Christian Schäfer has been appointed as the digital euro scheme rulebook manager, responsible for leading the development of the digital euro rulebook. As the chair of the Rulebook Development Group, he will report to the digital euro programme manager in the Directorate General Market Infrastructure and Payments (DG-MIP). The Eurosystem has been exploring different options for the distribution of a digital euro since the ECB Governing Council’s decision to launch the investigation phase of the project. After careful consideration, a digital euro scheme has been identified as the most suitable approach to achieve the objectives of a digital euro, leveraging the strengths of both the public and private sectors. In order to facilitate this, DG-MIP sought a senior expert from the payments industry to manage the work and coordinate the drafting of a potential digital euro scheme rulebook, which will establish the rules for payment transactions involving a digital euro.
The Final Showdown for Bitcoin
The value of Bitcoin has experienced significant fluctuations, peaking at $69,000 in November 2021 before dropping to $17,000 by mid-June 2022. Since then, it has remained around $20,000. However, this apparent stabilization may just be a temporary pause before Bitcoin becomes irrelevant. The cryptocurrency was designed to overcome the existing monetary system but has several limitations as a means of payment, including being slow, expensive, and cumbersome for real-world transactions. It also lacks the characteristics of a traditional investment and is primarily driven by speculation. Bitcoin has benefited from waves of new investors, and large investors have incentives to maintain the hype around it. Regulation of cryptocurrencies has been slow and inconsistent, with different jurisdictions proceeding at different paces. The belief that innovation should be encouraged at all costs has influenced the regulation of Bitcoin, despite its limited societal value. The financial industry’s promotion of Bitcoin investments may have short-term benefits but could lead to reputational damage in the long run. It is also important to note that Bitcoin has a significant environmental impact, consuming vast amounts of energy and producing substantial e-waste. Overall, Bitcoin’s future as a payment system or investment is questionable, and it should not be legitimized or promoted by regulators and financial institutions.
Exploring Cyber Resilience, Scalability, and Privacy in a Prototype CBDC: Project Tourbillon
Tourbillon, a project launched by the BIS Innovation Hub’s Swiss Centre, aims to improve cyber resiliency, scalability, and privacy in a prototype Central Bank Digital Currency (CBDC). Central banks have identified these as core features of CBDCs, but designing them involves trade-offs. The project combines technologies such as blind signatures and mix networks with the latest research on cryptography and CBDC design. It focuses on achieving cyber resiliency through quantum-resistant design and cryptography, scalability through a separate transaction architecture, and privacy for the payment sender while still complying with regulatory and compliance checks. The project’s conclusions will be relevant for both wholesale and retail CBDC systems, with the goal of completing the prototype by mid-2023.
Chang Yong Rhee’s Insights on Central Bank Digital Currency: Lessons from a Recent Experiment
In order to ensure smooth operations, it is important to establish a system of cooperation or division of roles. This system allows the account-holder, who is the user, to effectively store, send, and receive cryptocurrency. By implementing this approach, the account-holder can maintain control over their cryptocurrency assets while also benefiting from the convenience and security provided by the platform. This cooperation or division of roles ensures that the user has the necessary tools and capabilities to manage their cryptocurrency transactions efficiently.
mBridge Project: Fostering Economic Connections with CBDCs
The content is a summary of a joint report titled “Project mBridge: Connecting economies through CBDC” published in October 2022. The report is a collaboration between the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China, and the Central Bank of the United Arab Emirates.The report highlights the limitations of the current payment system for cross-border financial flows, including high costs, low speed, lack of transparency, and operational complexities. It proposes the use of multiple Central Bank Digital Currency (CBDC) arrangements to improve the system. These multi-CBDC platforms would directly connect jurisdictional digital currencies in a single technical infrastructure, enabling immediate, cheap, and secure cross-border payments with universal access.
