Some lessons from Asian e-money schemes for CBDC adoption

The International Monetary Fund (IMF) published a paper that synthesizes four lessons from the experiences of six Asian e-money schemes (Alipay and WeChat Pay in China; Paytm in India; and GoPay, GrabPay, and ShopeePay in Southeast Asia) for central banks as they consider central bank digital currency (CBDC) issuance [Read more at the IMF]:

1. CBDC should embody trust, convenience, efficiency, and security;
2. CBDC service providers can facilitate adoption by leveraging digital technology, targeting use cases, developing business models, and complying with legal and regulatory requirements;
3. Central banks could incentivize CBDC service providers to develop these four channels when considering CBDC adoption; and
4. Central banks may be able to establish data-sharing arrangements that preserve privacy while leaving room for CBDC service providers to explore the economic value of data. 

Bank competition and household privacy in a digital payment monopoly

The IMF published a paper that explores how the introduction of an informationally more intrusive digital payment vehicle affects households’ cash use, credit access, and welfare. For example, lenders can exploit households’ payment data to infer their creditworthiness, but households then face a tradeoff between protecting their privacy and credit access. A tech monopolist controls the intrusiveness of the new payment method and manipulates information asymmetries among households and oligopolistic banks to extract data contracts that are more lucrative than lending on its own. The laissez-faire equilibrium entails a digital payment vehicle that is more intrusive than socially optimal, providing a rationale for regulation. [Read more at the IMF]

Update on the work of the digital euro scheme’s rulebook development group

The European Central Bank (ECB) published an update on the work of its digital euro scheme Rulebook Development Group (RDG) including progress with drafting based on the design choices endorsed by the ECB’s Governing Council, and the group’s next steps. The ultimate goal of the Group’s work is to define the roles and contributions of the different actors so that the desired digital euro functionalities and user experience can be coherently created by those different actors, while allowing for innovation and competition. [Read more at the ECB]

Cryptic regulation of crypto-tokens

The US National Bureau of Research (NBER) published a paper that investigates the alignment of existing securities regulations with the emerging landscape of crypto-tokens and blockchain technology. By examining the features of these digital assets, including decentralization, consensus mechanisms, and programmability, it analyzes how they interact with existing financial rules. It compares approaches to regulation across countries, considering potential impacts on innovation, and explores the issues that may arise with blockchain networks, such as payment efficiency and market safety. The paper aims to contribute to discussions about balancing innovation within the blockchain sphere and ensuring investor protection and market security, underlining areas that may necessitate regulatory improvements. [Read more at the NBER]

World needs a CBDC treaty, Cecchetti tells central bankers

Ex-BIS economic adviser and head of monetary and economic department Steve Cecchetti reportedly called for an international moratorium on CBDC development due to the financial stability risk they could pose for small jurisdictions. He said that “CBDCs are a form of narrow banks [and] I am not a fan of narrow banking… I don’t think it fixes the problem… we don’t have narrow banks because they are expensive.” [Read more at the Blind Spot]

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*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.

Upcoming conferences, webinars and speaking engagements:

• I’ll be participating in Currency Research’s in-person Central Bank Payments Conference and Global Payments Summit in Cape Town from June 26 to 30. [Register here and here respectively]
• I’ll be lecturing at the Digital Euro Association (DEA) Digital Money Academy on July 27, 2023. [Register here]

Kiffmeister’s global central bank digital currency monthly monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution 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 chronicles@kiffmeister.com.

The Sovereign Official Digital Association (SODA) is a technology-agnostic firm offering advisory services at the intersection of central banking, digital finance and the web3 industry, aiming to make public digital money a reality. SODA believes institutions in the existing financial ecosystem should have access to the tools and resources they need to move from discussion to action. SODA offers ‘real life’ use cases to help test digital money and drive adoption as central banks and other public institutions explore the future of a more financially inclusive world powered by interoperable blockchain-based networks. SODA would love you to join us on this journey – please get in touch (chris@sodapublicmoney.org).

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]