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Central Bank Digital Currencies

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.

 

Didi Chuxing ,Conducting The First Real World Trial of Digital Yuan

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Didi Chuxing-what many consider China’s  Uber to be conducting a test on the digital Yuan. As per Wednesday’s announcement, Didi joined the list of companies and banks to test China’s digital yuan developed by the People’s Bank of China (PBOC). The new electronic exchange medium will be known as the Digital Currency Electronic Payment (DCEP).
The ride-sharing giant features at least 550 million users and appears to be an appropriate platform to test the China’s digital yuan as a form of digital cash payment. This comes just a few days ahead of an expert analysis citing that the China’s Digital Yuan was only here to compete with the US dollar, not Bitcoin.

China Digital Renminbi, The First Mover of Stablecoin Space

Apparently, the cryptocurrency community has been monitoring the central bank’s digital payment system since China announced the development of a stablecoin.

Researchers at the Bank of America,  have stated that China is the first mover in the CBDC area; and have recognized the digital renminbi as a welcome asset for regional trading partners. This, the analysts claim, is on the belief that payments are becoming more electronic and cashless. Thus, making the China’s  a candidate that would most likely disrupt the US dollar.

Nevertheless, ahead of the first real-world trial of the China’s digital yuan, the Chinese Central Bank had initially launched mini-trials across four Chinese cities. The tests were carried out through various partnerships between the Central Bank, Starbucks, McDonald’s and Subway. These tests were the first phase of the trial, and the nation is now preparing to enter the next phase.

According to the People’s Bank of China Strategy and the timeline for the DCEP (Digital Currency Electronic Payment), Didi Chuxing and the Central Bank Task Force will be strategizing, designing and piloting the payment system with strict safety, governance, regulation and security precautions.

However, PBoC focuses on testing the digital stable coin as a native token on the Ride-Sharing application. It seems that the successful DiDi real-world test will lead to the final launch of the DCEP system. In fact, an official at the People’s Bank of China suggested plans to have a China’s digital yuan in use during the Beijing Olympics in 2022.

Lithuania Set to Issue Own Central Bank Digital Token

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The first digital token backed by the central bank will soon be launched in the eurozone. According to the Reuters report on 2 July, Lithuania will be the first eurozone nation to issue a digital central bank token. The report notes that 24,000 digital tokens, dubbed LBCOIN, based on the blockchain, will be issued within a week.

Facebook Libra sparking CBDC activity globally

Crypto-friendly Baltic nation will issue LBCOINs as part of its plan to test central bank digital currencies and blockchain technology in day-to-day applications. The news of the launch of the central bank’s digital tokens follows the release of the Libra Whitepaper on Facebook. The development of the new Facebook Libra has forced central banks to accelerate their CBDC plans.

Moreover, the deputy governor of the Bank of Lithuania, Marius Jurgilas, while talking to Reuters on the new digital tokens said:

“No one in the central bank community was thinking about digital currency seriously before we realized that there is a legitimate threat that someone else will take our space… We need to provide society with what it wants.”

Central bank digital token to be exchanged for physical coins

In addition, the Deputy Governor noted that LBCOIN is identical to the central bank digital currency, which is fiat in digital version, issued and administered by the central bank. In particular, the digital tokens of the central bank will be distributed at €99 ($111.28) in a bunch of six. And the bands will have an attached image of one of the 20 individuals who signed the declaration of independence of Lithuania in 1918.

The Bank of Lithuania expects residents to trade a digital token with orders to create a specific set that can be exchanged for a physical silver con the size of a regular credit card. As stated in the report, the physical coin will have a nominal value of €19.18 ($21.55). The holders of LBCOIN may immediately exchange the digital asset with the Bank of Lithuania and the private blockchain infrastructure, as stated in the report.

 

China’s Digital Currency Project Lessons to the Entire World

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China’s digital currency may not conquer the present financial ecosystem which has already been controlled by the United States dollar, however, the central bank digital currency (CBDC) project is a good foundation for world economies to build on.

Back in March, the Peoples Bank poof China (PBoC) launched the testing phase for its state-issued digital currency. The test, which is stipulated to be conducted in the Chinese cities of  Suzhou, Shenzhen, Xiong’an, and Chengdu and will entail the transfer of remuneration to state employees in the embodiment of the new CBDC.

China’s digital currency to derange the contemporary financial order?

The PBoC is planning for the central bank digital currency to be ready for use before the 2023 Olympics which will be held in an Asian country, takes place. China’s decision to develop a digital currency created waves among the policy community. Back on April 20, China commenced on the first testing stage of the CBDC. Following the launch of China’s digital currency, a report by the state media outlet, China Daily, stated that:

“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level”.

