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"We use agent-based modelling to build a digital twin of the retail payment system, where heterogeneous consumers and merchants interact, learn, and adapt as they meet and use different monies and payment instruments. As we introduce an rCBDC, the model simulates its adoption. We calibrate this digital twin to Spain's retail payment ecosystem. We run hypothetical scenarios that correspond to publicly available discussions about the digital euro. Results show that introducing an rCBDC without attractive design options and stimulus for consumers and merchants results in low and slow adoption. Results suggest that the reverse waterfall functionality and a positive remuneration spread are effective to foster adoption, whereas balance limits and top-up limits are effective to restrain adoption. Results also suggest that combining design options and stimulus with limits to holding rCBDCs could aid to achieve a sweet spot of adoption."

"The Ripple ruling, on its face, seems to make it very hard to protect retail investors from crypto fraud or to mandate any sort of disclosures about new crypto projects. Reversing that ruling on appeal and endorsing the SEC's view that most crypto tokens are securities would solve that problem - but would also probably lead to more or less a ban on crypto in the US. A legislative compromise that lets somebody regulate crypto, but not the SEC, seems more likely now than it was a few days ago."

The Federal Reserve Bank of New York (NY Fed) has curbed its counterparty criteria for its reverse-repurchase program (RRP) in a way that could prevent stablecoin issuer Circle from accessing the Fed facility. Funds "organized for a single beneficial owner," registered as "2a-7 funds" at the Securities and Exchange Commission (SEC), "generally will be deemed ineligible" under the new rules. The Circle Reserve Fund, managed by global investment management giant BlackRock Advisors, appears to fall into this category. https://www.newyorkfed.org/markets/opolicy/operating_policy_230425

The IMF published a paper that analyzes returns and volatility spillovers among a representative set of crypto and financial assets. The magnitude of spillovers increases during periods of heightened turbulence due to negative economic-financial news, crypto market events, or exogenous shocks. There is evidence of increasing spillovers over time, with a peak during the COVID-19 pandemic, implying growing interdependence. Crypto-assets predominantly transmit spillovers to financial markets, though reversals occur during periods of financial stress. The increased correlation during risk-off episodes suggests that crypto-assets could serve as important conduits for financial market shocks, generating financial stability risks.

The Bank for International Settlements (BIS) published a paper uses a new "Future of Payments" database to document a number of salient patterns of retail payment behavior during and after the pandemic. It finds that cash in circulation, use of card-not-present transactions and downloads of payment apps all spiked when the pandemic was more severe (ie during strict lockdowns, periods of restricted mobility and periods with higher numbers of new cases). However, changes were less pronounced in countries with higher mobile penetration, and recent data suggest that some effects reversed once lockdowns were eased, and mobility rebounded.

The "Blockchain Trilemma" is a term used to describe the challenge of increasing performance, security, and decentralisation at the same time. Current enterprise blockchains are not truly decentralised. They may be structurally decentralised, but are operationally centralised. By reversing this, having structurally centralised, but operationally decentralised architecture, a CBDC can achieve a high-performance blockchain. However, any blockchain-based CBDC should not only solve the blockchain trilemma, but also the CBDC design trilemma, which notes that identity, privacy, and programmability cannot be easily enhanced at the same time. A CBDC cannot ignore privacy for the sake of achieving legal compliance and implementing programmable money. From an expertise point of view, the answer to this trilemma is the use of a decentralized identity system such as self-sovereign identity (SSID) to find the perfect equilibrium for the CBDC design trilemma. Self-sovereign identity is very popular for its advanced privacy protection. By having an SSID-based blockchain system, a CBDC can incorporate both privacy and transparency into the blockchain-based CBDC system. Additionally, a use of zero-knowledge encryption to protect the transaction privacy of blockchain data is highly recommended for any CBDC implementation.

The OCC prefers (or requires) banks to use a permissioned blockchain. Don't over egg decentralization, and make sure the legal rights are clear and sold. That's particularly the relationship or coupling between changes to the token and the underlying asset or liability. What happens in the case of bankruptcy, and how can the tokenization be reversed? That said, one senses Hsu would rather see no DLT at all.

