CBUAE domestic digital dirham preparation update
The Central Bank of the UAE (CBUAE) is reportedly preparing to operationalize its domestic digital dirham central bank digital currency (CBDC). It is encouraging all UAE commercial banks and payments processors to integrate with the CBUAE digital dirham issuing node, and has decreed digital dirham adoption by all UAE licensed financial institutions (LSIs) by 2026. In the immediate term, those LSIs are being encouraged to develop digital dirham use cases in the CBUAE sandbox. [Read more at Ernst & Young]
CBUAE launches digital central bank digital currency strategy
In March 2023, the CBUAE announced the launch of its CBDC strategy, the first phase of which was expected to be complete June 2024. It included a soft launch of the BIS Innovation Hub led mBridge cross-border wholesale CBDC platform, proof-of-concept work for bilateral CBDC bridges with India, and proof-of-concept work for domestic wholesale and retail CBDC. The CBUAE aims to ensure the readiness of the UAE to integrate CBDC-based payment infrastructures with the future potential tokenization world. [Read more at the CBUAE]
The Bank of Canada published a paper that examines the optimal amount of user anonymity in a CBDC in the context of bank lending. Anonymity, defined as the lender’s inability to discern an entrepreneur’s actions that enable fund diversion, influences the choice of payment instrument due to its impact on a bank’s lending decisions. The paper shows that moderate anonymity in CBDC leads to an inefficient pooling equilibrium. To avoid this, CBDC anonymity should be either low, reducing attractiveness, or high, discouraging bank lending. Specifically, the anonymity should be high when CBDC significantly benefits sales, and low otherwise. However, competition between deposits and CBDC may hinder the implementation of low anonymity. [Read more at the BoC]
The impact of information and communication technologies on banks, credit, and savings
The Bank for International Settlements (BIS) published a paper that examines the impact 4G mobile network introduction on the Brazilian banking sector. It found that 6% of private banks exited municipalities while their branches shrink on average 11% within five years of the introduction of this technology compared to municipalities that do not have it. By contrast, public banks, which have added responsibilities of being direct executioners of public policies, are not reactive to better mobile connectivity. [Read more at the BIS]
*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
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