CBDC developments — June 2023
About the author: Atakan Kavuklu is one of the key contributors to the CBDC Tracker. He works as a consultant for IBM where he specializes in digital money & assets and voluntarily supports the activities of the Digital Euro Association. Atakan Kavuklu has a degree in International Economics and Development.
Note: The following are notable highlights of the CBDC Tracker June 2023 update. For more details and news, please visit CBDC Tracker.
Side Note: We have decided to set Kenya’s status to cancelled although Kenya will continue observing CBDC developments. The central bank has determined that there is no immediate need for a CBDC in the short to medium-term.
Bahamas:
The Central Bank of The Bahamas (CBOB) published a Sand Dollar update in late May. During April and May 2023 they continued with more accelerated outreach, and technical developments to extend proprietary wallet access to the Bahamas Automated Clearing House (ACH) via the Sand Dollar infrastructure were completed. Meanwhile, the first iteration of Wallet 2.0, which will permit user self-activation with lower KYC requirements (Tier I), progressed to beta testing, with a general release targeted for the middle of the summer of 2023. The CBOB will become an Authorized Financial Institution (AFI) offering SandDollar wallet services in a targeted rollout starting in June. The Central Bank is selecting Sand Dollar ambassadors to assist with outreach efforts, and various outreach events were held, including participation in financial fairs and the Red Cross Society Fair. Furthermore, the Sand Dollar was featured as a payment option during the Bahamas Carnival events. Mobile payments data showed an expanded volume of Sand Dollar settlements.
Side Note: Technology provider NZIA has changed its name to Movmint. You can find their website here.
Colombia:
Ripple is partnering with Colombia’s central bank to explore blockchain technology use cases. Banco de la República, in conjunction with The Ministry of Information and Communications Technologies (MinTIC) will pilot use cases that will enhance Colombia’s high-value payment system using the Ripple CBDC Platform, powered by the XRP Ledger (XRPL). The pilot will be run with Spain-based blockchain technology firm Peersyst Technology. The Central Bank of Colombia hopes to enhance the country’s high-value payment system by benefit from leveraging distributed ledger technology. A CBDC could also improve speed and ultimately reduce costs.
Euro Area:
- Retail CBDC:
The European Commission published a legislative proposal for the digital euro. The proposal lets the European Central Bank (ECB) decide if and when to issue the digital euro. The digital euro would be legal tender and thus oblige merchants to accept digital euro payments. According to the proposed legislation, the digital euro users would not be required to have a bank account and could simply exchange cash against the digital euro at public entities (local or regional authorities or postal offices). Regarding privacy, offline low-value payments should resemble a similar privacy as cash, i.e. privacy vis-a-vis the ECB and intermediaries. Online payments would have the same privacy as today’s online payments, i.e. visability against the intermediary. Users’ personal data would be accessed and processed mainly by the bank or payment service provider (PSP) with whom they hold a digital euro account, for account management purposes, fraud prevention and to abide by financial integrity (e.g., AML/CFT) regulatory requirements. The ECB would not be able to identify individual digital euro users, nor what users do with their money. They would only have access to encrypted data. Basic services, including when making purchases in digital euro, whether nationally or across border, will not incur fees. However, commercial banks could charge merchants for receiving payments, and customers for their accounts to which the digital euro may be linked and for voluntary, non-basic services such as conditional payments. The legislation also foresees that users could open up digital euro accounts at intermediaries and linking a commercial bank account from another intermediary. The digital euro should not be programmable money — “as a digital form of the single currency, the digital euro should be fully fungible“, not to be mistaken with programmable payments, which allows for code-based payments depending on pre-defined conditions. - Wholesale CBDC:
The ECB “new technologies for wholesale settlements contact group” held its first meeting on June 21, 2023, marking the start of the Eurosystem’s exploratory work on how wholesale financial transactions recorded on distributed ledger technology (DLT) platforms could be settled in central bank money. Exploratory work is expected to begin in 2024 with trials or experiments to launch later in 2024. Initially, three types of interoperability solutions will be explored; the Deutsche Bundesbank’s trigger, Banca d’Italia’s TIPS Hash-Link, and the Banque de France’s wholesale central bank digital currency (CBDC) based full-DLT interoperability solutions. Main motivations are to (i) consolidate and further develop the ongoing work of Eurosystem central banks in this area, and (ii) gain insight into how different solutions could facilitate interaction between TARGET real-time gross settlement (RTGS) services and DLT platforms.
