Fintech Daily Digest

The European Central Bank (ECB) gave its approval for an additional group of participants to test distributed ledger technology (DLT) for the settlement of wholesale transactions in central bank money. In total, 48 private firms from the financial sector and three central banks will take part in the second wave of the Eurosystem's exploratory work. From July to November 2024, the group will explore specific use cases, joining a first group of participants who have already been testing since May 13. This second wave will broaden the scope of the exploratory work and will cover (i) domestic payments within the euro area with mock settlement, (ii) a wide set of securities-related use cases with both real and mock settlement, and (iii) foreign exchange payment-versus-payment (PvP) transactions with other central banks with mock settlement. Meanwhile, nine participants from the first group will add further use cases and interoperability-type solutions. https://www.ecb.europa.eu/press/intro/news/html/ecb.mipnews240621.en.html

Iran reportedly officially unveiled its CBDC on June 23, 2024 during a ceremony attended by Central Bank of Iran (CBI) Governor Mohammad Reza Farzin and chief executives of several major banks. A pilot project will commence in July on the island of Kish, involving two major Iranian banks, Mellat and Tejarat, and will focus on retail transactions. The digital rial's introduction is part of Iran's strategy to enhance its digital economy and payment infrastructure.

Ethereum cofounder Vitalik Buterin has warned much the same, saying that he once had "somewhat more hope, probably naively" that CBDCs could incorporate the transparency, verifiability, and privacy of cryptocurrencies. However, he noted that after CBDC systems are developed, the protections "all sort of fall away." "We get systems that are not actually much better than existing payment systems, because they just basically end up being different front ends for the existing banking system," Buterin said. "They end up being even less private and basically break down all of the existing barriers against both corporations and the government at the same time."

Bitcoin is trading below $60,000 for the first time since early May as the MtGox exchange announced that it will begin distributing approximately $9 billion worth of the cryptocurrency and $50 million of bitcoin cash to its long-suffering creditors. The defunct Tokyo-based platform, once the largest spot bitcoin exchange in the world, shut down in 2014 after a series of hacks. Of the 950,000 bitcoins lost, approximately 140,000 were recovered after MtGox declared bankruptcy, leaving thousands of creditors around the world stranded. Nine years later, authorities identified the hackers, with two Russian nationals charged by the U.S. Department of Justice for conspiring to launder around 647,000 bitcoins from the exchange.

On June 24, 2024, Mt. Gox's rehabilitation trustee announced that it will start processing reimbursements starting July 2024. More than $9 billion worth of Bitcoin (BTC) and Bitcoin Cash (BCH) is owed to approximately 127,000 creditors of Mt. Gox. These creditors have been waiting for over 10 years to recover their funds following the exchange's collapse in 2014 due to multiple unnoticed hacks. The trustee had transferred BTC and BCH worth $9.62 billion into a new wallet, "1Jbez," from several other cold wallets associated with Mt. Gox in May 2024 as part of a consolidation plan to prepare to start repaying creditors. https://www.mtgox.com/img/pdf/20240624_announcement_en.pdf

IDEMIA Secure Transactions (IST) demonstrated the first ever offline central bank digital currency (CBDC) payments incorporating enhanced security against quantum threats. Offline CBDC allows digital currency transactions without internet, ensuring cash-like secure and seamless payments in areas with limited connectivity. This offline CBDC payment transaction uses quantum-resistant public key cryptography endorsed by the National Institute of Standards and Technology (NIST). The offline transactions demonstrated as part of this quantum-safe solution are performed using two smartphones thanks to NFC. Money is stored inside a secure element fortified with quantum-safe cryptography to guarantee security and prevent the risks of double spending or unauthorized money creation.

A survey of 2,000 German adults (18+) reveals that 26% (1 in 4) of Germans (18.4 million) use prepaid cards, a 62% increase since the cost of living crisis began. 32% of users (5.9 million) said they use prepaid cards to stay in control of their finances, while 27% (4.9 million) use them to avoid going into debt.

In October 2020, the G20 leaders endorsed the roadmap for enhancing cross-border payments. To monitor progress, the CPMI launched in 2023 a monitoring survey among central banks on the updated roadmap's three priority themes: (i) payment system interoperability and extension; (ii) data exchange and message standards; and (iii) legal, regulatory and supervisory frameworks. This report presents the survey findings for each of the priority themes. Respondents provided information on operational or planned real-time gross settlement (RTGS) systems, fast payment systems (FPS) and deferred net settlement (DNS) systems within their jurisdiction. These include payment systems owned and operated by the public sector as well as the major private systems.

In December 2023, EMTECH successfully delivered a CBDC Hackathon as a strategic pilot for the Bank of Ghana's e-Cedi project. After receiving 88 applications, the Bank of Ghana ultimately selected 10 participants who onboarded a dedicated hackathon platform, and received Institutional Wallets and 1,000 BYDC-eCedi tokens from the central bank to prototype various solutions. They were then granted access to pre-built BYDC-eCedi APIs which eased the technical integration, as well as standardized how and who can create wallets for end users or how to transact with the tokens. All transactions were performed using Hedera's token and public ledger services using an ERC-20 token standard. This delivered transparency in transactions, plus the benefit of protecting user information.

