[May 26, 2026] The Bank of Uganda (BOU) published its expressions of interest short list of sixteen consultants to conduct a comprehensive feasibility study on issuing a central bank digital currency (CBDC) in Uganda. The contract will cover technical infrastructure, legal and regulatory aspects, economic and social impacts, operational viability, and a detailed cost-benefit analysis using both quantitative and qualitative methods. The selected firm will assess national digital and payments infrastructure, propose and apply a robust methodology, and deliver specified reports demonstrating understanding, relevant experience, and a workplan. The usual suspects (G+F, eCurrency and Soramitsu, all CBDC platform vendors) are at the top of the scoreboard. [BOU]
The U.S. Federal Reserve (FRB) published a paper by Klee, Lubis, Ross, Ross, and Vardoulakis that shows how permissionless blockchain-based stablecoins are made fragile and prone to self-reinforcing redemption runs by way that they “unbundle” trust. Network externalities and congestion-sensitive gas fees interact to generate strategic complementarities in redemption decisions, producing runs even when reserves are perfectly safe. The global games model yields a discrete redemption regime shift, not a smooth response, once congestion crosses a threshold falling as network externalities weaken. Panel regressions on five Ethereum stablecoins (2017–2025) show congestion alone does not drive redemptions; only its interaction with low network externalities does, concentrated in the upper tail of the congestion distribution. Hence, frameworks targeting reserve quality, such as the GENIUS Act and MiCA, address the liability but not the rail, and central bank digital currencies (CBDCs) and tokenized deposits circulating on permissionless blockchains inherit the same fragility. [FRB]
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.
The Bank of Korea has reportedly submitted a report to South Korea’s National Assembly Strategy and Finance Committee that urged that only licensed commercial banks be allowed to issue won-denominated stablecoins at the outset, citing money‑laundering, financial stability, and FX‑regulation circumvention risks. The Bank of Korea suggests non‑bank issuers could be considered later once their risk‑absorbing capacity is assessed. South Korean lawmakers are currently debating the next phase of digital-asset legislation, which includes provisions on stablecoins. [EToday]
The New York Federal Reserve Bank (FRBNY) published a paper that develops a theory and provides empirical evidence that payment stablecoins disintermediate banks not only by drawing deposits away from traditional institutions but also by transmitting significant liquidity stress to the banks that service stablecoin issuers. Using matched data between on‑chain issuance/redemption activity of a large U.S. dollar stablecoin and Fedwire interbank payments, the authors identify “partner banks” that hold stablecoin deposits and process flows for the issuer. They show that after new partnerships form following the 2023 crypto‑bank failures, these banks experience large, persistent increases in interbank payment volume (about 67%) and in intraday reserve balance volatility tightly linked to daily primary market stablecoin activity, implying that stablecoin-related payments act as frequent liquidity shocks. To manage these shocks, partner banks operate “narrowly,” holding substantially higher reserve balances—roughly 1.5 billion dollars more on average and a much larger reserves‑to‑assets ratio—while their loan share of assets falls by about 14 percentage points relative to similar banks, indicating a crowding‑out of lending capacity. The authors argue that this liquidity channel of disintermediation broadens the ways stablecoins can weaken bank deposit franchises, concentrate reserves in a few institutions, complicate the central bank’s task of gauging system‑wide reserve demand, and potentially propagate or amplify run dynamics from stablecoins to banks during stress events. [FRBNY]
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.
The European Central Bank (ECB) published a presentation of its plans for a digital euro proof-of-concept (POC) program starting in H2 2027. The 12-month POC will involve a limited number of payment service providers (PSPs), merchants, and approximately 5,000-10,000 Eurosystem staff testing four use cases: person-to-person and person-to-business transactions using both online (alias/access number, e-commerce) and offline near-field communication (NFC) methods. The ECB will launch a call for expression of interest in March 2026 to select participating PSPs based on technical capabilities, market reach, and geographical representation. During the POC, transactions will use a digital means of payment that mimics the digital euro’s characteristics but won’t have legal tender status, operating under the Revised Payment Services Directive (PSD2) framework. [Source: ECB]
The IMF published a paper that examines the financial stability risks posed by systemically important fiat-backed stablecoins and explores regulatory design choices to mitigate them. The authors argue that if stablecoins scale to systemic size, they could create dangerous feedback loops: redemptions would force bond sales, depressing market prices and yields, which would erode the issuer’s solvency and trigger further redemptions—amplifying stress across financial markets. Through both conceptual analysis and a simulation model, the paper demonstrates that capital requirements (maintaining asset-liability ratios above 100%) and cash reserve requirements are the most effective stabilizers, substantially reducing the likelihood and severity of runs and fire sales. Redemption gates and lower-duration bond portfolios provide additional but more modest protection by moderating intensity rather than frequency of crises. However, in any case, the paper concludes that international regulatory coordination will be essential to prevent arbitrage. [Source: IMF]
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.
