central bank digital currency

The Issuance of China's CBDC On The Horizon, According to Insiders

The issuance of central bank digital currencies (CBDCs) has been gaining traction as various nations have shown interest. The People’s Bank of China (PBoC), China’s central bank, has finished the development of a CBDC’s basic function and relevant laws are being drafted to set the ball rolling for its circulation.

China seeks to be at the forefront in CBDC issuance

According to industry insiders, the PBoC is undertaking the CBDC project in collaboration with private companies. The Vice Director of the Advanced Research Institute of Blockchain under the Tsinghua University arm, Cao Yan, noted that this approach is preferred because private firms offer a rich experience in third-party payment and blockchain technology.

Central banks across the globe have had to go back to the drawing board to ensure market liquidity as the coronavirus (COVID-19) epidemic has wreaked havoc worldwide. Some of them, such as the Bank of Japan and the European Central Bank, have adopted measures like zeroing interest rates to stay afloat.

China is touted to propel the establishment of its CBDC as it will be instrumental in pumping in liquidity in its economy as it is one of the hardest-hit countries by the coronavirus, having recorded more than 3,000 deaths.

Cao noted that the issuance of China’s CBDC would be timely in the face of this severe infectious disease.

Alipay, the electronic payment arm of Alibaba has also revealed its five patents related to the development of China’s CBDC from January 21 to March 17. The patents’ areas of specification include issuance, transaction reporting, dealing with illegal accounts amongst others. However, Mu Changchun, the Director-General of the Institute of Digital Currency of China’s central bank previously mentioned that China’s CBDC, also known as the digital currency electronic payment (DCEP), saying that they are “trying to provide redundancy to our very advanced electronic payments” including WeChat Pay and Alipay.

A cryptocurrency is favored as the ideal tool needed in integrating a central bank’s negative and zero interest rate policy into commercial banks. Moreover, searches for cryptocurrencies like Bitcoin have been skyrocketing amid the coronavirus pandemic as approaches, such as working from home and social distancing, are being favored.

CBDCs are considered risk-free

According to a Consensys report, CBDCs are risk-free when compared to digital assets like Facebook Libra. This is founded on the actuality that CBDCs are digital assets that are pegged to a real-world asset and backed by the central banks meaning that they represent a claim against the bank precisely the way banknotes work. As a result, central banks will have full control of their supply.

This, therefore, explains the reason why China has set eyes on the issuance of its CBDC as the world grapples with the coronavirus pandemic that has claimed more than 16,000 lives and made the global financial market nosedive.

Image via Shutterstock

Ghana Confirms Its Interest in Piloting Central Bank Digital Currency

Ghana has confirmed that it is on the hunt for a Central Bank Digital Currency (CBDC). The Bank of Ghana’s deputy governor, Dr. Maxwell Opoku-Afari, recently revealed that the country’s central bank remains committed to piloting a national digital currency.

He made such remarks during a virtual stakeholder workshop on payment systems and services as reported by GhanaWeb.

The rollup exercise still in consideration

Dr. Opoku-Afari said that the nation’s shift to digital payments has influenced a greater need for a CBDC. He stated that Ghana’s economy has gone through a significant transformation in the previous decade. This hence has contributed to an increase in the use of digital payment technologies.

The deputy governor confirmed that the central bank of Ghana is working on creating a fintech sandbox (ecosystem) to encourage innovations within the digital payments industry. He revealed that the regulator would use the sandbox to test new concepts in digital payments, with a CBDC being recognized as the top of the list.

In November 2019, the central bank created an innovation and fintech office to spearhead the development in the local industry. The office has adapted its organizational structure to respond to major changes within the payment sector.

Despite these approaches to promote electronic cash transactions, the deputy governor stressed that the bank’s specific pilot plans for a CBDC remain on solid ground.

Dr. Opoku-Afari stated that the CBDC would complement the rapid growth of the nation’s mobile money industry. He disclosed that the national digital currency would be vital in the government’s financial inclusion efforts.

