Financial Integrity Implications of Retail Central Bank Digital Currencies (IMF)
The IMF published a paper that examines how retail central bank digital currencies (rCBDCs) can affect financial integrity, particularly in the context of anti-money-laundering/combating the financing of terrorism (AML/CFT) frameworks. The paper identifies offline-capable rrCBDCs as a distinct departure from standard online payment systems because transactions may be executed without real-time connectivity to a central ledger, which raises unique financial-integrity risks. The authors argue that jurisdictions must explicitly calibrate design choices around offline limits (transaction size, frequency), device and software safeguards, audit trails (including reconnection protocols) and risk-based customer due-diligence regimes for offline use. While offline capability can support resilience, merchant reach and financial-inclusion (especially in connectivity-poor settings), the more flexible the offline mode (in terms of transfer autonomy, reversibility or anonymity), the larger the integrity trade-off becomes. [Source: IMF]
Central Bank Digital Currency: Further Navigating Challenges and Risks (IMF)
The IMF published a paper that informs its Executive Board on the current state of central bank digital currency (CBDC) development, noting that while wholesale projects are gaining prominence, several retail efforts have stalled or been paused due to a lack of clear domestic necessity. The paper also summarizes the key messages and findings from the third wave (of six) CBDC Virtual Handbook chapters published in November 2025, that cover the macro-financial implications for stability and competition; the legal intricacies regarding frameworks and financial integrity; and specific challenges related to tokenized reserves and payment resilience in fragile, conflict-affected states. In total 23 chapters are planned, with the remaining six to be published in 2026. [Source: IMF]
Settlement Speed and Financial Stability (FRB)
The U.S. Federal Reserve Board (FRB) published a paper that examines how the speed of settlement in payment networks influences systemic risk and financial stability. It develops a network model that incorporates netting benefits, liquidity costs, and counterparty risks. It finds the effect of faster settlement is ambiguous: while it can reduce the probability of crisis events by lowering the chance of defaults, it can also amplify the severity of crises when they occur by increasing liquidity needs and reducing netting efficiency. The optimal settlement speed for a payment system depends on the network’s structure, the balance between efficiency and risk, and prevailing liquidity conditions. The paper identifies “default threshold points” at which small reductions in settlement time lead to discrete jumps in the number of defaults across the network. The paper concludes against uniform settlement speed policies, arguing that optimal design requires attention to network topology and liquidity conditions, and that targeted liquidity support be provided during times of stress. [Source: FRB]
Upcoming Speaking Engagements:
The Digital Euro Conference 2026 (Frankfurt, March 26) will explore the future of money with a focus on CBDCs, stablecoins, and commercial bank tokens. This hybrid event offers the perfect platform to understand the future of digital money! [Register here and get 20% off the regular ticket price by using the Kiffmeister20 code!]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
