Shaping the Future of Banking: Standard Chartered and PwC China Release White Paper on Central Bank Digital Currency”

Standard Chartered, in collaboration with PwC China, have co-published a comprehensive white paper detailing the potential advancements in the future of banking, courtesy of Central Bank Digital Currency (CBDC). This report highlights the benefits that CBDCs could offer in retail sectors, international trade, and supply chain finance, as well as their potential to enhance customer loyalty programs and provide innovative supply chain financial solutions.

The study underscores that CBDCs are particularly beneficial for simple retail operations initially. However, to expand their utilization in trade and supply chain finance areas, significant evolution in technology and international collaboration is necessary. The successful execution of this can provide immense advantages, especially to small and medium-sized enterprises. The report identifies four pillars to support these developments: smart contract execution, efficient data management and sharing, seamless integration with other payment ecosystems, and robust local and international regulatory backing.

The Greater Bay Area encompassing Guangdong, Hong Kong, and Macao is proposed in the report as an ideal location for pioneering CBDC’s innovative applications, particularly those with global growth potential. Within this context, the paper delves into the programmable aspects of CBDCs, examining their developmental prospects and pinpointing practical, innovative application scenarios.

One key discussion in the paper pertains to retail customer loyalty programs. It proposes that programmable CBDCs can disrupt traditional point-based systems, waking up a massive amount of “inactive” points and promoting “universal redemption” in multiple scenarios, including cross-border ones, thus increasing consumer activity and spending.

Deputy Head of Standard Chartered China and General Manager of Personal, Private and SME Banking, Li Feng, has praised CBDCs’ transparent nature and programmable capabilities, which he believes can foster stronger connections within fragmented information sources in the present industry value chain. This, in turn, could catalyze innovation through open collaboration and streamline the financial system to meet real economy needs more effectively.

The report also emphasizes that programmable CBDCs could significantly boost trade and supply chain transactions. Many SMEs currently struggle to secure financing due to their size, or lack of collateral and credit history. Supply chain finance solutions often face standardization and interoperability issues in cross-industry and cross-border operations. The combination of trade and payment information with CBDCs, programmed according to the relevant rules and terms, could be a revolutionary tool in trade finance. This could enable commercial banks, key enterprises, and SME suppliers to navigate credit transparency and funds circulation more efficiently and securely.

Ricky Kaura, Head of Transaction Banking for Standard Chartered Bank in the Asia Pacific, Africa, and Middle East regions, notes that CBDCs hold the potential to mitigate these challenges through innovative models, providing better liquidity support for SMEs, thus promoting long-term stability and sustainability within the supply chain.


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Canadians Consulted on Digital Currency

The Bank of Canada (BoC) has launched a public consultation to seek input from Canadians on the possible creation of a digital Canadian dollar. The consultation will run from May 8 until June 19, and the bank has emphasized it is not currently developing a central bank digital currency (CBDC) nor looking to replace cash. Rather, it is exploring the idea of a digital Canadian dollar as the world becomes increasingly digital. Senior Deputy Governor of the BoC, Carolyn Rogers, stated that the bank is seeking to hear from Canadians what they value most in the design of a digital dollar. The input will help the bank make decisions relating to the security and reliability of a potential digital currency, as well as ensuring it meets the needs of Canadians.

The BoC highlighted that it is important to consider the possibility of a digital Canadian dollar as cash usage declines, potentially excluding many Canadians from the economy. The bank also acknowledged the potential risks posed by the use of foreign CBDCs or cryptocurrencies, which could threaten the stability of the Canadian financial system.

The consultation’s questionnaire covers a wide range of topics, including payment methods used in the last month, how often the respondent would potentially use a Canadian CBDC, and what design features they would like to see. It also asks whether the respondent currently holds or uses cryptocurrencies and features demographic questions about age, gender, education, and income.

If a CBDC was issued, physical notes would still be provided “for those who want them,” according to the bank. The BoC said it will publish a report summarizing the consultation later this year.