Currently, Ghana suffers from inequality in its banking industry, having more unbanked women and rural dwellers. The country has been one of the highest adopters of cryptocurrencies in Africa. In 2019, Ghana registered the fourth-highest Google searches for Bitcoin, behind Nigeria that had the highest searches.

Despite the crypto adoption and interest in CBDC, Ghana is yet to develop regulations for the digital currency industry. The country’s Securities and Exchange Commission (SEC) proposed licensing of cryptocurrencies as a legal tender in January 2019. This came after investors lost their funds to a crypto startup.

However, not much has come from this proposal. Crypto traders still operate in a gray area as the government has not introduced regulations.

The issuance of China’s CBDC on the horizon

China is set to become the first country to issue its CBDC. The nation has been working on its CBDC for over five years and now is very close to issuing it to the general public. The central bank of China is expected to launch its national digital currency within this year.

The national digital currency is being tested in four major cities in the country. Many analysts have identified that China’s digital yuan could threaten the US dollar’s global dominance. Several other central banks across the world are also showing interest and therefore are looking into and researching national digital currencies.

Bank of Thailand Projected to Go Forward with Central Bank Digital Currency Prototype

The Bank of Thailand (BOT) announced its plans for a Central Bank Digital Currency (CBDC) prototype to be in effect by 2021. The BOT asserts that with a digital payment system in place, this would make transactions more efficient and secure. The BOT plans to begin the production of their prototype for a CBDC next month.

After having successfully launched Project Inthanon-LionRock with the Hong Kong Monetary Authority (HKMA) in January 2020, the BOT has expanded their financial ambitions by developing a CBDC for businesses. This would enable businesses to conduct fund transfers faster and with higher efficiency, whether it be for domestic or cross-border trade purposes.

In light of the digital age, CBDC is a financial innovation that may revolutionize how corporate firms conduct business. As Senior Executive Director of the HKMA Edmond Lau stated, “With the use of blockchain technology, the innovative and unique solution not only addresses different technical issues in practical applications but also offers good references to the central banking community on the use of Central Bank Digital Currency.”

Project Inthanon-LionRock was a proof-of-concept (PoC) prototype finalized in January 2020 that studied the effectiveness of CBDC for cross border payments. The project was divided into three phases. The first part outlined the development of a proof of concept using CBDC and the benefits of employing a distributed ledger technology. The second part pertained to the efficiency of blockchain vs. a more traditional centralized system; the third phase explored the plausibility and interoperability of cross border funds transfer, and whether CBDC could potentially revolutionize foreign exchange.

In a digital age that is quickly evolving, multiple countries are racing to produce their own CBDC. China has expressed its intent on normalizing blockchain technology usage with the Password Law they put forward at the beginning of the year.

Many also hope to see an end to money laundering and fraud with the implementations that come with blockchain technology. As Chairman of the FinTech Association of Hong Kong Henry Arslanian observed, “one of the potential ideological goals of moving to CBDCs is that we may have a fighting chance to try to put an end to not only corruption, but also potentially money laundering, and that can be really positive for society as a whole.”

First Blockchain National Currency Platform Ready for Central Banks’ CBDC Issuance

The blockchain national currency platform issued by blockchain company Apollo Fintech was finalized and completed on August 12.

National Payment Platform to Fuel CBDCs

The blockchain-fueled ‘Central Bank Digital Currency’ (CBDC) platform is the first of its kind to exist. Apollo Fintech, who prides itself in “developing world-shaping fintech solutions for a global economy, just announced recently the completion of the platform, dubbed “National Payment Platform”(NPP).

This payments system set in place by Apollo Fintech consists of an innovative cashless digital platform. The blockchain-powered system aims to equip central banks with the proper tools to issue their own sovereign stablecoin, otherwise known as central bank digital currencies (CBDC) for national adoption. The NPP system also enables government agencies worldwide and central banks to include commercial banks and agents after the issuance of CBDC.

With the blockchain national currency platform set in place by Apollo Fintech, merchants to Peer-to-Peer transactions are made possible, through the leveraging of the National Payment Platform’s features, which include but are not restricted to apps, SMS, QR codes, cards, and offline codes. Furthermore, authorized banks can then process mainstream transactions, such as currency deposits, money withdrawal, currency exchange, transfers, and payments.

