Group items tagged

A University of Cambridge Centre for Alternative Finance report examined legal and regulatory challenges arising from the emergence of digital assets. The aim is to frame future legal and regulatory discussions around digital assets, as well as to identify general trends and concepts across jurisdictions rather than to provide granular analysis of any given jurisdiction's legal position. It found that existing taxonomies of digital assets have failed to fully capture the relevant features of digital assets and the true novelty introduced by crypto-assets. Also, digital assets, for the most part, pertain to existing and well-known legal concepts: they effectively represent a set of rights embodied in a new digital form. Consequently, the regulatory perimeter for regulating digital assets and associated activities should be determined by identifying the legal concept(s) behind a given digital asset. However, digital assets may warrant adjustment or revisions to existing legislation, in particular whether digital assets are fitting objects of property rights.

The World Bank published a Digital Economy Diagnostic for Eswatini that provides an assessment of the five pillars of Eswatini's digital economy comprising digital infrastructure, digital platforms, digital financial services, digital skills, and digital entrepreneurship. Overall, it concludes that the potential of the digital economy in Eswatini has not yet been fully realized. A coordinated and holistic approach will be needed to build an inclusive digital economy, as each of the foundations play an important role in their own right, but also depend upon and reinforce the others.

Crunchfish's Digital Cash Wallet compliments any digital payment service on smart cards or in digital wallets with capabilities that replicates paying with cash. A two-step hierarchical architecture makes Digital Cash payments independent from the net, offering instant clearing offline at the moment of payment, followed by settlement online to move money between accounts. The Digital Cash Wallet has a mirrored virtual online account which is debited when either the payer or the receiver connects online. The virtual account may only be debited from the Digital Cash Wallet, protecting against overdrafts, and it also registers all activity in the Digital Cash Wallet. VISA has recently proposed this two-tier architecture for CBDC.

The European Commission (EC) is moving to provide more legal clarity and certainty for the crypto-asset industry in its member states. The EC officially adopted a new digital finance package, including a digital finance strategy and legislative proposals on crypto-assets and digital resilience, for a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The package supports the EU's ambition for a recovery that embraces the digital transition. Digital financial services can help modernise the European economy across sectors and turn Europe into a global digital player. https://ec.europa.eu/info/publications/200924-digital-finance-proposals_en

India's Reliance Retail has teamed up with Icici Bank, Kotak Mahindra Bank and Innoviti Technologies to roll out central bank digital currency (CBDC) acceptance at its Freshpik stores. The rest of its locations will follow. Customers that want to pay with the digital rupee, will be given a dynamic digital rupee acceptance QR code that is scanned at checkout. Also Kotak Mahindra Bank rolled out a digital rupee pilot to select customers in Mumbai, Delhi and Ahmedabad, who will be sent an email/SMS invite to download the digital rupee Android app. https://www.livemint.com/companies/news/digital-currency-kotak-mahindra-bank-participates-in-rbi-s-pilot-launch-of-digital-rupee-11675324226856.html

The European Commission published proposals, one aimed at ensuring continuing access to euro banknotes and coins across the euro area, and the other establishing the legal framework for a possible digital euro. If the latter is adopted by the European Parliament and Council, it will ultimately be for the European Central Bank (ECB) to decide if and when to issue the digital euro. According to the digital euro proposed legislation, the digital euro would not be required to have a bank account, and it could be used to transfer funds while offline as long as there is physical proximity between the devices of the payer and the payee. Also, it would be possible to hold digital euro locally stored on electronic devices up to a certain threshold. Basic services, including when making purchases in digital euro, whether nationally or across border, will not incur fees. However, commercial banks could charge customers for their accounts to which the digital euro may be linked, and for voluntary, non-basic services such as conditional payments.

The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency ensures that public money remains a relevant unit of account.

According to this European Central Bank (ECB) blog post... "There are three misconceptions about the digital euro. First, that the ECB intends to abolish cash and then, having done so, impose even lower interest rates on the digital euro for reasons related to how monetary policy is implemented. Second, that a digital euro would displace banking intermediation. And third, that the digital euro would not be based on a viable business model. First of all, it is not yet decided whether a digital euro will be introduced at all. We are still exploring the possibility and considering it conceptually. Later this year, the ECB's Governing Council will decide whether or not the ECB should launch a project to get ready to issue a digital euro. Even if it decides to do so, it would simply mean that it want to be prepared. A decision to actually issue a digital euro would come at a later stage."

The ECB updated its digital euro FAQ with particular focus on the rationale for issuing a central bank digital currency (CBDC). "A digital euro would be an electronic form of cash for the digitalized world [that] would give consumers the option to use central bank money in a digital format... [and] providing... a digital means of payment universally accepted throughout the euro area...  Moreover, a digital euro would strengthen Europe's strategic autonomy and monetary sovereignty by boosting the efficiency of the European payments' ecosystem as a whole."

The regulation proposed by the European Parliament and Council requires both online and offline digital euro payment transactions to be available on the first issuance of the digital euro. However, the European Central Bank (ECB) says that "further testing by the Eurosystem will be necessary to guarantee that all relevant digital euro models offer sufficient security and maturity… Enshrining the ECB's intent in a legally binding provision will constrain its capacity to react to the higher level of uncertainty that the offline digital euro model involves, as well as to react to exceptional circumstances necessitating an imminent issuance of any available model. If trade-offs that have not yet been identified arise, postponing the overall issuance of the digital euro would be the only option available to the ECB… For these reasons, the ECB invites the co-legislators to consider the imposition of a requirement upon the ECB to deliver both online and offline versions of the digital euro, coupled with a 'best efforts' provision under which the ECB would make available both online and offline models as of the first issuance of the digital euro."

