Fintech Daily Digest

As part of the European Central Bank's (ECB) explorations, Boerse Stuttgart and six German banks tested the settlement of exchange transactions with blockchain-based securities against central bank money for the first time. The settlement solution was linked to the Deutsche Bundesbank's trigger solution and thus to the traditional euro payment system. The tests showed that the settlement processes can be mapped automatically, step by step and directly between the trading participants - efficiently, securely and without counterparty risk. The settlement time was reduced from two days to just a few minutes. https://group.boerse-stuttgart.com/media/li2dfavi/241001-mr-ecb-blockchain-tests.pdf

Digital Asset completed a pilot to tokenize U.K. Gilts, Eurobonds and gold on the distributed ledger technology (DLT) based Canton Network, which provided interoperability between separate DLT networks that have deployed Digital Asset's technology. The aim was to demonstrate how tokenized assets on a blockchain can enhance collateral mobility, improve liquidity, and increase transactional efficiency. The pilot involved Euroclear, the World Gold Council and 27 market participants. Five types of cross-application transactions were connected using eleven distributed applications, including six registry apps and five margin apps, with 500 transactions completed.

Elliptic published the 2024 edition of its global crypto regulation landscape review, highlighting key trends and regional developments that are shaping the future of regulatory compliance. Significant developments have emerged across three key areas: the EU's Markets in Crypto-assets (MiCA) regulation, the expansion of the "travel rule" to crypto transactions, and stablecoin regulation. Authorities are now emphasizing consumer protection, financial stability, and preventing illicit activities, aided by the entry of mature institutional players, contributing to a structured and transparent market.

arXiv published a paper by Barclays staff that questions the need for a digital pound to preserve the singleness of money. It makes the case that singleness can be achieved by combining (i) on-demand interoperability between issuers and forms of private money, (ii) settlement finality in wholesale central bank money, and (iii) robust prudent regulations and effective supervision by the Bank of England and the UK Government. The paper concludes that the anchoring of private UK retail digital money is already well supported by all three of the above.

On August 19, the U.S. Treasury Department withdrew a contentious 2020 Financial Crimes Enforcement Network (FinCEN) proposal that would have required banks and money service businesses to submit reports and verify the identity of customers in transactions involving convertible virtual currency or digital assets held by crypto wallet software. These wallets are managed directly by individuals without third-party intermediaries. The proposal faced widespread opposition from the U.S. crypto industry, which argued that the rule was unfeasible.

The Asian Development Bank (ADB) is looking is looking for a service partner to implement a digital currency platform with both online and offline capabilities. This platform will support financial inclusion in remote areas with limited internet access and offer an alternative payment method for various users. The project will focus on deploying a modular, "token-based" architecture with programmable infrastructure to facilitate peer-to-peer transactions, strengthen financial resilience, and promote innovation across sectors. The outcome of this project will be an ADB-owned digital asset that can be utilized across its member countries.

The Federal Reserve Bank of Philadelphia published an article that uses U.S. survey data to explore links between crypto prices and hodlings. It found a disconnect between market prices and ownership over the last two years. While it found a clear decrease in ownership and interest in purchasing during the crypto winter of 2022, recent growth in the market has not been accompanied by an increase in ownership in the survey population.

"A June 2024 paper on the digital euro from the Veblen Institute and Positive Money criticizes the current direction of the digital euro, saying it falls short of its potential. The paper, "a digital euro for the people", argues that the European Central Bank (ECB) has "heeded to the bank lobby" and baked their interests into the design of the digital euro. Neither organization is a fan of commercial banks, so they are unhappy about the potential dependence on them as digital euro intermediaries. They would prefer to see a bigger role for the public sector and non profits, highlighting that the current wording does not rule this out." [https://www.ledgerinsights.com/digital-euro-eurozone-central-banks-have-option-of-distributing-cbdc-directly/]

First Abu Dhabi Bank (FAB) is the first financial institution to pilot JPM Coin programmable payment functionality. FAB's trials included initiating payments based on time triggers and balance thresholds, for example, the transfer of funds out of an account if the balance is too high, or into the account if it's too low. Or, a planned payment is only sent out depending on its impact on the account balance. https://www.bankfab.com/en-ae/about-fab/group/in-the-media/fab-successfully-pilots-programmable-payments-through-onyx-by-jp-morgan

The European Central Bank (ECB) published an article analyzes payment survey data to arrive at a framework for understanding the role of adoption frictions and design strategies in shaping central bank digital currency (CBDC) demand. The survey spanned 17 euro area countries with over 40,000 respondents. It included a payment diary, together with a questionnaire asking respondents to rank different payment instruments according to their most important attributes. The analytic results show that, while consumers may initially prefer to use more traditional payment methods, a design tailored to their specific needs could significantly increase CBDC uptake. Raising awareness and capitalising on network effects could also boost demand for CBDC.