While the consultation does not necessarily mean that a digital Canadian dollar will be created, it is a significant step towards exploring the possibility. Canada is not the only country considering a CBDC, with many central banks worldwide exploring the potential of digital currencies. The BoC’s consultation seeks to ensure that the bank makes an informed decision on the matter, taking into account the needs and desires of Canadians.


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Texas lawmakers propose gold-backed state digital currency

Two Texas lawmakers, Senator Bryan Hughes and Representative Mark Dorazio, have introduced identical bills proposing the creation of a state-based digital currency backed by gold. Each unit of the proposed digital currency would represent a fractional equivalent amount of physical gold held in trust.

The bills, Senate Bill 2334 and House Bill 4903, outline the process for purchasing the proposed digital currency. Once a person purchases a certain amount of digital currency, the comptroller would use the money received to buy an equivalent amount of gold. The purchaser would then receive digital currency equal to the amount of gold purchased by the comptroller. The value of a unit of digital currency must be equal to the value of the appropriate fraction of a troy ounce of gold at the time of the transaction.

According to the bills, the trustee shall maintain enough gold to provide for the redemption in gold of all units of the digital currency that have been issued and are not yet redeemed for money or gold. The bills also state that a fee might be established “at any rate necessary” to cover the costs of administering this chapter.

While the bills have yet to be passed or presented for a vote, they are set to take effect on September 1, 2023. This move comes despite objections from several U.S. lawmakers who are against the introduction of a central bank digital currency (CBDC).

Florida Governor Ron DeSantis recently expressed concerns about CBDCs, stating that they would grant “more power” to the government and provide them “with a direct view of all consumer activities.” Similarly, Republican Senator Ted Cruz introduced a bill to block the Fed from launching a “direct-to-consumer” CBDC, arguing that it is “more important than ever” to ensure U.S. policy on digital currencies protects financial privacy, maintains the dollar’s dominance, and cultivates innovation.

The idea of a state-backed digital currency is not new, with countries such as China and Sweden already testing their own versions of CBDCs. However, the introduction of a gold-backed digital currency by a U.S. state is a unique move. It is unclear how the proposed digital currency would be regulated or how it would affect the current financial system in Texas.

Gold has historically been considered a safe-haven asset and a store of value during times of economic uncertainty. The proposed gold-backed digital currency could provide Texans with an alternative to traditional fiat currencies and may appeal to those who are skeptical of the government’s ability to manage the monetary system. However, it remains to be seen whether the proposed digital currency will gain widespread adoption and whether other states will follow Texas’ lead in introducing their own digital currencies backed by precious metals or other assets.


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Bank of Russia Delays CBDC Pilot Rollout

The Bank of Russia’s central bank digital currency (CBDC) pilot, which was scheduled to begin on April 1, has been delayed indefinitely due to specific legislation only passing through the first reading in the Federal Assembly’s lower house. The legislation is expected to be enacted by early May, according to a report by the state-owned TASS.

The CBDC pilot was initially set to involve 15 private banks, but the number has since been reduced to 13. Some of the employees from these banks, along with one of the country’s largest insurance companies, Ingosstrakh, will become the test participants for CBDC retail payments.

Bank executives have expressed enthusiasm for the project, with the director of innovations at Sinara Bank, Vitaly Kopysov, stating that “the use of smart contracts should reduce the operational load of banks and make the deals transparent, which not only will reduce the chances of the misuse of government and banks’ funds, but ultimately simplify the control over the existing contracts.”

Although the pilot will involve real operations and limited consumers, the general public will be unable to participate in the first stage. The banks will enter the pilot with selected customers, and the Bank of Russia will determine how to scale the digital ruble further following the first stage.

The CBDC pilot was initially scheduled for 2024, but it was moved to an earlier date as the Russian central bank sought an alternative to the SWIFT payments system amid Western economic sanctions against Russia. The digital ruble aims to provide a secure and transparent payment system that reduces the dependence on foreign payment systems and minimizes the risk of financial crimes.

The Bank of Russia has been working on the development of the digital ruble since 2019, and it aims to provide an efficient payment system that can be used for various transactions. The CBDC will be a legal tender that will function similarly to traditional cash, but it will be digital and operate on a blockchain network.