Despite the increased fuss on China’s digital currency threatening the contemporary financial system, there are several reasons to hesitate on this quickness and extent of this rather long declaration.  Firstly, as illustrated by Kenneth Rogoff, a professor of economics at Havard, the present dollar dominion is backed by “America’s deep and liquid markets, its strong institutions, and the rule of law”.

The professor’s observation becomes evident in the September 2019 Bank of International Settlements (BIS) study. As per the survey, the United States dollar holds onto its supreme currency reputation, being on one side of 88 percent of the entire trades, the SWIFT banking network, and as the report points out, dominating the worlds’ bank-to-bank money transfers,

The Chinese renminbi is the eighth most traded currency

Chinese renminbi, which is popular as yuan, is the eighth most traded currency in the world. Basically, the reason behind this is highlighted by Professor Rogoff who states that:  “China’s burdensome capital controls, its limits on foreign holdings of bonds and equities, and the general opaqueness of its financial system leave the Yuan many decades away from supplanting the dollar in the legal global economy.”

All in all, the subject of China’s digital currency begs for additional probe and given it will not depose the current financial order should not restrain us from questioning the inherent value proposition of a cryptocurrency. Back in 2019, ex-PBoC digital currency head, Yao Qian, made a captivating case for CBDCs. His observations should hold great weight to countries seeking to create a central bank digital currency.

The French Bank is Planning an Experimental Program on Central Bank Digital Currency

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Several countries have already begun or finished testing their Central Bank Digital Currencies across the world. The French Central Bank has recently revealed that it is looking to test the CBDC for inter-bank settlements. The Central Bank has invited all interested parties to submit their applications.

According to a document published by the Bank of France on 30 March, the Bank invited applications to test the use of a virtual euro. The aim of the central bank is to explore the potential solutions that CBDC can provide to clear and settle digitized financial assets.

CBDC will not necessarily be using blockchain technology

However, despite the Bank of France advocating for blockchain-based solutions to settle payments across the continent before, the bank has claimed that it has not established any particular technology in its proposed CBDC test.

According to the document, ten CBDC-related applications will be selected by the French central bank between firms or individuals. The bank says that this approach would help to create an “innovative nature” as a critical selection benchmark.

In addition, the Bank of France emphasizes, according to another detailed document, that applications should be submitted by persons within the European Union; or in a State Party to the Agreement on the European Economic Area. Interested applicants have to file their applications until May 15, 2020. The selection process of the applications will commence on July 10.

Key objectives of the CBDC testing program

The CBDC testing program focuses on three key objectives, which include forming the CBDC solution for inter-bank settlement; highlighting its benefits; and exploring the potential risks involved. The Bank of France has outlined three CBDC use cases such as payment against financial instruments, as a method of settlement against other CBDCs; and as a method of settlement against cryptocurrencies.

The bank has pointed out that it will not participate in the creation of money during its Central Bank digital currency test program. In addition, the bank has made it clear that the token displaying the figures in Euro in the virtual form will be destroyed after the accounts on which the transactions are settled.

The central bank also stated that it would not apply whichever program at a broad scale. The bank noted:

“These experiments will act as a contribution by the Banque de France to a broader discussion within the Eurosystem, which will make any decision on whether to set up a CBDC. The tests are not intended to be continued on a long-term basis or applied on a wide scale by the Banque de France itself.”

France allegedly plans to issue CBDC by Q2 2020

The Bank of France’s latest CBDC program marks the first time that the Central Bank has been speaking about CBDC since December last year. Bank of France Governor François Villeroy de Galhau back on 4 December last year reported that the bank is planning to begin the pilot phase of the CBDC in Q2 this year.

On the other hand, the deputy governor of the central bank, Denis Beau, has formerly noted that blockchain-based payments; can be used to enhance several payments and financial processes.

In conclusion, back in March, the French market watchdog, the Autorité des Marchés Financier suggested a regulatory sandbox; to test and investigate the potential advantages of using virtual assets within the EU.

 

 

$2 Trillion Covid-19 Stimulus Project could Propel Bitcoin Dynamics

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Following the specifics of a major coronavirus stimulus project, Congress could devote at least $350 billion to SME loans, $250 billion to unemployment insurance benefits, and $500 billion to Carter for businesses in distress. U.S. Congress senior leaders have outlined up to $250 billion in direct cash transfers a proposal previously proposed by Republicans.

The U.S. Federal Reserve is still considering increasing its balance sheet. In fact, Congress is expected to have a balance sheet consisting of market-supporting bonds and the overall economy, a number estimated to be neighboring $10 trillion.

