Fintech Daily Digest

Russia's Sberbank plans to start operations with the country's digital ruble for its customers in early 2025. Sberbank is among Russian banks expected to join the project in the second round of testing CBDC, along with about 20 other financial institutions. https://www.moscowtimes.ru/2024/09/03/intervyu-sberbank-rasschityvaet-nachat-operatsii-s-klientami-v-tsifrovykh-rublyakh-v-nachale-2025-goda-a141054

SWIAT (Secure Worldwide Interbank Asset Transfer), established by DekaBank in February 2022, is a software developer for blockchain-based digital financial services platform for regulated financial market players to flexibly issue, trade and settle any type of asset - traditional or digital - on the blockchain. It was determined from the start that the platform would be open to partners to be built as a market consortium, and eventually expanded into an international network. It competes with the likes of the Regulated Liability Network (RLN) and Singapore's Partior (backed by Standard Chartered, JP Morgan and DBS Bank).

"Siemens has issued its second digital bond, a €300 million one year bond using the SWIAT permissioned blockchain. Settlement took just minutes and used Germany's Trigger solution, which triggers a central bank money payment on the TARGET 2 system. Last year Siemens issued a €60 million 'crypto security' bond on the Polygon blockchain which still required two-day settlement. The issuance formed part of the European Central Bank's (ECB) wholesale DLT settlement trials." https://press.siemens.com/global/en/pressrelease/siemens-remains-pioneer-another-digital-bond-successfully-issued-blockchain

On July 30, 2024, the Bank of England (BOE) published a paper on its proposed approach to innovation in money and payments. It includes developing additional functionalities for the real-time gross settlement (RTGS) system such as extending settlement hours and a synchronization interface that would allow RTGS to connect to external ledgers, including those based on programmable platforms, and settle assets in central bank money. The bank is also planning a programme of experiments for a wholesale central bank digital currency (CBDC). Broadly these would cover, DvP securities transactions, PvP foreign exchange transactions and interoperability with other global ledger initiatives. The use of tokenized money and programmable payments is also up for discussion. https://www.bankofengland.co.uk/paper/2024/dp/the-boes-approach-to-innovation-in-money-and-payments

The Central Bank van Aruba (CBA) published a paper that reviews the best implementation options for a retail digital florin. It concludes that an inclusively-resilient retail digital florin must at least exhibit a three-tiered know-your-customer (KYC) approach (to balance privacy and KYC efforts), have offline features, one-to-one conversion between commercial bank deposits and CBDC, be unremunerated, and based on permissioned distributed ledger technology (DLT). Cross-border payments have been tabled for future consideration. This paper represents the first of a five-step five-year evaluation and implementation process. The paper also revealed that in 2019, the CBA conducted a feasibility study on a local wholesale CBDC, but concluded that its risks may fall outside the CBA's risk appetite. The 2019 paper does not seem to be available online.

Of almost 500 institutions surveyed by Citi, only 15% expressed a need CBDC for digital asset settlement versus 15% of respondents to a similar survey in 2023. Instead, there's a greater emphasis on alternative digital payment methods including nonbank stablecoins, tokenized deposits and tokenized money market funds. https://www.citibank.com/icg/docs/Citi_Securities_Services_Evolution_2024.pdf

Thailand's Securities and Exchange Commission (SEC) will ease restrictions on using digital assets for payments, and digital asset businesses under SEC supervision will be able to participate in the Bank of Thailand's Programmable Payment Sandbox. The updated regulations broaden the scope of services digital asset businesses can provide without being considered a means of payment and include new types of operators like digital asset custodial wallet providers. https://www.sec.or.th/TH/Pages/News_Detail.aspx?SECID=11085

The European Central Bank (ECB) published its third report outlining the progress of the digital euro scheme Rulebook Development Group in developing a draft digital euro rulebook, consisting of a single set of rules, practices and standards for the harmonization of digital euro payments across the euro area.

Banco Central do Brasil (BCB) announced the 13 themes that will be trialed during the second phase of the Drex wholesale central bank digital currency (CBDC) pilots. The first phase involved testing processes such as issuing, transferring and settling digital treasury bonds with tokenized commercial bank deposits with wholesale CBDC utilized for interbank settlements. During the second phase, various financial services will be developed via smart contracts on the Drex platform created by 16 consortia or companies. The platform is a permissioned Ethereum network using Hyperledger Besu. https://www.bcb.gov.br/detalhenoticia/20300/nota

Société Universitaire Européenne de Recherches Financières (SUERF) published a note that draws lessons from the success of India's Unified Payments Interface (UPI). It argues that this success majorly owes to ease of development of applications, easy use and zero-transaction fees for end-users. Further success factors have been strict data protection rules, active partnership with the private sector and adept regulation. The note also discusses the organization of the Indian payment market since the launch of UPI, and the changes in digital payment market in India, with a focus on payment volumes and values. It highlights the increasing investments in the payments market and increased adoption over time, and provides insights into the implications of payment systems for financial inclusion in India, and touches upon some challenges UPI faces.