The delay in the CBDC pilot rollout is expected to be a temporary setback, as the Bank of Russia remains committed to implementing the digital ruble. The CBDC will provide a secure and efficient payment system that will benefit the economy and the financial system as a whole.


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UAE’s Central Bank Nears Launch of Digital Dirham

The Central Bank of the United Arab Emirates (CBUAE) is taking significant steps towards the full launch of its central bank digital currency (CBDC) known as the digital dirham. As announced on March 23, the CBUAE has signed an agreement with Abu Dhabi-based G42 Cloud and digital finance services provider R3 to be the infrastructure and technology providers for the CBDC implementation. This is a crucial milestone in the development of the digital dirham and is expected to address the challenges of domestic and cross-border payments, while also promoting financial inclusion and supporting the country’s goal of becoming a cashless society.

The first phase of the CBDC strategy involves the soft launch of “mBridge,” a platform that facilitates CBDC transactions for international trade. The CBUAE is also working on proof-of-concept projects for bilateral CBDC bridges with India, as well as domestic CBDC issuance for both wholesale and retail use. These initiatives are expected to be completed within the next 12 to 15 months, according to the CBUAE’s announcement.

The digital dirham has been in development since 2019, with the CBUAE conducting extensive research and analysis to ensure the successful implementation of the CBDC. The CBUAE has also engaged with various stakeholders, including financial institutions, merchants, and other entities, to gather insights on the requirements and potential benefits of a CBDC.

The digital dirham is expected to bring numerous benefits to the UAE’s economy and financial system. One key advantage is the increased efficiency and speed of domestic and cross-border payments, which will enhance the country’s competitiveness in the global marketplace. The digital dirham is also expected to boost financial inclusion by providing greater access to financial services for underserved populations, such as low-income individuals and small businesses.

Moreover, the digital dirham is expected to reduce the cost and complexity of financial transactions, thereby promoting innovation and entrepreneurship in the UAE. The digital dirham’s transparency and security features will also help combat financial crime and money laundering, which are key priorities for the UAE’s government and financial regulators.

The CBUAE’s partnership with G42 Cloud and R3 is a significant step forward in the development of the digital dirham. G42 Cloud is a leading provider of cloud and artificial intelligence (AI) services in the UAE, while R3 is a global blockchain software firm. The collaboration between the three entities is expected to leverage their respective expertise and technologies to ensure the successful implementation of the digital dirham.

In conclusion, the UAE’s central bank is making significant progress towards the launch of its digital dirham CBDC. The implementation of the digital dirham is expected to bring numerous benefits to the UAE’s economy and financial system, including increased efficiency, financial inclusion, and innovation. The CBUAE’s partnership with G42 Cloud and R3 is expected to be a key driver of the digital dirham’s success, and the future looks promising for the UAE’s digital currency.


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Ted Cruz Introduces Bill to Block Fed CBDC

In a bid to prevent the Federal Reserve from launching a “direct-to-consumer” CBDC, Republican Senator Ted Cruz has introduced a bill aimed at blocking the move. Cruz is concerned that a retail CBDC could be used by the federal government for financial surveillance, and is seeking to protect American citizens’ financial privacy while maintaining the dollar’s dominance and promoting innovation. This is not the first time that Cruz has attempted to block the Fed’s CBDC initiative. He previously introduced a similar bill, along with fellow Republican Senators Braun and Grassley, in March 2022, but it failed to progress beyond the introduction phase.

Meanwhile, the Federal Reserve Bank of New York and several large financial firms have made significant progress on a U.S. dollar CBDC since President Joe Biden signed an executive order entitled “Ensuring Responsible Development of Digital Assets” in March 2022. In November, they participated in a 12-week digital dollar pilot program with Mastercard and SWIFT.

Cruz, Braun, and Grassley are not alone in their opposition to CBDCs. Florida Governor Ron DeSantis has also called on state lawmakers to introduce legislation banning the digital dollar in Florida.