Tether, the issuer of the USDT stablecoin, cut its exposure to cash and bank deposits in Q1 2023, shifting into US Treasuy Bills and leveraging the reverse repo market. Also, as of March 31, 2023, $1.5 billion in assets were held in Bitcoin and 6.5% of its reserves in secured loans to non-affiliated entities.

The Banco Central del Uruguay's Adolfo Sarmiento writes about seven lessons from the 2017-18 e-Peso CBDC pilot, highlighting that CBDC choices are based not only on technical considerations but also on money use culture. This implies a holistic assessment of the payment environment and a clear understanding of the cultural implications of a change that will be incremental but not reversible. This implies that research on CBDC must concern idiosyncratic aspects: economy organization, historical aspects, and even social implications of money.

The US-based Bank Policy Institute (BPI) is raising concerns that a sizeable proportion of Circle's USDC stablecoin reserves could be parked at the Federal Reserve, despite Circle not having a central bank account. Since November, BlackRock has been managing about two-thirds of the reserve assets in a bespoke money market fund, the Circle Reserve Fund (CRF) , which invests mostly in U.S. short-dated Treasuries. The BPI claims that Blackrock has applied for the fund to access the Fed's overnight reverse repo (ON RRP) facility, which provides money funds and government-sponsored enterprises a standing option to invest overnight with the Fed at a fixed rate, currently 4.3%. This involves the fund buying Treasuries from the Fed, which are resold to the Fed at a future date at a slightly higher price. The net effect of the cash flows, with the transfer of money to the Fed, is not dissimilar to depositing the USDC reserve cash at the Federal Reserve. The use of the ON RRP by the CRF could effectively transform USDC into a "backdoor" synthetic central bank digital currency (CBDC) if all of the assets are parked there. https://bpi.com/will-usdcs-blackrock-money-fund-create-a-back-door-cbdc-give-usdc-an-account-at-the-fed-or-both/

"We examine the impact of a Central Bank Digital Currency (CBDC) on bank lending, emphasizing the role of different financial frictions. Within a stylized general equilibrium model, we integrate a banking sector characterized by market power on deposits and leverage constraints, together with liquidity in households' utility. Calibrating the model to US data and simulating a CBDC introduction as a shift in households' preferences for public money, our results indicate that a CBDC increases bank lending when market power is the primary operating friction in the banking sector. However, this outcome reverses when leverage constraints are binding for banks."

Lawmakers in both the U.S. House and the Senate have taken formal steps to reverse the Securities and Exchange Commission's (SEC's) Staff Accounting Bulletin (SAB) 121, which makes providing crypto-asset custody services prohibitively expensive for banks. SAB 121 rule forces all listed companies, including banks, to disclose crypto-assets under custody as both an asset and a liability on the balance sheet, which is not the standard accounting treatment, because the assets don't belong to the company. Even the Federal Reserve Chair, Jerome Powell, has acknowledged the SAB 121 treatment is "unconventional". This rule is especially problematic for U.S. banks because they are subject to capital requirements based on their balance sheet.

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

A paper by Rhys Bidder, Timothy Jackson and the Deutsche Bundesbank's Matthias Rottner examined the impact of CBDC on banks and the broader economy drawing the Bundesbank's Survey on Consumer Expectations using a structural macroeconomic model with endogenous bank runs. Based on the survey, they show that a substantial share of German households would include CBDCs in their portfolio in normal times - replacing, in part, commercial bank deposits. That is, there is hypothetical evidence of "slow" disintermediation of the banking system. In addition, during periods of banking distress, their willingness to shift to CBDC is even larger, implying a risk of "fast" disintermediation. They map the model to Euro area data under the status quo and in a hypothetical situation where CBDC is introduced. The model implies that slow disintermediation shrinks a banking system that is prone to runs with positive welfare effects. However, CBDC promotes fast disintermediation, and for reasonable calibrations, the second effect dominates and the introduction of CBDC decreases financial stability and welfare. However, complementing CBDC with a holding limit or pegging remuneration to policy rates can reverse these results, implying that CBDC is welfare improving. Such policies retain the gains of increased stability arising from slow disintermediation, but limit the downside of fast disintermediation.

