Managing the transition to central bank digital currency

De Nederlandsche Bank (DNB) published a paper that studies the transition from a steady-state without central bank digital currency (CBDC) to one in which the home country issues a CBDC, using a two-country dynamic stochastic general equilibrium (DSGE) model with financial frictions. In the new steady state, the availability of CBDC improves welfare, but during the transition, demand for CBDC crowds out bank deposits and leading. However, these negative effects can be reduced with binding caps, with an optimal level of around 40% of the steady-state CBDC demand. A two-tiered remuneration scheme is also effective in smoothing the transition if the penalty interest rate is extremely high (e.g., a negative 300% interest rate on holdings above 50% steady-state demand). [Read more at the DNB]

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]

Digital euro: Debunking banks’ fears about losing deposits

In parallel to yesterday’s VoxEU article, the European Central Bank (ECB) posted an article by the same three senior officials that debunked fears that a commercial bank customers might withdraw deposits to hold digital euro. [Read more at the ECB]

Banks are barking up the wrong tree when they rely on studies that overlook the outlined design features of a digital euro. In doing so, they ignore the many other challenges they need to address to ensure stable funding through deposits. Banks need to offer attractive products and services that incentivize customers to hold their deposits with them instead of migrating to new and powerful private competitors.

Bank of England and HM Treasury RFI on digital pound privacy

The Bank of England (BOE) and HM Treasury published a digital pound request for information on privacy, meaning the protection of users’ personal and transaction data, and ensuring they have control and visibility over who can process their data and for what purposes. However, the digital pound would not be anonymous because the ability to identify and verify users is needed to prevent financial crime, but the BOE and government will not access users’ personal data in a digital pound ecosystem. In that regard, the BOE is exploring technological solutions to prevent it from being able to access personal data via the core ledger. The deadline for responding is March 12, 2024. [Read more at the BOE]

EU Parliamentary Committee votes in favor of digital euro

The European Parliament’s Committee on Civil Liberties and Justice has reportedly voted to endorse the latest digital euro report backing the ECB’s proposed digital euro. The draft central bank digital currency (CBDC) legislation was passed by 48 in favor of, with six against, and seven abstentions. It is likely a full European Parliament vote on the digital euro will not happen until after European Union election in June 2024. [Read more at Coingeek]

I say “reportedly” above because I can’t find any evidence of this vote on the European Parliament’s website. If anyone has that link, please share it!

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]

ECB argues digital euro won’t disintermediate banks

The Centre for Economic Policy Research’s VoxEU published an article by Ulrich Bindseil and two other senior European Central Bank (ECB) executives, argued that that commercial bank deposits are unlikely to impacted much by the launch of a digital euro due to its design. This combines a holding limit with the reverse waterfall, which allows instant top-up of a central bank digital currency (CBDC) wallet from the users’ bank accounts. Also, merchants and other businesses cannot hold digital euro balances. According to the article, stablecoins and other innovative private sector financial products are bigger threats to bank business models. [Read more at VoxEU]

Digital Turkish lira first phase evaluation report

The Türkiye Cumhuriyet Merkez Bankası (CBRT) published an English version of the report on the first phase of its digital Turkish lira testing (originally published in Turkish in December 2023). The project started in 2020 with a proof-of-concept (POC) that tested the applicability of various distributed ledger technologies (DLTs) to the digital currency. The study was successfully completed and followed by the establishment of the Digital Turkish Lira Collaboration Platform with the participation of technology stakeholders. The first phase of the project focused on retail payments and involved the preparation of the technical work environment, the design and development of the CBDC system, the integration of a prototype digital identity system, the creation of a digital wallet application, and the simulation and testing of different scenarios for the issuance, distribution, online payment/transfer and redemption of the digital currency. The first phase also included “pilot” tests in selected locations to measure the system performance and user experience. The tests were successfully completed in the first half of 2023 and the first phase was finalized. The findings of the first phase will inform the next phases, which will involve more extensive pilot tests and the expansion of the collaboration platform with new participants. [Read more at the CBRT]

I highlighted the “pilot” in “pilot tests” because the report is unclear whether the pilots are really pilots. According to the IMF “5P” CBDC product development framework, and the way that CBDCTracker.org and I define pilot, a pilot involves real CBDC and end users, with central bank staff not counting as real end users. Some central banks throw the term “pilot” around very loosely, for example, calling proofs-of-concepts “pilots” to sound more impressive. I hope someone at the CBRT can throw more light on this question!

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]

Draft digital euro legislation supports permissionless blockchains

The most recent draft of the digital euro legislation being discussed by the European parliamentary Committee on Economic and Monetary Affairs includes support for permissionless blockchains. “Conditional payments in Digital Euros may also be carried out on permissionless distributed ledgers where until now only privately issued assets like crypto-assets or stable coins are available as a means of payment. With the approval and under conditions set by the European Central Bank (ECB), the Digital Euro would be made available as a token to be referenced on these chains.” The ECB and European Council previously stated they don’t want programmable money at the base layer, so the legislation now specifies conditional payments will happen in the “layer above”. [Read more at Ledger Insights]

Digital euro: The case against it being legal tender

SUERF published an article by Christian Pfister that the notion of legal tender is a “barbarous relic” that is unfit in a digital environment where there is a wide choice of payment instruments. Furthermore, making the digital euro legal tender could even undo some the expected benefits of its launch and entail risks. That is not to say that making a retail central bank digital currency (CBDC) legal tender may be more justified in a context where the wide majority of payments are made in cash and the public authorities wish to encourage the modernization of payments, i.e. in some developing and emerging economies. [Read more at SUERF]

In any case, by the typical definition of legal tender (payment in it cannot be refused by the payee) it is an irrelevant distinction, since in many jurisdictions there are so many exceptions, or there is little to no enforcement (e.g., in China and Sweden).

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]