Lloyds Banking Group has completed the United Kingdom’s first public blockchain transaction using tokenized deposits. The transaction involved Lloyds issuing tokenised deposits on the Canton Network (a public blockchain for regulated financial markets) to purchase a tokenised Gilt from Archax, demonstrating how traditional banking can integrate with blockchain technology. Lloyds believes that this innovation offers businesses key benefits including instant settlement, the ability to earn interest while maintaining regulatory protections, access to wider securities trading, automated smart contracts, and enhanced transparency—all while preserving the security of traditional deposits under the Financial Services Compensation Scheme. [Source: Lloyds]
The Federal Reserve (FRB) published a paper that introduces a framework for analyzing vulnerabilities in new money-like products by comparing them to money market funds (MMFs), which have well-documented risks. The authors examine five key features that contribute to vulnerabilities: liquidity transformation, threshold effects, moneyness (perceived safety and liquidity), contagion risks, and reactive investors. They apply this framework to three emerging products: money market ETFs (MMETFs), tokenized MMFs, and stablecoins. The analysis finds that MMETFs have similar liquidity transformation to MMFs but reduced threshold effects due to market pricing; tokenized MMFs largely mirror their underlying MMF vulnerabilities but could become more money-like if token transfers can effect ownership changes; and stablecoins present mixed risks, with the 2025 GENIUS Act likely to standardize payment stablecoins and align them more closely with MMF characteristics. The framework emphasizes that vulnerabilities arise from combinations of these features rather than individual attributes, and that as these novel products evolve and become more familiar to investors, their non-structural features—particularly their perceived moneyness and investor base composition—will likely shift significantly. [Source: FRB]
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.
The following is a corrected version of my December 29, 2025 post regarding “remunerated digital yuan”. Thanks to Amnon Samid for pointing out that I incorrectly said that the digital yuan itself was remunerated.
The People’s Bank of China (PBOC) has proposed allowing banks to pay interest on customer digital yuan (E-CNY) deposits starting January 1, 2026, as part of efforts to expand the circle of banks participating in the central bank digital currency (CBDC) project. However, the initiative faces challenges: interest rates on demand deposits at major Chinese banks are currently just 0.05%, and the digital yuan has struggled to compete with established payment platforms like WeChat Pay and Alipay despite being piloted in over half of mainland provinces. [Source: Weixin] Such deposits will presumably have the same legal status as traditional bank deposits. Also, the mechanics of the operation are still unknown, with some variations implying that the commercial banks will be effectively authorized to issue digital yuan on behalf of the PBOC in order to pay the interest. [Amnon Samid’s January 1, 2026 LinkedIn post]
A paper co-authored by Barry Eichengreen published in the European Journal of Finance (EJF) contends that reliance of stablecoin issuers on centralized custodians introduces devaluation risk similar to that observed in traditional currencies under pegged exchange rate regimes. The authors construct market-based measures of stablecoin devaluation risk using spot and futures prices for Tether. Conditional on full default, their estimates suggest an average devaluation probability of 60 basis points annually, rising to over 200 basis points during the 2022 Terra-Luna crash. In contrast, the probability of a partial default, defined as a 5% devaluation (trading at 95 cents), is approximately 12 percentage points on an annualized basis. Key risk factors include market volatility and transaction velocity. While elevated interest rates suggest heightened devaluation risk, deviations from covered interest parity indicate segmentation between traditional and stablecoin markets, reflecting the effects of leverage trading and arbitrage costs. To mitigate these risks, their findings suggest the importance of greater transparency and regulatory oversight. For example, the authors suggest implementing proof-of-reserve systems powered by smart contracts which would allow new tokens to be minted only when verified reserve balances increase, providing real-time detection of custodial issues rather than relying on quarterly attestations. [Source: EJF]
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.