However, proponents of CBDCs argue that they have the potential to revolutionize the way we use money, making transactions faster, cheaper, and more secure. CBDCs could also help to reduce the risks associated with cryptocurrencies, such as volatility and lack of regulation. They could also improve financial inclusion by providing access to banking services to people who are currently underserved by traditional banks.

It remains to be seen whether Cruz’s bill will gain any traction, but it is clear that the debate over CBDCs is far from over. As more countries explore the possibility of launching their own digital currencies, it is likely that we will see increasing calls for regulation and oversight to ensure that CBDCs are developed responsibly and with the best interests of citizens in mind.


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eNaira Adoption Grows Amid Nigeria’s Cash Shortages

Nigeria’s central bank launched its own digital currency, the eNaira, in 2021, and nearly 18 months later, the CBDC is seeing increased adoption in the country. The acute cash shortage in Nigeria is due to the central bank’s decision to replace older banknotes with bigger denominations, which has caused severe shortages in national fiat reserves. In a country where cash accounts for about 90% of transactions, the lack of physical cash has forced Nigerians to turn to the eNaira.

According to a recent Bloomberg report, the value of eNaira transactions has increased by 63% to 22 billion nairas ($47.7 million), indicating a growing adoption of the CBDC. Furthermore, the total number of eNaira wallets has grown more than 12 times compared to October 2022, and is currently at 13 million, as reported by Godwin Emefiele, the governor of the Central Bank of Nigeria.

The demonetization, which reduced the circulating cash supply from 3.2 trillion nairas to 1 trillion nairas, prompted Nigeria to mint over 10 billion eNairas to compensate for the decline. The use of eNaira payouts in government initiatives and social schemes has also contributed to the increase in CBDC adoption.

For developing countries like Nigeria, CBDCs present a way to overcome challenges presented by the fiat economy, including reducing operating costs and strengthening Anti-Money Laundering initiatives. The eNaira, in particular, has emerged as the electronic payment channel of choice for financial inclusion and executing social interventions, according to Emefiele.

In addition to the increased adoption of the eNaira, Nigerians have also been presented with another option for procuring cryptocurrencies. MetaMask’s parent firm ConsenSys recently announced a new MoonPay integration, which allows Nigerians to purchase crypto via bank transfers. This new feature is available within the MetaMask mobile and Portfolio DApp, significantly simplifying buying crypto without using credit or debit cards in Nigeria.

It is clear that the adoption of CBDCs like the eNaira in Nigeria is becoming increasingly important in the face of cash shortages and other economic challenges. The use of digital currencies presents a viable solution to revamp the fiat capabilities of developing nations and to provide greater financial inclusion to citizens. As such, it will be interesting to see how the adoption of eNaira and other CBDCs continues to evolve in Nigeria and beyond.


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RBI and Central Bank of UAE sign MOU on CBDC bridge

The Reserve Bank of India and the Central Bank of UAE have signed a memorandum of understanding (MOU) on collaboration and innovation in financial services, with a focus on central bank digital currency (CBDC) interoperability. The parties will develop a proof-of-concept and pilot program for a CBDC bridge to facilitate remittances and trade, which would reduce costs and increase efficiency of transactions, as well as strengthen economic ties between the two countries.

India and UAE banking officials had discussions in February regarding a rupee-dirham payment system using correspondent banks, which has been under development for a year. The countries currently use US dollars to settle payments. The UAE remains a major source of remittances to India, accounting for 17-18% of the total of around $87 billion, as of July 2022.

India has a domestic digital rupee pilot project with 50,000 users and 5,000 participating merchants, and has been testing its CBDC’s offline functionality. The RBI has also reported that it completed around 800,000 transactions worth $134 million with its wholesale CBDCs.

The UAE launched a nine-part financial transformation program and announced its intention to launch a CBDC for domestic and cross-border use in February. Emirati banks had already participated in the mBridge pilot project, along with banks in Hong Kong, China and Thailand, to use CBDC for cross-border transfers. Additionally, the UAE expects cryptocurrency to “play a major role for UAE trade going forward,” according to the UAE minister of state for foreign trade, Thani Al-Zeyoudi, who spoke at the World Economic Forum in January.

