BCB announces projects selected for the second phase of Drex testing (Ledger Insights)

Banco Central do Brasil (BCB) announced the 13 themes that will be trialed during the second phase of the Drex wholesale central bank digital currency (CBDC) project. The first phase involved testing processes such as issuing, transferring and settling digital treasury bonds with tokenized commercial bank deposits with wholesale CBDC utilized for interbank settlements. During the second phase, various financial services will be developed via smart contracts on the Drex platform created by 16 consortia or companies. The platform is a permissioned Ethereum network using Hyperledger Besu. [Read more at the BCB]

Lessons from India’s Unified Payments Interface (UPI)(SUERF)

Société Universitaire Européenne de Recherches Financières (SUERF) published a note that draws lessons from the success of India’s Unified Payments Interface (UPI). It argues that this success majorly owes to ease of development of applications, easy use and zero-transaction fees for end-users. Further success factors have been strict data protection rules, active partnership with the private sector and adept regulation. The note also discusses the organization of the Indian payment market since the launch of UPI, and the changes in digital payment market in India, with a focus on payment volumes and values. It highlights the increasing investments in the payments market and increased adoption over time, and provides insights into the implications of payment systems for financial inclusion in India, and touches upon some challenges UPI faces. [Read more at SUERF]

Tokenization: another giant leap for securities? (NY Fed)

The U.S. Federal Reserve Bank of New York (NY Fed) published an article that explains what tokenization is and how it works, and looks at how past innovation in financial markets might offer lessons for the future. Multiple successful experiments show efficiencies in a completely tokenized world—where money and securities are all tokenized and settlement can be automated and synchronized with smart contracts. Change takes time, and there may be a period of years where tokenized money would need to interact with traditional securities, or vice versa. As an example, the article points to the Swiss National Bank (SNB) Project Helvetia which initially tried to link the existing payment system to a tokenized securities system, but found that without tokenized cash operational burdens were added, not reduced. Hence, when Helvetia went live, it did so with wholesale CBDC. [Read more at the NY Fed]

Focusing on users: lessons for Canada’s CBDC from the digital euro and digital pound (CIGI)

The Centre for International Governance (CIGI) published Ori Freiman’s paper that explores how Canada can craft a responsible and user-centric approach to its digital loonie project. It emphasizes meaningful public engagement in both technical design and regulatory processes — drawing from the U.K. and European Union (EU) consultative approaches. It also highlights the importance of responsible personal data handling and clear regulatory language, learning from EU expectations and UK legislative concerns. It concludes with recommendations that span across five key areas, critical to the successful integration of the digital loonie within the fabric of society; the developmental approach, engagement strategy, regulation and consumer protection, regulatory novelty and further research. [Read more at CIGI]

AI and Central Banks—Speeding Ahead within Legal Guardrails (IMF)

International Monetary Fund (IMF) staff published a short note that highlights the legal challenges concerning central banks’ governance, transparency, and accountability in central banks’ AI exploration, first covered in a 2021 IMF Fintech Note. AI can significantly strengthen central banks’ agility to predict and mitigate crises and improve monetary policy implementation, as well as the regulation and supervision of financial institutions. However, the use of AI tools could pose risks and challenges to central banks’ governance, data privacy, intellectual property, cybersecurity, and legal liability. An effective AI journey for central banks requires completion of ‘AI legal checkpoints’: is there an effective oversight function? Is there adequate expertise? Are central banks’ decisions relating to AI transparently disclosed? Do central banks remain accountable for their actions? Central banks should carefully assess if their legal frameworks are adequate to ensure they are well equipped for their AI journey. [Read more at the Oxford Business Law Blog]

I don’t consider AI a “Fintech” issue but I have recently started to track the topic, mainly from a central banking policy perspective. I’ve been collecting them here: https://www.diigo.com/user/kiffmeister?query=%23AI.

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.