The Clawback feature is a new addition to the XRP Ledger (XRPL), which is designed to provide issuers with enhanced control over their distributed assets, addressing both regulatory requirements and unforeseen challenges. It allows developers the authority to reverse token transactions in specific scenarios, such as cases of fraud, or to assist in account recovery for users who have lost access to their credentials. The feature has surpassed its voting threshold, garnering an 80% approval rate among validators.

ABN AMRO executed four repo pilot trades with DLT-based wholesale central bank digital currency (CBDC) utilizing tokenized commercial paper (CP) as collateral in late October 2024. This served to test one of three payment options (in this case the one being led by the Banque de France) that are part of the ECB's DLT-based wholesale settlement trials. ABN AMRO issued €1.1 million of the tokenized CP that was used as collateral in the latest transaction, which involved four reverse repo transactions between ABN AMRO Bank, ABN AMRO Clearing, and Rabobank, cleared by Eurex Clearing. In a repo Repo (repurchase) transaction one party (e.g., Bank A) sells securities to another party (e.g., Bank B) and agrees to buy them back later at a slightly higher price. ABN AMRO Bank's Treasury regularly uses repos for balance sheet management.

Ripple Labs has filed a Form C in the U.S. Court of Appeals for the Second Circuit, requesting a de novo review of a recent ruling by the U.S. District Court for the Southern District of New York, which imposed a $125 million fine on Ripple for institutional XRP sales, ruling that they constituted securities transactions. (U.S. District Judge Analisa Torres said that XRP in itself was not a security when issued to retail investors or when sold programmatically on digital asset exchanges.) A de novo review allows the appeals court to re-examine the legal interpretations made by the district court without deferring to its previous conclusions. Ripple's filing comes after the U.S. Securities and Exchange Commission (SEC) also filed Form C in a bid to reverse Judge Analisa Torres' summary judgment. The SEC's appeal, however, did not contest the ruling that XRP isn't a security for programmatic sales on digital asset exchanges. Instead, it sought a review of the court's application of securities law in institutional sales. https://x.com/s_alderoty/status/1849618428560064679

Jahrbücher für Nationalökonomie und Statistik (JNS) published a paper by two Financial Network Analytics (FNA) staff that uses agent-based modelling to simulate retail central bank digital currency (CBDC) adoption, calibrated to Spain's retail payment ecosystem. Results suggest that the distribution of government subsidies via CBDC creates incentives to reduce the use of cash. Also, reverse waterfall functionality (automatic transfer of funds from bank deposits to CBDC wallets) and a positive remuneration spread to bank deposits are effective in fostering adoption. However, the model did not model banks as adaptive decision makers that would include their ability to counter CBDC remuneration.

The actions of the US federal banking agencies under Operation Choke Point 2.0 (OCP 2.0) have damaged the digital asset and blockchain business in the United States. For the last two to three years an atmosphere of fear has pervaded the industry as regulators have sought to de-bank industry participants, including individual investors. Subsequent to his podcast comments, Marc Andreessen characterized OCP 2.0 as "trickle down privatized domestic sanctions." The message of OCP 2.0 has been clear: stay away from crypto and you will not be bothered. That policy is about to change. And while prior harm cannot be undone, there are a number of practical steps the second Trump Administration and Congress can take to ensure that the prior policy is quickly reversed and does not come back.

The European Securities and Markets Authority (ESMA) published the last package of final reports containing regulatory technical standards and guidelines ahead of the full entry into application of the Markets in Crypto Assets Regulation (MiCA) on December 30, 2024. ESMA has delivered extensive regulatory work over the past 18 months, comprising more than 30 Technical Standards and Guidelines, many of them developed in cooperation with the European Banking Authority (EBA). The package contains Regulatory Technical Standards on market abuse, plus guidelines on reverse solicitation, suitability, crypto-asset transfer services, qualification of crypto-assets as financial instruments, and on the maintenance of systems and security access protocols.