Blockchain is The Future

Speaking proudly of his newly founded project, CEO of Apollo Fintech said:

“The National Payment Platform is the only blockchain-powered system that enables users to make digital payments through a sovereign currency. The NPP enables regulated banks and commercial entities to harness the power of blockchain and facilitate frictionless transactions.”

With the NPP set in place, Apollo Fintech advocates that the blockchain-based platform will fuel and power the global economy, enabling investors and economists worldwide to be more efficient and “save large amounts of time and resources.”

Top Four South Korean Banks Announce Plans to Provide Cryptocurrency Custodial Services

Two of South Korea’s top banks have recently announced that they were looking into providing cryptocurrency custodial services to their clients.

Introducing BTC Crypto Custodial Services

Woori and Shinhan Banks are following in the footsteps of Kookmin Bank, the largest commercial bank in South Korea. The financial monopoly had announced their intentions to offer Bitcoin (BTC) custody services at the beginning of this week, setting the tone for other commercial entities to follow. Along with the NH Nonghyup Bank in the mix, South Korea will see four of the country’s top five banks with cryptocurrency custodial services, enabling these institutions to generate profits through the management of their clients’ assets, whether it entails Bitcoin or fiat.

Together, Woori, Shinhan, Kookmin, and NH Nonghyup Bank hold more than $1.3 trillion in financial assets.

What Prompted Crypto Adoption?

With the Special Financial Transactions Information Act amending its policies to integrate cryptocurrency usage into a traditional financial system and the legislation set to be in effect for next year, Shinhan and Woori Bank immediately announced their plans to integrate crypto custodial services into their repertoire of services.

Initially, Shinhan had wanted to introduce cryptocurrency services back in 2017, but it was not cleared by South Korean regulators back then. The bank has come long ways and joined Kookmin Bank, who decided to partner strategically with coin exchange Cumberland Korea and Hashed, a global blockchain venture fund.

An update by Hashed indicated that the financial institutions were working on advancing the digital assets market in South Korea, pushing for fundamental technologies, such as blockchain and digital asset custodial services to be normalized.

Competition Among Countries Is Fierce

What South Korea seems to be lacking however is a regulatory framework built around cryptocurrency adoption. This concern revolving around the evolving financial industry was addressed by Park Seong-Jun, the head of the Dongguk University Blockchain Research Center. He said:

“Other countries are moving very quickly in this regard. But there is still no legal system set in place in South Korea, so progress is slower than expected. We are worried that we will lose our competitiveness.”

Fiat and Crypto Worlds Meet

With each country pushing to instill a regulatory framework to manage cryptocurrencies within a financial bank institution and to be the first to introduce a Central Bank Digital Currency (CBDC), Park is worried that that South Korea might be losing to its competition, namely China and USA. The two political and economic powerhouses are actively trying to be the first in the game to come up with an operating CBDC.

First CBDC Blockchain Platform

With the economic situation caught in a downhill fall due to the ongoing pandemic, traditional banks are struggling to stay afloat, which may explain why there has been a perceived increase of blockchain adoption among traditional banks, in the recent weeks.

On August 12, blockchain company Apollo Fintech has announced that they have finalized the blockchain national currency platform they have been actively working on for two years. This platform would enable Central Bank Digital Currencies to leverage it to operate.

The fintech company advocated that their blockchain-powered platform would enable users to make digital payments efficiently and in a secure way.

The blockchain platform is dubbed “National Payment Platform,” and is the first blockchain CBDC platform to be ready for digital assets issuance.

European Central Bank President: Coronavirus Has Accelerated Digital Currency Adoption

COVID-19 has led to an acceleration in digital payments adoption and technological innovation, as seen by the spending pattern of European citizens.

During an online conference with the Deutsche Bundesbank, European Central Bank (ECB) President Christine Lagarde discussed current banking and digital contactless payments.