S&P has reassessed the ability of Tether (USDT) to maintain its peg to the U.S. dollar to its lowest stability score of 5 (weak) from 4 (constrained), highlighting that while the token has generally maintained its dollar peg and benefits from large scale and liquidity, its risk profile has deteriorated due to a growing share of higher‑risk reserve assets such as Bitcoin, gold, secured loans, and corporate bonds. The report also emphasizes persistent transparency gaps around the composition, credit quality, and custody of reserves, limited insight into Tether’s risk appetite and governance, and the absence of a robust regulatory framework or clear asset segregation to protect holders if the issuer became insolvent. S&P also notes structural frictions in primary market redeemability and the potential vulnerability of USDT’s peg in a severe stress event. [Source: S&P] By comparison, S&P has assigned its second highest stability score of 2 (strong) to Circle’s due to its full backing by low-risk assets, primarily short-dated securities, and deposits with banks. [Source: S&P]
The Bank for International Settlements (BIS) published a paper that assesses how the introduction of a central bank digital currency (CBDC) and/or a central bank-run fast payment system (FPS) affects bank deposits and private tokens issued by digital platform operators. The paper finds that the key welfare driver is whether payments are interoperable across “walled gardens.” In a stylized model with banks and digital platforms, non‑interoperable systems generate financial exclusion and allow intermediaries to extract rents from merchants, reducing trade volumes and welfare relative to the social optimum. Introducing either a retail CBDC or an FPS makes payment instruments interoperable, eliminates financial exclusion, maximizes the volume of transactions, and unambiguously raises social welfare, even though it may lead to some degree of disintermediation. In this framework, a well-designed retail CBDC is effectively equivalent to a central bank-run FPS for the industrial organization of the payment system, implying that in jurisdictions with robust fast payments, launching a retail CBDC is less urgent. [Source: BIS]
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.
The IMF published a Fintech Note that examines the potential financial stability implications of introducing retail central bank digital currencies (CBDCs). The paper identifies six transmission channels through which CBDCs could affect financial stability: liability and asset channels (affecting bank funding structures and balance sheets), fee income channel (reducing bank revenues), run-risk channel (potentially facilitating bank runs), information channel (affecting data flows on borrowers), and payment system resilience channel (impacting competition and operational resilience). While acknowledging theoretical ambiguities, the paper reviews quantitative studies suggesting that under moderate adoption scenarios (approximately 10% of deposits), CBDCs would likely have manageable effects on bank profitability and financial stability, particularly in systems characterized by low competition, diverse funding sources, and limited deposit reliance. The magnitude of impacts depends critically on CBDC adoption rates, country-specific characteristics, and design features such as remuneration rates and holding limits. And in any case, quantity restrictions, tiered remuneration, and access parameters, combined with traditional prudential policies, can effectively mitigate potential financial stability risks. [Source: IMF]
I found it surprising that the paper didn’t include in its assessment two papers that under certain conditions CBDC can actually expand bank lending and deposits when its interest rate falls within an intermediate range. A 2023 Journal of Political Economy article written by several Bank of Canada staffers found that banks with market power typically restrict deposit supply to keep rates low, but a CBDC provides an outside option that sets a floor on deposit rates, forcing banks to supply more deposits. In their calibration to the US economy, a CBDC increases bank lending when its rate is between 0.30% and 1.49% (with the average 3-month T-bill rate at 0.90% during the calibration period), with maximum increases of 1.57% in lending and 0.19% in output at a CBDC rate of 0.98%. However, if the CBDC rate exceeds this range (above 1.49%), disintermediation occurs as banks must raise lending rates to break even, reducing loan demand. The paper concludes there is no single “optimal” CBDC rate but rather a range that promotes intermediation, with the effectiveness depending on the degree of bank market power rather than CBDC usage per se.
