Blockchain technology, often associated with cryptocurrencies, has gained significant attention in recent years. However, its inner workings remain a mystery to many. This overview aims to shed light on the various applications and obstacles of blockchain, drawing from available sources. Initially, blockchain emerged as a component of digital ledger technology (DLT) in the late 20th century. DLT functions as a digital database, akin to a ledger, that allows for simultaneous usage and sharing of information. This revolutionary technology has the potential to transform various industries, but it also presents challenges that need to be addressed for its widespread adoption.
April 2023 Plenary Round-up: Key Highlights and Discussions
Key points from the April plenary session included discussions on the imperative for an EU strategy concerning relations with China and the plight of children forcibly deported from Ukraine. Additional topics covered energy storage, social rights for striking non-EU lorry drivers, the approval of cyber-package proposals, the concept of a digital euro, and the Dieselgate scandal involving defeat devices in cars to bypass pollution controls. Members also engaged in debates about a potential EU global health strategy, the universal decriminalization of homosexuality, the IPCC report on climate change, and the EU’s action plan against trafficking in cultural goods. Statements were made on the situation in Peru, European solidarity in the Mediterranean, and EU-Iraq relations. President Roberta Metsola addressed the 80th anniversary of the Warsaw Ghetto Uprising, while Luxembourg’s Prime Minister, Xavier Bettel, participated in the ‘This is Europe’ debate.
Transforming Transactions with Project Meridian’s Synchronization
Project Meridian, the first experiment conducted by the BIS Innovation Hub London Centre, has been concluded by the Bank for International Settlements (BIS) and the Bank of England. The project explores the concept of synchronisation, where transactions settle using central bank money in a real-time gross settlement (RTGS) system. This synchronisation is achieved through a new entity called the synchronisation operator, which uses distributed ledger technology (DLT) to connect the central bank’s settlement system with other financial market infrastructures and ledgers. The goal is to reduce transaction costs and risks while increasing efficiency. The Meridian prototype demonstrates how synchronised settlement in central bank money can be applied to different asset classes, such as housing transactions, and offers a standard way for synchronisation operators to connect multiple types of asset ledgers to an RTGS system. The project’s insights will contribute to the analysis of synchronisation’s benefits and shape the design of future settlement systems.
Empowering Climate Risk Analysis with Project Gaia
Project Gaia is a collaborative effort between Eurosystem project partners, including the Bank of Spain, the Deutsche Bundesbank, and the European Central Bank. The project aims to create an open, web-based tool that will assist analysts in efficiently searching for corporate climate-related disclosures. By utilizing cutting-edge technologies, such as machine learning and large language models like GPT, Project Gaia seeks to extract relevant information from non-standardized PDF reports. This tool will address the need for high-quality climate-related data, as central banks and financial regulators increasingly recognize the importance of assessing the financial stability risks posed by climate change. Currently, climate-related data is scattered across various documents, making it challenging to access and utilize. The lack of standardized disclosures further complicates the process. Project Gaia will explore the standardization of globally recognized ESG disclosures and develop a data-agnostic model that meets the needs of the central banking community. By utilizing natural language processing and other advanced tools, unstructured data will be made more usable, facilitating climate risk assessments. The project will result in a repository of textual corporate reports, a search engine for specific sustainability-related disclosures, a graphical user interface for accessing the climate-related database, and a final report summarizing the project’s findings and lessons learned.
“Exploring the IMF’s Strategy for Enhancing Central Bank Digital Currency Capabilities”
The global central banking community is actively exploring Central Bank Digital Currencies (CBDCs), which could have a significant impact on domestic and international economic and financial stability. More than 40 countries have sought assistance from the IMF for CBDC capacity development (CD). The current efforts of the IMF in this area have focused on facilitating peer learning and developing analytical foundations to provide advice to member countries. The aim of the CD missions is to assist country authorities in addressing questions related to CBDCs. As more countries conduct experiments and gather empirical evidence, the IMF’s CD efforts will evolve to provide more tailored advice based on country-specific circumstances and grounded in empirical and analytical work. This will also strengthen the connection between CD and surveillance. To address frequently asked questions about CBDCs, the IMF proposes a multi-year strategy that includes the development of a CBDC Handbook. This handbook will document emerging lessons, analytical findings, and policy views. The paper outlines the IMF’s approach to CBDC CD, summarizes the emerging questions and challenges faced by member countries, and introduces the CBDC Handbook by explaining its scope and governance structure.
