Dollar Challenger: CBDCs Complexities and Monetary Hegemony (VJIL)
The Virginia Journal of International Law (VJIL) published a paper by Heng Wang assessing the hurdles challenger central bank digital currencies (CBDCs) face in challenging U.S. dollar dominance. Heng posits these parallel systems introduce a “triple helix” of relational, technological, and legal complexities. Relational complexities emerge from multi-jurisdictional frameworks, while technological hurdles center on interoperability. Legally, novel digital networks struggle to fit with traditional regulations. These dynamics forge a “governance paradox” where specialized infrastructure demands may drive fragmented networks rather than a unified global system. Heng contends this fragmentation challenges the network effects requisite for mass adoption. Ultimately, these systemic constraints make it unlikely that challenger CBDCs will soon displace USD hegemony. [VJIL]
Electronic Money Tokens vs Tokenized Deposits: A Comparative Economic Assessment (Banca d’Italia)
Banca d’Italia published a paper by Giuseppe Ferrero and Federico Guerra that compares euro-denominated stablecoins, regulated in Europe as electronic money tokens (EMTs), with tokenized commercial bank deposits. Both are privately issued forms of tokenized money utilizing distributed ledger technology. The authors argue that monetary properties and financial stability depend on whether instruments are bearer or non-bearer and whether they settle in central bank money (CeBM), rather than on the underlying technology. Non-bearer tokenized deposits maintain the singleness of money by settling in CeBM. Conversely, stablecoins and bearer-form tokenized deposits can trade on secondary markets at prices deviating from par. Concluding that stablecoins and bearer-form tokenized deposits are economically equivalent, the authors recommend consistent regulatory treatment, noting that bearer-form tokenized deposits currently lack an instrument-specific framework. [Banca d’Italia]
BTW if you want to see a complete database of my DFC-related posts going back years, including many that didn’t make the Daily Digest cut, click here.
FYI 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.