BIS Innovation Hub announces first six projects for 2024
The Bank for International Settlements (BIS) announced the first batch of six new projects in its 2024 Innovation Hub work program including experimentations on digital payments cyber security and central bank digital currencies (CBDCs). Project Leap starts its phase II, aiming to “quantum-proof” payment systems, after successfully establishing a quantum-safe communication channel between the central banks of France and Germany in its first phase. Project Aurum enters a new phase in which it will study the privacy of payments in retail CBDCs. The recently started Project Promissa tests the feasibility of tokenizing promissory notes, financial instruments that help fund multilateral development banks and other international financial institutions. All these new initiatives will be added to existing projects that various Innovation Hub Centres will continue to develop this year: FuSSE, Gaia, Mandala, mBridge phase III, Nexus phase III, Pyxtrial, Rio and Viridis. [Read more at the Markets Media]
CBDC and banks: Disintermediating fast and slow
A paper by Rhys Bidder, Timothy Jackson and the Deutsche Bundesbank’s Matthias Rottner examined the impact of CBDC on banks and the broader economy drawing the Bundesbank’s Survey on Consumer Expectations using a structural macroeconomic model with endogenous bank runs. Based on the survey, they show that a substantial share of German households would include CBDCs in their portfolio in normal times – replacing, in part, commercial bank deposits. That is, there is hypothetical evidence of “slow” disintermediation of the banking system. In addition, during periods of banking distress, their willingness to shift to CBDC is even larger, implying a risk of “fast” disintermediation. They map the model to Euro area data under the status quo and in a hypothetical situation where CBDC is introduced. The model implies that slow disintermediation shrinks a banking system that is prone to runs with positive welfare effects. However, CBDC promotes fast disintermediation, and for reasonable calibrations, the second effect dominates and the introduction of CBDC decreases financial stability and welfare. However, complementing CBDC with a holding limit or pegging remuneration to policy rates can reverse these results, implying that CBDC is welfare improving. Such policies retain the gains of increased stability arising from slow disintermediation, but limit the downside of fast disintermediation. [Read more on Github]
FYI here are some of my upcoming speaking engagements:
– Digital Euro Conference 2024 (Frankfurt on February 29)[Register here and get a 20% discount with the Kiffmeister20 code]
*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).
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]