Overall, the MOU between the RBI and Central Bank of UAE will facilitate the development of a CBDC bridge that will enable easier and more cost-effective remittances and trade between India and the UAE. Both countries have been exploring the potential of CBDCs for some time, with India having already launched a domestic digital rupee pilot project and the UAE launching a financial transformation program and mBridge pilot project.


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Iran Completes Pre-Pilot Phase for Digital Rial

Iran’s Central Bank is making progress with its plans to launch a digital version of the national currency, the rial. The Central Bank of Iran (CBI) recently completed the pre-pilot phase for the country’s central bank digital currency (CBDC), according to an official statement by CBI’s research arm, the Monetary and Banking Research Institute (MBRI). The news was announced by Mohammad Reza Mani Yekta, head of the CBI office for supervising payment systems, at the ninth annual conference on electronic banking and payment systems on February 20.

Mani Yekta stated that the pre-pilot phase ended successfully, with valuable achievements. The CBDC pilot will soon be launched in other ecosystems and used by more users. He also noted that the rules governing the digital rial will align with those established for rial banknotes. The CBDC will be distributed among individuals and banks, and its infrastructure will recreate some blockchain features.

Ten banks in Iran have reportedly applied to join the digital rial project, including Bank Melli, Bank Mellat, and Bank Tejarat, which were involved in the experimental phase. All banks and credit institutions in Iran are expected to start offering electronic wallets for the digital currency. The CBDC pilot aims to improve financial inclusion and compete with global stablecoins.

The CBI started planning to launch a CBDC pilot in January 2022, following years of initial research since 2017. The regulator reportedly started rolling out the CBDC pilot in September 2022. Iran’s digital rial project, also known as the “crypto rial,” is pegged to the national currency at a 1:1 ratio. The digital currency runs on a platform known as Borna, which was developed using Hyperledger Fabric, the open-source enterprise blockchain platform established by IBM.

The news comes amid reports that Iranian authorities are preparing to meet with the Bank of Russia’s governor, Elvira Nabiullina, who is expected to visit Iran in the near future. Russia and Iran have reportedly been working together to create a gold-backed stablecoin that would serve as a payment method in foreign trade. While the two projects are separate, they both indicate a trend toward digital currencies being used to facilitate cross-border transactions.


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India tests offline functionality of digital rupee

The Reserve Bank of India (RBI) is testing the offline functionality of its newly-launched central bank digital currency (CBDC), the digital rupee, according to Ajay Kumar Choudhary, the executive director of the RBI. The move comes after the RBI launched the wholesale segment pilot for the digital rupee on November 1, 2022, onboarding 50,000 users and 5,000 merchants for real-world testing.

Since the launch of the wholesale CBDCs, around $134 million worth of transactions have been completed as of February 25, with 800,000 transactions taking place. These figures indicate the growing popularity and potential use cases of CBDCs in India.

The digital rupee is expected to provide numerous benefits, such as reduced transaction costs, increased financial inclusion, and enhanced security features. The RBI aims to provide a digital alternative to the traditional physical currency, making transactions faster, cheaper, and more efficient.

With the offline functionality of the digital rupee being tested, users can continue to make transactions even in areas with poor or no internet connectivity. This is an important feature for a country like India, where internet penetration is still low in certain regions.

The pilot for the digital rupee has been launched in the wholesale segment, which caters to financial institutions and large businesses. However, the RBI plans to roll out the digital currency to the general public in the future.

India is not alone in its efforts to launch a CBDC. Several countries, including China, Sweden, and the United States, are exploring the possibility of introducing their own digital currencies. The rise of CBDCs is expected to have a significant impact on the traditional banking system, as they have the potential to change the way people store, transfer, and access money.

In conclusion, the testing of the offline functionality of the digital rupee is an important step towards the wider adoption of the CBDC in India. The wholesale segment pilot has already shown promising results, and the RBI’s plan to introduce the digital rupee to the general public could revolutionize the country’s financial sector.


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