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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.

 

Coronavirus Pandemic to Trigger CBDC Development Globally

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The Bank of International Settlements (BIS) anticipates the effect of the coronavirus pandemic on retail payments to trigger positive development of CBDC globally. BIS is a Swiss-based international organization comprised of 60 central banks. The organization has released several reports centered on decentralization, cryptocurrencies, and central bank digital currencies (CBDC). CBDCs refer to state-issued cryptocurrencies, whose legal tender depends on the regulatory structure of a government.

Coronavirus impact on global payments

BIS ‘latest June 24 report suggests that the coronavirus pandemic has inflicted extreme changes in retail settlements. In addition, the report outlines the advantages and disadvantages of the current payment systems.

The report, for starters, highlights the rapid deterioration of fiat payments due to the risk of transmitting the virus between traders and consumers. And the economic uncertainty has caused “precautionary holdings” in fiat, leading to a decline in daily cash transactions.

Around the same time, restrictions levied by national governments, such as closing down tangible shops, have contributed to a steady decline in payment settlement on e-commerce. Besides, the fall in travel has led to a decrease in international visa transactions, and a substantial decline in remittances from migrants.

BIS says both of these changes show the benefits and limitations of the current payment system. Digital payment systems, on the other hand, have made it possible for many commercial operations to operate given the great disruption to daily activities.

“The crisis has amplified calls for greater access to digital payments by vulnerable groups and for more inclusive, lower-cost payment services going forward.”

Opportunity for CBDC development globally

In this regard, the BIS report outlines that CBDC development is globally at the frontier of policy opportunities “for central financial authorities;” could amount to a sea change. ” It notes that a successful CBDC could provide” a new, secure, trusted, and widely accessible digital payment method.

The BIS also noted that it would continue to offer its assistance to central banks worldwide in CBDC research and design. The organization has demanded global cooperation to ensure that post-COVID-19, future changes in international payments will be less split, more comprehensive, and more productive.

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.

 

 

Bank of International Settlements to Approach G20 Members to Back New Cryptocurrency Roadmap

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The cryptocurrency market has always been the subject of speculation and the concept of trust has been very difficult to establish. This has forced many institutions within the space to work together and come up with solutions.

According to recent reports, the Bank of International Settlements [ BIS ] is planning to submit a Cryptocurrency Roadmap to the G20 to lower cross-border transaction costs.

During the weekend this decision was announced with the bank saying it was high time institutions took a proper look at the crypto industry. Today, cross-border payment systems are operating in a slow and cumbersome manner and companies like Ripple were planning to change that.

This is the first time that such a large group of world leaders will be subject to developments in the cryptocurrency space and how to deal with them.

The Bank of International Settlements has urged members of the G20 to get behind its plan to reduce growing transaction costs in a faltering economy. High costs, low speeds, and cumbersome processes have been some of the biggest enemies of the current cross-border transaction system.

According to the bank, several regulators, central banks and treasury officials had put their heads together to come up with a solid plan.

Agustin Carstens, the General Manager of BIS had said:

“Central banks have a core role in payment systems. The changes underway require them to step up and play a more significant part in improving the safety and efficiency of these systems. Money and payment systems are founded on trust in the currency – whether cash or digital – and this trust is something that only the central bank can ensure.”

The body recognized that cross border payments were important for growing economies and the issue was of utmost importance. The roadmap will look into current costs, risks involved in crypto and the ways in which the public and private sectors could be involved.

The BIS acts as an umbrella group for a large group of banks and the jump into crypto meant that more and more players were getting interested in the field of digital assets.

For the first time, the BIS dedicated all of its time for a quarterly review to discuss the issuance of Facebook’s Libra. The Basel based organisation pointed out that central banks need to up their game in the financial landscape wit blockchain/crypto acting as the perfect tool. BIS also wants to remove the middle men from the process and establish a cheaper seamless network.

For the first time, the BIS has dedicated all of its time to a quarterly review to discuss Facebook’s Libra issuance. The organization based in Basel found out that central banks need to play their game in the financial environment as the ideal resource is blockchain/crypto. BIS also wants to take the middle men off the chain and set up a cheaper streamlined network.

The umbrella bank has not yet revealed what it plans to do with crypto regulations but that is probably a discussion for another day. Central banks have no hold over cryptocurrencies like Bitcoin and that is the reason why some countries were planning to release state-owned CBDC‘s.

These Central Bank Digital Currencies [CBDC] are expected to possess the best of both worlds: regulatory overwatch as well as all the features of a cryptocurrency.