Statement from the International Monetary and Financial Committee
Christine Lagarde, President of the European Central Bank (ECB), delivered a statement at the forty-sixth meeting of the International Monetary and Financial Committee during the IMF Annual Meetings on October 14, 2022. Lagarde highlighted that global growth momentum has slowed due to high energy prices and geopolitical uncertainty. The war between Russia and Ukraine has led to higher energy prices and disrupted global food supply chains, causing inflationary pressures and concerns about food security. Although pandemic-related restrictions have eased, they may still impact global economic activity through supply-side disruptions. Inflation in the euro area remains high and is expected to stay above the ECB’s target for an extended period. The ECB will continue its monetary policy normalization path, raising interest rates based on a data-dependent approach. Lagarde emphasized the importance of fiscal policy in protecting vulnerable groups from the cost-of-living crisis while preserving debt sustainability and avoiding inflationary pressures. Euro area GDP growth is expected to significantly slow down in the second half of 2022 and early 2023, with downside risks primarily related to the war in Ukraine. Inflation has continued to rise, driven by energy and food price inflation, and is expected to remain above target in 2023 and 2024. The financial stability outlook has deteriorated due to weaker economic growth, higher inflation, and tighter financing conditions, posing risks to the debt servicing capacity of companies and households. The euro area banking sector has sound capital levels but faces uncertainties in future profitability and an increase in credit risk. Lagarde highlighted the need for further progress in global financial reforms, particularly in enhancing the resilience of the non-bank financial sector. She also emphasized international support for Ukraine and vulnerable countries, welcoming the approval of emergency financing and the new “food shock window” to address the current food crisis. Lagarde acknowledged the IMF’s work on climate change and the ECB’s action plan to incorporate climate change considerations into its monetary policy framework. The ECB is also supporting the G20 initiative to improve international payments and conducting an investigation into the potential design and distribution of a digital euro. International cooperation on digital currencies remains essential.
Leveraging our assets: the impact of public and private sectors in the digital euro landscape
Fabio Panetta, Member of the Executive Board of the European Central Bank (ECB), addressed the Committee on Economic and Monetary Affairs of the European Parliament in Brussels on September 29, 2022. He expressed his satisfaction with the progress made in the investigation phase of the digital euro project, which is about to enter its second year. Panetta highlighted the previous discussions on privacy, use cases, and offline functionality of a digital euro, as well as its potential impact on financial stability. Based on valuable input from stakeholders, the ECB’s Governing Council has endorsed a set of foundational design choices, including options to replicate cash-like features and enhance privacy for low-value transactions. The design will also incorporate tools to limit excessive use of the digital euro as an investment. Panetta emphasized that the approval of these design choices does not determine whether the project will move to the realization phase or if a digital euro will ultimately be issued. He assured ongoing collaboration with the European Parliament during the legislative discussions on a regulation for the digital euro.
Exploring Central Bank Digital Currencies in Asia and the Pacific: Insights from a Regional Survey
This summary highlights the findings of a survey conducted in 34 Asian economies regarding central bank digital currencies (CBDCs) and crypto assets. The survey reveals that there is a wide range of development stages among countries, but the presence of private crypto assets has prompted the consideration of CBDCs. While many countries are currently involved in research and development, with some even conducting advanced testing and pilots, only a few are expected to issue CBDCs in the near-to-medium term due to existing uncertainties. Nonetheless, the experiences of countries that have made progress in this area offer valuable insights for others embarking on a similar journey.
Decoding Central Bank Digital Currency in the Wholesale Market
Fabio Panetta, Member of the Executive Board of the ECB, delivered a speech at a symposium hosted by the Deutsche Bundesbank, discussing the implications of rapid technological change for payment systems. He emphasized the need to preserve stability in the monetary and payments systems, which is the objective of the digital euro project. The digitalization of finance has led to the emergence of fintech start-ups, big techs entering the payments market, and the boom and burst of the crypto universe. Panetta highlighted the importance of modernizing the payment infrastructure to adapt to changing technologies and preferences, while also preserving the role of central bank money as a safe asset. He clarified the concept of wholesale central bank digital currencies (CBDCs), stating that they have existed for decades and are not synonymous with distributed ledger technology (DLT). Panetta discussed the potential of DLT in improving wholesale settlement services, but also highlighted the need to consider the potential drawbacks, such as energy inefficiency and governance concerns. The Eurosystem is exploring ways to ensure that central bank money retains its role as the settlement asset for wholesale transactions, including creating a bridge between DLT platforms and central bank infrastructures or launching its own DLT platform for settlement in central bank money. Regardless of the technology used, the goal remains to ensure the stability of the monetary system.
Introducing the New CBCS Corporate Approach: Enhancing Governance for Optimal Results by Richard Doornbosch
significant financial loss and potential damage to the reputation of the exchange. This can result in a loss of trust from customers and a decline in the overall market confidence in cryptocurrencies. Additionally, the hacked exchange may be required to compensate affected customers, further exacerbating the financial impact. Furthermore, the stolen funds may be used for illegal activities, which can have broader societal implications. Therefore, it is crucial for cryptocurrency exchanges to prioritize security measures and implement robust systems to protect customer holdings and prevent hacking incidents.