Digital era is here to stay

According to ECB President Lagarde, consumer preferences have seen an increase in digital contactless payments, with Europeans taking to online platforms for their retail needs during the pandemic. With the digital revolution at our footsteps, “more than four in five Europeans regularly use the internet, up from one in five two decades ago,” said Lagarde. Global payments have been increasingly on the surge, as the pandemic has driven the digitization trend forward.

Lagarde spoke about financial strategies that the European Union could adopt with digital payments and currency to remain competitive on a global scale. She addressed the shift in consumer preferences and the fast-paced digital trend, discussing European Central Bank officials’ current plan for a European Central Bank Digital Currency (CBDC). She said:

“The coronavirus (COVID-19) pandemic has accelerated this trend towards digitalization. E-commerce, which has grown steadily in recent years, increased by almost a fifth in terms of volume of sales between February and June 2020, while in-store sales declined.”

Since COVID-19 erupted, Lagarde has asserted that online payments have soared in volume, recording double-digit growth. With consumers globally transitioning to a new digital normal, Lagarde said:

“This trend is unlikely to be reversed once the pandemic is over.”

Digitalization of Europe

The former chair of the International Monetary Fund (IMF) quoted a survey conducted in 17 European countries that indicated that most European consumers expected to continue leveraging digital services “as often as they do now or even more often,” after the pandemic.

With digital payments, scalability is an important issue, and Lagarde addressed the importance of dominating payments on a global scale to remain competitive. She said that foreign countries have taken the lead in digital payment options, referencing China. The European Central Bank President said:

“Europe has fallen behind in this competition. The lack of payments integration in Europe means that foreign providers have taken the lead. […] In a digital world, consumers must have the possibility to pay with sovereign money.”

Will China be the first to roll out a national CBDC?

The European Central Bank president added that China had managed to transition from cash to mobile payments within a decade and that tech firms were also responsible for driving this digital trend forward. Lagarde mentioned that to stay ahead of the global competition, a CBDC must be implemented. The former head director of the IMF said that the European Union was currently still working out the logistics behind the launch of a central bank digital currency to facilitate more efficient cross-border payments and overall digital transacting.

The results studying the potential effects of the launch of a CBDC in Europe are to be announced in the upcoming weeks.

China has on its end been gaining momentum in the global race to be the first to launch a regulated and national digital currency. The country has been developing its CBDC for quite some time, testing its digital currency electronic payment (DCEP) in wealthier cities around China with small-scale retail transactions.

Federal Reserve Has Been Advancing CBDC Research with US Regional Banks’ Contributions

The US Federal Reserve has been researching the implications of a digital dollar or central bank digital currency (CBDC) issuance within the country for quite some time, but they have not been the only ones furthering the research – it appears that several regional Federal banks have also contributed to their efforts of studying digital dollars.

How are regional Federal banks furthering research?

In a virtual payments symposium hosted by the Federal Reserve Bank of Cleveland, the collaboration of regional Federal banks to drive CBDC research forward was revealed by the Cleveland Reserve Bank’s president Loretta Mester. She said that “staff members from several Reserve Banks, including Cleveland Fed software developers, are contributing to the effort.”

Prior to this event, only the Federal Reserve Bank of Boston’s implication with digital currency research and development was made known to the public.

The regional Federal Bank has been experimenting with various distributed ledger platforms that could potentially be used as the backbone for central bank digital currency issuance in the US, and it has been disclosed through the symposium that they have collaborated with the Massachusetts Institute of Technology to do so. The Federal Reserve Bank of New York and the Bank for International Settlements have on their end established an innovation center to identify financial technology trends that could be applied to central banks to enhance their digital services.

Though the US is currently researching the advantages of CBDC adoption, Cleveland’s Federal Reserve Bank president Mester was quick to rectify that it did “not signal any decision by the Federal Reserve to adopt such a currency.”

Along with the benefits and costs behind a digital dollar issuance, the president also addressed the key assessments to consider before a central bank digital currency adoption was considered by the Federal Reserve. She said:

“Issues raised by central bank digital currency related to financial stability, market structure, security, privacy, and monetary policy all need to be better understood.”

