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6 Central Banks Form Digital Currency Use Case Working Group

Six central banks have formed a working group with the Bank of International Settlements (BIS) to share findings as each investigates potential cases for central bank digital currencies (CBDCs).

The group will be comprised of the central banks of Sweden, Canada, Switzerland, the U.K. and Japan, as well as the European Central Bank (ECB) and the BIS. Announced by all seven members Tuesday, each institution will continue assessing the “economic, functional and technical design choices, including cross-border interoperability” of CBDCs and will sharing any findings.

The members will also work closely with the Committee on Payments and Market Infrastructures (CPMI), an international standard-setter for payments and clearing, and the Financial Stability Board (FSB), a recommendations body for the global financial system, which has previously warned about the potential risks associated with stablecoins.

The working group will be co-chaired by the newly appointed head of BIS’ Innovation Hub, Benoît Cœuré, and Jon Cunliffe, the Bank of England’s deputy governor and CPMI chair. Senior representatives of other bank members will also be included.

Cœuré took over as head of the Innovation Hub, in part, to lead BIS’ efforts in exploring central bank currencies. He previously told reporters in November the ECB was evaluating the future role for CBDCs when he had been a member of the bank’s Executive Board. He has also chaired a G7 working group investigating the global impact of stablecoins.

Although broadly supportive of private initiatives in this area, Cœuré famously referred to bitcoin as “the evil spawn of the financial crisis” in late 2018.

Although Christine Lagarde, then head of the International Monetary Fund, first called on central banks to begin seriously exploring digital currencies in late 2018, interest in CBDCs only really increased following the Libra announcement last summer. Since then, the prospect of a private currency initiative has accelerated central bank research and development into digital currencies.

The central bank of Thailand announced in May it was moving ahead with its own digital currency project. Bank of England (BoE) Governor Mark Carney even suggested a digital currency alternative could replace the U.S. dollar as the global reserve currency. China, which wants to beat Libra to market, is reported to be full steam ahead on its own CBDC.

The new seven-member working group is not the first instance of central bankers working together on distributed ledger technology (DLT). Since 2016, the ECB and the Bank of Japan have worked together to release collaborative research reports investigating how DLT can be integrated into the global financial infrastructure.

The BoE has also trialled various cryptocurrencies initiatives before, but advances in blockchain technology may mean this “now might be the right time to try again,” according to Bradley Rice, senior associate at law firm Ashurst.

A perfect storm of global rivalries, the (possible) waning of the U.S. dollar and private alternatives like Libra mean it makes “perfect sense” for central banks, like the BoE, to become more proactive in researching digital currencies before it becomes an “existential crisis,” he added.

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Secretive Digital Fiat Project Emerges With New Partner as CBDC Chatter Grows

As central bank digital currencies (CBDCs) march into view, a privately-run version of digital fiat is adding a key tech partner.

Utility Settlement Coin (USC), the blockchain-based payments system involving commercial and central banks, will be working with ConsenSys-backed startup Adhara, CoinDesk has learned. Adhara was behind Project Khokha, which used enterprise blockchain client Quorum to see how zero-knowledge proofs performed with the South African Reserve Bank (SARB).

The move is one of only a handful of public overtures by Fnality, the company that oversees the development of USC. Fnality raised $64.5 million in June 2019 from 14 shareholders including banking giants Barclays, Santander, BNY Mellon, ING and others.

“We think adding Adhara is going to really help us. They’ve got experience of doing some of this type of stuff in other places,” said Fnality CEO Rhomaios Ram.

The sensitive nature of Fnality’s discussions with central banks means it likes to keep a low profile. To date, USC’s only known technology partner was London-based Clearmatics Technologies. (Clearmatics, which uses a fork of ethereum, played a key part in the inception of USC, along with Swiss lender UBS, back in 2015.)

“At Fnality we are pursuing a multi-partner strategy,” Ram said. “Part of that is associated with risk and part of that is associated with we want more people involved in this ecosystem.”

The USC is commercial bank money, as opposed to a pure CBDC, which is issued and backed by the domestic central bank and carries sovereign risk. However, the design of USC allows it to carry some of the characteristics of central bank money because the cash collateral backing the USC is held at a domestic central bank.

As stated in a mandate to its shareholder commercial banks, Fnality’s plan is to represent five currencies on its blockchain – USD, euro, JPY, GBP and CAD – and solve the so-called “cash on ledger” problem, allowing wholesale banking transactions to happen instantly, cross-border and 24/7.

An industry source close to Fnality said adding Adhara makes sense because the work the startup has already done in South Africa could evolve into a Fnality payment system. The Swiss National Bank (SNB) was also mentioned by the source as a possible custodian of Fnality’s tokenized cash.

Asked if SARB was going to be in the cards when it comes to including more central banks within Fnality, Ram said: “We can’t look ahead that far. Our mandate from our investors is to focus on the five [currencies] and then, depending on how successful we are with those five, we will come to the others as and when, depending on what our investors say at that time.”

Ram acknowledged that CBDCs have risen on the agenda since his company’s June 2019 fundraising, adding that Fnality has held “very casual, informational conversations with some people,” but he had no idea what their intentions were or whether it was just educational. 

Neither SARB nor SNB returned requests for comment.

The Libra effect

The landscape has changed dramatically regarding central banks and digital currencies thanks to Facebook’s audacious plans for its Libra stablecoin. 

A key question for any large-scale, privately-backed initiative in this area now is whether Libra was a good or a bad thing.

A positive scenario is that central banks now move more quickly on initiatives like USC; another possible outcome is the central banking fraternity actively discouraging private-sector experiments from encroaching any further into the territory of the state. 

