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Japanese card payments network JCB, identity firm IDEMIA and Malaysia's Soft Space are exploring offline digital currency functionality. A first phase of the project demonstrated connectivity between existing card and payment infrastructures, and a potential [central bank?] digital currency, showing that current point of sale solutions don't need adaptation. The new phase will test using mobile wallets to transfer digital currency between them without an internet connection using near field communications (NFC). Another scenario will test the offline use of stored value payment cards that transfer digital currency via mobile phones using NFC to transfer funds. https://www.idemia.com/press-release/jcb-idemia-and-soft-space-launch-jcbdc-phase-2-pilot-trial-cbdc-offline-p2p-payments-2023-12-13

China has launched its first automated digital yuan wallet-opening machine for holders of overseas passports, Hong Kong and Macau ID cards, and other identity verification documents. The machine allows users to exchange foreign currency banknotes for digital yuan on an automatically opened hard wallet. Existing digital yuan wallet holders can also use the machine to make overseas cash-powered top-ups. Visitors to China had been able to buy digital yuan with overseas payment cards via the central bank's official CBDC mobile app. https://www.21jingji.com/article/20231225/herald/c19cc78b8ec4fd1155889907f7efcdd3.html

The Bank for International Settlements published a paper on digital platform economics. It found that digital platforms can dramatically lower costs and thereby aid financial inclusion - but these same features can give rise to digital monopolies and oligopolies. Digital platforms operate in multi-sided markets, and rely crucially on big data. This leads to specific network effects, returns to scale and scope, and policy trade-offs. To reap the benefits of platforms while mitigating risks, policy makers can: (i) apply existing financial, antitrust and privacy regulations, (ii) adapt old and adopt new regulations, combining an activity and entity-based approach, and/or (iii) provide new public infrastructures. The latter include digital identity, retail fast payment systems and CBDCs. These public infrastructures, as well as ex ante competition rules and data portability, are particularly promising. Yet to achieve their policy goals, the paper concludes that central banks and financial regulators need to coordinate with competition and data protection authorities.

"The FATF Recommendations set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction. Countries have diverse legal, administrative and operational frameworks and different financial systems, and so cannot all take identical measures to counter these threats."

"The Board recently issued a discussion paper that outlines the Federal Reserve's current thinking on the potential benefits, risks, and policy considerations of a U.S. CBDC.12 The paper does not advance any specific policy outcome and does not signal that the Board will make any imminent decisions about the appropriateness of issuing a U.S. CBDC. It lays out four CBDC design principles that analysis to date suggests would best serve the needs of the United States if one were created. Those principles are that a potential CBDC should be privacy-protected, so consumer data and privacy are safeguarded; intermediated, such that financial intermediaries rather than the Federal Reserve interface directly with consumers; widely transferable, so the payment system is not fragmented; and identity-verified, so law enforcement can continue to combat money laundering and funding of terrorism."

Celo's Ezechiel Copic tears down bogus distinction between "account-based" and "token-based" digital currency (DC), where ownership of the former is tied to identity, and the latter requires verifying the validity of the object used to pay. The distinction makes great sense in the physical currency world, but breaks down in the DC world, where blockchain-based DCs muddy the waters.

Steve Cecchetti and Kermit Schoenholtz respond to the 22 questions posed in the Fed's central bank digital currency (CBDC) discussion paper. In general, they doubt that the benefits of a U.S. CBDC will exceed the risks, and that other, less risky, means are available to achieve all the key benefits that CBDC advocates anticipate. But if the Fed were to go ahead, they suggest that there should be no cap on individual holdings, to avoid a premium on CBDC (compared to other central bank liabilities) that would just redirect runs into close substitutes (such as Treasury bills). Also, the Fed should expect to pay interest on CBDC because it would be politically unsustainable for the Fed to pay interest on wholesale digital liabilities without paying interest on retail digital liabilities. Also, not paying interest on CBDC would diminish its attractiveness relative to other safe, liquid instruments. Plus, that interest will be in part a mechanism to compensate the private intermediaries for performing the necessary services of creating and maintaining accounts, verifying identities, tracking assets, implementing transactions, and monitoring for suspicious activity. They acknowledge that these would increase run risk in the private financial system, but in their view all of the benefits expected from issuing CBDCs can be achieved less disruptively, and they provide alternative mechanisms for five widely claimed benefits. They see two potential developments that could make a U.S. CBDC worthwhile; (i) if regulation of stablecoins prove politically infeasible (see their earlier post), or (ii) if other highly trustworthy financial jurisdictions (with convertible currencies, credible property rights protections, and free cross-border flow of capital) offer their own CBDC. If the Fed does go ahead an issue CBDC, offline capability would add to its attractiveness. When the internet is not available, mobile telephony could provide a backup, and to facilitate everyday payments,

A group of U.S. lawmakers introduced the "Electronic Currency And Secure Hardware (ECASH) Act" to direct the Treasury Secretary to develop and issue an electronic version of the U.S. dollar, with an eye to preserving privacy and anonymity in transactions. The electronic dollar would be a bearer instrument that would be held on phones or cards, and be functionally identical to physical bank notes.

