The role of public money in the digital age

The Bank of Canada (BOC) published a paper that argues that there is now and will continue to be a fundamental need for a relevant retail public money (cash or central bank digital currency (CBDC)) as part of a well-functioning monetary system in which public and private money coexist and complement each other while trading at par, allowing money to move back and forth safely and efficiently. The paper posits that increasing demand for digital payments and the declining use of cash could lead to a loss of the uniformity of money, adoption of alternative units of account and exclusion of some segments of the population. This could lead to frictions and potential abuse of market power by private money providers that could reduce the efficiency of the economy. Also, to perform its interlinking function, retail public money needs to be a viable payment option and a practical mechanism to transfer between private forms of money. The paper argues that a properly designed CBDC would help fill the gap and maintain the relevance of a retail public money in the economy. [Read more at the BOC]

Taiwan to test CBDC prototype via digital voucher system (The Block)

Taiwan’s Central Bank of the Republic of China (CBC) reportedly may start testing a CBDC prototype in collaboration with the Ministry of Digital Affairs “digital voucher” system at the end of 2024 or early 2025. The Taiwanese government has previously issued stimulus vouchers to boost consumption. In the planned pilot, the Ministry would oversee voucher distribution, while the central bank would manage the subsequent payment and settlement operations after users spend the digital vouchers from their wallets. A local media source said that the digital voucher system could commence testing in August and go live in October. The CBDC prototype would not employ blockchain or smart contracts. [Read more at The Block and view the reported CBC briefing here]

The ecology of automated market makers (Bank of Canada)

The Bank of Canada (BOC) published a paper that describes the ecology of automated market makers (AMMs) used for the pricing and trading of crypto assets within decentralized finance (DeFi). It uses blockchain data to identify trends in user adoption and trading volumes of AMMs. Given the range of AMMs available and the diversity of their designs, the paper performs case studies on four platforms—Uniswap, Curve, Sushiswap and Balancer—to represent the AMM market. It describes the designs of these four AMMs in terms of their products or services, governance, incentives for participation and risks. Finally, the paper describes the characteristics of AMMs that require considerations with respect to the application of a regulatory framework to AMMs. [Read more at the BOC]

Upcoming Speaking Engagements:

• CBDC Conference, Istanbul, September 10-12. The conference will offer representatives of central banks, commercial banks, technology providers, policy makers and academics the perfect platform to learn about the latest CBDC developments, exchange ideas with experts and peers. [Find out more and register here][Central bank delegates may be eligible for free registration (email registration@cbdc-conference.com to find out more)]

• Digital Currency Conference, London, September 23-24. The conference will bring together policymakers, regulators, and technology and innovation experts to network and discuss all aspects of digital currencies. And enter the KiffmeisterDCC code at registration to get a 20% discount! [Find out more and register here]

And 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 john@kiffmeister.com.