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Central Bank Digital Currencies

CBDC Battle Royale: Congress Divided Over Digital Currency

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CBDC: In a significant development in the world of digital currencies, the House Financial Services Committee has greenlit a bill designed to prevent the Federal Reserve from pursuing the creation of a US central bank digital currency. Introduced by US Congressman Tom Emmer, the bill aims to ban the Fed from initiating any CBDC pilot programs and seeks to forestall the introduction of a retail digital currency that could potentially infringe on citizen privacy and freedom.

Emmer passionately argues that the CBDC issue revolves around critical factors like privacy, individual sovereignty, and the preservation of free-market competitiveness. With the bill’s approval by the House Financial Services Committee, it is now poised to advance to the House of Representatives for further deliberation.

One key provision of this potential legislation is that any progress toward a government-backed digital token must be explicitly authorized by Congress. However, its prospects for approval in the House remain uncertain, and its fate in the Senate, where Democrats hold the majority, is even less clear. This political divide presents a challenge, as the bill was introduced by a Republican, and Democrats in the Senate may not be inclined to support it.

Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, expressed her concerns about the bill and its potential impact on the US’s position in the global financial landscape. She contends that such a bill would hinder the US in its race with other countries, particularly China, to establish a global standard for central bank digital currencies.

Waters argues that it could impede research and development, potentially causing the US dollar to lose its status as the world’s reserve currency and depriving US citizens of the benefits of faster, cheaper, and simpler payment systems.

US CBDC Bill Stirs Controversy Amid Global Trend

The bill’s significance lies in the broader context of global CBDC initiatives. Many countries around the world have either embarked on or explored the creation of their own CBDCs, recognizing the potential benefits they offer in terms of financial inclusion, efficiency, and innovation. However, the United States has remained divided on the issue, with contrasting opinions within the crypto industry and among policymakers.

As the bill advances to the House of Representatives, it remains to be seen whether it will gain sufficient support to become law. The outcome will undoubtedly have a substantial impact on the future of CBDCs in the United States, shaping the nation’s stance on digital currency, privacy, and its competitiveness in the evolving global financial landscape. Ultimately, the decision will determine whether the US joins the ranks of nations embracing CBDCs or takes a different path in the digital currency revolution.

India’s RBI Directs Lenders Towards Digital Rupee

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CBDC: In a bid to increase transactions, the Reserve Bank of India (RBI) has extended invitations to a broader set of lenders to engage in pilot programs centered around the central bank digital currency, as reported by three bankers who spoke to local media.

A recent survey conducted by the Bank for International Settlements (BIS) and published on Monday revealed that nearly twenty central banks in emerging and advanced economies are anticipated to have digital currencies in circulation by the end of the decade.

Last year, the RBI commenced trials using Central Bank Digital Currency known as e-rupees in both the wholesale and retail markets.

Currently, prominent state-owned and private lenders such as State Bank of India (SBI.NS), Bank of Baroda (BOB.NS), ICICI Bank (ICBK.NS), HDFC Bank (HDBK.NS), Kotak Mahindra Bank (KTKM.NS), and Yes Bank (YESB.NS) are participating in the pilot project.

RBI Targets: One Million CBDC Transactions

The technology head of a state-owned bank, who attended a meeting with RBI officials on Tuesday, disclosed that the RBI has instructed smaller banks to either collaborate with fintech companies or enhance their systems to initiate CBDC pilots this year.

Due to their lack of authorization to speak to the media, the bankers opted to remain anonymous. RBI Deputy Governor T Rabi Sankar stated on Tuesday that the RBI aims to achieve a target of one million CBDC transactions per day by the end of this year.

As of June 2023, there were 1.3 million customers and 0.3 million merchants utilizing CBDC, according to Sankar. Another banker from a state-owned bank remarked,

“By involving more banks in the pilots, the RBI intends to identify any implementation issues and conduct trials on a substantial user base. We are in the advanced stage of submitting a CBDC pilot request to the RBI. We anticipate receiving approval within the next one to two months.”

