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Hong Kong Monetary Authority (HKMA) CEO Eddie Yue remains skeptical about the benefits of a retail central bank digital currency (CBDC). H started by listing some of the potential benefits, including serving as a fundamental layer to facilitate interoperability and interlinking between various future digital economy participants. Also, it could act as a bridge between different types of privately-issued digital money, and ensure all private money to be exchangeable with a public money on demand and at par. He also envisioned that a retail CBDC could be a potential "backbone" and anchor, bridging a legal tender and digital assets, offering price stability and confidence needed to empower more innovations, and developing a vibrant sector and ecosystem for digital assets in Hong Kong. Nevertheless, Mr. Yue said that more research is needed on whether its benefits outweigh the risks, particularly "given the generally efficient and competitive retail payment ecosystem in Hong Kong" [and the HKMA] will continue to take a use-case driven approach in thinking about whether and when to introduce a retail CBDC." https://www.hkma.gov.hk/eng/news-and-media/speeches/2024/04/20240411-1/

UK Finance announced work on a new UK Regulated Liability Network (RLN) experimentation phase with eleven of its members. The UK RLN is envisaged as a common "platform for innovation" across multiple forms of money, including existing commercial bank deposits and a shared ledger for tokenized commercial bank deposits. It will focus on three use cases; payment-upon-delivery for a physical product, the process of buying a home, and digital bond settlement. The experimentation phase will run until summer 2024 and will cover customer and business benefits, technical feasibility via proofs of concept in a technology sandbox, and the legal framework.

The BIS Innovation Hub and the Hong Kong Monetary Authority have launched the second phase of Project Aurum. Phase 1.0 tested the feasibility of a technological stack that integrates a wholesale interbank system and a retail e-wallet. Phase 2.0 will now focus on how to enhance privacy for retail central bank digital currencies (CBDC). It will explore several privacy-enhancing technologies, including pseudonymization and zero knowledge proofs, and test how increasing privacy affects the performance and compliance of a system.

DeFi platforms aim to improve upon the traditional financial system by combining two innovations: a "smart contract" transaction technology and a "token holder" governance model. Although DeFi's transaction technology promises to reduce costs in some applications, it cannot, on its own, redistribute these economic gains to users. To achieve their goal, DeFi platforms must be governed in a way that is consistent with users' interests. So far, however, DeFi has not decentralized decision-making power to users in the way its proponents had hoped. Future progress in DeFi will require not only technical advances in smart contract and distributed ledger design but also economic solutions to the governance problems faced by these platforms.

The Centre for Economic Policy Research's VoxEU published an article by Ulrich Bindseil and two other senior European Central Bank (ECB) executives, argued that that commercial bank deposits are unlikely to impacted much by the launch of a digital euro due to its design. This combines a holding limit with the reverse waterfall, which allows instant top-up of a central bank digital currency (CBDC) wallet from the users' bank accounts. Also, merchants and other businesses cannot hold digital euro balances. According to the article, stablecoins and other innovative private sector financial products are bigger threats to bank business models. https://cepr.org/voxeu/columns/digital-euro-after-investigation-phase-demystifying-fears-about-bank

The U.S. House of Representatives voted 279-136 in favor of the Financial Innovation and Technology for the 21st Century Act (H.R. 4763), which aims to clarify which government agencies will have responsibility for overseeing specific tokens and digital asset platforms. FIT21 will significantly boost the oversight role of the Commodity Futures Trading Commission (CFTC) while significantly hobbling the Securities and Exchange Commission (SEC). FIT21 will now go to the Senate, and even if it did pass that hurdle, it would likely be by a margin sufficient to ward off a possible Biden veto of the bill as currently written.

The Committee on Payments and Market Infrastructures (CPMI) published its work program and strategic priorities for its 2024/25. The program's key themes include the enhancement of cross-border payments, with a particular emphasis on the interlinking of fast payment systems, and digital innovations in payments, clearing and settlement. The latter will include tokenization in the context of money and payments, functionality of cross-border central bank digital currencies and central bank collaboration, and multicurrency and asset-linked stablecoin arrangements. https://www.bis.org/press/p240523.htm

The Bank for International Settlements (BIS) Project mBridge is accepting value added products and new use cases as it reaches minimum viable product stage (MVP). The project aims to explore multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks, built on distributed ledger technology (DLT) to enable instant cross-border payments and settlement. The project was launched in 2021 by the BIS Innovation Hub, in collaboration with the Bank of Thailand, the Central Bank of the United Arab Emirates, the People's Bank of China and the Hong Kong Monetary Authority. The Saudi Central Bank is now joining mBridge as a full participant. There are also now more than 26 observing members.

