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The Monetary Authority of Singapore (MAS) announced the 15 finalists for the global competition to develop retail central bank digital currency (CBDC) solutions (Global CBDC Challenge). The finalists will progress to the Acceleration Phase before they pitch their solutions to a panel of judges and an international audience at this year's Singapore FinTech Festival. The Challenge attracted over 300 submissions from more than 50 countries. Participants were invited to address 12 problem statements relating to (i) CBDC instrument; (ii) CBDC distribution; and (iii) CBDC infrastructure; covering topics such as inclusivity, interoperability and programmability. The proposals from the finalists sought to address multiple problem statements through a variety of technology approaches including hardware wallets, digital identity and asset tokenisation solutions.

"eCurrency Mint Inc. announces the release of the eCurrency Centralized CBDC platform to complement its Decentralized and Hybrid CBDC platforms. With this release, the company can support the full spectrum of central bank CBDC deployment options. eCurrency Mint is the leading CBDC technology provider enabling central banks to securely mint, issue, distribute and monitor digital currency. CBDC is the digital form of legal tender and a direct liability of the central bank. "

Agustín Carstens, General Manager of the Bank for International Settlements (BIS), gave a speech focused on the need for central bank digital currency (CBDC) legal frameworks to advance if CBDC is to deliver on its potential. Unfortunately, in many jurisdictions, outdated legal frameworks could hinder their deployment, and work to address these issues needs to begin in earnest. A CBDC also needs to function within a framework of clearly defined rights and obligations. At least three core elements must be preserved: the privacy of CBDC users and the protection of their data; the integrity of the financial system; and the ability of users to choose between CBDC and other forms of money. These are fundamental issues and the legal framework for CBDC must get them right.

The US Federal Reserve Board (FRB) published a paper that provides an overview of the literature on how a CBDC would affect the banking sector, financial stability, and the implementation and transmission of monetary policy in a developed economy such as the United States. A CBDC has the potential to improve welfare by reducing financial frictions in deposit markets, by boosting financial inclusion, and by improving the transmission of monetary policy. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. A CBDC also raise questions regarding monetary policy implementation and the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, particularly remuneration.

The Digital Euro Association published a very nice summary of the current state of play in the central bank digital currency (CBDC) space. It's part of a series of articles, this first one providing a general overview of global CBDC projects, motivations, with a particular focus on the Bahamas, China, Eastern Caribbean, Nigeria and Russia. The subsequent articles in this series will provide a deeper understanding of CBDC research and development in countries with different challenges and policy objectives. The articles will highlight that there is no one-size-fits-all approach to CBDC, but that CBDC solutions must be based on the needs and challenges of each country.

This SUERF Policy Brief presents the key findings of the annual BIS survey of central banks about their engagement in central bank digital currency (CBDC) and it discusses these findings in the context of cross-border payments. As in previous years, the motivations to consider issuing a CBDC differ between AE and EMDE central banks and between retail and wholesale CBDCs. Overall, the retail CBDC work in AEs is driven mainly by domestic payments efficiency, payments safety and financial stability considerations. The same reasons are also important drivers for the retail CBDC work in EMDEs, however, their CBDC engagement is, above all, driven by financial inclusion-related motivations.

A survey conducted by Ipsos MORI on behalf of OMFIF and G+D which provides insights into consumers' attitudes towards new digital forms of payments, including CBDC, in four countries: Germany, Indonesia, Nigeria and the US. The survey findings reveal a sharp difference in attitudes towards CBDCs between consumers in developed and developing countries. In Nigeria - where a pilot CBDC project was launched in October - 91% of respondents say they are likely to use CBDCs, with 60% of consumers saying so in Indonesia. However, these figures fall to just 24% in the US and 14% in Germany. This suggests CBDCs could offer a 'leapfrog' moment in payments in emerging markets, where systems are less developed, compared to countries such as the US and Germany, where consumers have many established payment options already.