In recent weeks, Shaktikanta Das, the governor of the RBI, highlighted that there was no urgency to implement the CBDC on a larger scale. He acknowledged the existence of technological and procedural obstacles and expressed the RBI’s intention to address these challenges before introducing the CBDC in a manner that ensures a smooth and non-disruptive transition.

CBDC Imposition A Boon Or Curse To Nigerian Citizens?

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Governments from every country in the world were working to develop their own Central Bank Digital Currencies (CBDC). Nigeria was one of the first countries to implement a CBDC. The eNaira makes its debut in 2021. The government has, however, been forced to artificially encourage adoption as a result of the lack of adoption.

Nigeria recently declared that it will reduce the total amount of cash that both businesses and people could withdraw. According to reports, this was accomplished in light of the nation’s “cash-less Nigeria” policy, which was launched in 2012. The most recent action, however, was taken to increase the use of the eNaira.

The Director of Banking Supervision, Haruna Mustafa, stated the following regarding the subject,

“Customers should be encouraged to use alternative channels [Internet banking, mobile banking apps, USSD, cards/POS, eNaira, etc.] to conduct their banking transactions.”

According to the Central Bank of Nigeria’s notification, firms will be subject to a daily withdrawal cap. A weekly maximum withdrawal from ATMs of $225, or ₦100,000, and $45, or ₦20,000. Before the announcement, the thresholds for individuals and businesses were $338 (₦150,000) and 1,128 (₦500,000), respectively.

In Nigerian banks, there is also a similar withdrawal cap in effect. Individuals that withdraw more than $225 (₦100,000) or businesses that withdraw more than $1,125 (₦500,000) per week will be charged a 5% fee by the bank.

There is also a daily withdrawal cap of $45 or ₦20,000 for point-of-sale terminals. A 5 percent service fee will be charged to people who attempt to withdraw money from ATMs and banks on the same day.

Here’s How Nigerian CBDC Has Been Faring

Nigerians have been difficult for the Central Bank of Nigeria to persuade to use the CBDC. Since its debut in 2021, the CBDC has been utilized by a paltry 0.5 percent of the populace.

The search volume for eNaira has been virtually nonexistent, as can be seen in the chart below. The CBDC created noise when the asset was launched, but since then there hasn’t been any excitement surrounding it.

Source

Nigeria’s experience would inspire anxiety among other governments, many of whom have yet to implement their CBDCs.

CBDC, a potential financial stabilizer: US Federal research

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According to U.S. federal academics who published a report on Tuesday, the Central Bank Digital Currency (CBDC) may play a significant role in stabilizing an unstable financial system. The results might undermine the efforts of financial lobbyists to convince the government not to adopt such a currency.

In examining how a central bank digital currency (CBDC) would impact the workings of U.S. finance, the Office of Financial Research (OFR), a division of the U.S. Treasury Department that studies risks to the financial system, came to the conclusion that concerns about a future panic driving people to quickly move assets into digital dollars may be exaggerated.

The Central Bank Digital Currency, according to the paper’s authors, would provide the government with an early-warning system, operating as a canary in a mine that it can monitor for warning indications of trouble. More inflows into digital currency would alert regulators to potential problems.

The paper written by Todd Keister, Rutgers University, and Cyril Monnet, University of Bern, stated,

“Observing the flow of funds into a CBDC can allow policymakers to infer when a run by a bank’s depositors is underway more quickly and to place troubled banks into resolution sooner.”

It also emphasizes how substantial depositors might be deterred from withdrawing money and starting that procedure if they know that doing so will raise concerns with watchdog authorities.

Perks of a CBDC

Since a CBDC would have eliminated some of the advantages of “maturity transformation,” in which banks profit from borrowing money at shorter periods than they give it out at, depositors would have less motivation to flee a weak bank when a crisis arises, they claimed. According to the OFR research, banks would thus be a little bit more stable before the crisis occurs.

According to Cowen Group analyst Jaret Seiberg, the OFR research appears to be countering Wall Street bankers’ criticisms of the digital currency.

In a research note to clients, Seiberg wrote,

“We see [the report] as a tool that digital dollar advocates can use to justify proceeding with plans to prepare a central bank cryptocurrency for launch.”

