effects of the basket currency on the volatility of currency values, overall demand for that currency is small. Second, despite scant holdings of the basket, its global reach may contribute to substantial increases in welfare if the basket is widely accepted, allowing it to complement holdings of sovereign currencies. Third, it calculates the welfare maximizing composition of the basket, finding that optimal weights depend on the pattern of international acceptance, but that basket composition does not significantly affect welfare. Fourth, despite potential welfare improvements, low demand for the basket currency from buyers limits sellers’ incentives to invest in accepting it, suggesting that fears of a so-called global stablecoin replacing domestic sovereign currencies may be overstated.

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In today’s Digest I break out the chapters in the special edition of the Sveriges Riksbank Economic Review dedicated to central bank digital currency.

The rationale for issuing e-krona in the digital era
This chapter describes the rationale for providing e-krona to the public through a partnership between the Riksbank and supervised payments service providers. This arrangement can foster competition and innovation while ensuring the fundamental security and efficiency of the monetary system. These considerations are increasingly relevant as the use of paper cash falls because commercial institutions may not have sufficient profit incentives to provide an alternative means of payment that is universally accessible. Moreover, in a digitalized economy, Big Tech firms and other multinational enterprises are increasingly likely to issue their own private currencies to facilitate their collection of valuable information about consumer behavior. Therefore, launching an e-krona would help ensure that all Swedish individuals have access to an efficient, convenient, and secure means of payment.

Competitive aspects of an e-krona
This chapter analyzes the competitive impact of introducing CBDC in Sweden, where cash use is falling rapidly. It assumes that strong network externalities characterize payment markets and that, consequently, these markets are at risk of developing into monopolies or tight oligopolies if left unregulated. It provides an overview of policy alternatives that have been used in markets that share some of these market characteristics and discusses existing procompetitive regulation. It then tries to predict the consequences for payment market competition, suggesting that there are at least five possible efficiency reasons for introducing an e-krona.

The Riksbank’s seigniorage and the e-krona
Seigniorage has historically been an important source of profits for the Riksbank. In recent years, the use of cash in Sweden has declined rapidly, and a future possibly cashless society could have important consequences for the Riksbank’s financial independence. This chapter contains a discussion and some numerical examples of how the introduction of an e-krona could affect the Riksbank’s ability to generate profits. Several factors affect the results: whether the e-krona would be regarded as a substitute for cash or bank deposits, how high the demand for the e-krona would be, and the level of the interest rate. As a final part of this article, we address the question of how high the demand for an e-krona would have to be to cover the Riksbank’s current expenses.

Is central bank currency fundamental to the monetary system?
This chapter discusses whether the ability of individuals to convert commercial bank money (i.e., bank deposits) into central bank money is fundamentally important for the monetary system. This is a significant question since the use of cash – the only form of central bank money that the public currently has access to – is declining rapidly in many countries. The question is highly relevant to the discussion around whether central banks need to issue a retail CBDC. It concludes that depositors’ need for control could be a reason why cash or a CBDC is essential, even in countries with strong measures safeguarding commercial bank money.

E-krona design models: pros, cons and trade-offs
This chapter sketches out four different design models for supplying a retail e-krona, discussing  advantages and disadvantages of each using the policy goals identified by the Riksbank for the payment market as our point of departure. The four models are (i) centralized provision without intermediaries, (ii) centralized with intermediaries, (iii) decentralized with intermediaries (iv) a synthetic e-krona. Possible trade-offs involve weighing the advantages of more minimalistic (e.g., synthetic) approaches against performance as regards enhanced competition and resilience, and the amount of decentralization versus control over data and privacy.

Central bank digital currencies, supply of bank loans and liquidity provision by central banks
This chapter suggests that central banks can offset potential adverse effects of CBDC on the supply of bank loans by accepting the loans as collateral. Central banks can also conduct an outright purchase of illiquid assets to stimulate banks’ supply of illiquid loans. As central banks buy illiquid assets from investors, new central bank reserves will be created for banks. Investors who sell their illiquid assets are then likely to rebalance their portfolios, increasing the demand for illiquid assets and reducing the cost of illiquid term funding for banks.