The U.S. Federal Reserve Bank of New York (NY Fed) published an article that explains what tokenization is and how it works, and looks at how past innovation in financial markets might offer lessons for the future. Multiple successful experiments show efficiencies in a completely tokenized world-where money and securities are all tokenized and settlement can be automated and synchronized with smart contracts. Change takes time, and there may be a period of years where tokenized money would need to interact with traditional securities, or vice versa. As an example, the article points to the Swiss National Bank (SNB) Project Helvetia which initially tried to link the existing payment system to a tokenized securities system, but found that without tokenized cash operational burdens were added, not reduced. Hence, when Helvetia went live, it did so with wholesale CBDC.

The Centre for International Governance (CIGI) published Ori Freiman's paper that explores how Canada can craft a responsible and user-centric approach to its digital loonie project. It emphasizes meaningful public engagement in both technical design and regulatory processes -- drawing from the U.K. and European Union (EU) consultative approaches. It also highlights the importance of responsible personal data handling and clear regulatory language, learning from EU expectations and UK legislative concerns. It concludes with recommendations that span across five key areas, critical to the successful integration of the digital loonie within the fabric of society; the developmental approach, engagement strategy, regulation and consumer protection, regulatory novelty and further research.

Progmat and Datachain, along with Japanese banks MUFG, SMBC and Mizuho, launched Project Pax, that aims to use stablecoins instead of correspondent banks for cross-border payments. However, so that corporate customers can trigger trade payments in the conventional manner via their banks, SWIFT payment messages will be integrated with the distributed ledger technology (DLT) based Progmat tokenized network, so clients don't touch the stablecoins. For cross-chain transactions between different blockchains, the platform will utilize Datachain's middleware and its Inter-Blockchain Communication (IBC) protocol. Prototype testing will start shortly, and Pax members plan to collaborate with other financial institutions, looking to go live in 2025. https://www.datachain.jp/news/progmat-and-datachain-launch-project-pax

The United Nations Development Programme (UNDP) published an article by Heng Wang on potential central bank digital currency (CBDC) design features that drive financial inclusion. From users' perspectives, CBDCs need to (i) provide low-cost and safe electronic payment services and to provide benefits like accessibility for vulnerable people, (ii) align with values, experiences, and needs of potential users, and address concerns like privacy, safety, (iii) simplify access to CBDCs (especially for vulnerable groups), easy access to CBDC wallets, user-friendly interfaces, clear terms and conditions, (iv) be tested comprehensively through pilots and sandboxes to refine their design and ensure safety, and (v) the benefits and costs should be visible and understood by users.

The National Bank of Kazakhstan (NBK) has entered a new phase of its digital tenge project by introducing the concept of programmable money for government spending. The central bank has been actively engaging with the Ministry of Finance, including the Treasury and Tax Authority, to integrate their systems with the digital tenge platform. This will enable pilots for transparent public procurement, social digital vouchers, and other innovative scenarios. The NBK is finding that the combination of electronic procurement, digital treasury, digital tax administration, and smart payment rails can significantly increase the efficiency and transparency of public finances.

The Bank of Russia wants the country's largest banks to support a digital ruble for retail and commercial use by July 2025, after which a full launch will take place. Customers will have to be able to "open and top up digital ruble accounts, make transfers, and accept digital rubles in their infrastructure". The Bank has sent its proposals to amend the relevant laws to the Russian Ministry of Finance. Smaller banks will be given until July 1, 2026 to follow suit, While other credit institutions have to make sure they comply with the requirement by July 1, 2027. https://cbr.ru/eng/press/event/?id=20992

The U.K. Ministry of Justice has introduced new legislation aiming to clarify that digital assets can be considered as "property" in the United Kingdom. It follows an extensive review by the U.K. Law Commission, which drafted the legislation and conducted a consultation. https://cloud-platform-e218f50a4812967ba1215eaecede923f.s3.amazonaws.com/uploads/sites/30/2024/07/Digital-assets-as-personal-property-supplemental-report-and-draft-Bill-web-version.pdf

In collaboration with the Italian Banking Association Innovation Lab (ABI Lab) and 8 of its banking partners, the Banque de France (BdF) settled, in its DL3S platform and in a tokenized representation of central bank money (CeBM), several automated wholesale payments instructed by ABI Lab's Leonidas distributed ledger technology (DLT) platform. Leonidas is an emanation of the highly successful Spunta project launched by ABI Lab in 2020, which now manages 200 million transactions yearly. Leonidas aims at calculating and settling liquid balances between participating banks, and experimenting settlement in central bank money. A similar experiment has been completed with JP Morgan S.E. using its ONYX DLT platform.

The Bank of Canada (BOC) published a paper presents a framework for analyzing different economic models of CBDC ecosystems. For an intermediated CBDC to be successful, central banks will need to develop sustainable economic models where intermediaries and end users derive value and central banks achieve their policy goals. The paper analyzes the trade-offs of three of the eight potential CBDC ecosystem models, each with different levels of central bank involvement in activities of the ecosystem and the usage of different policy levers. The policy levers considered in the framework are control over intermediary access to the CBDC network, prices and quality standards. The analysis suggests that a central bank provision of network infrastructure enables direct control over intermediary access requirements, prices and quality standards upstream. Providing a CBDC wallet increases development costs but allows the central bank to set quality standards downstream and to promote competition. Delegating the network service to a regulated entity reduces costs for the central bank but may limit its strategic autonomy to control upstream pricing and intermediary access.