Lael Brainard, vice chair of the Federal Reserve

Lael Brainard, vice chair of the Federal Reserve, who would ultimately be in charge of creating a digital dollar, also expressed support for a prospective CBDC last week.

However, Brainard seems very optimistic about the whole approach, in spite of being aware that the effort to launch a CBDC in the US could take the Fed as long as five years.

Elizabeth Warren endorses CBDC but drags crypto down, calls it lousy and bogus

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CBDCs have gained tremendous traction in off late. As result lawmakers in the United States are finally warming up to the potential of these central bank digital currencies. But you do not need to be a Bitcoin hater to advocate CBDCs. In Wednesday’s Senate Banking Committee hearing, however, Bitcoin and the cryptocurrency market were trashed over and over again.

Sen. Elizabeth Warren, in an opening remark, pointed several reasons to support her argument that “cryptocurrencies have turned out to be a fourth-rate alternative to real currency.” She said that cryptocurrencies are a lousy way to buy and sell things as well as a lousy investment because of the volatility in the market and “no consumer protection.”

Calling it a haven for “illegal activity” Warren referenced the most recent colonial pipeline hack among other cyberattacks. She also pointed the environmental impacts of mining Proof-of-Work [PoW] coins, claiming that it has “devastating consequences” for the climate.

The Senator added,

“Meanwhile, cryptocurrency has created opportunities to scam investors, assist criminals, and worsen the climate crisis. The threats posted by crypto show that Congress and federal regulators can’t continue to hide out, hoping that crypto will go away. It won’t. It’s time to confront these issues head-on.”

This is undoubtedly one of the sharpest criticisms directed towards Bitcoin in recent times by a prominent lawmaker in the US. This was in complete contrast to Texas senator Ted Cruz’s latest comments on the cryptocurrency market when he said that Bitcoin has “a lot of potential.” This news comes days after El Salvador became the first country to accept Bitcoin as a legal tender.

CBDC is the need of the hour: Warren

Warren and the lawmakers are not here for Bitcoin. Instead, they have extended their support for CBDCs. While stating that central bank digital currency “has great promise,” she went on to add,

” Legitimate digital public money could help drive out bogus digital private money while improving financial inclusion, efficiency, and the safety of our financial system —if that digital public money is well-designed and efficiently executed, which are two very big “if’s.”

The latest move could, in fact, be in line with the US’s efforts to decrease China’s footprint across the world which has become a lot large in a very short span, and its behavior in other parts has grown so much more assertive.

In another related news, Twitter CEO and Bitcoin advocate Jack Dorsey unfollowed Elizabeth Warren just hours after the hearing on CBDC

Bank Of Thailand Publishes Guidelines On CBDC Shortly After Warning Its Citizens

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Central Bank Digital Currencies, or as popularly known as CBDC, is the talk among central banks across the world. Riding the wave of a massive digital revolution, CBDCs offer risk-free, that is backed by the country’s central bank money denominated in cash. The latest country to jump the bandwagon is Thailand.

The Southeast Asian country published guidance outlining its views on central bank digital currencies [CBDC]. The Bank of Thailand [BOT] categorized stablecoins into two groups – one that is backed by the country’s currency, the baht, and other forms of stablecoins.

Thailand’s CBDC:

The guidance revealed that BOT is currently in the process of developing a retail central bank digital currency [CBDC] to accommodate the demands of the general public, enhance service efficiency in the business sector, as well as increase access to financial services. It further stated,

“The BOT will continue to closely monitor the developments of new technologies, taking into account the benefits and related risks in the effort to adopt policies supportive of promoting ongoing economic development while maintaining financial system stability.”

According to BOT, Baht-backed stablecoins are cryptocurrencies that are essentially designed to reduce volatility by pegging its value to the Baht. These are used as a means of payment. The guidelines mentioned that such stablecoins may be designated as electronic money [e-Money] under Thailand’s Payment Systems Act 2017.

While acknowledging that the bank oversees risks associated with e-Money, like in cases of settlement, money laundering cybersecurity, and consumer protection risks, BOT stated that the service providers of Baht-backed stablecoins are required to consult with it for consideration before starting any operations.

