On 1 July 2022, Gwyneth Nurse and Jon Cunliffe, the co-chairs of the CBDC Engagement Forum, welcomed the members to their fourth meeting. During the meeting, the Bank of England provided a brief summary of the previous month’s Technology Forum meeting. One of the forum members delivered a presentation on potential business models for Payment Interface Providers (PIPs) within a CBDC ecosystem. The presentation outlined that PIPs would be responsible for various activities mentioned in the Bank’s 2020 Discussion Paper on CBDC, including client onboarding, conducting KYC and AML checks, user authentication, consumer protection, and overlay services, among others. The presentation also highlighted the anticipated costs associated with providing these services.
Innovative Genesis 2.0: Green Bonds Linked to Smart Contract Carbon Credits
The BIS Innovation Hub’s Hong Kong Centre places significant emphasis on leveraging cutting-edge technology for green finance initiatives. Building upon the successful proof of concept in 2021, where they tokenized retail green bonds in Project Genesis, the Hong Kong Centre has now completed a project involving the development of two prototypes. These prototypes aim to facilitate the tracking, delivery, and transfer of digitized carbon forwards, also known as mitigation outcome interests (MOIs). The project was a collaborative effort involving the Hong Kong Monetary Authority, the UN Climate Change Global Innovation Hub, and other public and private stakeholders. It explores the use of blockchain, smart contracts, and related technologies.
Summary of the CBDC Technology Forum Meeting in June 2022
The meeting took place on 9 June 2022, with Tom Mutton (Chair) welcoming the Members to the fifth CBDC Technology Forum meeting. During the meeting, the Bank provided a brief overview of the May 2022 CBDC Engagement Forum meeting. One of the Forum Members presented a perspective on the importance of offline functionality as a key feature of CBDC. The presentation highlighted the significance of offline settlement finality in a world where the use of physical cash is decreasing. The presenter emphasized that offline settlement finality offers advantages in terms of availability, throughput, and operational infrastructure costs, particularly when compared to existing real-time (online) settlement systems that face significant challenges. The presentation also acknowledged that without offline finality, any CBDC system would struggle to differentiate itself from other real-time payment systems. Additionally, the presenter mentioned potential drawbacks of offline systems, such as increased risks of counterfeiting and double spending due to the added technical complexity.
The Future of Finance: Exploring the Impact of the Digital Euro
Fabio Panetta, Member of the Executive Board of the ECB, addressed the Committee on Economic and Monetary Affairs of the European Parliament to discuss the progress made in the digital euro project. The introduction of a digital euro would allow Europeans to use public money for digital payments, similar to how they use cash for physical payments. This is important for two reasons: to preserve the role of public money in the payments system and to contribute to Europe’s strategic autonomy and economic efficiency. The design of the digital euro aims to make it attractive to users and give it legal tender status. Privacy, financial inclusion, and fostering digital innovation are also key considerations. The implementation of the digital euro seeks to minimize time to market, costs, risks, and ecological footprint. Panetta also highlighted the potential impact of a digital euro on the financial system, emphasizing the need to prevent the substitution of excessive amounts of bank deposits with digital euro and to address risks to monetary policy transmission and financial stability. The design of the digital euro will include tools such as quantitative limits on individual holdings and tiered remuneration. The goal is to strike a balance between financial stability and the attractiveness of the digital euro. Panetta stressed the importance of collaboration between public and private parties to create a pan-European digital payment solution and the role of financial intermediaries in distributing the digital euro. The introduction of a digital euro would contribute to an efficient monetary and payment system in Europe, strengthen strategic autonomy, and promote European-governed payment services. The regulatory framework for both public and private forms of money in the digital age will be crucial, and Panetta will continue to report on progress in the investigation phase.