Ram agreed that Libra cut both ways. “It was literally both good and bad,” he said. “It was good because obviously these types of things gather a lot of attention and people that didn’t take us seriously before started to. But at some level, if you are not in the detail of this, it all looks the same. That can be a good or bad thing.”

John Whelan, Santander Bank’s innovation chief who is also on the board of Fnality, said it was not a question of competing with CBDCs at all.

“We see these things as entirely complementary and it’s quite likely given the regulations and the impact potentially on monetary policy … that something like Fnality will come into existence [before CBDCs]. But they are totally compatible,” said Whelan.

In light of Libra, Ram was philosophical about possible outcomes for Fnality’s ambitious plan to tokenize fiat held in the coffers of major central banks. 

“If the only thing that this [Libra] does is force the conversation and force some speed up on CBDCs – from a personal perspective that might not be great – but from the investors’ perspective that might still work for them [Fnality’s shareholder banks],” he said.

2020 vision

Fnality’s task, to create a regulatory framework and rulebook that five large central banks can digest, is ambitious in itself, nevermind coordinating the build of the various parts of the stack plus all the integration work that has to be done. 

A second source familiar with the project said Fnality’s strategy regarding its contracting framework and execution plan seemed “quite confused.”

“Whenever you have a lot of people involved in something – and they’ve grown their headcount quite aggressively – if you don’t have a clear program and execution plan at the beginning, there’s a natural tendency to kind of end up going all over the place,” the source said.

Regarding the scale of the organizational challenge, Ram said: “That is kind of the special sauce of Fnality, organizing all of these different stakeholders. That’s what we are aiming to be good at – that and driving all the legal and regulatory.”

The plan announced with last year’s fundraising was to come out with one of the main five currencies on the network by the end of 2020. 

“We have got no reason to change our minds yet. So all looks still possible,” Ram said. 


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Should Japan Launch Its OWN Digital Currency?

  • More and more countries around the world are starting to get interested in central bank digital currencies.
  • China is a big name in this and it seems that Japan is taking some influence from them as well.

More and more countries around the world are starting to get interested in central bank digital currencies. China is a big name in this and it seems that Japan is taking some influence from them as well. The leaders of the bank of Japan, Ministry of Finance and Financial Services Agency, have had several meetings which help determine whether the nation should become the next country which could start adopting digital currency backed by the government.

Such issues in question include how the Japanese government is helping to embrace a central digital currency and its impact on the global economy. Despite the several risks that are associated with many crypto platforms, the United States dollar is still to this day the de facto international currency.

Cryptocurrency is often associated with Japan because this is where it was born. When it comes to new technologies, the nation seems to be ahead of the game and with blockchain, it seems to be even further so. It’s a country that would surely benefit from adopting a digital currency like many other countries which are in the same boat, it is facing similar concerns over hacking and financial crimes though.

The latest meeting that talked about these problems was held last month. Some of those in attendance include the vice minister of finance for international affairs, FSA vice-minister for international affairs and the BOJ executive director for international affairs.

The Japanese central bank specifically started plans to pay for such issues which is why Japan is talking about digital currency. Haruhiko Kuroda, one of the governors in the nation, has previously said that there is no demand for a state-sanctioned cryptocurrency however, he can see the benefits. 

He further added:

“We are advancing research and study from the technical and legal perspectives so that we will be able to move in an appropriate way when there is a growing need.”

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Facebook Libra’s exec highlights financial inclusion credentials as 2020 awaits

Facebook‘s stablecoin Libra, slated to launch sometime this year, was in the news lately after months of silence. This comes months after the stablecoin excited the community after its whitepaper, released in June 2019, formulated the intention to bank the unbanked. It also claimed that Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.

Calibra‘s digital lead Ben Maurer is the latest to comment on Libra’s developments. Maurer recently gave a presentation on the topic ‘The Libra Blockchain and Move: A Technical Introduction,’ at the Stanford Blockchain Conference 2020 and spoke about Libra’s current status and its goals, once launched.

Maurer started off by stating that Libra’s mission is to solve the lack of access to financial services. He went on to note how approximately 1.7 billion adults globally are unbanked, although they had access to modern technology. With that put in perspective, several players in the industry have also speculated that Libra might have more chances of success in developing economies, like the ones in Africa and Asia.

There’s some foundation to this speculation as many of these economies, especially the ones in Africa, are in bad shape, with many citizens rapidly losing faith in the stability and value sustainability of their country’s fiat money. Owing to this, many are turning to crypto. Facebook, often viewed as a pseudonym for the Internet in Africa, is well-positioned to make a mark in the crypto-space on the continent in light of its reputation, reach and the fact that apps like Facebook Messenger are widely used.

Another point that Maurer noted was how migrants are losing around $25 billion every year due to remittance transaction fees. Talking about his recent encounter with someone who had to pay a huge amount of money at a physical store while sending money to his family, he stated,

“As a technologist, we should be uneasy that someone has to go to a store and pay a fee to send money. Libra is trying to solve this problem by building a new global payment system powered by blockchain.”

Maurer concluded his presentation by stating that Libra could be a solution to all these problems as it can offer both users and developers direct access to its platform.

He added,

“With Libra, users don’t have to rely on intermediaries to store funds. Libra offers direct access to the platform and creates a more inclusive system. Developers can also access the platform and build applications to help provide services for people not included in today’s financial system.”

Maurer wasn’t the only crypto-personality to comment on Libra, however. Galaxy Digital CEO Michael Novogratz had stated that Facebook’s Libra was a kick in the stomach for slow regulators, such as the ones in the United States. Phil Dettwiler, Head of Custody Storage and Transaction Banking at SEBA Bank AG, had also opined that Libra had instigated fear of central banks losing monetary policy control.

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