The Central Bank of the Bahamas (CBOB) published an update on the uptake of its Sand Dollar central bank digital currency (CBDC). At present, only about 100,000 Sand Dollar wallets have been downloaded usage remains low when compared to the overall size of the domestic payments system. In order to bump up usage, a new version of the wallet will be introduced that will allow digital payment providers to offer fee-based merchant services from within the core Sand Dollar platform. Financial institutions will be able to customize the appearance of the app to display their individual brand identities, including logos and branding color preferences. Also the CBOB will ramp up promotional activities at civic and cultural events, and it has has committed to a giveaway of $1 million in Sand Dollars to early adopters through 2024.

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 Swiss Financial Market Supervisory Authority (FINMA) published guidance on the issuance of stablecoins. It provides information on aspects of financial market law that arise in relation to stablecoin projects and the impact of such projects on the supervised institutions. The guidance also draws attention to the increased risks in the areas of money laundering, terrorist financing and the circumvention of sanctions. In particular, the identity of all persons holding the stablecoins must be adequately verified by the issuing institution or by appropriately supervised financial intermediaries. In other words anonymous transfers are prohibited.

Wallet, a third-party cryptocurrency wallet app on Telegram, will impose stricter know your customer (KYC) rules to access all features. Before the update, users did not need to complete any KYC, but they will have to provide their name, birthdate and phone number for "basic" transaction limit levels. "Extended" access will require the user's national identification, and providing the residential address remove all transfer limits. https://wallet.helpscoutdocs.com/article/239-identity-verification

Crunchfish published a paper that argues that virtual secure elements (SEs) provide better security to retail CBDC offline platforms than hardware-based SEs. It says that hardware-based SEs are less secure due to the separation from payment app that breaks the chain of trust between the two communicating endpoints. This can result in potential attacks by replacing either endpoint with malicious ones or tampering with them and modifying their behavior during runtime. As the hardware-based SE does not have full visibility of the payment app and the mobile operating system (OS), it cannot determine the identity of the app or whether the app has been tampered with, and must "blindly" trust the OS and the app. A trusted client application for offline payments implemented in an app-integrated virtual secure element, on the other hand, has no trust gap issues and runs securely even on rooted/jailbroken mobile devices.

Whilst governments can take different approaches to implementing SIM registration, we have asserted that 'Capture and Validate' (C&V) processes give the highest level of confidence that the person registering a SIM 'is who they claim to be'. This is because C&V enables mobile network operators (MNOs) to validate their customers' ID against a central government database, usually in real time. Globally, only 16 countries follow this approach.

Digital ID holds the promise of enabling economic value creation for each of these three groups by fostering increased inclusion, which provides greater access to goods and services; by increasing formalization, which helps reduce fraud, protects rights, and increases transparency; and by promoting digitization, which drives efficiencies and ease of use.

Good digital ID requires the following four attributes: it can be verified and authenticated to a high degree of assurance, it is unique, it is established with individual consent, and it protects user privacy and ensures control over personal data.

A new partnership between the Dubai International Financial Centre (DIFC), Mashreq Bank and fintech firm Norbloc aims to launch a blockchain-based Know Your Customer (KYC) data-sharing consortium in 2020.

Four of Brazil's financial regulatory institutions are collaborating to build a streamlined blockchain-based data-sharing platform to perform background checks on political representatives and corporations.

On March 26 the Reserve Bank of New Zealand, Financial Markets Authority and Department of Internal Affairs directed reporting entities to accept scanned copies of documents instead of originals and to perform electronic verification to avoid face-to-face contacts with customers.

"In previous blog posts, we've discussed the potential of a secure, reliable system of digital identification (digital ID), and examined some of the potential roadblocks to the widespread adoption of digital ID, but it's also worth considering what such a system would look like. What characteristics would define a truly effective system? What role would various stakeholders play? How would it interact with more "traditional" forms of identification?"