The Impact of Digital Currencies on Energy Usage
This content discusses the impact of design choices on the energy consumption of digital currencies, whether in the form of crypto assets or central bank digital currencies (CBDCs). The paper outlines the main components and technological options that influence the energy profile of digital currencies, drawing upon academic and industry estimates. A comparison is made between different digital currencies and existing payment systems to determine their energy efficiency. The findings suggest that the ability to control participation and the consensus algorithm are key factors affecting energy consumption in distributed ledger technologies. While crypto assets such as Bitcoin are considered resource-intensive, alternative designs could potentially be more energy efficient than current payment systems.
Climate Risk Platform “Project Viridis” for Financial Regulators
Project Viridis is a climate risk platform that aims to integrate regulatory data with external climate data sources. The goal is to provide insights into climate-related financial risks. With the increasing challenges posed by climate change, central banks, regulators, and supervisors have been focusing on understanding the impact of climate-related risks on financial institutions and stability. However, the lack of globally consistent and comparable climate data presents a major challenge. Integrating climate-related risk analysis into financial stability monitoring is particularly difficult due to the constant changes and complex dynamics associated with climate change. To address this challenge, the Singapore Hub Centre and the Monetary Authority of Singapore have launched Project Viridis. This project builds on the previous work of Project Ellipse and aims to utilize existing regulatory data and integrate it with external climate data sources. By applying advanced analytics to these integrated data sources, authorities can identify material climate risk drivers that may impact the safety and soundness of financial institutions and the stability of the financial system.
Adapting Central Bank Balance Sheets to a Digital Currency World: Andrew Hauser Explores New Strategies for Old Dogs
Tether, often hailed as the foundation of the cryptocurrency ecosystem, experienced a sudden and unsettling shift. This event caused the stability of Tether, and by extension the entire cryptocurrency market, to be in a precarious state. The sudden movement of Tether raised concerns and uncertainty among investors and market participants. This incident highlighted the potential vulnerabilities within the cryptocurrency ecosystem and the need for increased transparency and regulation. As a result, market participants closely monitored the situation and its potential impact on the overall stability and trustworthiness of the cryptocurrency market.
Adapting Central Bank Balance Sheets for the Digital Currency Era: Insights from Andrew Hauser
The Industrial Revolution was a period of major industrialization that took place during the late 18th and early 19th centuries. It was characterized by the shift from hand production methods to machine-based manufacturing, as well as the development of new technologies and the growth of factories. This period brought about significant changes in many aspects of society, including the economy, transportation, and social structure. The Industrial Revolution had a profound impact on the global economy, leading to increased productivity, urbanization, and the rise of capitalism. However, it also resulted in negative consequences such as poor working conditions, environmental pollution, and social inequality. Overall, the Industrial Revolution marked a turning point in history and laid the foundation for modern industrial societies.
Incorporating Oversight: Strategies for Integrating Regulation in Blockchain Finance
The paper titled “The Socioeconomic Drivers of US Cryptocurrency Investments” is a BIS Working Paper (No. 951) published in July. This study aims to understand the factors that influence cryptocurrency investments in the United States from a socioeconomic perspective. The research focuses on analyzing the various drivers that contribute to the growth and adoption of cryptocurrencies in the US market. By examining the socioeconomic factors, the authors aim to provide insights into the motivations behind individuals’ decisions to invest in cryptocurrencies and how these investments are influenced by economic, social, and cultural factors. The findings of this study could be valuable in understanding the dynamics of cryptocurrency investments and their implications for the US economy.
Exploring the Impact of Bitcoin on Banking: A Study on Institutional Acceptance of Cryptocurrencies
Cryptocurrency markets are experiencing significant changes as institutional adoption continues to grow. Institutions, such as banks and investment firms, are increasingly recognizing the potential of cryptocurrencies and are actively participating in the market. This increased institutional involvement has brought more stability and credibility to the cryptocurrency space, as well as attracting more mainstream investors. As a result, the market has become more regulated and transparent, with stricter compliance standards being implemented. This institutional adoption has also led to the development of new financial products and services, such as cryptocurrency custody solutions and exchange-traded funds (ETFs). Overall, the growing institutional adoption of cryptocurrencies is reshaping the landscape of the cryptocurrency markets, bringing both opportunities and challenges.