"As part of the Saudi Central Bank's (SAMA) pursuit to build a robust and innovative cross-border payments infrastructure in collaboration with various international financial institutions and central banks, SAMA has joined the Bank for International Settlements' (BIS) mBridge project as a participant in the Minimum Viable Product (MVP) platform."

Crunchfish has recently implemented and patented a novel approach with balance reconciliation. Private transactions are encrypted and sent to the backend, but where the keys used for the transaction are wallet keys, in contrast to prior art using public keys controlled by either the issuer or an escrow agent. In this way the payer is in full control of the privacy of their transactions even if all private transactions are sent to the online ledger encrypted. In this innovative way, regulatory requirements for transactional traceability are balanced with requirements for privacy where the payer is in full control of the encrypted transactional data for amounts below defined thresholds, defined by the issuer and the regulator. If the issuer suspects an attack by the payer, the issuer can contact the payer for permission to decrypt the data. In case the payer is not willing to grant access, the issuer may decide to lock the wallet or disallow any more private transactions.

The Italian Banking Association (ABI) published the results of its Project Leonidas (Liquidation Effective ONchaIn Dlt Asset on Check) distributed ledger technology (DLT) based wholesale central bank digital currency (CBDC) proof of concept (POC) work. The project, which concluded at the end of 2023, was carried out under the Banca d'Italia Milano Hub innovation center. It investigated the benefits of using DLT-based wholesale CBDC for interbank transactions, so that the capacity, efficiency and robustness requirements of central bank systems are met.

The Bank of Thailand (BoT) will test programmable payments in its Enhanced Regulatory Sandbox. Programmable payments automate transaction with predefined conditions for the payment of goods and services. This project will demonstrate the potential for applying technology to a wide variety of financial services, accompanied by appropriate risk management processes. The BOT will work in collaboration with the Securities and Exchange Commission, the Office of Insurance Commission, and the Fiscal Policy Office, Ministry of Finance, to evaluate the benefits and risks of financial innovations and to establish potential and suitable supervisory policies.

The IMF published a paper that investigates the relationship between fintech and financial inclusion in a panel of 84 countries over the period 2012-2020. It finds that the impact of fintech on financial inclusion is statistically insignificant (and negative) in advanced economies, but it becomes positive in developing countries with a statistically highly significant overall effect. Taken as a whole, these results-robust to alternative estimation methods-indicate that fintech endeavors may have so far failed to promote financial inclusion across all countries, but helped expand financial inclusion to a certain extent in developing countries. The paper concludes that policymakers need to develop an adequate regulatory framework that balances fostering innovation and ensuring equitable treatment of individuals and groups. This requires better financial education, strong regulatory institutions, and well-calibrated prudential regulations for a level playing field and effective supervision.

The Philippine Government's Department of Information and Communications Technology (DICT) has reportedly introduced eGOVchain, a government blockchain aimed at enhancing transparency, security, and efficiency in public transactions. DICT's efforts to streamline government services are encapsulated in its five-pillar strategy under the e-Gov office. These include developing e-government platforms, assisting local and national government agencies, innovating at the grassroots level, building cloud services and aligning government information systems.

The Bank for International Settlements (BIS) Innovation Hub and Bank of England have launched Project Meridian FX to experiment with FX transaction synchronization concepts. This will be achieved via a "synchronization operator" (SO) that uses distributed ledger technology (DLT) to interlink central bank settlement (RTGS) systems, and orchestrate the settlement of a payment versus payment (PvP) FX transactions. The experiments, which will take place towards the end of 2024, will connect Meridian FX's SO to the three solutions being explored as part of the Eurosystem's broader exploratory work on wholesale settlement.

Central bank digital currencies could bring profound changes to the financial system, potentially crowding out commercial banks. They could also change the way monetary policy operates. The implications for monetary and financial stability need careful consideration.

The Australian Securities Exchange has signed a memorandum of understanding (MoU) with Digital Asset and VMware to boost the development of its blockchain-based equities clearing and settlement system.

Thailand's Siam Commercial Bank will be opening up its RippleNet-powered consumer cross-border payments app to companies.

TechSprints are typically 2 day events that bring together participants from across and outside of financial services to develop technology based ideas or proof of concepts to address specific industry challenges. These events help us to shine a light on issues and expand the discussion and awareness of potential solutions.

With a decrease in the use of cash, the objectives pursued by the Central Banks with an electronic and universally accessible form of money are to anticipate the disappearance of cash, create an efficient and cheap means of payment, and strengthen regulatory controls. It is not a matter of "if" but a matter of "when". Central Banks must define the objectives first, then get the design parameters right while carefully assessing the second order effects; and conduct thorough pilots before launching a central bank digital currency.