Forbes published an interview focused on central bank digital currency (CBDC) with Jamiel Sheikh , CEO of the CBDC Think Tank (CBDCTT). The CBDCTT delivers education, the CBDC Summit in Washington D.C in collaboration with the IMF,  and is expanding into advisory with a number of key clients and central banks.  A key interview takeaway for me was the stressing of the importance of central banks building internal CBDC competencies instead of relying on vendors.

"The aim of this study is to disentangle the effects of introducing an interest-bearing central bank digital currency (CBDC) for financial stability using a Diamond and Dybvig (1983) model in which (i) both CBDC and private bank deposits can be used in exchange and (ii) liquidity is created endogenously. Agents have direct access to a CBDC, which is a claim on the central bank. They use both sight deposits and CBDC to buy goods and commercial banks borrow reserves to cover liquidity needs. The introduction of an interest-bearing CBDC has direct implications for the sight deposit rate and the loan rate of banks. Besides, if the central bank aims to have a positive net worth and the absence of bank runs, a high demand for a CBDC is a necessary condition to achieve both objectives. If this is not the case, financial stability will be endangered." https://ddd.uab.cat/record/258890/

Jonas Gross and Conrad Kraft argue that, although the slow uptake of retail CBDC pilots and launches may be viewed as disappointing by some, it isn't uncommon among transformative payment technologies (e.g., credit cards, online banking and e-wallets). They provide a number of key factors that can guide the gradual transition to wider-spread CBDC adoption, such as education and awareness, maintaining a focus on technological advancements and security, developing regulations that support CBDC growth, and collaborating with all stakeholders, including merchants, banks and payment service providers. And most importantly, "CBDC must offer unique features that surpass the capabilities of existing payment instruments... A CBDC that merely replicates current digital money, differing only in its central bank backing (largely imperceptible to potential users), won't attract widespread use."

Introducing a CBDC risks destabilizing the banking system and worsening panics. The Federal Reserve tried to lessen that risk by "including" banks in the process by proposing an intermediated CBDC. Yet, with an intermediated CBDC, banks would have to cover regulatory and overhead costs to maintain CBDC accounts even though they would have no loan revenue from those funds since the CBDC is still a liability of the central bank. Moreover, shrinking the supply of deposits would likely lead to costlier credit. That means loans will be more expensive for everyone.

"Given the rapid pace of technological experimentation and development, and the multitude of variables at play, it can be challenging to assess the best technology choices for a new central bank digital currency (CBDC). This WEF white paper is intended to guide central banks and other decision-makers through major technology considerations for CBDC. It is divided into three parts: 1) discussion of CBDC technical design considerations given various policy goals, 2) an evaluation of the pros and cons, or trade-offs, of the use of distributed ledger technology in CBDC infrastructure, and 3) an overview of important cybersecurity risks and considerations for any CBDC."

"This paper studies how introducing a central bank digital currency (CBDC) can affect the banking system. We show that CBDC need not reduce bank lending unless frictions and synergies bind deposits and lending together. We then estimate a dynamic banking model to quantify the importance of these frictions and synergies for the impact of a CBDC on the banking system. Our counterfactual analysis shows that a CBDC can replace a significant fraction of bank deposits, especially when it pays interest. However, CBDC has a much smaller impact on bank lending because banks can replace a large fraction of any lost deposits with wholesale funding. Substitution to wholesale funding makes banks' funding costs more sensitive to changes in short-term rates, increasing their exposure to interest rate risk. We also show that a CBDC amplifies the impact of monetary policy shocks on bank lending."