And a 2025 National Bureau of Economic Research (NBER) paper written by several San Francisco Fed staffers found that the welfare impact of CBDC introduction follows an inverted U-shape with respect to the interest rate paid on CBDC: rates that are too low fail to curtail bank deposit market power significantly, while rates that are too high cause excessive bank disintermediation, reducing credit supply and output. For their baseline U.S. calibration with a 2% policy rate, the optimal CBDC rate is approximately 0.8% annually, yielding welfare gains of 27 basis points of consumption. More generally, across economies with different steady-state policy rates, they derive a simple rule of thumb for optimal CBDC remuneration: the maximum of 0% and the policy rate minus 1%. This rule captures the key insight that CBDC should pay interest to effectively compete with bank deposits (especially in high interest rate environments where bank deposit market power is greatest), but not so much as to cause harmful bank disintermediation. The welfare gains from CBDC are larger in high interest rate environments, reaching about 1% of consumption at a 6% policy rate, because CBDC more effectively curtails bank monopoly power when the deposit spread is otherwise large.
The Bermuda Monetary Authority (BMA) launched an Embedded Supervision initiative, aiming to modernize regulatory oversight for decentralized finance (DeFi) by embedding supervisory requirements directly within financial infrastructure. Through its Innovation Hub, the BMA is collaborating with technology partners to create real-time, verifiable, and privacy-preserving regulatory frameworks that allow for continuous assurance, rather than relying on retrospective reporting. The initiative’s pilot project, involving Chainlink Labs and other industry players, explores expressing policy logic and compliance conditions directly in blockchain infrastructure, providing regulators with real-time data and reducing the compliance burden. [Source: BMA]
Upcoming Speaking Engagements:
The Cedi@60 Anniversary Currency Conference (Accra, Ghana, November 17-20) hosted by the Bank of Ghana, in partnership with Currency Research, will celebrate 60 years of the Ghanaian Cedi, bringing together leaders from across Africa and beyond to reflect on the currency’s legacy and chart its digital future. Learn about Ghana’s eCedi pilot and the future of sovereign digital currencies in Africa, and engage with innovators driving mobile money, QR code payments, and financial inclusion across the region. [Register here and get 15% off by using the Kiffmeister15 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.
Ulrich Bindseil posted a paper that examines the regulatory and financial stability implications of stablecoins, framing them as electronic money issued by narrow balance sheet entities onto programmable platforms. He highlights that European, U.S and U.K. regulatory approaches aim to prevent stablecoins from destabilizing the financial system, but the rules on what assets must back stablecoins diverge widely, with the U.S. favoring short-dated Treasury bills, the EU requiring bank deposits, and the U.K. preferring central bank deposits. However, all insist that stablecoins must not pay interest, a legacy from the era of paper money that does not make sense for electronic assets. The rationale appears to be protection of banks from excessive competition, based on supposed positive externalities from deposit creation and lending, yet the author argues that non-remuneration is a blunt instrument, not a well-designed response to any market failure. Opportunity costs for stablecoin holders rise with interest rates, triggering shifts to other assets, while issuers still earn intermediation margins. The author proposes that better-targeted regulation can address risks and market failures without unnecessarily distorting incentives or relying on mechanical non-remuneration, thus calling for more nuanced policy approaches. For example, Ulrich suggests targeted regulatory charges levied on stablecoin issuers, designed to offset any negative externalities or to compensate for positive externalities lost when funds flow out of banks toward stablecoins. [Source SSRN]
It is notable that the European Parliament’s draft digital euro legislation prioritizes the rollout of the offline version. It mandates that the European Central Bank (ECB) complete all technical and organizational preparations for the offline digital euro before the online version is considered. Introduction of the online digital euro will depend on a market assessment by the European Commission, which will proceed only if there is no suitable pan-European private retail payment solution that covers person-to-person, point-of-sale, and e-commerce. Both forms, upon ECB authorization, enter a minimum 24-month adaptation phase to allow payment service providers and stakeholders to adjust securely and gradually. This framework aims to avoid crowding out private sector solutions, synchronize technical standards, and ensure interoperability, with clear fee guidelines and user choice, making public sector intervention conditional and proportional to actual market needs. [Source: European Parliament]
The draft legislation also requires that offline transactions resemble the anonymity of physical cash. Payments are conducted directly between devices, without reliance on central infrastructure, so payment service providers do not process or record any personal data linked to individual transactions. Only minimal information needed for funding or defunding the device—such as device identifiers—is handled, and no monitoring or tracking of payment activity occurs during offline use. Robust safeguards will be required to prevent the identification of users through device registration, mandating that only the data strictly necessary for regulatory compliance is processed and never used for profiling or tracing specific transactions. As a result, offline digital euro payments would be highly privacy-preserving, ensuring that personal information and payment details remain outside the access of both authorities and service providers.