The US has been researching CBDC for quite some time. With the spread of COVID-19 globally, businesses and individuals have both relied on online services and digital payments increasingly. In her speech, Mester said:

“Demand for consumer-to-consumer and cross-border payments has risen. Some payments technology is more resilient, scalable, and adaptable to such rapid changes in user behavior and volume.”

CBDC critical to maintaining global reserve currency status

In a US Senate hearing on July 22, dollar and CBDC development were addressed. During the senate hearing, cryptocurrency adoption was referenced as a strategy for the US government to maintain economic supremacy through the US dollar.

Senator Tom Cotton said that if a digital dollar was adopted, it must be “better than Bitcoin.”

Is The US Ready for CBDC? Most Americans Opposed to Digital Dollar Adoption, Survey Reveals

Most American citizens appear to be against a national digital dollar adoption within the US, preferring paper money to a central bank digital currency (CBDC), according to a survey on money perception within the United States.

CBDC sentiments in America

According to a research study conducted by crypto mining firm Genesis Mining research, findings suggest that most US citizens are opposed to the idea of a digital currency. Out of 400 participants, less than 25% of respondents agreed that the US government should adopt a central bank digital currency over traditional paper money. 60% of participants said that the US government should not “replace physical cash with a digital-only dollar.”

However, it appears as though there are more respondents that agree to CBDC adoption by the government, as the same survey conducted in 2019 only saw 13% of respondents being in favor of digital dollar adoption.

Why the opposition to CBDC adoption?

Through the survey, it was found that the general American population had a poor understanding of what assets or value actually backed the US dollar, with 38% of participants believing that USD was pegged to gold, bonds, or oil. Another 13% of participants responded that “they simply did not know.”

However, despite the lack of monetary awareness, a majority of participants identified inflation as a critical issue impacting the financial system.

Furthermore, according to the report released by Genesis Mining, it appears as though many US citizens associated digital currencies with cybercrime, indicating that they were used to funnel illicit activities. This may be a reason why many showed a lack of support for central bank digital currency adoption.

Though most US respondents seemed to oppose the idea of replacing paper money with digital currency, many acknowledged that 100 years from now, people will no longer be using physical cash.

Federal Reserve is furthering CBDC research

The findings were released the same week the president of the Cleveland Federal Reserve, Loretta Mester, delivered a speech regarding the US national Federal Reserve and regional Federal reserve banks’ partnership in furthering CBDC research. She said that throughout the pandemic, the US Federal Reserve had been assessing the costs, risks, and benefits behind CBDC development.

With the COVID-19 pandemic leading to increased online services and digital payments leveraged by consumers worldwide, Mester said that the US was evaluating and researching CBDC issuance, to see whether it would go in hand with the rise in demand of consumer-to-consumer and cross-border payments.

The Cleveland Federal Reserve Bank president acknowledged that “central bank digital currency had to do with the future” and said that the Federal Reserve was working to deliver appropriate adjustments for an enhanced digital system that will remain in effect after the pandemic.

Mester said:

“The Fed is working to enhance our current portfolio of payment services to ensure they meet evolving customer needs […] But one thing is certain: we must ensure that our payments system remains modern, resilient, and able to adapt to changing customer needs as they evolve.”

ConsenSys Picked to Help Develop Phase 2 of Hong Kong's CBDC Project

Ethereum-powered blockchain firm ConsenSys has revealed that it has been awarded a cross-border payment network study project by the Hong Kong Monetary Authority (HKMA).

Per the announcement, the project which is the second phase of HKMA’s project Inthanon LionRock involves a cross-border payment network design with the Bank of Thailand (BoT) and will be done in partnership with PricewaterhouseCoopers Ltd and fintech startup Forms HK.

ConsenSys stated that “having designed and delivered decentralized payment networks with leading central banks including the Monetary Authority of Singapore and the South African Reserve Bank,” it is at the “forefront of developing the blockchain-based technology that enables digitalization and increased global connectivity of financial markets.”

The firm noted that in developing the required solution for the project Inthanon LionRock, it will be using its enterprise Ethereum stack and that it “will test solutions that prioritize scalability, security, and interoperability.”