International money transfer firm MoneyGram has been down for at least five days due to a "cybersecurity issue," and it is working to restore its services with some success. Users have reported that its services went down on September 20, 2024. The U.S.-based firm said it was working with law enforcement and "leading external cybersecurity experts" to mitigate the issue, and once its systems are back online, pending user transactions would be available. https://x.com/moneygram/status/1838203169765052552

[February 27, 2017] The Depository Trust & Clearing Corporation (DTCC) completed the first leg of a post-trade distributed ledger trial conducted in partnership with Digital Asset Holdings. The trial focused on the netting process for US Treasury and agency repurchase agreement transactions.

"An important motivating factor in the development of retail CBDC is the decline of the popularity of central bank money for retail purchases and the increasing use of digital money created by the private sector for such purposes. The debate about how retail CBDC would be designed and implemented has led to many proposals, which have sparked considerable debate about business models, regulatory frameworks, and the socio-technical role of money in general. Here, we present a critical analysis of the existing proposals. We examine their motivations and themes, as well as their underlying assumptions. We also offer a reflection of the opportunity that retail CBDC represents and suggest a way forward in furtherance of the public interest."

Digital Asset published the results of its U.S. Treasury (UST) Collateral Network Pilot that focused on leveraging DLT applications to support market connectivity across the collateral management lifecycle to enhance mobility, liquidity and transactional efficiency of tokenized assets. The tests involved four investors, four banks, two central counterparties, three custodians/collateral agents, and a central securities depository operating fourteen Canton Network nodes, that connected four types of cross-application transactions through ten distributed applications, leveraging DTCC's LedgerScan solution to support dynamic tracking and governance of the assets involved in the pilot transactions. Participants successfully executed 100 transactions. https://www.canton.network/unlocking-collateral-mobility-through-tokenization

The Eurosystem's work to explore how wholesale financial transactions recorded on distributed ledger technology (DLT) platforms could be settled in central bank money is progressing well. A total value of €532 million has been successfully settled in more than 50 transactions involving 15 different financial firms and central banks since May 2024. In total, 60 financial firms from nine euro area countries and the European Central Bank (ECB) and three national central banks are participating. The trials - transactions including actual settlement in central bank money - have covered nine use cases, with a particular focus on the primary distribution of bonds to investors on a delivery-versus-payment (DVP) basis. Trials and experiments will continue until the end of November 2024.

The Hong Kong Monetary Authority (HKMA) has commenced Phase 2 of the e-HKD pilot programme to delve deeper into innovative use cases and commercial feasibility for new forms of digital money, including e-HKD and tokenized deposits, that can potentially be used by individuals and corporates, within a real-world setting. 11 groups of firms from various sectors will test the settlement of tokenized assets, programmability and offline payments.

Malaysian scaled down its retail CBDC project In a June 11, 2024 speech, Bank Negara Malaysia (BNM) Deputy Governor Jessica Chew announced the scaling down of its retail CBDC project. "Given the highly efficient domestic retail payment systems operating today," the central bank is prioritizing enhancing the cross-border interoperability of fast payment systems, plus wholesale CBDC work.

The IMF published a paper that argues that successful CBDC adoption hinges not only on technical readiness and operational robustness, but also on strategic policy and design choices that target end-user and intermediary involvement from the outset. Central banks cannot take it for granted that CBDC, once launched, will be adopted and scaled up easily. The paper proposes a "REDI" framework that central banks can use to prepare for CBDC adoption comprised of (i) regulatory strategies, (ii) education and communication initiatives, (iii) design and deployment choices, and (iv) incentive mechanisms. The paper also makes several concrete recommendations including: -Early engagement with end-users focusing on identifying their needs and pain points, as well as social and cultural factors that influence their financial behavior. -Monetary and non-monetary incentives to encourage intermediary participation, including exclusivity agreements, subsidies for setup costs, and allowing for CBDC data monetization or charging for value-added services. -End-user incentives including sign-up bonuses, airdrops or lotteries upon onboarding, and once onboarded, usage incentives, such as cash-back offers and discounts on CBDC transactions. Incentives targeted specifically to merchants could include subsidies for setup costs, reduced transaction fees, tax exemptions, or volume-based rewards. -Implementing selected use cases (such as P2P, G2P or B2P payments) may help generate initial momentum (see also SODA's "test and deploy" implementation framework).

The Bank of Canada has now confirmed on its website that it is downshifting its retail central bank digital currency (CBDC) project. "The Bank is scaling down its work on a retail central bank digital currency and shifting its focus to broader payments system research and policy development... The body of knowledge built over recent years will be invaluable if, at some point in the future, Canadians, through their elected representatives, decide they want or need a digital Canadian dollar... The Bank will continue to monitor global retail CBDC developments and publish some related research, but the focus will be on preparing for the evolution of payments both in Canada and around the world, through policy research and analysis."

Starting in December, selected participants will reportedly be able to use tokenized deposits to make payments at domestic supermarkets and convenience stores. This initiative is part of a comprehensive usability test for a wholesale central bank digital currency (CBDC), conducted by the Bank of Korea (BOK) in collaboration with six major commercial banks. Basically, the BOK will issue CBDC to banks, which will then convert it into deposit tokens for use by consumers at designated retail locations. 100,000 individuals have been selected for the pilot, and participating banks are forming partnerships with retail outlets and developing dedicated digital platforms.