"The aim of this study is to disentangle the effects of introducing an interest-bearing central bank digital currency (CBDC) for financial stability using a Diamond and Dybvig (1983) model in which (i) both CBDC and private bank deposits can be used in exchange and (ii) liquidity is created endogenously. Agents have direct access to a CBDC via deposits at the central bank. They use both sight deposits and CBDC deposits to buy goods and commercial banks borrow reserves to cover liquidity needs. The introduction of an interest-bearing CBDC has direct implications on the sight deposits rate and on the loan rate of banks. Besides, if the central bank aims at having a positive net worth and the absence of bank runs, a high supply of a CBDC is a necessary condition to achieve both objectives. If this is not provided, it will endanger financial stability."

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) published a stocktaking paper that I co-authored on the degrees of central bank digital currency (CBDC) technical assistance (TA) support for lower- and middle-income countries (LMICs). It highlights the different options for CBDC support for LMIC authorities in their general-purpose/retail and wholesale CBDC exploration journeys. It also shows how demand outstrips supply in fit-for- purpose assistance and the important role of development partners in closing this gap in order to ensure that CBDCs can meet the expectations in relation to achieving the sustainable development goals (SDGs). Also the paper highlights the remaining gaps in optimally equipping authorities in LMICs in their CBDC pursuit.

Reserve Bank of Australia (RBA) central bank digital currency (CBDC) research partner, the Digital Finance Cooperative Research Centre (DFCRC) published an update on the state-of-play regarding the possible CBDC issuance in higher-income economies with good electronic payments systems. It concludes that it is unlikely that there will be actual issuance of retail CBDCs in higher-income countries anytime soon. However, it conjectures that wholesale CBDCs could potentially be implemented sooner, reflecting that, conceptually, they arguably represent only a modest technological modification to the settlement/reserve accounts that central banks currently provide, and might be less of an issue politically than retail CBDCs.

"CBDC architecture provides central bank economists and regulators with a wealth of near real-time information on the CBDC balances of financial institutions, along with metadata that could tag which industry each CBDC is spent in, allowing real-time CPI measuring and even triangulated inflation fighting, while maintaining robust privacy of all transactions for all users. A central bank doesn't need to wait for institutions to report its CBDC assets and liabilities; instead, central bank staff can query the CBDC balances directly."

US Federal Reserve Board Governor Michelle Bowman" gave a speech on her thoughts regarding U.S. central bank digital currency (CBDC). The whole speech is worth a read, but here is her key takeaways" "A potential U.S. CBDC, must be viewed through the lens of whether and how the payment system would be improved beyond what instant payment services will achieve. We should ask what current frictions exist or may emerge in the payment system that only a CBDC can solve, or that a CBDC can solve most efficiently? ...There could be some promise for wholesale CBDCs in the future for settlement of certain financial market transactions and processing international payments. When it comes to some of the broader design and policy issues, particularly those around consumer privacy and impacts on the banking system, it is difficult to imagine a world where the tradeoffs between benefits and unintended consequences could justify a direct access CBDC for uses beyond interbank and wholesale transactions."

The Bank of Spain published a paper that analyzes the impact of introducing a central bank-issued digital currency (CBDC) on the operational framework of monetary policy and the macroeconomy as a whole. It is based on a theoretical model that is calibrated to replicate the main monetary and financial aggregates in the euro area. It predicts that CBDC adoption implies a roughly equivalent reduction in banks' deposit funding, but this has a rather small effect on bank lending to the real economy. This result reflects the parallel impact of a CBDC on a central bank's operational framework. For relatively moderate CBDC adoption levels, the reduction in deposits is absorbed by an almost one-to-one fall in reserves at the central bank, implying a transition from a 'floor' system - with ample reserves - to a 'corridor' system. For larger CBDC adoption, the loss of bank deposits is compensated by increased recourse to central bank credit, as the corridor system gives way to a 'ceiling' system with scarce reserves.

13 U.S. states have now passed, or may soon pass, anti-CBDC legislation. Some are aimed at preventing the state from accepting CBDC as payment, and many many additionally block participation in CBDC trials. Others are excluding CBDC from the definition of money in the Uniform Commercial Code (UCC) so businesses can't use CBDC to discharge liabilities.