Choice of ConsenSys is Likely Drawn from Extensive Blockchain Engagement

The Hong Kong Monetary Authority’s choice of ConsenSys is perhaps attributed to the firm’s extensive blockchain engagements over the years. As a blockchain firm, ConsenSys has openly expressed optimism with respect to the development of central bank digital currencies (CBDCs), stating that CBDCs are risk-free compared to the Facebook-backed Libra project. As a result of the company’s position with CBDCs, the firm has been involved with the Monetary Authority of Singapore’s Project Ubin.

As a viable way to bolster its blockchain capabilities, ConsenSys acquired US brokerage firm Heritage Financial Systems in an attempt to modernize the municipal bond market, which is notably error-prone and usually out-dated. With the right blockchain-based CBDC architecture to lean on for the project Inthanon LionRock, Charles d’Haussy, Director of Hong Kong at ConsenSys has stated his enthusiasm for taking on the project. The roles of the other two partners, PWC and Forms HK, were not clearly disclosed at press time.

European Central Bank Assesses Potential Digital Euro CBDC Issuance

The European Central Bank (ECB) has been looking into central bank digital currency issuance for quite some time and evaluating whether a digital euro would be a beneficial addition to its financial system.

Reasons for a CBDC issuance

A report assessing the implementations behind a potential central bank digital currency (CBDC) issuance was recently released by the European Central Bank. The report detailed that for a digital euro to thrive, it must comply with the existent financial regulations of the Eurosystem and provide more financial accessibility and efficiency in an increasingly digital age.

The report read:

“A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money in the fast-changing digital world. This would support Europe’s drive towards continued innovation. It would also contribute to its strategic autonomy by providing an alternative to foreign payment providers for fast and efficient payments in Europe and beyond.”

A potential digital currency issuance could enhance the digitalization of the European economy and be introduced in response to a decline of cash payments, according to the report.

In addition, as the pandemic has changed consumer behavior globally, increased adoption of digital payments caused by social distancing should also be taken into consideration. Therefore, a digital currency for contactless payments could be attractive to consumers. The report read:

“Consumers may even perceive cash to be a vector of infection […] They might therefore become less willing to use cash and more inclined to use contactless and online payments.”

The report depicted that there were still many questions to be answered before a research and development phase could be implemented by the European Central Bank.

Requirements for future CBDC

Before a CBDC could be launched, several key requirements were detailed by the ECB. Based on the report, the digital euro must be in stride with current technology, “be available through the entire euro area and be interoperable with private payment solutions.” The digital currency must possess cash-like features and “provide functionalities that are at least as attractive as those of payment solutions in foreign currencies;” It must also be a tool for improving monetary policy transmission.

A digital euro must “improve the overall resilience of the payment system” and be accessible outside of the Eurozone, all the while remaining consistent with Eurosystem standards. A potential digital currency should provide offline payment alternatives, as well as be free of charge, secure and have a strong European branding; it must also comply with the Eurosystem landscape and provide more financial accessibility.

If a digital euro was to be launched, it must be available outside the Eurozone as well, be secure, cost-efficient, and run on environment-friendly technology aimed at minimizing one’s ecological footprint.

Next experimentation phase to start in 2021?

The report released by the European Central Bank provided a comprehensive assessment of what the Eurosystem landscape should expect if a CBDC was to be issued. However, before moving forward with the experimentation phase, the ECB also expressed the importance of taking into consideration stakeholders and citizens’ stances as well on introducing a hypothetical digital currency within society.

If the project is cleared by European financial authorities, the research and development phase of the digital euro may start sometime in mid-2021, led by the High-Level Task Force on CBDC. As per the report, “Towards mid-2021 the Eurosystem will decide whether to launch a digital euro project, which would start with an investigation phase.”

Digital currency to complement fiat

On several occasions, European Central Bank President Christine Lagarde stressed the importance of keeping in stride with the booming digital age. However, she rectified that though Europe may potentially benefit from a digital euro if the central bank decides to go forward with the project, it will most likely complement fiat currency, “it would not replace it.”