Largest Assistance Program in US History

An earlier proposal indicated the need to improve the economy during this challenging period.  President Trump’s chief economic advisor, Larry Kudlow, referred to the Coronavirus stimulus package as the biggest street assistance plan in history for America. Currently, both the Senate and President Trump have already agreed and are looking forward to adopting the plan.

In addition, the Federal Reserve is also considering sending stimulus money through the digital dollar rather than printing US dollars. Initially, when Congresswoman Maxine Waters proposed the concept of the digital dollar, its use was more theoretical than practical.

Now the use of a stablecoin issued by the central bank has taken shape and found an urgent use. For example projects such as eThaler will take on new frontiers and have fresh meaning by using blockchain to build CBDCs.

Trillions of Fed Reserve Dollars Means High Bitcoin Valuation

The Federal Reserve does definitely not issue money to banks as a means of directing the cash to state businesses, customers and vulnerable populations. If the funds are issued by intermediaries, there is a risk that they will trickle down, hence the need for a digital dollar.Meanwhile, the cryptocurrency community has reacted to the news with mixed feelings of celebration and astonishment.

Cryptocurrency hedge fund Morgan Creek noted that a stimulus of at least $6 trillion from the federal reserve could buy the entire bitcoin capitalization 48 times. The stimulus project will certainly surpass the value and timing of the financial crises of 2008, in terms of intensity and according to economics experts. This excludes all other stimulus plans in the wake of Coronavirus that are being implemented by a number of central banks and governments around the world.

However, the idea of digitizing the stimulus plan has come with a wide range of skepticism. A side of the blockchain community feels that the federal reserve issuing digital dollars makes a middleman a fact that the blockchain deems unnecessary.

Furthermore, another section of the community finds blockchains necessary for digital money.Given that most of the world’s financial dynamics are driven digitally.Nevertheless, this is a question for the Federal Reserve as it implements digital dollar issuance over the Ethereum blockchain.

Galaxy Digital’s Mike Novogratz shared his sentiments:

“If there was ever a time—debasement of fiat currencies, monetization of trillions of dollars of debt, this is the time for bitcoin,”

Adding he’d be astonished that bitcoin would close this year with no higher pricing. Meanwhile, there are still questions as to why the price of bitcoin has not yet reacted to the stimulus plan.

Cryptocurrency experts have attempted to explain the frenzy, claiming such dynamics always take time to establish.

Bank of England Governor Admits Multiple Challenges to Crypto Entry

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The two worlds of fiat and cryptocurrencies were never meant to collide, but now we have reached a point where the mainstays have openly decided to use blockchain technology. The Bank of England was one of the institutions in the Emix to set up its own cryptocurrency or CBDC

Mark Carney, Governor of the Bank of England, said at a recent conference that banks need to be careful before they fully commit to developing CBDCs.

The Bank of England and its officials have been one of the few examples of institutions supporting the digital asset industry, This support also resulted in open discussions across sectors, sometimes bringing the fiat and crypto world closer than ever before.

The latest statements from the bank came after reports of failing cash usage in Britain. This market situation was reflective of world financial settings as well.

Although the bank has considered adopting a native token, it will still need government approval before moving ahead. Currently, the bank has been in discussions with the public to decide on the range of utilities that the cryptocurrency needs to have.

The BoE Governor was confident that fruitful discussions would fastback the creation of a CBDC. He added:

“While CBDC (central bank digital currency) poses a number of opportunities, it could raise significant challenges for maintaining monetary and financial stability … and would need to be very carefully designed if it were to be introduced.”

The BoE is known for being a stickler for rules and sources have confirmed that the bank will only launch its cryptocurrency after a lot of deliberations. A few months earlier, the bank had attacked Facebook’s Libra for the sheer lack of detail behind the project.

Since then, the Libra Association met with a lot of obstacles on its way. The project is still in the works and a concrete launch date is yet to be fixed.

If all goes well, the BoE plans to denominate the CBDC in Pound Sterling. The bank has assured everyone that the digital asset is not to replace existing standards but rather to help it grow.

Positive Money’s head of policy David Clarke admitted that the government and the central bank must work together to accelerate efforts so that they are not beaten by private companies.

The bank wanted to strike the right balance between cryptocurrencies and fiat so as to not offset the latter. Jon Cunliffe, a deputy governor at the BoE pointed out the problems that may occur if CBDC’s takes over the bank.

According to the bank, several problems may occur in the balance sheets if significant deposit balances are moved from commercial banks to CBDC.

A decision on CBDC is not expected to be made till the end of June as the BoE is in the process of consulting multiple financial bodies.