Israel:
The Bank of Israel (BoI) published a paper on how to ensure that a potential CBDC is broadly adopted. The characteristics that should increase digital shekel adoption and network effects among users include (i) making it possible to receive (make) payments from (to) the State, (ii) providing an efficient and convenient payment experience, and (iii) making it broadly useful for payment between individuals (P2P) including offline. Also, costs to merchants should be less than existing alternatives, and should streamline their operational processes such as the payment of taxes. In addition, defining a digital shekel as “legal tender” will help provide the currency with the status that the public attributes to cash, and thereby support its broader acceptance.
Kenya:
The Central Bank of Kenya (CBK) has released a discussion paper summarizing public comments on the potential implementation of a CBDC in Kenya. Over 100 responses were received from a diverse range of individuals and institutions. Respondents highlighted benefits such as increased efficiency, transparency, and lower costs, while identifying risks including disintermediation of banks, high implementation costs, and cyber risks. Given the evolving global landscape and challenges faced by early adopters of CBDCs, the CBK does not view CBDC implementation as a priority in the short to medium term, stating that that “the allure of CBDCs is fading”. The CBK will continue to monitor CBDC developments to inform future assessments of its necessity in Kenya, collaborating with other central banks for insights and experiences.
Nigeria:
The Central Bank of Nigeria (CBN) has introduced the eNaira as a payment option for inbound remittances in an effort to help increase the adoption of the CBDC. It’s part of the CBN’s efforts to liberalize the payout of diaspora remittances and promote the adoption of the eNaira. International money transfer operators (IMTOs) will need to apply for a one-time “no-objection” and open Merchant Wallets through the central bank to offer customers the possibility of using the eNaira for cross-border remittances.
Philippines:
Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla provided an update to the central bank’s digital payments transformation roadmap in which he underscored the lack of interest in issuing retail CBDC. He was particularly concerned about the potential loss of payments privacy.
Switzerland:
The Swiss National Bank (SNB) will reportedly issue a wholesale central bank digital currency (CBDC) on Switzerland’s SIX digital exchange as part of a pilot. “This is not just an experiment, it will be real money equivalent to bank reserves and the objective is to test real transactions with market participants”.
Side Note: This seems to be an extension of Project Helvetia.
Thailand:
The Bank of Thailand will reportedly be launching a three-month retail central bank digital currency (CBDC) in June 2023, in collaboration with three payment service providers (Bank of Ayudhya (Krungsri), Siam Commercial Bank (SCB), and 2C2P (Thailand) Co). The collaboration aims to improve the convenience, efficiency, and cost-effectiveness of financial transactions. For example, Krungsri will be inviting up to 2,000 of its staff and approximately 100 merchants near Krungsri’s headquarters to participate in testing the digital currency. Krungsri has not set a limit in terms of transaction value, focusing instead on testing the stability of the system, particularly during peak periods. The CBDC can be accessed through a mobile banking app, allowing users to transfer and transact with digital baht. The central bank expects around 10,000 participants to be involved in the testing phase. This will be part of the central bank’s “foundation track” testing of Giesecke+Devrient’s Filia CBDC platform.
https://finance.ec.europa.eu/publications/digital-euro-package_en
https://www.ecb.europa.eu/paym/intro/news/html/ecb.mipnews230629.en.html
https://www.ledgerinsights.com/nigeria-cbdc-enaira-remittances/
https://www.bsp.gov.ph/SitePages/MediaAndResearch/SpeechesDisp.aspx?ItemId=1034
https://www.reuters.com/markets/currencies/snb-launch-digital-currency-pilot-chairman-2023-06-26/
