Unmet payment needs and a central bank digital currency
The Bank of Canada (BoC) published a paper that finds that most adult Canadians do not experience gaps in their access to a range of payment methods, and this would probably continue to be the case in a cashless environment. Some people could, however, face difficulties making payments if merchants no longer generally accepted cash. It suggests that addressing unmet payment needs for a minority of consumers by issuing a central bank digital currency (CBDC) could be challenging, because the minority of consumers with unmet payment needs will only be able to benefit from a CBDC if the majority of consumers experience material benefits and therefore drive its use. [Read more at the BoC]
Understanding the importance of cash for groups at risk
De Nederlandsche Bank (DNB) published a paper about the payment behavior and preferences of Dutch consumers who encounter difficulties navigating this digital world, particularly individuals within groups at risk. The research focused on people with low digital literacy, disabilities or financial difficulties. Using rich payment diary data it revealed that cash is an important means of payment to many. 7% said they always use cash at points of sale and 28% indicate they cannot do without cash. Cash is especially important for people with low digital literacy, people who are blind or visually impaired, people with limited or no hand function, people with a mild intellectual disability and people who find it difficult to make ends meet on their income. [Read more at the DNB]
Why the digital euro might be dead on arrival
The Centre for Economic Policy Research (CEPR) published a paper that argues that, given the limited private incentives to adopt a digital euro, an aggressive marketing and product design strategy should be pursued. However, the pursuit of such an aggressive approach is unlikely as this runs counter to the European Central Bank’s (ECB’s) implicit objective of protecting banks’ existing business model. This is evident in plans to impose paltry holding limits for consumers, even lower ones for merchants (zero), and negative interest premia during periods of financial stress. The authors argue that the advent of retail CBDC offers the opportunity to rethink the current monetary architecture and to re-evaluate the financial stability risks of private money creation and fractional reserve banking. [Read more at the CEPR]
Soramitsu develops digital currency cross border payments with Southeast Asia, Japan
Soramitsu, the developer behind the Bank of Cambodia’s Project Bakong interbank payment system, is involved in a new project to enable payments between Cambodia, other Southeast Asian countries and Japan. Bakong already has cross border payments using QR codes with Malaysia, Thailand and Vietnam, and the additional jurisdictions being worked on include India, China and Laos, with Bakong effectively at the center of a hub. The new Mutsumi project will use Bakong and Japanese yen stablecoins to support Japanese SMEs in selling goods and digital services to Southeast Asian customers. [Read more at Ledger Insights]
Fed program to supervise novel regulated bank activities
The US Federal Reserve Board (FRB) published additional information on its program to supervise novel activities in the banks it oversees. Novel activities include complex, technology-driven partnerships with non-banks to provide banking services to customers; and activities that involve crypto-assets and distributed ledger or “blockchain” technology. The Fed also provided additional information on the process for Fed-supervised state banks to follow before engaging in certain dollar token or stablecoin activity, including demonstrating to its Fed supervisors that it has appropriate safeguards to conduct the activity safely and soundly. [Read more at the FRB]
*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.
Kiffmeister’s 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 (only) if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and 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).
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