Funds Congress Speech: Insights from Economic Secretary Andrew Griffith MP
The Economic Secretary to the Treasury recently gave a speech at the Funds Congress, where he discussed the UK Asset Management industry and its role as a prominent global player. In his address, he emphasized the industry’s significant contribution to the economy and highlighted its potential for further growth and success. The Economic Secretary acknowledged the industry’s ability to attract international investment and its reputation for providing high-quality financial products and services. He also expressed the government’s commitment to supporting the industry through various initiatives and policies, aiming to maintain the UK’s position as a leading player in the global asset management sector.
Summary of the CBDC Engagement Forum – March 2023
On 2 March 2023, Gwyneth Nurse and Jon Cunliffe, the co-chairs, greeted the Members at the fifth meeting of the CBDC Engagement Forum. During the meeting, the Bank of England and HM Treasury provided an overview of the Consultation Paper and the accompanying Technology Working Paper, which were released on 7 February 2023. The presentation covered various aspects, including the key points, motivations, conceptual architecture, and main design features of the proposed UK CBDC, known as the digital pound. The Members expressed their appreciation for the publication of these papers. Some Members expressed interest in understanding how the implementation of the digital pound would align with other ongoing payment initiatives, such as the New Payments Architecture. They also highlighted the importance of close collaboration with industry to ensure effective coordination.
Cryptoasset Promotions: Navigating Challenges and Regulatory Considerations
The government is seeking public input on a policy proposal to regulate the promotion of specific types of cryptoassets. The consultation aims to gather opinions and feedback from various stakeholders on how best to regulate the advertising and promotion of these digital assets. This move comes as the government recognizes the need for consumer protection in the rapidly evolving cryptocurrency market. By engaging in this consultation process, the government hopes to develop effective regulations that strike a balance between promoting innovation and safeguarding investors. Public participation in this consultation is crucial to shaping future policies in the cryptoasset industry.
Facilitating Immediate Cross-Border Transactions: The Project Nexus
More than 60 countries currently have instant payment systems that allow for quick money transfers within seconds. However, sending money internationally remains slow and costly. The solution lies in connecting these domestic payment systems globally, which would enhance the speed, affordability, and transparency of cross-border payments.
Nexus serves as a standardized platform to facilitate the connection between these systems. Instead of payment system operators having to build custom connections for each new country they connect to, they can make a single connection to the Nexus platform. This single connection enables fast payment systems to reach all other countries within the network. By leveraging Nexus, the growth of instant cross-border payments can be significantly accelerated.
In 2022, a working prototype of Nexus was developed and used to connect the test systems of three established IPSs: the Eurozone’s TARGET Instant Payment Settlement (TIPS) system, Malaysia’s Real-time Retail Payments Platform (RPP), and Singapore’s Fast and Secure Transfers (FAST) payment system. The Nexus project’s overview report provides insights into Nexus and shares the lessons learned from this proof-of-concept.
To aid payment system operators, banks, payment service providers, and FX providers in understanding the process of connecting to Nexus, a technical guide has been provided. This documentation outlines the business models for each participant as well as the processes, messages, and APIs utilized.
In the next phase of work, the BISIH Singapore Centre is collaborating with the central banks of Indonesia, Malaysia, the Philippines, Singapore, and Thailand to connect their domestic payment systems. The goal is to make cross-border payments faster and more affordable.
The webinar extract from April 5th, 2023, explains the problem that Nexus solves, highlights the proof of concept, and shares valuable lessons learned for the payments industry.
Implications of Central Bank Digital Currencies on Monetary Policy: A Comparison of Conventional and Islamic Banking Systems in Different Jurisdictions
Central bank digital currencies (CBDCs) offer numerous advantages, but their design is crucial to avoid unintended consequences, especially for monetary policy. The issuance of an unremunerated CBDC or a wholesale CBDC does not alter the objectives or operational framework of monetary policy. However, CBDCs can have negative spillover effects on monetary policy by impacting retail, wholesale, and cross-border payments. These effects include changes in money velocity, disintermediation of bank deposits, volatility of bank reserves, currency substitution, and capital flows. Countries with banking systems dependent on small retail and demand deposits, low digital payment usage, and weak macro fundamentals are particularly vulnerable. Proposed CBDC design features like caps on holdings and non-remuneration can help mitigate disintermediation risks, but they are not sufficient. Central banks must thoroughly identify and address unintended macroeconomic risks.