Central bank digital currencies and banking: literature review and new questions
The Bank of Canada (BoC) published a paper that reviews the literature on central bank digital currencies (CBDCs), focusing on their potential impacts on private banks. It evaluate these impacts in three areas of traditional banking: payments, lending and liquidity and maturity transformation. For each area, it discusses the lessons learned and identifies gaps in the research yet to be fully explored. It also takes a broader look at CBDCs and highlights two promising directions for future research. One is to study CBDCs through the lens of industrial organization, exploring issues such as platform competition and business models. The second is the crypto space and its new developments such as stablecoins and decentralized finance. [Read more at the BoC]
Estimating digital infrastructure investment needs to achieve universal broadband
The IMF published a paper that develops a detailed model to evaluate the necessary investment requirements to achieve affordable universal broadband. The results indicate that approximately $418 billion needs to be mobilized to connect all unconnected citizens globally (targeting 40-50 GB/Month per user with 95% reliability). 97% of additional investment is for emerging market economies and low-income developing countries. It also finds that if the data consumption level is lowered to 10-20 GB/Month per user, the total cost decreases by up to about half, whereas raising data consumption to 80-100 GB/Month per user leads to a cost increase of roughly 90% relative to the baseline. Moreover, a 40% cost decrease occurs when varying the peak hour quality of service level from the baseline 95% reliability, to only 50% reliability. The paper concludes that broadband policy assessments should be explicit about the quantity of data and the reliability of service provided to users. Failure to do so will lead to inaccurate estimates and, ultimately, to poor broadband policy decisions. [Read more at the IMF]
Members of the European parliament approve plans for an EU-wide digital wallet
The European Union (EU) Industry, Research and Energy Committee approved a proposed update to the European Digital Identity Framework that will enable the issuance and usage of the smartphone-based EU’s European Digital Identity Wallet (eID). It would allow holders to identify and authenticate themselves online (via a European digital identity wallet) without having to resort to commercial providers. It would also give users full control of their data and let them decide what information to share and with whom. [Read more at the European Parliament]
PayPal pauses stablecoin work amid regulatory scrutiny of crypto
PayPal is reportedly pausing work on its stablecoin as regulators increase scrutiny of cryptocurrencies and Paxos, a key partner in the project, faces a probe by the New York State Department of Financial Services. A PayPal official confirmed that the firm is exploring a US dollar backed stablecoin, adding that “if and when we seek to move forward, we will, of course, work closely with relevant regulators.” [Read more at Bloomberg]
Upcoming conferences, webinars and speaking engagements:
- I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]
Kiffmeister’s global central bank digital currency monthly monitor
Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.
The Sovereign Official Digital Association (SODA) is a technology-agnostic firm offering advisory services at the intersection of central banking, digital finance and the web3 industry, aiming to make public digital money a reality. SODA believes institutions in the existing financial ecosystem should have access to the tools and resources they need to move from discussion to action. SODA offers ‘real life’ use cases to help test digital money and drive adoption as central banks and other public institutions explore the future of a more financially inclusive world powered by interoperable blockchain-based networks. SODA would love you to join us on this journey – please get in touch (chris@sodapublicmoney.org).
Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]
WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]