The Türkiye Cumhuriyet Merkez Bankası (CBRT) published the results of the first phase of its digital Turkish lira testing. Unfortunately it's in Turkish only for now and Google Translate choked on it, but here's a summary that I asked Microsoft's AI Copilot to prepare. The project started in 2020 with a proof-of-concept (POC) that tested the applicability of various distributed ledger technologies (DLTs) to the digital currency. The study was successfully completed and followed by the establishment of the Digital Turkish Lira Collaboration Platform with the participation of technology partners. The first phase of the project focused on retail payments and involved the preparation of the technical work environment, the design and development of the digital currency system, the integration of a prototype digital identity system, the creation of a digital wallet application, and the simulation and testing of different scenarios for the issuance, distribution, online payment/transfer and redemption of the digital currency. The first phase also included pilot tests in selected locations to measure the system performance and user experience. The tests were successfully completed in the first half of 2023 and the first phase was finalized. The findings of the first phase will inform the next phases, which will involve more extensive pilot tests and the expansion of the collaboration platform with new participants.

The Peoples' Bank of China has included the digital yuan in the latest version of a proposed banking law, giving more legal clarity to the regulation of its national digital currency. The proposed law recognizes the renminbi in both physical and digital form. The new version will essentially also clear the way for the digital yuan to be the one and only official yuan-pegged token in mainland China by prohibiting circulation of any other yuan-pegged digital assets. Violaters of the regulation would have to forfeit any proceeds from issuing and selling of such yuan-backed digital tokens and face fines of up to five times the involved proceeds. http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4115077/index.html

"Crunchfish Digital Cash AB ("Crunchfish") is announcing a patent-pending architecture of Digital Cash Wallets. In addition to Crunchfish's original Digital Cash Wallet offline, that is integrated in a mobile app, an architecture spanning from Core Banking Systems to Digital Cash Wallets either online or offline, in mobile apps or on non-mobile devices is presented. This provides the foundation of Crunchfish's ambition to take a global leadership position within digital payments. The Digital Cash Wallets online and in mobile apps are already ready for shipment."

"The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency (CBDC) ensures that public money remains a relevant unit of account."

This paper discusses the pros of adopting government-issued digital currencies as well as a supranational digital iCurrency. One such pro is to get rid of paper money (and coinage), a ubiquitous medium for spreading germs, as highlighted by the recent coronavirus outbreak. It sets forth three policy recommendations for adapting mobile devices as new digital wallets, regulatory oversight of sovereign digital currencies and user data protection, and a supranational digital iCurrency for facilitating international digital monetary linkages.

Crunchfish Digital Cash separates the payment process into three distinct steps - Reserve-Pay-Settle: 1. Reserve funds in a bank account and represent it as an offline balance in a Digital Cash Wallet. 2. Pay by debiting the offline balance in the Digital Cash Wallet. Offline payments are transferred using proximity interaction, e.g. QR or BLE, and are verified in a Digital Cash Verifier (for P2B transactions) or in the Digital Cash Wallet (for P2P transactions). 3. Settle Digital Cash transactions by transferring money from the payer's bank account with the reserved funds to the payee's bank account. The transfer can be initiated by both the payee and the payer, whoever gets connectivity first.

The European Central Bank (ECB) provided a status report on its central bank digital currency (CBDC) work. It confirmed that a digital euro would incorporate individual user holding limits to slow the possible conversion of bank deposits into digital euro  (disintermediation risk). A digital euro would also bear interest calibrated to make digital holdings above a certain threshold unattractive compared to other highly liquid low-risk assets.  Offline payments will only be allowed for low value, low risk, close proximity transactions. [Read the report here] In addition, ECB board member Fabio Panetta set out a plan for a digital euro scheme involving a set of rules, practices and standards with plans to start working on a rulebook.

"The envisaged design of a digital euro would address financial stability concerns by applying adequate holding limits. The cap on individual holdings would set an upper bound for the amount of digital euro in circulation and prevent the materialisation of high deposit outflows. Recent studies show that setting a digital euro holding limit of €3,000 per person would be effective in containing the impact on banks' liquidity risks and funding structures. With such a limit in place, outflows of household overnight deposits from the euro area banking sector could only occur (up to a maximum of 15%) in the following highly unlikely circumstances: (i) if all euro area citizens adopted the digital euro simultaneously, and (ii) they all shifted bank deposits to the digital euro at the upper bound of the holding limit instantaneously and then held these on a continuous basis. However, the actual level of the individual holding limit would be calibrated closer to the possible introduction of a digital euro to reflect the economic conditions prevailing at that time."

The Bank of Israel (BOI) is inviting anyone (from Israel or abroad) interested in studying or experimenting with the use of a digital shekel to submit a request to join the Digital Shekel Challenge. Preference will be given to uses with innovative characteristics in the payments market, whether they are improvements to existing applications, or completely new applications. Contestants will be asked to technologically develop various use cases for the digital shekel, by using the application programming interface (API) layer at the center of the proposed two-tier central bank digital currency (CBDC) model. The API layer provides functionalities that enable service providers to connect to the digital shekel system and offer end users among the public a wide and innovative range of services, while maintaining end users' privacy and the security and reliability of the payment system.

Singapore has been named the world's top nation in terms of digital adoption and which showcases the most favorable environment for digitalization, according to Cisco's annual Digital Readiness Index. The index, which measures digital readiness of countries based on seven components: ease of doing business, human capital, startup environment, technology adoption and technology infrastructure, ranked Singapore as the world's most well prepared country for digitalization.