Upcoming Speaking Engagements:
The Cedi@60 Anniversary Currency Conference (Accra, Ghana, November 17-20) hosted by the Bank of Ghana, in partnership with Currency Research, will celebrate 60 years of the Ghanaian Cedi, bringing together leaders from across Africa and beyond to reflect on the currency’s legacy and chart its digital future. Learn about Ghana’s eCedi pilot and the future of sovereign digital currencies in Africa, and engage with innovators driving mobile money, QR code payments, and financial inclusion across the region. [Register here and get 15% off by using the Kiffmeister15 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.
Google announced the Agent Payments Protocol (AP2), an open standard designed to securely enable payments initiated by AI agents across platforms and payment types—including cards, bank transfers, and stablecoins. Developed with over 60 industry partners such as Coinbase, PayPal, and Mastercard, AP2 extends the Agent2Agent (A2A) protocol and builds a consistent, audit-friendly system for authorizing, authenticating, and attributing payments made by agents on behalf of users. AP2 relies on cryptographically-signed Mandates (Intent and Cart Mandates) as verifiable digital contracts to prove user consent, handle real-time purchases and delegated tasks, and establish clear accountability for transactions. The protocol is flexible enough to support emerging commerce models and integrates with web3 solutions through extensions like A2A x402. Google is inviting the broader industry to collaborate on AP2’s future and provides technical details and reference code in a public GitHub repository. [Source: Google]
PayPal launched “PayPal Links” which lets users easily send or request money via personalized, one-time links that can be shared in any conversation or app. PayPal will soon allow users to send crypto-assets through its peer-to-peer (P2P) platform to PayPal, Venmo, and compatible global digital wallets. The update emphasizes user privacy (no U.S. Internal Revenue Service (IRS) 1099-K reporting on personal Venmo/PayPal transfers) and instant fund delivery, aiming to make sending money as easy as texting. This move comes alongside PayPal’s broader push for global wallet interoperability via the new PayPal World platform, designed to tie billions of wallets together and further scale its payments ecosystem. [Source: PayPal]
Coinbase published an article that argues that claims about stablecoins draining bank deposits and undermining lending are exaggerated and misleading. It states that there’s no solid evidence of stablecoin-induced deposit flight and that most usage of stablecoins is for payments rather than saving, meaning new stablecoins don’t pull dollars directly from banks. The article contends this narrative is fueled by banks seeking to protect their $187 billion annual payments fee revenue and maintain control over a dated, expensive payment ecosystem. The piece suggests that banks are not lacking deposits (noting the $3.3T parked as reserves at the Fed), and if they truly needed funds for lending, they would offer higher rates. [Source: Coinbase]
The European Central Bank (ECB) published a paper that examines how different forms of money, particularly stablecoins, can achieve “fungibility”—the ability to be freely exchanged at equal value in retail payments—and argues that this requires three conditions: final settlement, interoperability across payment systems, and ready convertibility into central bank money. The authors find that tokenized funds and well-backed, regulated off-chain or on-chain collateralized stablecoins can become as fungible as bank deposits if these conditions are met, but algorithmic stablecoins cannot due to their lack of credible convertibility. Overall, the paper concludes that to ensure a unified and functional monetary system, future digital money designs must emphasize settlement finality, interoperability, and reliable conversion into central bank money. [Source: ECB]
Upcoming Speaking Engagements:
Stablecoin NYC 2025 (New York City on November 14-15) will be the definitive conference for exploring the future of digital money and intelligent payments. The event brings together founders, C-level executives, investors, policymakers, and developers for two immersive days of talks, panels, and networking. This be the place to be if you’re building, backing, or regulating the next wave of programmable finance. [Register here]
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.