The Independent Evaluation Office of the International Monetary Fund (IMF) concluded that newer IMF policy areas, including digital money, climate change and gender issues, are leading to serious challenges, including overburdening staff. It finds that the systematic widening of the IMF's areas of work is posing adaptation challenges, necessitating trade-offs, and overburdening staff within a context of budgetary and expertise constraints. The evaluation offered a framework for approaching these challenges that is centered on a trilemma that exposes the tension between the steady expansion of the IMF's scope of work, its limited resources, and the need to maintain the high quality and value-added of its policy advice. https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/06/17/The-Chairs-Summing-Up-Independent-Evaluation-Office-The-Evolving-Application-of-the-IMFs-550573

The Swiss National Bank (SNB) will continue its Project Helvetia pilot focusing on tokenized securities settlement on SIX Digital Exchange (SDX) in Swiss franc wholesale central bank digital currency (CBDC) for at least two more years. This will come after the successful completion of Project Helvetia III, which will run until the end of June 2024. This included the SNB becoming the world's first central bank to carry out a monetary policy operation in a live production environment using distributed ledger technology (DLT) when it issued CHF 64 billion in SNB one-week bills on the SDX platform in early June. The next stage of the pilot aims at expanding the scope with the intention to gradually include additional financial institutions and to serve a broader range of financial market transactions. https://www.snb.ch/en/publications/communication/speeches-restricted/pre_20240620_tjnmslanmar

The Enforcement Division of the U.S. Securities and Exchange Commission (SEC) has notified Consensys that it is closing its investigation into Ethereum (ETH) 2.0, and will not pursue an enforcement action against the technology incubator that develops decentralized software services and applications that operate on the Ethereum blockchain. The SEC was investigating whether ETH had become a "security" after it switched from a proof-of-work (PoW) to proof-of-stake (PoS) protocol (from "ETH 1.0" to "ETH 2.0"). In April 2024, Consensys had filed a lawsuit against the SEC, alleging that the investigation was an "unlawful seizure of authority" over Ethereum, on the grounds that ETH is a "commodity" and therefore outside the SEC's jurisdiction.

The Korean Ministry of Science and Information and Communications Technology (MSIT) and the Korea Internet and Security Agency (KISA) launched an investment project to promote the domestic blockchain industry. It is committing Won 20 billion ($14.5 million) across 14 projects, divided into two public sector and the private sector parts. One of the public sector projects includes the development of a wholesale central bank digital currency (CBDC)-based digital voucher management platform by the Bank of Korea. This platform will allow various voucher programs to be used on mobile devices, improving the efficiency and accessibility of digital payments. https://www.msit.go.kr/bbs/view.do?sCode=user&mId=113&mPid=238&pageIndex=2&bbsSeqNo=94&nttSeqNo=3184609&searchOpt=ALL&searchTxt=

The Central Bank of Iran (CBI) will launch a pilot its digital rial central bank digital currency (CBDC) in July 2024. It will allow banking customers and tourists on Kish Island to make purchases and transfer funds using digital wallets and QR codes. The CBI has been developing its CBDC since 2022, and started proof-of-concept work in June 2023. The digital rial has been targeted solely for use in Iran and to facilitate domestic micro payments operations. The overarching goal of the project is to modernize and simplify domestic transactions.

Fnality and HQLAᵡ have completed end-to-end testing to enable intraday sterling repo settlement on the Eurex Repo F7 platform via their two blockchain networks. They plan to go live in Q4 2024 subject to UK regulatory approvals. Fnality is a UK-regulated systemic payment system and HQLAᵡ operates a digital collateral registry to enable intraday collateral movement. Fnality's settlement instrument is effectively a "synthetic" wholesale central bank digital currency (CBDC) - i..e., a sterling-denominated stablecoin backed by deposits in a Bank of England omnibus account. In conventional repo transactions, the collateral settlement takes two days, but on the Fnality/HQLAᵡ platform, trades can be settled on a atomically intra-day delivery-versus-payment (DvP) basis. https://www.linkedin.com/posts/eurex_eurex-repo-dlt-activity-7208755407740137472-g29d/

Central banks need to realise that it is impossible to prevent distribution of counterfeit coins that are transacted in an offline mode when a cryptographic dialogue is carried out between payer and payee. This vulnerability relates to most known secure elements/devices, stored-value cards, universal access devices and Tamper Resistant Elements (TRE), such as smart cards, SIM cards, embedded secure elements and so on, that are already being tested for offline clearing and final settlement capabilities. It derives from realizing that any cryptographic dialogue that convinces a payee offline may be emulated by a resourceful counterfeiter. If you wish to execute payments between two parties in offline mode when there is no internet connection, with no risk of counterfeit money to be distributed by adversaries, you need to have a physical procedure (not cryptographic) that enables a fast, instant, simple and secure (up to being quantum-safe) validation process and payment transaction, with finality of payment.

Tether is launched Alloy (aUSD₮), a stablecoin pegged to the U.S. dollar overcollateralized by Tether Gold (XAU₮). Users can mint aUSD₮ by depositing XAU₮ as collateral through a process managed by Ethereum-compatible smart contracts. The aUSD₮ smart contract ensures transparency by keeping track of all collateral and minted tokens, using price oracles to constantly evaluate the Mint to Value (MTV) ratio.

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.

The Ethiopian government's Council of Ministers approved a draft proclamation that would establish a legal framework for the introduction of a central bank digital currency (CBDC). The proposed National Bank of Ethiopia Establishment Proclamation revisions will soon be referred to the House of People's Representatives for review, comment, and final ratification. https://www.linkedin.com/feed/update/urn:li:activity:7207410991230320641/

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.