The Other Kind:

With regards to the ‘other forms of stablecoins” that include foreign currency-backed, asset-backed, and algorithmic stablecoins., BOT maintained that they are not illegal. The bank also welcomed dialogues and said that it is “open to receive comments and feedback before considering regulatory guidelines as appropriate”.

The latest development comes shortly after Thailand reportedly alerted its citizens against privately-issued stablecoin.

Previously in June 2020, Bank of Thailand had announced a partnership with The Hong Kong Monetary Authority, for the development of a prototype for a cross-border blockchain payment system known as “Project Inthanon-LionRock“.

Mastercard Aids Development Of CBDCs With The Launch Of New Testing Platform

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Central Bank Digital Currencies [CBDC] have undoubtedly caught the attention of several governments. While China has been making headway with regard to the development of CBDC, other countries have been following suit. In more recent updates, Mastercard rolled out a platform to facilitate the development of CBDCs.

CBDCs To Get A Boost With Mastercard’s Testing Platform

On Wednesday, Mastercard shared a press release announcing the launch of a testing platform. This virtual as well as the custom testing platform will reportedly aid central banks in evaluating the use cases of Central Bank Digital Currencies. The financial services giant further suggested that the latest platform would carry out operations that would carry out several operations like issuance to the distribution of CBDCs. Furthermore, the exchange of CBDCs among financial service providers, banks, and consumers will also fall under the purview of the platform.

Mastercard’s Executive Vice President of the Digital Asset and Blockchain Products and Partnerships sector, Raj Dhamodharan pointed out that several central banks have been working towards modernizing the current payments systems for the incorporation of CBDCs. He further added,

“Mastercard is driving innovation with the public sector, banks, fintechs, and advisory firms in the exploration of CBDCs, working with partners that are aligned to our core values and principles. This new platform supports central banks as they make decisions now and in the future about the path forward for local and regional economies.”

CBDCs are a great precedent as the world steers towards digitalization. While several believe that CBDCs will soon replace fiat currency, Mastercard has taken a step to aid the same. Even though Mastercard has rolled out its testing platform, it urged several commercial and central banks along with tech and advisory firms to evaluate the functions of CBDCs.

Furthermore, the Head of Blockchain, Digital Assets, and Data Policy at the World Economic Forum, Sheila Warren highlighted that Mastercard’s latest move could give central banks a clear picture of the prospects of CBDCs. Stressing on the importance of the collaboration of private and public sectors, she said,

“Central banks can benefit from support in exploring the option set available to them with respect to CBDCs, as well as gaining insight into what opportunities may be forthcoming.”

China Set to Include More Regions and Cities in Digital Yuan Pilot Test

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The Chinese Ministry of Commerce has announced that it will broaden its digital yuan pilot test to bigger cities in China. In an official statement on 14 August, the Ministry of Commerce revealed that the CBDC test phase would extend to regions such as China’s capital Beijing, Tianjin, Hebei, the Yangtze River Delta and Guangdong, on top of the nearby cities of Hong Kong and Macau.

The expanded digital yuan test area will comprise a prospective user base of 29 percent of the country ‘s population, with a combined population of around 41 million in the major four cities. The Ministry also made it clear that the People’s Bank of China is spearheading the digital Yuan pilot program. However, the statement did not specify when testing will begin in the regions mentioned above. As per the statement, the policy structure of the state-issued currency should be concluded before the end of 2020.

China’s DCEP pilot program

The PBoC initiated the testing program of the digital currency early in 2020, beginning with just four Chinese cities including Shenzhen, Suzhou, Chengdu, and Xiong’an New Area. Notably, China’s largest ride-sharing company, Didi, teamed up with the PBoC to drive the adoption of the digital yuan.

Locally, the digital yuan is referred to as the digital currency electronic payment (DCEP), and it is on track to be the first-ever functional national digital currency. In April, the Chinese government experimented with the digital yuan in its transport subsidies scheme for government and enterprise workers in Suzhou, a big city in Jiangsu Province.

China will promote digital yuan during the winter Olympics 

Aside from expanding the digital currency concept pilot across all of its municipalities and cities, the program is on the verge of further broadening. According to reports, the Chinese government is preparing to use the upcoming Beijing Winter Olympics as a platform to promote digital yuan.

