CBDCs in emerging market economies
The Bank for International Settlements (BIS) published a volume of central bank digital currency (CBDC) related papers that were prepared for a meeting of Deputy Governors of central banks from emerging market economies (EMEs), which took place on February 9-10, 2022. The meeting explored issues such as: the main objectives of introducing CBDCs; the guiding principles of CBDC design and data governance; challenges of CBDCs for monetary policy, financial intermediation and financial stability; the implications of CBDCs on financial inclusion; and the cross-border aspects of CBDCs. Discussions at the meeting also drew on insights from a survey on the roles of and considerations for CBDCs in EMEs.
The papers show that achieving greater payment system efficiency is at the heart of EME central banks’ motivations. EME central banks also place great emphasis on financial inclusion and are concerned about cyber security risks, potential bank disintermediation and cross-border spillovers. A related topic discussed is the value added of CBDCs for existing payment systems, and country papers offer concrete examples of deliberations on this topic at the current juncture. Another area covered by the papers in this volume is CBDC design considerations. Many EME central banks are of the view that careful design can keep risks to a minimum, while yielding net benefits. [Read more]
BoJ Central Bank Digital Currency Phase 1 Proof of Concept Report
The Bank of Japan reported on the first phase of its central bank digital currency proof of concept (PoC) work, which aimed to test the technical feasibility of the core functions and features required. In Phase 2, the Bank plans to add more complex, additional CBDC functions to the core functions explored in Phase 1 and investigate their technical feasibility and challenges. After the PoC, if the Bank judges it necessary to move further forward, it will consider a pilot program that involves financial institutions and payment service providers. The Bank will also consider remuneration functionality, although it will not likely be implemented, as an interest-bearing CBDC could end up being too close a substitute for bank deposits. [Read more]
Tether to further reduce holdings of commercial debt in stablecoin reserves
Tether plans to reduce its holdings of commercial debt in its reserves, Chief Technology Officer Paolo Ardoino told CNBC. Tether holds short-term corporate debt but does not disclose from which companies, which has raised transparency concerns. But Ardoino said Tether, the issuer of the USDT stablecoin, will cut its holdings of commercial paper further than the current 30% of total reserves, and move the money to U.S. Treasurys. [Read more]
Sweatcoin eyes launch of SWEAT tokens that turn movement into money
London-based tech company Sweatcoin is preparing to launch a new token, SWEAT, that allows users to mint currency using just their shoe leather. For every 1,000 steps taken, the holder will earn a Sweatcoin that can be redeemed for goods and services in the app, or donated to charities. SWEAT will become harder to mint over time, giving early users an advantage in terms of obtaining the most value. [Read more]
Bank of Canada Using Quantum Computing to Simulate Crypto Adoption Scenarios
Multiverse Computing has reportedly completed a proof-of-concept project with the Bank of Canada through which the parties used quantum computing to simulate the adoption of cryptocurrency as a method of payment by non-financial firms. Most scenarios in the model showed that non-financial institution adoption of the cryptocurrency would be slow, since there was some upfront knowledge and cost associated with converting fiat to a digital asset. It was also able to simulate how banks might respond, by reducing wire transfer fees to compete with the very low cost of crypto transactions. [Read more]
Singapore aims to streamline financial watchdog’s authority over crypto firms
Lawmakers in Singapore approved the Financial Services and Markets Bill 2022, which further expanded the jurisdiction of the Monetary Authority of Singapore (MAS) to virtual asset service providers (VASPs) doing business outside Singapore. Under the previous regulatory regime, the MAS only had authority over VASPs based in the country and offered their services locally. This led to some regulatory loopholes in which a firm could claim to be regulated by the MAS, but not be directly supervised by the regulator. [Read more]
The Rapid Growth of Fintech: Vulnerabilities and Challenges for Financial Stability
In a chapter in the April 2022 Global Financial Stability Report and an accompanying blog post, International Monetary Fund staff argue that, while Fintech can increase efficiency and competition and broaden access to financial services, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications. The chapter explores three key types of fintech to illustrate these risks: digital banks (“neobanks”), long-established fintech firms in the US mortgage market, and decentralized finance (“DeFi”). The chapter argues that policies targeting fintech and traditional financial firms proportionally are needed. In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges. [Read more]
Upcoming events I’m affiliated with:
The CBDC Think Tank is hosting several webinars over the next month:
Satoshi Capital Advisors is hosting a virtual workshop on wholesale CBDC, stablecoins and digital capital markets on May 24 (starting at 08:00 EST). [Register here with the passcode: CBDC]