The winter Olympics commonly referred to as Beijing 2022, will be held in February 2022. In its efforts to promote the DCEP, the PBoC recently partnered with Chinese food giants Meituan Dianping to participate in the pilot program. The PBoC has reportedly teamed up with major industry players such as Alibaba, Tencent and WeChat to implement the digital yuan.

Bank of Lithuania Debuts World’s First Digital Collector Coin, LBCOIN

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The Bank of Lithuania became the first nation in the Euro region and the world to officially issue its digital collector coin, LBCOIN, on 23 July. Each issue of LBCOIN is a hallmark of one of the signatories of the Independence Act since it was issued in honor of the 1918 Nation’s Independence Act and its 20 signatories. As reported by TWJ earlier this month, the Bank of Lithuania was set to issue the first cryptocurrency backed by a central bank in the eurozone.

Notably, the state-of-the-art digital collector coin is based on the NEM Blockchain and contains six digital tokens for each physical collector coin. Of the 4,000 LBCOINs disbursed, there are almost 24,000 virtual tokens and 4,000 silver collector coins. Although the Bank of Lithuania stipulates that LBCOIN is not a CBDC, the Bank proposed that it could lead to the realization of a digital currency issued by the State.

By buying an LBCOIN, the collector will obtain a random assortment of digital tokens that can be exchanged for a physical coin; which can be stored in the LBCOIN e-shop, sent as gifts, or even exchanged or transferred to other collectors via the NEM blockchain infrastructure.

The 4,000 silver collector coins, on the other hand, were minted at the Lithuanian Mint. The coins are similar to the standard credit card, both in shape and size. The Lithuanian flag and the national anthem are also included in the binary code. The country coat of arms (Vytis) on the other side of the card is bound by the QR code that connects the coin to the LBCOIN e-shop. The value of each LBCOIN package is 99 EUR (about $115).

Digital collector coin is not a CBDC

Although there were some rumors, the announcement shed light that the LBCOIN is not a central bank digital currency, which can serve as a digital legal tender. Alternatively, the project is geared towards luring collectors;  its goal is to demonstrate how technology can be used to digitize the world. 

The chairman of the country’s central bank board, Vitas Vasiliauska, outlined that the LBCOIN project illustrates Lithuania’s swift technological progress. In conclusion, he also noted that the project could lead the authority on a; “firm path towards financial and payment innovation.”

Japan’s Central Bank Has Set Up a New CBDC Research Team

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The Government of Japan is set to include the central bank digital currency  (CBDC) in its official economic plan. The Bank of Japan (BOJ) has announced earlier that it will begin testing the digital yen to determine its viability from a technical point of view. Reuters reported today that the bank said it had set up a new team, to take a closer look at the  central bank digital currencies

As well as this announcement of a new team, it was also stated that this team will be in charge of joint research into digital currency. It will be done along with other large banks including the Bank of England and the European Central Bank.

The review of the CBDC will be included in the Honebuto Economic and Fiscal Revitalization Plan. In particular, the Honebuto Plan is the foundation of the economic and fiscal policy of the Asian countries. The earlier report points out that Japan will consider a digital yen while coordinating with other nations

Japan’s central bank digital currency

The Japanese government stepped up its CBDC efforts immediately after China started testing its digital yuan. Last July, the Japanese central bank maintained that it had no plans to issue a CBDC. However, things seem to have turned quickly. The Bank of Japan, although it maintains that it does not have immediate plans to issue them.

The Bank of Japan has been researching digital currencies for a while now. Notably, the central bank has recently embarked on the offline use of the digital yen as it seeks to satisfy the two key features of digital currencies: resilience and universal access. According to a research paper shared by the BoJ, Japan faces unique challenges such as earthquakes and blackouts that require offline use of the CBDC.

Moreover, only 20% of the country’s total payments are digital, as most people prefer fiat payments. Although Japan is a technologically advanced nation, the country’s use of smartphones stands at only 65 percent. In conclusion, all of these factors point to the need for the digital currency of Japan’s central bank to be used offline.